MARKETFIRST SOFTWARE INC, S-1/A, 2000-09-01

MARKETFIRST SOFTWARE INC
S-1/A, 2000-09-01
PREPACKAGED SOFTWARE

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<PAGE>

As filed with the Securities and Exchange Commission on September 1, 2000
Registration No. 333-35062
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
MARKETFIRST SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C> <C>
Delaware 7372 77-0436821
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
--------------
2061 Stierlin Court
Mountain View, California 94043
(650) 691-6200
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
--------------
Peter R. Tierney
President and Chief Executive Officer
2061 Stierlin Court
Mountain View, California 94043
(650) 691-6200
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
--------------
Copies to:
<TABLE>
<S> <C>
John D. Hudson, Esq. Tracy K. Edmonson, Esq.
Paul A. Rowe, Esq. Tad J. Freese, Esq.
Hewitt & McGuire, LLP Deborah J. Kawamura, Esq.
19900 MacArthur Blvd., Suite 1050 Latham & Watkins
Irvine, California 92612 505 Montgomery Street, Suite 1900
(949) 798-0500 San Francisco, California 94111
(415) 391-0600
</TABLE>

--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
--------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE
<TABLE>
=======================================================================================================
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Number to Offering Price Aggregate Registration
Securities to be Registered be Registered(1) Per Share(2) Offering Price(2) Fee(3)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value... 5,750,000 $9.00 $51,750,000 $13,662
=======================================================================================================
</TABLE>
(1) Includes 750,000 shares which the Underwriters have the option to purchase
to cover over allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(a).
(3) The registration fee was paid in connection with the initial filing of
this registration statement.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.

===============================================================================
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION -- September 1, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Prospectus

, 2000

[MARKETFIRST LOGO]

5,000,000 Shares of Common Stock

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

MarketFirst Software,
Inc.:

. We provide a
comprehensive
e-marketing
solution that
enables
organizations to
execute
interactive
marketing
campaigns over the
Internet.

. MarketFirst
Software, Inc. 2061
Stierlin Court
Mountain View, CA
94043 (650) 691-6200

Proposed Symbol and
Market:

. MKTF/Nasdaq National
Market

The Offering:
. We are offering
5,000,000 shares of
our common stock.

. The underwriters
have an option to
purchase an
additional 750,000
shares from us to
cover over-
allotments.

. This is our initial
public offering of
common stock. We
anticipate that the
initial public
offering price will
be between $7.00 and
$9.00 per share.

. We plan to use the
net proceeds from
this offering for
working capital and
other general
corporate purposes.

. Closing: ,
2000.

------------------------------------------
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<S> <C> <C>
Per Share Total
------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to MarketFirst:
------------------------------------------
</TABLE>

This investment involves risk. See "Risk Factors" beginning on page 8.

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

Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
--------------------------------------------------------------------------------

Donaldson, Lufkin & Jenrette

Dain Rauscher Wessels

SG Cowen

DLJdirect Inc.
<PAGE>

Description of Inside Front Cover:

This page contains a picture of a sphere with a section removed, showing several
layers of the sphere to its core. An arrow with the label "Professional
Services" points to the outer layer of the sphere. An arrow with the label
"Application Hosting" points to next inner layer of the sphere. An arrow with
the label "eMarketing Blueprints" points to the next inner layer of the sphere.
An arrow with the label "e-marketing Platform" points to the core of the sphere,
which also contains the three rainbow lines of the MarketFirst logo. There is
also a smaller sphere overlapping the main sphere. The smaller sphere is labeled
"myMarketFirst.com." The page has the MarketFirst logo in the upper left corner
and the label "eMarketing for eBusiness TM" in the upper right corner. Below the
graphics is the following text:

"MarketFirst's comprehensive e-marketing solution is comprised of the following
offerings:

Our e-marketing software platform is at the core of our solution and provides an
interactive design environment to define, execute and launch automated
Internet-based marketing campaigns. eMarketing Blueprints are pre-built
e-marketing campaign templates based on marketing best practices. MarketFirst's
professional services include our hosted application services and e-marketing
consulting services which manage the integration of technology and enable
customers to focus on the maximum use of e-marketing campaigns to achieve
desired results.

myMarketFirst.com is a destination site where new customers can test
MarketFirst's e-marketing solutions through trial or pay-per-use campaigns."
<PAGE>

You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

TABLE OF CONTENTS
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Page
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Special Note Regarding Forward- Looking Statements....................... 18
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business .................................................................. 35
Management ................................................................ 48
Certain Transactions ...................................................... 59
Principal Stockholders .................................................... 62
Description of Capital Stock .............................................. 65
Shares Eligible for Future Sale ........................................... 68
Underwriting .............................................................. 70
Legal Matters ............................................................. 73
Experts.................................................................... 73
Additional Information..................................................... 73
Index to Financial Statements.............................................. F-1
</TABLE>
<PAGE>

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and the related notes appearing elsewhere
in this prospectus.

MarketFirst Software, Inc.

The increase in the amount of business being transacted over the Internet,
often referred to as "on-line commerce," is generating tremendous competition
for on-line market share and on-line customers. Businesses are spending large
amounts of money to build web sites and on-line business operations that will
attract customers, to advertise those web sites and on-line businesses and
effectively position them in the marketplace, to generate customer orders and
revenues from on-line traffic and to retain existing on-line customers. At the
same time, marketing is shifting from off-line one-directional mass marketing
programs to interactive, dynamic and personalized on-line marketing tactics and
strategies. In other words, instead of sending printed marketing materials
through the mail, marketing can now be accomplished by targeting customers
based on their responses through two-way communications over the Internet.

In addition, an increasing number of organizations are using the power, reach
and low cost benefits of the Internet to outsource the management of business
applications through hosted services. In a hosted environment, the network and
hardware infrastructures, which include the basic computer facilities,
equipment and installation, are provided by a third party at a central, off-
site location, and the software applications are accessed remotely through web
browsers. We believe that e-marketing represents a significant hosted
application market opportunity. A hosted e-marketing solution can allow
organizations to more quickly capture market opportunities, a critical
differentiator in today's competitive on-line markets. In addition, marketing
departments are often overwhelmed by the demands and growth of on-line commerce
and welcome a solution that requires minimal initial personnel and capital
resource commitments.

Our comprehensive e-marketing solution is comprised of four core components:
an e-marketing software platform; software templates for e-marketing campaigns
called eMarketing Blueprints; a hosted service; and strategic e-marketing
consulting and implementation services. We believe our solution enables
organizations to:

. Accelerate "Time-to-Value." Our solution helps our customers quickly
launch effective e-marketing campaigns to capture new market
opportunities.

. Focus on e-Marketing. By providing a hosted service, we allow our
customers to focus on creating more effective, innovative and targeted
marketing messages and campaigns.

. Implement High Quality e-Marketing Campaigns. We believe the knowledge
and experience of our consulting organization can assist our customers in
designing and implementing more effective e-marketing campaigns.

. Improve Personalized Interactive Relationships. Our solution allows
organizations to personalize their e-marketing campaigns based on
authorized information generated through on-line interaction with their
customers or prospects.

3
<PAGE>

. Centralize e-Marketing Control. With our solution, an organization's
marketing campaigns can be centrally managed through its web site.

. Analyze e-Marketing Performance and Feedback Quickly. Our solution
provides important and timely insight on the effectiveness of e-marketing
campaigns.

We offer our comprehensive e-marketing solution as a hosted service or as a
traditional software license and through our destination site,
myMarketFirst.com. We have over 40 customers, including such recognized
industry leaders as General Electric Company, GTE, NorthPoint Communications,
Quantum Corporation and Rhythms NetConnections. As a result of our recent
acquisition of FusionDM, we have added additional customers such as 3Com, 21st
Century Insurance and UnitedHealthcare. We primarily utilize a direct sales
force to market our products and services in the United States. We have sales
offices in Mountain View, California; Seal Beach, California; Bellevue,
Washington; Dallas, Texas; Atlanta, Georgia; Natick, Massachusetts; Iselin, New
Jersey; Reston, Virginia; and as of July 2000, Middlesex, United Kingdom.

Our objective is to become the leading provider of comprehensive hosted e-
marketing software solutions. The key elements of our strategy include
capitalizing on our leading market position, leveraging the growing demand for
hosted applications, expanding our strategic e-marketing consulting services,
developing key strategic partnerships, targeting international markets, and
utilizing myMarketFirst.com as an education and distribution channel.

Acquisition of FusionDM

On July 20, 2000, we acquired Times Direct Marketing, Inc., also known as
FusionDM, a direct marketing consulting agency. FusionDM provides marketing
professional services that combine Internet technology services with
traditional marketing services such as strategic consulting, creative services,
media planning and database marketing. We believe these services will augment
our e-marketing campaign design and execution expertise, enhance our e-
marketing consulting services and provide us with new sales and marketing
opportunities. At the same time, we believe our solution will provide new
service offerings for the customer base of FusionDM. FusionDM had revenues of
$2.2 million in 1998, $5.5 million in 1999 and $4.0 million for the six months
ended June 30, 2000.

We have accounted for the acquisition as a purchase. Under the terms of the
acquisition agreement, we will provide the following consideration:

. $2.5 million, which was paid at the close of the acquisition and
additional cash consideration to be paid after the end of calender year
2000 and 2001, subject to the achievement of certain operating objectives
of FusionDM; and

. Up to 1,742,160 shares of our common stock consisting of 871,080 shares
issued at the close of the acquisition, with the remaining 871,080 shares
to be placed in escrow to be released ratably after the end of each of
the three calender years 2000, 2001 and 2002, subject to the achievement
of certain operating objectives of FusionDM.

Cash and common stock issued subject to these contingencies will be recorded
as additional acquisition costs based on the fair value of the consideration on
the dates issued. The operating objectives relate to FusionDM achieving certain
defined revenue levels in each of the years, subject to the requirement of not
incurring operating losses. The number of shares to be released at the end of
each year cannot exceed 290,360 shares. The targeted cash contingent
consideration of $1,250,000 to be released at the end of 2000 and 2001 may be
increased should FusionDM achieve revenues exceeding the target objectives.

4
<PAGE>

The Offering

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<C> <S>
Common stock offered....................... 5,000,000 shares

Common stock to be outstanding after this
offering.................................. 28,869,085 shares

Use of proceeds............................ We intend to use the net proceeds
for working capital and other
general corporate purposes. See
"Use of Proceeds."

Proposed Nasdaq National Market symbol..... MKTF
</TABLE>

Unless otherwise indicated, all information in this prospectus:

. assumes no exercise of the underwriters' option to purchase an over-
allotment of up to 750,000 additional shares of our common stock;

. gives effect to a one-for-two and one-half reverse split of our common
stock effected in April 2000;

. gives effect to the conversion of all shares of our preferred stock
outstanding into an aggregate of 15,812,117 shares of common stock, which
will occur prior to the closing of this offering;

. gives effect to the exercise of an outstanding warrant into 301,719
shares of Series D preferred stock at an exercise price of $1.065 per
share and conversion of these shares into 120,688 shares of common stock
prior to the close of this offering;

. gives effect to the issuance of 1,666,667 shares of common stock to be
issued upon the assumed conversion of promissory notes which were issued
in connection with our recent bridge financing. See "Use of Proceeds,"
and

. does not include the repayment of the interest on the promissory notes in
the bridge financing, which is convertible into shares of common stock at
the option of the lenders. Assuming this offering closes on October 1,
2000:

. if the lenders elect to have the interest on all of the notes repaid,
$157,192 of the proceeds of this offering would be used to repay the
lenders; and

. if the lenders elect to have the interest on all of the notes
converted, an additional 26,198 shares would be outstanding on the
close of this offering.

The number of shares of common stock to be outstanding after the offering is
based on 6,269,613 shares of our common stock outstanding as of July 31, 2000.
The number of shares of our common stock to be outstanding after this offering
excludes:

. 3,174,081 shares of common stock issuable upon exercise of outstanding
options as of July 31, 2000, with a weighted average exercise price of
$4.58 per share;

. 28,000 shares of common stock issuable upon the exercise of a warrant
with an exercise price equal to 85% of the initial public offering price;

. Up to 871,080 shares of common stock which may be released from escrow in
connection with our acquisition of FusionDM;

. 333,333 shares of common stock issuable upon the exercise of the warrants
issuable in connection with our recent bridge financing, with an exercise
price of $0.01 per share; and

. 4,800,000 shares reserved for future issuance under our stock plans upon
the close of this offering.

The actual number of warrants and shares that we will issue in connection
with our recent bridge financing depends on several factors including the
closing date of this offering. For additional information, see "Certain
Transactions--Bridge Financing."

5
<PAGE>

Summary Financial Data
(In thousands, except per share data)

The following tables summarize our financial data. The unaudited pro forma
information in the statement of operations data gives effect to the acquisition
of FusionDM as if the acquisition had occurred on January 1, 1999. The
unaudited pro forma basic and diluted net loss per share has been calculated
assuming the conversion of all shares of our preferred stock outstanding into
an aggregate 15,812,117 shares of common stock and the exercise and conversion
of an outstanding Series D preferred stock warrant into 120,688 shares of
common stock, as if the shares had converted immediately upon issuance.

<TABLE>
<CAPTION>
Pro Forma
----------------------
Six
Six Months Ended Months
Years Ended December 31, June 30, Year Ended Ended
-------------------------- ----------------- December 31, June 30,
1997 1998 1999 1999 2000 1999 2000
------- ------- -------- ------- -------- ------------ ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software hosting....... $ -- $ -- $ 339 $ 44 $ 1,027 $ 339 $ 1,027
Software licenses...... -- 20 369 62 567 369 567
Professional services.. -- 17 556 203 1,801 6,026 5,782
------- ------- -------- ------- -------- -------- --------
Total revenues........ -- 37 1,264 309 3,395 6,734 7,376
------- ------- -------- ------- -------- -------- --------
Gross profit............ -- 33 792 215 982 3,446 3,168
Operating loss.......... (1,268) (6,661) (10,301) (4,783) (11,575) (14,013) (13,375)
Net loss................ $(1,270) $(6,569) $ (9,998) $(4,712) $(11,323) $(13,512) $(13,307)
Pro forma basic and
diluted net loss per
share.................. $ (0.68) $ (0.56)
======== ========
Shares used in pro forma
per share computation.. 14,677 20,328
======== ========
</TABLE>

The pro forma column in the table below reflects the following:

. payment of $2.5 million cash and the issuance of 871,080 shares of common
stock in connection with our recent acquisition of FusionDM, and the
related pro forma combining adjustments;

. the issuance of promissory notes in the aggregate principal amount of
$10.0 million in our bridge financing; and

. the conversion of our outstanding preferred stock and a warrant to
purchase Series D preferred stock into 15,932,805 shares of common stock
immediately prior to the completion of this offering.

6
<PAGE>

The pro forma as adjusted column in the table below reflects the following:

. the estimated $35,675,000 net proceeds from the sale of the 5,000,000
shares of common stock offered by this prospectus, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us; and

. the issuance of 1,666,667 shares of common stock to be issued upon the
assumed conversion of the promissory notes which were issued in
connection with our bridge financing. See "Use of Proceeds."

<TABLE>
<CAPTION>
As of June 30, 2000
------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments................................... $ 735 $ 8,649 $44,324
Working capital................................ 996 (3,170) 42,505
Total assets................................... 9,513 35,017 70,692
Redeemable convertible preferred stock and
warrants...................................... 30,921 -- --
Total stockholders' equity (deficit)........... (25,695) 15,547 61,222
</TABLE>

Corporate Information

We were incorporated in the State of Delaware on August 8, 1996 as Cybernate
Technology, Inc. and changed our name to MarketFirst Software, Inc. on
September 4, 1997. Our executive offices are located at 2061 Stierlin Court,
Mountain View, California 94043, and our telephone number is (650) 691-6200.
Unless otherwise indicated, all information in this prospectus assumes the
effectiveness of our amended and restated certificate of incorporation in the
State of Delaware upon the completion of this offering.

7
<PAGE>

RISK FACTORS

You should carefully consider the risks and uncertainties described below
before buying shares in this offering. These risks and uncertainties are not
the only ones facing our company. Additional risks and uncertainties that we
are unaware of or currently deem immaterial may also become important factors
that may harm our business. The trading price of our common stock could decline
due to any of these risks and uncertainties, and you may lose part or all of
your investment.

Risks Related to Our Business

Because of our limited operating history and the emerging nature of our
industry, any predictions about our future revenues and expenses may not be as
accurate as they would be if we had a longer business history.

We were incorporated in August 1996 and first recorded revenues in June 1998.
Our limited operating history makes financial forecasting and evaluation of our
business difficult. Since we have limited financial data, any predictions about
our future revenues and expenses may not be as accurate as they would be if we
had a longer business history. Because of the emerging nature of the e-
marketing industry, we cannot readily determine trends that may emerge in our
market or affect our business. The revenue and income potential of the e-
marketing industry and our business are unproven.

We have a history of losses, we expect continuing losses, and we may never
achieve profitability.

We incurred net losses of $10.0 and $11.3 million in 1999 and for the six
months ended June 30, 2000, and we had an accumulated deficit of $29.4 million
as of June 30, 2000. In addition, as a combined company with FusionDM, on a pro
forma basis we incurred net losses of $13.5 million and $13.3 million in 1999
and for the six months ended June 30, 2000. Although our revenues grew rapidly
in 1999, we cannot assure you that our revenues will continue to grow or that
we will achieve or maintain profitability in the future. In addition, we expect
that our expenditures for sales and marketing, research and development and
general administration will increase significantly in the future. Accordingly,
we will need to significantly increase our revenues to achieve and maintain
profitability, which we may be unable to do.

We expect our operating results to fluctuate, and our stock price may decline
if we fail to meet the expectations of analysts and investors.

We expect that our revenues, margins and operating results will fluctuate
significantly due to a variety of factors, many of which are outside of our
control. These factors include, among others:

. varying size, timing and contractual terms of orders for our products and
services;

. timing and significance of the commercial release of new or enhanced
products and services by us and our competitors;

. demand for our e-marketing products and services and price competition;

. changes in our operating expenses as we expand operations; and

. general economic factors.

As a result, our operating results are difficult to predict and may not meet
the expectations of securities analysts or investors. If this occurs, the price
of our common stock would likely decline.

8
<PAGE>

We are implementing a new business model involving a web-hosted solution, and
this model may not be successful.

The web-hosted business model is unproven for us, and we may be unsuccessful
in implementing it. Historically, e-marketing solutions have been offered
primarily on a license basis. In January 1999, we began to market our web-
hosted solution, which is based on a monthly subscription fee. As of July 31,
2000, we have sold our web-hosted solution to over 30 customers. Revenues from
our web-hosted solution represented 27% and 30% of total revenues for the year
ended December 31, 1999 and the six months ended June 30, 2000. Our efforts to
develop this business will also require substantial management time and
attention. In addition, current license customers and prospective customers may
not accept our hosting fee structure, and our revenue and gross margins may
decline or become less predictable as a result.

If we fail to expand our sales, marketing and customer support activities, we
will be unable to increase revenues.

If we do not successfully expand our sales, marketing and customer support
activities, we cannot increase revenues. The complexity of our products and
services requires us to have highly trained sales, marketing and customer
support personnel to educate prospective customers regarding the use and
benefits of our products and services, and provide effective customer support.
Consequently, we have considerable need to recruit, train and retain qualified
staff. Any delays or difficulties we encounter in these staffing efforts could
impair our ability to attract new customers and to enhance our relationships
with existing customers. This in turn would adversely impact the timing and
extent of our revenues. Because the majority of our sales, marketing and
customer support personnel have recently joined MarketFirst and have limited
experience working together, our sales, marketing and customer support groups
may not be able to compete successfully against bigger and more experienced
groups of our competitors.

Our business could suffer if we lose the services of key employees or if we are
unable to attract and retain additional qualified personnel.

Our future success depends to a significant degree on the skills, experience
and efforts of our key employees. In particular, we depend upon the continued
services of Peter Tierney, our President and Chief Executive Officer, and
Anurag Khemka, our Chief Technology Officer and co-founder, whose vision for
our company, knowledge of our business and technical expertise would be
extremely difficult to replace. If we lose any of our key employees, our
ability to expand our business could be compromised, and we could be materially
adversely affected. In addition, we have not obtained life insurance benefiting
MarketFirst on any of our key employees.

Our business will also suffer if we are unable to continue to attract and
retain qualified personnel, particularly those with sales, marketing and
technical expertise. Competition for such personnel is intense, especially in
the San Francisco Bay Area. Many of the companies competing for these
individuals have more established businesses and can offer greater financial
and other incentives to qualified prospects. In addition, we expect to face
greater difficulty attracting qualified personnel with equity incentives as a
public company than we did as a privately held company. We cannot assure you
that we will continue to attract or retain qualified personnel.

If we fail to execute our strategy to expand into new markets, the market for
our services and our potential revenue growth will be limited.

The majority of our e-marketing customers to date have been on-line business-
to-consumer retailers. We intend to expand our presence among customers in
other consumer markets and in markets where the customers are businesses rather
than consumers. If this strategy fails, the market for our services and our
potential revenue growth will be limited. We have limited experience in these
markets and may encounter obstacles that we have not anticipated.

9
<PAGE>

If we are unable to manage our growth effectively, we may not be able to
successfully implement our business plan.

We have grown rapidly, with total revenues increasing from $37,000 in 1998 to
$1.3 million in 1999 and $3.4 million in the six months ended June 30, 2000.
Our ability to successfully implement our business plan requires effective
planning and management of our future growth. Since we began operations, we
have significantly increased the size of our operations and our operating
expenses. The number of our employees has increased from 50 as of December 31,
1998 to 76 as of December 31, 1999 to 222 at July 31, 2000, including 63
employees as a result of the FusionDM acquisition. We expect to continue to
hire new employees at a rapid pace. This growth has placed, and we expect that
any future growth will continue to place, a significant strain on our
management, systems and other resources. To manage the anticipated growth of
our operations, we may be required to improve existing and implement new
operational, financial and management information controls, reporting systems
and procedures. Any failure to manage growth effectively could negatively
affect the quality of our products and services, our ability to respond to
customers and retain key personnel and our business generally.

The data center for our hosted applications is located at facilities provided
by a third party, and if this party is unable to adequately protect the data
center, our reputation may be harmed and we may lose customers and revenues.

Under an Internet hosting agreement with Exodus Communications, all of our
servers for our hosted applications are maintained at Exodus Communications'
data center. This data center is critical to our ongoing hosting operations.
Our business depends on Exodus Communications' ability to protect the data
center from damage or interruption from human error, hardware failure, break-
ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. If Exodus Communications is unable to adequately protect and maintain
the operations of the data center and information is lost or our ability to
deliver our services is interrupted, our reputation may be harmed, and we may
lose customers and revenues.

We may pursue acquisitions that could dilute our existing stockholders, cause
us to incur significant expenses or otherwise harm our business, and we may not
be able to successfully integrate the acquisitions that we complete.

We expect to continue to seek selective acquisitions of complementary
businesses as an element of our growth strategy. It is possible that these
acquisitions could have an adverse effect upon our operating results,
particularly in the quarters immediately following the completion of such
acquisitions, while the operations of the acquired entities are being
integrated into our operations. Acquisitions involve risks that could cause our
actual growth to differ from our expectations. For example:

. We may not be able to successfully integrate acquired businesses in a
timely manner. We may also incur substantial costs, delays or other
operational or financial problems during the integration process and our
operating results could be adversely affected during the integration
process.

. We may not be able to identify suitable acquisition candidates or to
complete acquisitions on favorable terms.

. To finance any acquisitions, it may be necessary for us to raise
additional funds through public or private equity or debt financings.
Additional funds may not be available on terms that are favorable to us,
if at all, and, in the case of equity financings, may result in dilution
to our stockholders.

10
<PAGE>

As a result of our recent acquisition of FusionDM, the size of our
organization increased significantly, and we may have problems managing
disparate corporate cultures. Moreover, we expect a significant portion of our
future revenues to come from more traditional marketing services, an area in
which we have had limited experience to date. If we are unable to retain
FusionDM's customers and key personnel or manage the operation and integration
of FusionDM with our existing operations, our business could be materially
harmed. In addition, we cannot assure you that our existing customers will be
interested in the services currently offered by FusionDM or that FusionDM's
existing customers will be interested in the services we currently provide.

If any of the third party technologies we use become unavailable to us, we will
not be able to operate our business until equivalent technology can be
obtained.

We are highly dependent on technologies we license from Oracle, Sun
Microsystems and Microsoft, which enable us to send e-mail through the Internet
and allow us to offer a variety of targeted marketing capabilities. In
addition, our market is evolving, and we may need to license additional
technologies to remain competitive. However, we may not be able to license
these technologies on commercially reasonable terms or at all. Our inability to
obtain any of these licenses or the loss of existing licenses could delay the
development of our services until equivalent technology can be identified,
licensed or developed and integrated, which could materially adversely affect
us.

If we are unable to safeguard the confidential information in our data
warehouse, our reputation may be harmed and we may be exposed to liability.

We currently retain highly confidential customer information in a secure data
warehouse. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this data warehouse. If any
compromise or breach of security were to occur, it could harm our reputation
and expose us to possible liability. Any unauthorized access to our data
warehouse could result in the misappropriation of confidential customer
information or cause the interruption of our services. It is also possible that
one of our employees could attempt to misuse confidential customer information,
exposing us to liability. In addition, our reputation may be harmed if we lose
customer information maintained in our data warehouse due to systems
interruptions or other reasons.

Activities of our customers could damage our reputation or give rise to legal
claims against us.

Our customers' promotion of their products and services may not comply with
federal, state and local laws. We cannot predict whether our role in
facilitating these marketing activities would expose us to liability under
these laws. Any claims made against us could be costly and time-consuming to
defend. If we are exposed to this kind of liability, we could be required to
pay substantial fines or penalties, redesign our services, discontinue some of
our services or otherwise expend resources to avoid liability.

Our services involve the transmission of information over the Internet. Our
services could be used to transmit harmful applications, negative messages,
unauthorized reproduction of copyrighted material, inaccurate data or computer
viruses to end-users in the course of delivery. Any transmission of this kind
could damage our reputation or could give rise to legal claims against us. We
could spend a significant amount of time and money defending against these
legal claims.

We may be unable to protect our proprietary technology rights.

Our success depends to a significant degree upon the protection of our
software and other proprietary technology rights. We rely on trade secret,
copyright and trademark laws and confidentiality agreements with employees and
third parties, all of which offer only limited

11
<PAGE>

protection. We have no patented technology that would preclude or inhibit
competitors from entering our market. We also cannot assure you that our
competitors will not independently develop technologies that are substantially
equivalent or superior to our technologies. The reverse engineering,
unauthorized copying or other misappropriation of our proprietary technology
could enable third parties to benefit from our technology without paying us for
it. This could have a material adverse effect on us. Legal proceedings to
enforce our intellectual property rights could divert the time and attention of
management, be expensive and involve uncertainty of success.

Claims by other companies that our products infringe their proprietary rights
could adversely affect our business.

From time to time, we may have disputes over rights and obligations
concerning intellectual property. If any of our products are alleged to violate
proprietary rights of third parties, we may be required to develop non-
infringing technology or enter into licenses, which might not be available on
acceptable terms, or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective basis, our
business could be significantly harmed.

Our business could be adversely affected if our products fail to perform
properly.

Software products as complex as ours may contain undetected errors, or bugs,
which result in product failures, or otherwise fail to perform in accordance
with customer expectations. Our products may be particularly susceptible to
bugs or performance degradation because of the emerging nature of Internet
technologies and the stress that may be placed on our products by the full
deployment of our products over the Internet. Product performance problems
could result in loss of or delay in revenues, loss of market share, failure to
achieve market acceptance, diversion of development resources, or injury to our
reputation, any of which could have a material adverse effect on us.

We are recording a significant amount of deferred stock-based compensation
relating to recent stock option grants. The amortization of this deferred
compensation will result in a material charge to our earnings over the next
four years.

For 1999 and the six months ended June 30, 2000, we recorded deferred stock-
based compensation, net of forfeitures, of $2.8 million and $7.0 million.

Amortization of stock-based compensation represents an expense associated
with the amortization of the difference between the deemed fair market value of
common stock at the time of an option grant and the option exercise price.
Stock-based compensation is amortized over the life of the options which is
generally four years. The amortization of stock-based compensation will result
in a charge to our earnings over the next four years, which will harm our
operating results. For 1999 and the six months ended June 30, 2000, we recorded
stock-based compensation charges of $820,000 and $2.2 million. As of June 30,
2000, $6.8 million of deferred stock-based compensation remains and will be
amortized to expense over the next four years.

Risks Related to Our Industry

If the delivery of our e-mails is limited or blocked, our customers may
discontinue the use of our services, thereby harming our business.

Our business model relies on our ability to deliver e-mails to recipients
over the Internet through Internet service providers, commonly referred to as
ISPs, and to recipients in major corporations. In particular, a significant
percentage of our e-mails is sent to recipients who use America Online. We do
not have, and we are not required to have, an agreement with America Online to
deliver e-mails to their customers. However, America Online uses a proprietary
set of technologies to handle and

12
<PAGE>

deliver e-mail and the value of our services will be reduced if we are unable
to provide e-mails compatible with these technologies. America Online and other
ISPs are able to block unwanted messages to their users. In addition, certain
currently available Internet browsers allow users to modify their browser
settings to return unwanted e-mails. If these companies or individual users
limit or halt the delivery of our e-mails, or if we fail to deliver e-mails in
such a way as to be compatible with these companies' e-mail handling
technologies, demand for our products could decrease, which would have a
material adverse effect on us.

Our business will be harmed if we fail to keep pace with rapid technological
changes.

To be competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our products and services. The
Internet and the e-marketing industry are characterized by rapid technological
change, changes in user and customer requirements and preferences, frequent new
product and service introductions and the emergence of new industry standards
and practices. The evolving nature of the Internet could render our existing
proprietary technology and systems obsolete. Our success will depend, in part,
on our ability to develop, license or acquire leading technologies useful in
our business, enhance our existing products and services, develop new products
and services and technology that address the increasingly sophisticated and
varied needs of our current and prospective users, and respond to technological
advances and emerging industry and regulatory standards and practices in a
cost-effective and timely manner. Our ability to remain technologically
competitive may also require substantial expenditures and lead-time. Our
failure to keep pace with technological changes in our industry could have a
material adverse effect on us.

If businesses and consumers fail to accept e-marketing, demand for our services
may not develop.

The market for e-marketing is new and rapidly evolving, and our business will
be harmed if sufficient demand for our products and services does not develop
as anticipated. If the market for e-marketing software does not grow as quickly
or become as large as we anticipate, our revenues will not increase as
anticipated. Demand for e-marketing, including our products and services, may
not materialize because:

. businesses that have already invested substantial resources in other
methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods;

. businesses may not understand the benefits of using our products and
services;

. consumers and businesses may choose not to accept e-marketing messages;

. businesses may elect not to engage in e-marketing because consumers may
confuse permission-based e-mail with unsolicited commercial e-mail; and

. the effectiveness of direct marketing through the use of e-mails may
diminish significantly if the volume of direct marketing saturates
consumers.

Intense competition could reduce our market share and harm our business.

The market for Internet-based e-marketing solutions is becoming intensely
competitive. If we are unable to compete effectively, we will be materially
adversely affected. Some of our current and potential competitors have greater
name recognition and substantially greater financial, technical, marketing and
other resources than we do. Therefore, they may be able to respond more quickly
than we can to new or changing opportunities, technologies, standards or
customer requirements.

In addition, we expect that new competitors will enter the market with
competing products and services as the size and visibility of the market
opportunity increases. We also expect that competition will increase as a
result of consolidations and formations of alliances among industry

13
<PAGE>

participants. Increased competition could result in reduced market share,
pricing pressures, reduced margins and failure of our products and services to
achieve or maintain market acceptance, all of which could harm our business.

Our business will be adversely affected if Internet solutions are not widely
adopted.

Because our products and services address the emerging market for Internet
marketing solutions, our future success depends in part upon the widespread
adoption of the Internet as a primary medium for commerce and business
applications. The failure of this market to develop, or a delay in the
development of this market, would have a material adverse effect on us. The
Internet has experienced, and is expected to continue to experience,
significant user and traffic growth, which has, at times, caused user
frustration with slow access and download times. Our success depends, in part,
on the Internet infrastructure, which may not be able to support the demands
placed on it by the continued user and traffic growth. Changes in, or
insufficient availability of, telecommunications services to support the
Internet could also result in slower response times and adversely affect usage
of the Internet generally. Moreover, critical issues concerning the commercial
use of the Internet, such as security, reliability, cost, accessibility,
taxation of e-commerce and quality of service, remain unresolved and may
negatively affect the growth of Internet use or the attractiveness of commerce
and business communication over the Internet. For example, the Internet could
suffer declines in its viability due to delays in the development or adoption
of new standards and protocols to handle increased activity or due to increased
government regulation and taxation of Internet commerce. Our business,
financial condition and results of operations would be seriously harmed if:

. use of the Internet, the Web and other on-line services does not continue
to increase or increases more slowly than expected;

. the infrastructure for the Internet, the Web and other on-line services
does not effectively support expansion that may occur; or

. the Internet, the Web and other on-line services do not become a viable
commercial marketplace, which would inhibit the development of electronic
commerce and of the need for our e-marketing products and services.

Our business is subject to government regulation of the Internet and other
legal uncertainties, which could negatively impact our operations.

Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. Recently, various states have
enacted, and other states have proposed, legislation to regulate or prohibit
unsolicited commercial e-mail. In addition, legislation is pending on the
federal level and certain countries around the world have enacted prohibitions
or regulations restricting the sending of unsolicited commercial e-mail. We do
not send unsolicited commercial e-mail and, where possible, we prohibit our
customers from doing so contractually. Nonetheless, there is a risk that these
new laws or regulations could impair our customers' marketing efforts and
reduce the demand for our products and services. Moreover, due to the increased
use of the Internet, it is likely that additional laws and regulations will be
adopted, covering issues such as privacy, pricing, content, copyrights,
distribution, taxation, antitrust, characteristics and quality of services and
consumer protection. The adoption or modification of laws or regulations may
impair the growth of the Internet or e-marketing, which would, in turn, harm
our business.

Privacy concerns and legislation may limit the information our customers can
gather, which could reduce the demand for our products and services.

Privacy concerns may cause Internet users to resist providing personal data
or avoid web sites that track the Internet behavioral information necessary to
support on-line profiling capabilities. Even

14
<PAGE>

the perception of security or privacy concerns, whether or not valid, may have
a similar effect. The European Union recently adopted a directive addressing
data privacy that may limit the collection and use of certain information
regarding Internet users. This directive may limit our customers' ability to
target advertising or collect and use information in certain European
countries. In addition, legislative or regulatory requirements may heighten
these concerns if businesses must notify web site users that the data captured
after visiting their web sites may be used to direct product promotion and
advertising to that user. Other countries and political entities, such as the
European Union, have adopted these types of restrictions. The United States may
adopt similar legislation or regulatory requirements. The Federal Trade
Commission and several states are investigating the use by Internet companies
of personal information. If privacy legislation is enacted or consumer privacy
concerns are not adequately addressed, our business could be harmed.

Risks Relating to this Offering

The price of our common stock may be volatile, and you may not be able to sell
your shares at or above the offering price.

Prior to this offering, our common stock has not been publicly traded, and an
active trading market may not develop or be sustained after this offering. The
initial public offering price will be determined by negotiations between the
representatives of the underwriters and us. In addition, you may not be able to
sell your shares at or above the offering price. The stock markets have in
general, and with respect to Internet-related technology companies in
particular, recently experienced extreme stock price and volume volatility,
often unrelated to the financial performance of particular companies. The price
at which our common stock will trade after this offering is likely to also be
highly volatile and may fluctuate substantially due to factors such as the
following:

. actual or anticipated fluctuations in our operating results;

. changes in or our failure to meet securities analysts' expectations;

. announcements of technological innovations;

. introduction of new products and services by us or our competitors;

. conditions and trends in the Internet and other technology industries;

. future sales of equity or debt securities; and

. general economic and market conditions.

Our executive officers, directors and major stockholders will retain
significant control over us after this offering, which may lead to conflicts
with other stockholders over corporate governance matters.

After this offering, our executive officers, directors and current holders of
5% or more of our outstanding common stock will, in the aggregate, own
approximately 62% of our outstanding common stock. These stockholders would be
able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
delay, deter or prevent a change in our control and may make some transactions
more difficult or impossible to complete without the support of these
stockholders.

Substantial sales of our common stock into the market in the near future may
cause the market price of our common stock to drop significantly.

Sales in the market of a substantial number of shares of our common stock
after the offering could adversely affect the market price of our common stock
and could impair our ability to raise

15
<PAGE>

capital through the sale of additional equity securities. On completion of this
offering, we will have 28,869,085 shares of common stock outstanding, or
29,619,085 shares if the underwriters' option to purchase additional shares is
exercised in full. The 5,000,000 shares sold in this offering, which will be
5,750,000 shares if the underwriters' option to purchase additional shares is
exercised in full, will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by our
"affiliates" as that term is defined in Rule 144 of the Securities Act. The
remaining 23,869,085 shares of our common stock outstanding on completion of
this offering will be "restricted securities" as that term is defined in Rule
144.

Substantially all of the holders of our common stock and stock options are
subject to agreements that limit their ability to sell common stock. These
holders cannot sell or otherwise dispose of any shares of common stock for a
period of at least 180 days after the date of this prospectus without the prior
written approval of Donaldson, Lufkin & Jenrette Securities Corporation.
However, if the average price of our shares appreciates by a specified amount
following the date of this prospectus, those holders who are not officers of
MarketFirst may be eligible to sell up to 25% of their shares either 90 days
after the date of this prospectus or on the second trading day following the
release of our next quarterly financial statements, whichever day comes later.
Under these agreements, such holders may also be eligible to sell an additional
25% of their shares 135 days after the date of this prospectus if the average
price of our shares continues to equal or exceed the targeted amount. When
these agreements expire, all of the shares of common stock and the shares
underlying the options will become eligible for sale, in most cases only
pursuant to the volume, manner of sale and notice requirements of Rule 144. See
"Shares Eligible for Future Sale" and "Underwriting."

After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock plans.
Based upon the number of shares subject to outstanding options currently
reserved for issuance under both of these plans, this registration statement
would cover approximately 7,974,081 shares. Shares registered under the
registration statement will generally be available for sale in the open market
immediately after the 180-day lock-up agreements expire.

In addition, some of our stockholders have registration rights with respect
to approximately 18,152,917 shares of common stock and common stock
equivalents. Registration of these registrable securities under the Securities
Act of 1933 would result in those shares becoming freely tradeable without
restriction under the Securities Act of 1933. See "Description of Capital
Stock--Registration Rights" for a description of our outstanding registration
rights.

You will experience immediate and substantial dilution upon completion of this
offering.

The initial public offering price of the common stock is substantially higher
than the pro forma net tangible book value per share of our outstanding common
stock. As a result, you will incur immediate and substantial dilution of $6.36
per share based upon an assumed initial public offering price of $8.00 per
share. In the event we issue additional shares of common stock in the future,
you may experience further dilution. Furthermore, we have issued options to
purchase common stock at prices significantly below the initial public offering
price. To the extent such options are exercised, you will experience further
dilution.

We plan to adopt anti-takeover provisions that could affect the market price of
our common stock or our ability to sell our business.

Certain provisions of our amended and restated certificate of incorporation
and our bylaws, which will be in effect upon the closing of this offering,
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. Upon the closing of this offering, our
board of directors will have the authority to issue up to five million shares
of preferred

16
<PAGE>

stock. Our board of directors can fix the price, rights, preferences,
privileges and restrictions of the preferred stock without any further vote or
action by our stockholders.

The issuance of shares of preferred stock may delay or prevent a change in
control transaction. As a result, the market price of our common stock and the
voting and other rights of our stockholders may be adversely affected. The
issuance of preferred stock may result in the loss of voting control to other
stockholders. We have no current plans to issue any shares of preferred stock.

Our charter documents also contain other provisions which may discourage,
delay or prevent a merger or acquisition, including:

. only one of the three classes of directors is elected each year;

. our stockholders have no right to remove directors without cause;

. our stockholders have no right to act by written consent;

. our stockholders have no right to call a special meeting of stockholders;
and

. stockholders must comply with advance notice requirements to nominate
directors or submit proposals for consideration at stockholder meetings.

Our management has broad discretion over use of the proceeds from this offering
and may use the proceeds in ways with which you do not agree.

The net proceeds of this offering are estimated to be approximately
$35,675,000 million after deducting the underwriting discounts and commissions
and estimated offering expenses payable by us. Our management will retain broad
discretion as to the allocation of some of the proceeds of this offering and
may apply the proceeds in ways with which you do not agree. The failure of
management to apply these funds effectively could materially harm our business.

17
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. All forward-looking statements contained in this prospectus are
subject to numerous risks and uncertainties. Actual events or results may
differ materially. In evaluating these statements you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We are under no duty
to update any of the forward-looking statements after the date of this
prospectus.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of 5,000,000 shares of common
stock we are selling in this offering will be approximately $35,675,000
million, at an assumed initial public offering price of $8.00 per share, after
deducting underwriters' discounts and commissions and estimated offering
expenses of approximately $1,525,000 million payable by us. If the underwriters
exercise their over-allotment option in full, then the net proceeds will be
approximately $41,255,000 million.

Over the past two months, we borrowed $7,500,000, and intend to borrow an
additional $2,500,000 prior to the close of this offering, under convertible
promissory notes from a small number of our stockholders. The notes bear
interest at a rate of 9% per annum, and the notes will be converted into shares
of common stock upon the closing of this offering, unless a holder of the notes
elects to have its notes repaid at closing. If all of the holders of the notes
elect to have their notes repaid at closing, over $10,150,000 of the net
proceeds will be used to repay the principal and interest on the notes.

We expect to use the net proceeds of this offering remaining after any
repayment of the notes for working capital and other general corporate
purposes, including expanding our sales and marketing efforts, capital
expenditures and strategic acquisitions, although we currently have no
commitments to make any acquisitions. As of the date of this prospectus, we
cannot specify with certainty the particular uses for the net proceeds we will
receive upon the completion of this offering. Accordingly, our management will
have broad discretion in the application of the net proceeds. Pending these
uses, we intend to invest the net proceeds from this offering in short-term,
interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends on our capital stock in the
foreseeable future.

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<PAGE>

CAPITALIZATION

The following table sets forth our cash and cash equivalents and short term
investments and our capitalization as of June 30, 2000:

. on an actual basis;

. on a pro forma basis to reflect the following:

. payment of $2.5 million cash and the issuance of 871,080 shares of
common stock in connection with our recent acquisition of FusionDM and
the related pro forma combining adjustments;

. the issuance of promissory notes in the aggregate amount of $10,000,000
to be issued in our bridge financing; and

. conversion of our outstanding preferred stock and a warrant to purchase
Series D preferred stock into 15,932,805 shares of common stock
immediately prior to the completion of this offering:

. on a pro forma as adjusted basis to reflect the following:

. the estimated $35,675,000 of net proceeds from the sale of the shares
of common stock offered by this prospectus, at an assumed initial
public offering price of $8.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us; and

. the issuance of 1,666,667 shares of common stock upon the assumed
conversion of the promissory notes which were issued in connection with
our bridge financing including a $6.0 million increase to accumulated
deficit, representing interest charges relating to the aggregate effect
of the fair value of the warrants issuable in connection with the
promissory notes and the intrinsic value of the embedded beneficial
conversion feature associated with these notes.

19
<PAGE>

The table below does not include:

. 3,174,081 common shares issuable upon the exercise of outstanding options
as of July 31, 2000, with a weighted average exercise price of $4.58 per
share;

. 28,000 shares of common stock issuable upon the exercise of a warrant
with an exercise price equal to 85% of the initial public offering price;

. up to 871,080 shares of common stock which may be released from escrow in
connection with our acquisition of FusionDM;

. 333,333 shares of common stock issuable upon the exercise of the warrants
issuable in connection with our recent bridge financing, with an exercise
price of $0.01 per share; and

. 4,800,000 shares reserved for future issuance under our stock plans upon
the close of this offering.
<TABLE>
<CAPTION>
As of June 30, 2000
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents and short-term
investments................................... $ 735 $ 8,649 $ 44,324
======== ======== ========
Promissory notes............................... $ -- $ 10,000 $ --
Redeemable convertible preferred stock and
warrant, $0.001 par value; 44,640,000 shares
authorized, 39,530,294 shares issued and
outstanding, actual; no shares authorized,
issued and outstanding, pro forma and
pro forma as adjusted......................... 30,921 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; no shares
authorized, issued or outstanding, actual and
pro forma, 5,000,000 shares authorized, none
issued and outstanding, pro forma as
adjusted..................................... -- -- --
Common stock, $.001 par value; 85,000,000
shares authorized, actual and pro forma;
5,398,532 and 22,202,417 shares issued and
outstanding, actual and pro forma; and
70,000,000 shares authorized and 28,869,084
issued and outstanding, pro forma as
adjusted..................................... 5 22 29
Additional paid-in capital.................... 10,630 51,855 103,556
Deferred stock compensation................... (6,770) (6,770) (6,770)
Notes receivable from stockholders............ (207) (207) (207)
Accumulated deficit........................... (29,353) (29,353) (35,386)
-------- -------- --------
Total stockholders' equity (deficit)......... (25,695) 15,547 61,222
-------- -------- --------
Total capitalization........................ $ 5,226 $ 25,547 $ 61,222
======== ======== ========
</TABLE>

20
<PAGE>

DILUTION

The pro forma net tangible book value of our common stock as of June 30, 2000
was $2.2 million, or approximately $0.10 per share. Pro forma net tangible book
value per share represents our total pro forma stockholders' equity less pro
forma intangible assets divided by the number of shares of common stock
outstanding, giving effect to the following:

. payment of $2.5 million cash and the issuance of 871,080 shares of common
stock in connection with our recent acquisition of FusionDM and the
related pro forma combining adjustments;

. the issuance of promissory notes in the aggregate amount of $10,000,000
to be issued in our bridge financing; and

. conversion of our outstanding preferred stock and a warrant to purchase
Series D preferred stock into 15,932,805 shares of common stock
immediately prior to the completion of this offering.

After giving effect to our sale of 5,000,000 shares of common stock offered
by this prospectus at an assumed initial public offering price of $8.00 per
share and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us, and the issuance of 1,666,667
shares of common stock to be issued upon the assumed conversion of the
promissory notes which were issued in connection with our bridge financing and
333,333 common shares issuable upon the exercise of the warrants also issued in
connection with this bridge financing with an exercise price of $0.01 per
share, our pro forma net tangible book value would have been $47.9 million, or
approximately $1.64 per share. This represents an immediate increase in pro
forma net tangible book value of $1.54 per share to existing stockholders and
an immediate dilution in pro forma net tangible book value of $6.36 per share
to new investors of common stock in this offering. The following table
illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $8.00
Pro forma net tangible book value per share as of June 30, 2000.... $0.10
Increase per share attributable to new investors................... 1.54
-----
Pro forma net tangible book value per share after this offering..... 1.64
-----
Dilution per share to new investors................................. $6.36
=====
</TABLE>

The following table sets forth, on a pro forma basis as of June 30, 2000, the
differences between the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid by existing
stockholders assuming the conversion of the promissory notes into 1,666,667
shares of common stock and the exercise of 333,333 related warrants at $0.01
per share and by the new investors purchasing shares of common stock in this
offering, before deducting underwriting discounts and commissions and estimated
offering expenses payable by us, at an assumed initial public offering price of
$8.00 per share.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 22,202,417 76.0% $31,602,000 38.7% $1.42
Holders of promissory
notes and related
warrants................. 2,000,000 6.8 10,000,000 12.3 5.00
New investors ............ 5,000,000 17.2 40,000,000 49.0 8.00
---------- ----- ----------- -----
Total.................... 29,202,417 100.0% 81,602,000 100.0%
========== ===== =========== =====
</TABLE>

To the extent that any shares are issued upon exercise of options and
warrants that were outstanding as of March 31, 2000 or granted after that date,
or reserved for future issuance under our stock plans, there will be further
dilution to new investors.

21
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with our
financial statements and the related notes as well as "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. The statement of operations data presented for
the years ended December 31, 1997, 1998 and 1999 and the balance sheet data as
of December 31, 1998 and 1999 are derived from our audited financial
statements, which have been audited by KPMG LLP, our independent auditors, and
are included elsewhere in this prospectus. The statement of operations data for
the period from inception through December 31, 1996 and the balance sheet data
as of December 31, 1996 and 1997 are derived from our audited financial
statements not included in this prospectus.

The unaudited statement of operations data for the six months ended June 30,
1999 and June 30, 2000 and the unaudited balance sheet data as of June 30,
2000, are derived from unaudited financial statements included elsewhere in the
prospectus. We have prepared the unaudited information on the same basis as the
unaudited financial statements, consisting only of normal recurring adjustments
for a fair presentation of our financial position and operating results as of
and for these periods.

The unaudited pro forma combined condensed statement of operations data are
derived from our unaudited statement of operations for the six months ended
June 30, 2000, combined with the unaudited statement of operations for FusionDM
for the six months ended June 30, 2000 giving effect to our acquisition as if
it had occurred on January 1, 1999. The unaudited pro forma combined condensed
balance sheet data is derived from our unaudited balance sheet as of June 30,
2000, combined with the unaudited balance sheet for FusionDM as of June 30,
2000 giving effect to our acquisition as if it had occurred on June 30, 2000.

The unaudited pro forma combined condensed balance sheet data and statements
of operations data are presented for illustrative purposes only and are not
necessarily indicative of the balance sheet or operating results that would
have occurred if the transaction had been consummated at the date indicated,
nor is it necessarily indicative of the future operating results of the
combined companies.

22
<PAGE>

<TABLE>
<CAPTION>
Pro Forma
Six Months -----------
Period from Year Ended December 31, Ended June 30, Six Months
August 9, 1996 -------------------------- -------------------- Ended
(Inception) to June 30,
December 31, 1996 1997 1998 1999 1999 2000 2000
----------------- ------- ------- -------- -------- ---------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software hosting....... $ -- $ -- $ -- $ 339 $ 44 $ 1,027 $ 1,027
Software licenses:
Non-related parties.... -- -- 20 369 62 262 262
Related party.......... -- -- -- -- -- 305 305
------ ------- ------- -------- ------- -------- --------
-- -- 20 369 62 567 567
------ ------- ------- -------- ------- -------- --------
Professional services:
Non-related parties.... -- -- 17 556 203 1,697 5,678
Related party.......... -- -- -- -- -- 104 104
------ ------- ------- -------- ------- -------- --------
-- -- 17 556 203 1,801 5,782
------ ------- ------- -------- ------- -------- --------
Total revenues......... -- -- 37 1,264 309 3,395 7,376
------ ------- ------- -------- ------- -------- --------
Cost of revenues:
Software hosting....... -- -- -- 150 14 830 830
Software licenses...... -- -- 2 29 23 25 25
Professional services.. -- -- 2 286 57 1,187 2,982
Stock-based
compensation.......... -- -- -- 7 -- 371 371
------ ------- ------- -------- ------- -------- --------
Total cost of
revenues.............. -- -- 4 472 94 2,413 4,208
------ ------- ------- -------- ------- -------- --------
Gross profit........... -- -- 33 792 215 982 3,168
------ ------- ------- -------- ------- -------- --------
Operating expenses:
Research and
development........... 45 751 2,245 3,470 1,788 2,595 2,595
Sales and marketing.... -- 103 3,384 5,600 2,400 6,915 6,973
General and
administrative........ 25 384 974 1,210 603 1,267 3,409
Stock-based
compensation.......... -- 30 91 813 207 1,780 1,780
Amortization of
goodwill and other
intangible assets..... -- -- -- -- -- -- 1,786
------ ------- ------- -------- ------- -------- --------
Total operating
expenses.............. 70 1,268 6,694 11,093 4,998 12,557 16,543
------ ------- ------- -------- ------- -------- --------
Operating loss......... (70) (1,268) (6,661) (10,301) (4,783) (11,575) (13,375)
Interest (expense)
income, net............ (1) (2) 92 303 71 252 68
------ ------- ------- -------- ------- -------- --------
Net loss................ (71) (1,270) (6,569) (9,998) (4,712) (11,323) (13,307)
Accretion and dividend
on redeemable
convertible preferred
stock.................. -- (56) -- (24) -- (42) (42)
------ ------- ------- -------- ------- -------- --------
Net loss attributable to
common stockholders.... $ (71) $(1,326) $(6,569) $(10,022) $(4,712) $(11,365) $(13,349)
====== ======= ======= ======== ======= ======== ========
Basic and diluted net
loss per share
attributable to common
stockholders........... $(0.16) $ (0.78) $ (2.37) $ (2.96) $ (1.52) $ (2.59)
====== ======= ======= ======== ======= ========
Shares used in per share
computations........... 446 1,696 2,770 3,381 3,097 4,395
====== ======= ======= ======== ======= ========
Pro forma basic and
diluted net loss
per share.............. $ (0.68) $ (0.56)
======== ========
Shares used in pro forma
per share computation.. 14,677 20,328
======== ========
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
-------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock-based Compensation:
Cost of revenues.......................... $ -- $ -- $ 7 $ -- $ 371
Research and development.................. 30 31 192 46 379
Sales and marketing....................... -- -- 369 123 878
General and administrative................ -- 60 252 38 523
------- ------- -------- ------- --------
$ 30 $ 91 $ 820 $ 207 $ 2,151
======= ======= ======== ======= ========
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
Pro Forma
---------
As of As of
As of December 31, June 30, June 30,
-------------------------------- -------- ---------
1996 1997 1998 1999 2000 2000
---- ------- ------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents and short-
term investments....... $225 $ 421 $ 261 $ 13,316 $ 735 $ --
Total assets............ 236 495 961 15,033 9,513 24,696
Working capital
(deficit).............. 178 340 (640) 13,219 996 (3,491)
Redeemable convertible
preferred stock and
warrants............... 239 1,581 7,634 30,879 30,921 30,921
Total stockholders'
equity/(deficit)....... (50) (1,264) (7,714) (16,878) (25,695) (15,695)
</TABLE>

24
<PAGE>

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

You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial
statements and the related notes included elsewhere in this prospectus. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may 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
prospectus.

Overview

We are a leading provider of a comprehensive hosted e-marketing solution that
enables organizations to execute interactive marketing campaigns over the
Internet. Our solution, an integrated offering of comprehensive hosted e-
marketing software and strategic e-marketing consulting services, enables
organizations to design, execute and measure the effectiveness of e-marketing
campaigns that combine innovative on-line and proven marketing strategies and
tactics. We believe our solution helps our customers rapidly capture market
share and build stronger customer relationships. Our comprehensive e-marketing
solution is comprised of four core components: an e-marketing software
platform; software templates for e-marketing campaigns called eMarketing
Blueprints; a hosted service; and strategic e-marketing consulting and
implementation services.

From inception in August 1996 through December 1998, we primarily focused on
research and development activities, building our corporate infrastructure and
raising capital. In March 1998, we released our first commercial product,
MarketFirst version 1.0, which we sold on a license basis. In the second half
of 1998, we completed our development work on the hosted version of our product
and in November 1998, released our hosted product, MarketFirst version 1.5. We
continued our development efforts and released version 2.0 in July 1999. We
have subsequently issued upgrade releases through version 2.4. In addition, in
September 1999, we unveiled our myMarketFirst.com destination site, where
potential customers who are exploring the benefits of e-marketing solutions can
test our e-marketing solution through a trial campaign or on a pay-per-use
basis before committing to a long-term hosted or installed implementation. In
1999, we significantly expanded our sales, marketing and customer support
efforts in conjunction with the launch of our hosted service. To facilitate our
growth and infrastructure needs, we have increased our employee base from 12 at
December 31, 1997 to 222 at July 31, 2000, which includes 63 employees as a
result of the Fusion DM acquisition.

We derive our revenues from three sources: hosted service, software licenses
and professional services.

Hosting Revenues. We derive hosting revenues from hosting the software
application for our customers on servers in our data center, managing the
installation, upgrade and maintenance of the software and hardware, and
providing the program deployment through a secure Internet connection. We base
the pricing of our hosted service on a combination of items, including the size
of the organization, which is based on the number of employees and/or annual
revenues, the level of service and database management required, and the
campaign activity volume. We recognize revenues for our hosted service on a
monthly basis, as the service is provided over the term of the agreement, which
is generally six to twelve months.

License Revenues. We derive software license revenues from the sale of
perpetual licenses of our product for in-house installation. We recognize
software license revenues upon shipment, provided that a signed contract is in
place, the fee is fixed and determinable, and collection of the resulting
receivable is probable.

25
<PAGE>

Professional Services Revenues. We derive professional services revenues from
consulting services provided to our customers on either a fixed fee or time and
materials basis. These services include developing e-marketing strategies,
campaign design, media selection and planning, marketing campaign management
and measurement techniques as well as systems implementation and maintenance.
We recognize revenues for services on a monthly basis as the services are
provided. Maintenance revenues from annual post-contract support services for
license sales, which are billed in advance and are non-refundable, are included
in our professional services revenues. We recognize maintenance revenues
ratably over the period of the maintenance contract, which is typically one
year.

We have incurred net losses in each fiscal quarter since inception, and as of
June 30, 2000, had an accumulated deficit of $29.4 million. These losses
resulted from costs incurred in the development and sale of our products and
services. We expect that our operating expenses will increase substantially in
the foreseeable future as we continue to expand product development, sales and
marketing capacity, hosting infrastructure and professional services efforts.
As a result, even though we anticipate revenue growth, we will continue to
generate net losses for the foreseeable future.

We believe that period-to-period comparisons of our operating results are not
meaningful and should not be relied upon as an indication of our future
performance. Our limited operating history makes prediction of future operating
results difficult. Our prospects must be considered in light of the risks,
expenses and difficulties typically encountered by companies transitioning from
the development phase into operations, particularly companies in new and
rapidly evolving markets like ours.

Acquisition of FusionDM

On July 20, 2000, MarketFirst acquired Times Direct Marketing, Inc., also
known as FusionDM, a direct marketing consulting agency.

Under the terms of the acquisition agreement, the Company will provide the
following consideration:

We expect to allocate the purchase price to acquired tangible assets of $4.4
million, offset by assumed liabilities of $5.1 million, and goodwill and
intangible assets of $13.3 million. The intangible assets, compromising
assembled workforce, customer lists, tradenames and FusionDM's marketing
process, aggregating $5.8 million, and goodwill of $7.5 million will be
amortized over useful lives of two to four years. Annual amortization will
approximate $3.6 million.

Times Direct Marketing, Inc. was incorporated in California in March 1992.
Its revenues totaled $2.2 million in 1998, $5.5 million in 1999 and $4.0
million for the six months ended June 30, 2000.

26
<PAGE>

Revenues were comprised primarily of service fees delivered on a time and
materials or fixed fee basis. Time and material services are recognized
monthly, based on costs incurred, as services are provided. Revenue from fixed
fee agreements are recognized ratably over the life of the contract on a
percentage of completion basis. Revenue for services is presented net of
reimbursed costs. These costs includes printing, postage, prizes and other
direct out-of-pocket expenses. On a pro forma basis, the combined revenues of
MarketFirst and FusionDM were $6.7 million in 1999 and $7.4 million for the six
months ended June 30, 2000.

Results of Operations

Six Months Ended June 30, 1999 and 2000

Revenues

Total Revenues. Total revenues were $309,000 and $3.4 million for the six
months ended June 30, 1999 and 2000. The increase in revenues relates primarily
to an increase in the number of customers, value of contracts signed, duration
of hosting agreements and increases in the amount of professional services
sold.

Hosting. Hosting revenues were $44,000 and $1.0 million for the six months
ended June 30, 1999 and 2000. We began recognizing hosting revenues from our
initial hosted customers late in the quarter ended March 31, 1999. As a result,
limited revenues were recorded during the six months ended June 30, 1999.
Revenues for the six months ended June 30, 2000 showed a significant increase
from the prior year period primarily as a result of an increase in the total
number of hosted customers and an increase in the average monthly fees.

License. License revenues were $62,000 and $567,000 for the six months ended
June 30, 1999 and 2000. License revenues increased as a result of the sale of
several perpetual licenses to new customers, including the sale of a license to
a related party. See "Certain Transactions-Other Transactions."

Professional Services. Professional services revenues were $203,000 and $1.8
million for the six months ended June 30, 1999 and 2000. The increase in
professional services revenues was primarily due to the increase in hosted and
license customers and the related increase in contracted services for the
design and implementation of e-marketing programs related to those customers.
We expect the percentage of professional services revenues to total revenues to
grow significantly as a result of our acquisition of FusionDM.

Cost of Revenues

Total Cost of Revenues. Total cost of revenues was $94,000 and $2.4 million
for the six months ended June 30, 1999 and 2000. The increase in our cost of
revenues was primarily due to the expansion and growth in activities, equipment
and personnel to support our software license sales, hosted services and
professional services.

Hosting. Cost of hosting revenues consists primarily of depreciation of
capital equipment, monthly recurring data center costs, royalties for third
party software used in our product and support personnel. Cost of hosting
revenues was $14,000 and $830,000 for the six months ended June 30, 1999 and
2000. The increase in the cost of hosting revenues is primarily related to the
overall increase in the number of hosted customers. Cost of hosting revenues
includes costs primarily related to personnel required to run the hosted
operations and to provide product support. In addition, cost of hosting
revenues includes the depreciation and amortization of investments in purchased
software and hardware required for the deployment of our hosted service. These
costs are capitalized and amortized to cost of sales over the useful lives of
the software and equipment, generally two years. Periodically, we expect to
acquire new software and hardware which will support our servers and Internet
connections to facilitate ongoing customer growth. However, as economies of
scale begin to build, we anticipate that cost of hosting revenues will decline
as a percentage of total hosting revenues over time.

27
<PAGE>

License. Cost of license revenues consists primarily of royalties for the
sublicensing of third party software included with our product, packaging and
documentation. Cost of license revenues was $23,000 and $25,000 for the six
months ended June 30, 1999 and 2000.

Professional Services. Cost of professional services revenues consists
primarily of personnel costs and related expenses and overhead for consulting,
support, maintenance and upgrades and training. Cost of professional services
revenues was $57,000 and $1.2 million for the six months ended June 30, 1999
and 2000. The increase in cost of professional services revenues relates
primarily to the growth in the number of customers and the e-marketing design
and implementation services being provided.

Operating Expenses

Research and Development. Research and development expenses are associated
with the continued development of the core product, and quality assurance.
These expenses consist primarily of personnel, development tools and equipment.
Research and development expenses were $1.8 million and $2.6 million for the
six months ended June 30, 1999 and 2000. The increase was primarily due to an
increase in personnel, the increased use of consulting services for engineering
and software development and the acquisition of new development hardware.

Sales and Marketing. Sales and marketing expenses consist primarily of
personnel expenses, sales commissions, travel, public relations, trade shows
and brand development. Sales and marketing expenses were $2.4 million and $6.9
million for the six months ended June 30, 1999 and 2000. The increase was
primarily due to the opening of sales offices in Bellevue, Washington; Dallas,
Texas; Natick, Massachusetts; and Reston, Virginia; an increase in personnel;
and increased sales and marketing activities over the same period in 1999.

General and Administrative. General and administrative expenses consist
primarily of personnel and other related costs for executive management,
finance, human resources, facilities management, management information
systems, customer support, training, accounting, legal, tax and other
professional fees and services. General and administrative expenses were
$603,000 and $1.3 million for the six months ended June 30, 1999 and 2000. The
increase in general and administrative expenses was primarily related to an
increase in the number of personnel as well as increases in legal, recruiting,
travel, general facilities, and office expense.

Amortization of Stock-based Compensation. We recorded $207,000 and $1.8
million of stock-based compensation expenses, in operating expenses for the six
months ended June 30, 1999 and 2000. Additionally, we recorded $371,000 of
stock-based compensation in cost of revenues for the six months ended June 30,
2000. These non-cash expenses represent the difference between the exercise
price and the estimated fair value of the common stock at the date the related
stock options were granted, and are expensed over the vesting period, which is
typically four years. The unamortized stock-based compensation balance at June
30, 2000 is $6.8 million. This amount will be charged to operations through
2004.

Interest Income. We derived interest income primarily from short term
investments of cash balances from equity financings and accounts receivable.
Interest income was $78,000 and $232,000 for the six months ended June 30, 1999
and 2000. The increase in interest income was primarily the direct result of
larger cash balances available for investment.

Years Ended December 31, 1997, 1998 and 1999

Revenues

Total Revenues. Total revenues increased from $37,000 in 1998 to $1.3 million
in 1999, as we only began recognizing revenues in the second half of 1998. We
did not recognize revenues in 1997 as we were still in a research and
development stage. Two customers represented all of our total revenues in 1998,
and a different customer represented 15% of our total revenues in 1999.

28
<PAGE>

Hosting. In March 1999, we began recognizing hosting revenues, which totaled
$339,000 in 1999.

License. In August 1998, we began recognizing license revenues, which
increased from $20,000 in 1998 to $369,000 in 1999.

Professional Services. Professional services revenues increased from $17,000
in 1998 to $556,000 in 1999. In June 1998, we began recognizing service
revenues, and in November 1998, we began recognizing maintenance revenues.

Cost of Revenues

Total Cost of Revenues. Total cost of revenues was $4,000 in 1998 and
$472,000 in 1999. We did not recognize any cost of revenues in 1997 as we were
still in a research and development stage. The increase in cost of revenues was
due to the launch of our hosted service at the beginning of 1999 and the
significant growth in 1999 sales over 1998.

Hosting. Cost of hosting revenues was $150,000 in 1999. We did not recognize
any cost of revenues for 1998 as we only began recognizing hosting revenues in
March 1999.

License. Cost of license revenues was $2,000 and $29,000 in 1998 and 1999.
The increase in cost of license revenues was primarily attributable to an
increase in the number of licenses sold in 1999.

Professional Services. Cost of professional services revenues was $2,000 in
1998 and $286,000 in 1999. The increase in cost of professional services
revenues was primarily attributable to the increase in consulting and
maintenance activities for new customers added in 1999 and an increase in the
number of personnel supporting these activities.

Operating Expenses

Research and Development. Research and development expenses were $751,000,
$2.2 million and $3.5 million in 1997, 1998 and 1999. The increase for each of
the periods was primarily due to an increase in personnel, the increased use of
consulting services for engineering and software development, and the
acquisition of new development hardware.

Sales and Marketing. Sales and marketing expenses were $103,000, $3.4 million
and $5.6 million in 1997, 1998 and 1999. The increase for each of these periods
was primarily due to an increase in personnel and a significant increase in
sales and marketing activities in conjunction with the launch of the
MarketFirst 1.5 and 2.0 products in 1999.

General and Administrative. General and administrative expenses were
$384,000, $1.0 million and $1.2 million in 1997, 1998 and 1999. The significant
increase in general and administrative expenses from 1997 to 1998, was
primarily due to an increase in personnel as well as increases in legal,
recruiting, travel, and general facilities and office expenses. We expect
general and administrative expenses to increase in 2000 to support our planned
growth.

Amortization of Stock-based Compensation. We recorded $30,000, $91,000 and
$813,000 of stock-based compensation expenses in operating expenses in 1997,
1998 and 1999. Additionally, we recorded $7,000 of stock-based compensation in
cost of revenues in 1999. We anticipate that this amount will increase to
approximately $4.9 million in 2000. Stock-based compensation on unvested
options is deferred and included as a component of stockholders' equity.

Interest Income. Interest income was $5,000, $101,000 and $312,000 in 1997,
1998 and 1999.

Net Operating Loss Carryforwards. As of December 31, 1999, we had net
operating loss carryforwards for Federal and state tax purposes of
approximately $14.8 million and $10.1 million,

29
<PAGE>

respectively that expire on various dates beginning in 2003. The Internal
Revenue Code of 1986 substantially restricts the ability of a corporation to
utilize existing net operating losses in the event of a significant change in
ownership. Upon the occurrence of certain events, including a change in
ownership, utilization of our net operating losses may be subject to
limitations in future years.

Quarterly Results of Operations

The following table sets forth the unaudited statement of operations data for
the most recent six quarters. We have derived this information from our
unaudited quarterly financial statements, which in management's opinion, have
been prepared on the same basis as our audited annual financial statements and
include all adjustments necessary for the fair presentation of the information
when read in conjunction with the audited financial statements and the related
notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1999 1999 1999 1999 2000 2000
--------- -------- ------------- ------------ --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software hosting....... $ 3 $ 41 $ 100 $ 195 $ 417 $ 610
Software licenses:
Non related parties... 32 30 167 140 -- 262
Related party......... -- -- -- -- 305 --
------- ------- ------- ------- ------- -------
32 30 167 140 305 262
------- ------- ------- ------- ------- -------
Professional services:
Non related parties... 42 161 142 211 548 1,149
Related party......... -- -- -- -- 58 46
------- ------- ------- ------- ------- -------
42 161 142 211 606 1,195
------- ------- ------- ------- ------- -------

Total revenues........ 77 232 409 546 1,328 2,067
------- ------- ------- ------- ------- -------
Cost of revenues:
Software hosting....... 2 12 58 78 342 488
Software licenses...... 20 3 3 3 10 15
Professional services.. 15 42 98 131 480 707
Stock-based
compensation.......... -- -- -- 7 17 354
------- ------- ------- ------- ------- -------
Total cost of
revenues............. 37 57 159 219 849 1,564
------- ------- ------- ------- ------- -------
Gross profit............ 40 175 250 327 479 503
------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 905 883 796 886 1,104 1,491
Sales and marketing.... 1,292 1,108 1,316 1,884 2,869 4,046
General and
administrative........ 278 325 296 311 565 702
Stock-based
compensation.......... 85 122 212 394 972 808
------- ------- ------- ------- ------- -------
Total operating
expenses............. 2,560 2,438 2,620 3,475 5,510 7,047
------- ------- ------- ------- ------- -------
Operating loss.......... (2,520) (2,263) (2,370) (3,148) (5,031) (6,544)
Interest income......... 43 35 39 195 153 79
Interest and other
expense................ (3) (4) (1) (25) (3) 23
------- ------- ------- ------- ------- -------
Net Loss................ $(2,480) $(2,232) $(2,332) $(2,978) $(4,881) $(6,442)
======= ======= ======= ======= ======= =======
</TABLE>

We experienced significant growth in sales and operating expenses in 1999 as
we developed our customer base, added employees and expanded our
infrastructure. From December 31, 1998 until June 30, 2000, the number of our
customers increased from 2 to over 40. Total revenues increased quarter over
quarter as a direct result of increased sales of licenses, hosted services and
professional services. In general, total revenues grew each quarter in relation
to the expansion of our customer

30
<PAGE>

base. We completed a large project for one of our early customers in the
quarter ended June 30, 1999 and as a result professional services revenues for
that quarter were slightly higher than for the quarter ended September 30,
1999. Overall, cost of revenues grew each quarter in relation to the increase
in revenues. Operating expense growth, particularly in the quarters ended
March 31, 2000 and June 30, 2000, was primarily the result of increased
personnel costs to support our sales, consulting and customer support services
and increased sales and marketing expenditures as we expanded our sales and
marketing efforts. Research and development expenses decreased slightly in the
quarters ending June 30, 1999 and September 30, 1999, primarily due to
temporary reductions in personnel.

Our operating results have varied on a quarterly basis during our short
operating history. We expect to experience significant fluctuations in our
future operating results due to a variety of factors, many of which are outside
of our control. Factors that may affect our operating results include, among
others:

. varying size, timing and contractual terms of orders for our products and
services;

. timing and significance of the commercial release of new or enhanced
products and services by us and our competitors;

. demand for our e-marketing products and services and price competition;

. changes in our operating expenses as we expand operations; and

. general economic factors.

Unfavorable changes in any of the above factors could materially and
adversely affect our revenues, gross margins, results of operations in future
periods and the market price of our common stock. As a result, you should not
rely upon period-to-period comparisons of our results of operations as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily with $31.5
million raised through the private sale of our equity securities. As of June
30, 2000, we had available $735,000 million in cash and cash equivalents, and
$1.2 million in restricted cash.

Net cash used for operating activities was $1.2 million, $5.6 million and
$9.5 million in 1997, 1998 and 1999, and $8.9 million for the six months ended
June 30, 2000. Net cash used for operating activities was primarily to fund net
losses from operations.

Net cash used in investing activities was $16,000, $608,000 and $6.6 million
in 1997, 1998 and 1999. Net cash provided by investing activities was $2.0
million for the six months ended June 30, 2000. Since 1997, our investing
activities have primarily consisted of equipment purchases to facilitate
research and development, implementation of our hosting infrastructure and
employee growth. Net cash used in 1999 and cash provided for the six months
ended June 30, 2000 was primarily the result of $669,000 and $2.6 million in
purchases of equipment, furniture and tenant improvements, short-term
investments of $9.9 million and zero, and $4.0 million and $5.9 million of
maturities in short-term-investments and the placement of a $1.2 million letter
of credit as security for rent payments on our new corporate headquarters. We
expect to continue to make material capital expenditures in the future to
expand our hosted infrastructure to accommodate future growth and for our
expansion into new corporate headquarters.

Net cash provided by financing activities was $1.4 million in 1997, $6.0
million in 1998, $23.3 million in 1999 and $191,000 for the six months ended
June 30, 2000. Substantially all of the net cash provided by financing
activities resulted from sales of our preferred stock and exercises of stock
options.

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In January 2000, we put in place an irrevocable letter of credit for $1.2
million as security against the lease of our new corporate office facility.
This letter of credit will remain in place for seven years. The dollar
requirement is reduced in the fifth year to approximately $833,000 and in the
seventh year to approximately $416,000.

We believe that the estimated net proceeds of approximately $35,675,000
million from this offering, together with our current cash and cash equivalents
and short-term investments, will be sufficient to meet our anticipated cash
needs for working capital and expense requirements for at least the next twelve
months. Thereafter, we may find it necessary to raise additional equity or debt
financing. However, we may also find it necessary to raise additional funds
sooner to provide for additional expansion, develop new or enhanced services,
respond to competitive pressures or facilitate acquisitions. We cannot assure
that such financing will be available on favorable terms, or at all.

Bridge Financing

In July and August 2000, we issued convertible promissory notes in the
aggregate amount of $7,500,000 to 10 of our existing stockholders pursuant to a
Note and Warrant Purchase Agreement (the "Bridge Agreement"). We also intend to
issue on September 1, 2000, additional convertible promissory notes in the
aggregate amount of $2,500,000 to these stockholders pursuant to the Bridge
Agreement. Unless one or more of these stockholders elect to have their notes
repaid (See "Use of Proceeds"), upon closing of this offering all of the
principal and accrued interest of these notes will be converted into an
aggregate of approximately 1,666,667 shares of unregistered common stock. In
addition, upon closing of this offering, and assuming we, as intended, issue
$2,500,000 of additional notes on September 1, 2000, we will issue to these
stockholders unregistered warrants to purchase in the aggregate 333,333 shares
of unregistered common stock, with an exercise price of $0.01 per share;
provided, however, if this offering does not close prior to October 11, 2000,
the number of shares covered by the warrants shall increase by 83,333 on that
date and on the 11th day of each subsequent month until this offering is
closed. Upon the closing of the offering, the Company will record interest
expense of $2.7 million related to the fair value of these warrants, and
approximately $3.3 million related to the intrinsic value of the embedded
beneficial conversion feature associated with these promissory notes.

Year 2000 Compliance

In late 1999, we completed a review of our product and internal systems for
year 2000 compliance. We experienced no significant disruptions in our products
or with our information technology and non-information technology systems and
believe that these systems successfully responded to the year 2000 date change.
We incurred approximately $35,000 in connection with this review. We are not
aware of any material problems resulting from year 2000 issues, either with our
products, our internal systems or the products or services of third parties we
utilize.

Recent Accounting Pronouncements

In June 1998, the FASB 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, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. This statement will be effective for all
annual and interim periods beginning after January 1, 2001. We do not believe
the adoption of SFAS No. 133 will have a material effect on the Company's
financial position or results of operations.

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In March 2000, the Emerging Issues Task Force (EITF) published their
consensus on EITF Issue No. 00-2, Accounting for Web Site Development Costs,
which requires that costs incurred during the development of web site
applications and infrastructure, involving developing software to operate the
web site, including graphics that affect the "look and feel" of the web page,
and all costs relating to software used to operate a web site should be
accounted for under Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (SOP 98-1). However,
if a plan exists or is being developed to market the software externally, the
costs relating to the software should be accounted for pursuant to FASB
Statement No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed (SFAS No. 86). We will be required to adopt EITF
No. 00-2 in its first fiscal quarters, beginning after June 30, 2000, although
earlier application is encouraged. To date, we have not entered into activities
covered by EITF 00-2, as all software developed internally has been offered
under license to customers.

In March 2000, the EITF published their consensus on EITF Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. The issue states that a software element covered by SOP 97-2
is only present in a hosting arrangement if the customer has the contractual
right to take possession of the software at any time during the hosting period
without significant penalty and it is feasible for the customer to either run
the software on its own hardware or contract with another party unrelated to
the vendor to host the software. Our hosting arrangements generally do not
allow customers the contractual right to take possession of the software
without significant penalty.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We must adopt SAB 101 no later than the fourth quarter of
2000. The SEC has recently indicated it intends to issue further guidance with
respect to the adoption of specific issues addressed by SAB 101. Until such
time this additional guidance is issued, we are unable to assess the impact, if
any, it may have on our financial performance or results of operations.

In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), an
interpretation of APB 25, "Accounting for Stock Issued to Employees." FIN 44
addresses inconsistencies in accounting for stock-based compensation that arise
from implementation of APB 25. We are currently evaluating the affect that FIN
44 will have on our accounting policies and do not anticipate that it will have
a significant impact on our financial statements, cash flows or results of
operations. We adopted FIN 44 effective July 1, 2000.

Qualitative and Quantitative Disclosures About Market Risk

To date, we have provided our products and services primarily to customers in
the United States. As a result, it is unlikely, at this time, that our
financial results could be directly affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
All of our sales are currently denominated in U.S. dollars.

Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we earn on our
short-term investment portfolio. We plan to ensure the safety and preservation
of our invested funds by limiting default risk, market risk and reinvestment
risk by investing in high credit quality securities.

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Inflation and Foreign Currency Risk

Inflation has not had a significant impact on our operations during the
periods covered by the financial statements included in this prospectus.
Additionally, we are not presently subject to significant foreign exchange
risk. If we are affected by inflation or foreign currency fluctuations in the
countries where we expect to have operations, we could be adversely affected.

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BUSINESS

We are a leading provider of a comprehensive hosted e-marketing solution that
enables organizations to execute interactive marketing campaigns over the
Internet. Our solution, an integrated offering of comprehensive hosted e-
marketing software and strategic e-marketing consulting services, enables
organizations to design, execute and measure the effectiveness of e-marketing
campaigns that combine innovative on-line and proven marketing strategies and
tactics. Using our solution, organizations can initiate a broad range of
proactive customer interactions, improve the value of each interaction,
capitalize on new market opportunities, and measure e-marketing effectiveness.
We offer our comprehensive e-marketing solution as a hosted service or as a
traditional software license and through our destination site,
myMarketFirst.com. We have over 40 customers, including such recognized
industry leaders as General Electric Company, GTE, NorthPoint Communications,
Quantum Corporation and Rhythms NetConnections. As a result of our recent
acquisition of FusionDM, we have added additional customers such as 3Com,
21st Century Insurance and UnitedHealthcare.

Industry Background

The Importance of Effective e-Marketing

The Internet is transforming the way business is conducted across many
different industries, and it is allowing companies to reach a broader base of
customers globally. The immediate availability of information on the Internet
is allowing businesses to create new, large scale and highly efficient markets
or exchanges where business transactions and relationships are conducted
electronically. International Data Corporation, or IDC, estimates that the
total value of goods and services purchased by businesses and consumers over
the Internet will increase from approximately $111 billion in 1999 to $1.3
trillion in 2003. In addition, IDC expects that 58% of total on-line commerce
in 1999 will be attributable to on-line business-to-business commerce, which
will grow to 74% of total on-line commerce by 2003.

The growth of on-line commerce is generating tremendous competition for on-
line market share and on-line customers. New, often well-funded, Internet-based
businesses, referred to as ".coms," are seeking to quickly gain scale and
differentiate themselves from numerous other on-line businesses. At the same
time, established businesses are seeking to defend their business franchises
and customer bases from new on-line competitors, and they are trying to capture
a large share of on-line revenues themselves. As a result of the intense
competition for on-line market presence and customers, effective on-line
marketing is increasing in strategic importance. Businesses are spending
significant amounts of money to build web sites and on-line business operations
that will attract customers, to advertise those web sites and on-line
businesses and effectively position them in the marketplace, to generate
customer orders and revenues from on-line traffic, and to retain existing
on-line customers.

At the same time, the nature of the Internet has dramatically expanded the
complexity and potential of marketing. Marketing is shifting from off-line one-
directional mass marketing programs to interactive, dynamic and personalized
on-line marketing tactics and strategies, often referred to as "e-marketing."
Over the Internet, organizations can customize marketing messages to better
communicate their value propositions, develop deeper relationships with their
key customers, partners, and prospects, and more effectively track and measure
customer behavior and marketing effectiveness. The Direct Marketing
Association, or DMA, estimates that Internet-based interactive direct marketing
expenditures will reach $9 billion by 2004.

The Emergence of Internet Applications and Hosted Services

As the functionality and security of the Internet have increased, many
organizations have begun to deploy and access business applications on-line.
More recently, an increasing number of

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organizations are using the power, reach and low cost benefits of the Internet
to outsource the management of business applications. Historically, corporate
software deployment has been a time-consuming and costly process, and
enterprise software applications typically required large initial investments
in software licenses and hardware equipment, and entailed lengthy
implementation periods and substantial dedicated information technology, or IT,
resources for upgrade and maintenance. In contrast, in a hosted environment,
the network and hardware infrastructures are provided by a third-party at a
central, off-site location, and the software applications are accessed remotely
through web browsers. This affords organizations the following benefits:

. increased availability as users can access applications from anywhere
where a standard web browser is available;

. the ability to scale to accommodate a large number of users;

. shorter implementation cycles as applications can be configured centrally
and rapidly deployed;

. reduced need and associated costs for in-house IT personnel to implement
and manage the applications; and

. lower initial investment and total cost of ownership.

Forrester Research estimates that worldwide spending on hosted applications
will grow from $700 million in 1999 to $6 billion by 2003.

We believe that e-marketing represents a significant hosted application
market opportunity. A hosted e-marketing solution can allow organizations to
more quickly capture market opportunities, a critical differentiator in today's
competitive on-line markets. In addition, marketing departments are often
overwhelmed by the demands and growth of on-line commerce and welcome a
solution that requires minimal initial personnel and capital resource
commitments.

Limitations of Existing Solutions

While organizations have invested in software applications to manage
Internet-based transactions, analyze data generated from web site visits, and
automate customer support, they have had limited success in utilizing the
Internet to improve e-marketing effectiveness. We believe this has been due to
the following factors:

Personalized Interaction. Many existing solutions deliver untargeted, mass e-
mails, and are not developed for a higher degree of personalized customer
interaction and education. The need for interactive and educated selling is
especially critical in business-to-business transactions and high-end consumer
marketing.

Multi-Channel Integration. Many existing solutions frequently cannot
integrate existing marketing channels such as print, fax and broadcast with
Internet channels, nor do they adequately leverage existing customer
information generated from non-Internet based marketing activities.

Campaign Best Practices. Many existing solutions do not provide "out-of-the-
box" functionality that incorporates marketing best practices to assist
organizations in rapidly creating effective e-marketing campaigns.

Campaign Measurement. Many existing solutions lack the capability to measure
return on marketing investment. Without this capability, organizations are
unable to test and measure the effectiveness of a marketing campaign quickly,
and thus cannot modify marketing tactics to optimize the marketing effort.

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Hosted Services. Many existing marketing solutions are not offered as a
hosted service, which makes it difficult for time and resource constrained
marketing departments to implement e-marketing campaigns rapidly.

Strategic e-Marketing Consultation. Many existing solutions do not provide
strategic consulting services to ensure the successful design and
implementation of effective e-marketing campaigns.

The MarketFirst Solution

We provide an e-marketing solution that we believe helps our customers
rapidly capture market share and build stronger customer relationships. Our
solution, an integrated offering of comprehensive hosted e-marketing software
with strategic e-marketing consulting services, enables organizations to
design, execute and measure the effectiveness of e-marketing campaigns that
combine innovative on-line and proven marketing strategies and tactics. Using
our solution, organizations can initiate a broad range of proactive customer
interactions, improve the value of each interaction, capitalize on new market
opportunities and measure e-marketing effectiveness.

Our comprehensive e-marketing solution is comprised of four core components:

. Our e-marketing software platform is the foundation of our solution and
provides an easy-to-use, interactive design environment to design and
execute automated e-marketing campaigns.

. Our eMarketing Blueprints are software templates that provide pre-built
e-marketing campaigns based upon e-marketing best practices.

. Our hosted service allows our customers to focus on improving the value
of their marketing investments, while eliminating the need to manage the
underlying information technology.

. Our strategic e-marketing consulting services extend our e-marketing
expertise to our customers, enabling the creation, implementation and
measurement of innovative and effective e-marketing campaigns and
strategies to maximize the return on their marketing investment.

We believe our e-marketing solution provides our customers with the following
key benefits:

Accelerate "Time-to-Value." Our solution helps our customers quickly launch
effective e-marketing campaigns to capture new market opportunities. The "best
practices" knowledge contained within our eMarketing Blueprints allows
organizations to quickly create, test and launch e-marketing campaigns. Typical
implementation times for our e-marketing campaigns range from three to 30 days.
The easy-to-use interface of our e-marketing platform also allows organizations
to build sophisticated campaigns quickly by using visual elements like forms
and flowchart blocks.

Focus on e-Marketing. By using our hosted service, our customers can leverage
their constrained IT resources, reduce their technical risk and outsource non-
core technology competencies. We manage the installation, program deployment,
and upgrade and maintenance of our applications through a secure Internet
connection. Our customers do not need to lease, buy or continually upgrade
existing software and hardware, or recruit and retain systems engineers and
administrative personnel to support their e-marketing campaigns. As a result,
our customers can focus on creating more effective, innovative and targeted
marketing messages and campaigns. We also partner with a leading Internet
service provider, which allows us to scale to the high-volume demands of
Internet use.

Implement High Quality e-Marketing Campaigns. We have a team of highly
experienced marketing professionals that offers our customers a range of e-
marketing consulting services, including marketing campaign management,
strategic marketing, direct marketing, database marketing, campaign design,
media selection and planning, channel development and Internet technology

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services. We assist our customers in measuring the relative performance of all
media to clearly identify which media are the most cost effective and can
maximize the return on their marketing investment. We believe the knowledge and
experience of our consulting organization can assist our customers in designing
and implementing more effective e-marketing campaigns.

Improve Personalized Interactive Relationships. Our solution allows
organizations to personalize their e-marketing campaigns based on authorized
information generated through on-line interaction with their customers or
prospects. Our solution goes beyond one-directional, mass e-mail campaigns by
enabling two-way dialogues that provide increased value to both the
organization and its customer or prospect as they exchange information. We
believe this interaction often builds customer loyalty and allows for
collaborative relationship building between an organization and its customers.
Our solution can be especially valuable to organizations marketing high-value
goods and services, which may require a higher degree of personalized
interaction and education for potential customers.

Centralize e-Marketing Control. With our solution, an organization's
marketing campaigns can be centrally managed through its web site.
Organizations have made significant investments in traditional broadcast,
print, telemarketing, e-mail, direct mail campaigns and web banner ads. By
directing respondents from these campaigns to a web site and through our
centralized e-marketing platform, organizations are able to manage personalized
interactions with their new and existing customers and to measure the
effectiveness of these campaigns. In addition, our solution is able to
integrate internal and external sources of customer information with their e-
marketing campaign results to build a more comprehensive customer knowledge
base.

Analyze e-Marketing Performance and Feedback Quickly. Our solution provides
important and timely insight on the effectiveness of e-marketing campaigns.
This allows marketing departments to continuously refine their understanding of
each customer, thereby improving their ability to provide up-to-date and
personalized recommendations to their customers. In addition, this quick
feedback can assist marketing departments in determining which campaigns
generate better leads and revenue opportunities.

Growth Strategy

Our objective is to become the leading provider of comprehensive hosted e-
marketing software solutions. The key elements of our strategy include:

Capitalize on Our Leading Market Position. We believe that the e-marketing
software application market has just begun to emerge and will grow as
organizations recognize the strategic importance of developing one-to-one
customer relationships. Since we were among the first to market a comprehensive
hosted e-marketing solution, we have the opportunity to establish our products
and services as the leading solution for comprehensive and effective e-
marketing. We have over 40 customers, including such recognized industry
leaders as General Electric Company, GTE, NorthPoint Communications, Quantum
Corporation and Rhythms NetConnections. As a result of our recent acquisition
of FusionDM, we have added additional customers such as 3Com, 21st Century
Insurance and UnitedHealthcare. We intend to leverage these relationships to
generate new customers.

Leverage the Growing Demand for Hosted Applications. We continue to leverage
the growing demand for hosted applications. Many of our customers have
purchased a hosted version of our e-marketing solution because it can be
implemented rapidly and can reduce IT costs. We believe the hosted model
provides benefits for organizations of all sizes and can increase our customer
penetration across industries. In addition, we believe our hosted application
service provides us with a highly attractive recurring revenue stream that
affords a higher degree of predictability than the typical license software
model. We believe this predictability will allow us to better plan our
operations and resource needs.

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Expand Our Strategic e-Marketing Consulting Services. We intend to increase
our strategic consulting services through internal expansion and additional
acquisitions of e-marketing agencies. Our strategic consulting group helps
companies find innovative ways to use our solution, which can lead to increased
adoption of our products and services and provides us with ideas for future
product development. We believe our acquisition of FusionDM will augment our
e-marketing campaign design and execution expertise.

Develop Key Strategic Partnerships. We intend to continue to enter into
strategic relationships that expand our marketing and distribution channels and
provide us with differentiating technology. We have entered into joint sales
and marketing programs with Personify, an e-business software company, and
Clarify, a customer support software company, and marketing service provider
programs with US Web/CKS, now known as marchFIRST, and Acxiom. These partners
also use our solution to help their customers implement e-marketing campaigns
as part of larger strategic initiatives.

Target International Markets. We believe international markets represent a
significant opportunity for us. We are currently marketing the first bilingual
(English and German) e-marketing application and intend to further pursue
multi-language functionality. We also plan to expand our direct sales,
marketing and support presence in selected European markets and develop
alliances with international distributors and partners.

Utilize myMarketFirst.com as an Education and Distribution Channel. We plan
to leverage our destination site, myMarketFirst.com, as an education and
distribution channel for new and existing customers. myMarketFirst.com is a web
site where potential customers who are exploring the benefits of e-marketing
solutions can test our e-marketing solution through a trial campaign or on a
pay-per-use basis before committing to a long-term hosted or installed
implementation. This enables our customers and potential customers to utilize
our products and services and generate demonstrable results in their own
environment, which we believe will lead to increased customer penetration. We
also intend to utilize customer leads generated from the site and up-sell
customers to our other product and service offerings.

Products and Services

We offer our comprehensive e-marketing solution as a hosted service or as a
traditional software license and through myMarketFirst.com. Our hosted service
runs on MarketFirst-managed servers and is available through a reliable, high-
performance, secure global Internet network. Our network architecture is
designed to ensure responsiveness and allows customers to easily define which
marketing personnel will have access to hosted servers to maintain application
integrity and to secure campaign information.

e-Marketing Software Platform

The core of our comprehensive solution is our e-marketing software platform.
This platform provides an easy-to-use, interactive design environment to define
the launch and execution of e-marketing programs. With our software platform,
an organization's marketing campaigns can be managed centrally through its web
site. The platform utilizes easy-to-use graphical and editing components to
build marketing applications quickly. The platform is comprised of the
following campaign management components:

Live Marketing Calendar. Graphically represents all marketing programs and
campaigns and allows customers to view the activity and status of their e-
marketing campaigns.

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Audience Management. Builds and manages a contact database, including the
gathering of customer contacts, profiles and behavioral information. The module
allows users to organize data for targeted marketing programs.

Document Management. Enables the importation and creation of documents for e-
marketing campaigns that can be delivered on a personalized level, such as
interactive web pages, e-mails and faxes.

Program Design and Management. Allows marketing professionals to design
marketing campaigns visually through a graphical interactive process flow
application.

Reporting and Analysis. Provides reporting and analysis capabilities to
assess the effectiveness of marketing programs. Reports are accessible on-line
quickly and may also be scheduled on a periodic basis or triggered by specific
events.

Marketing KnowledgeBase. The primary repository of all data collected with or
used by the MarketFirst solution. This data includes customer and prospect
information from both historical and new interactions, marketing documents and
templates, campaign information, results and metrics.

Administrative Control. Provides access to all campaigns through multi-level
security. Campaigns can be developed, launched, suspended, altered, archived
and re-used under a permission model.

eMarketing Blueprints

Our comprehensive e-marketing solution includes a library of predefined and
easy-to-customize marketing campaign templates, called eMarketing Blueprints,
that are designed to use the capabilities of the e-marketing software platform.
Our eMarketing Blueprints automate and optimize the steps in the e-marketing
campaign process. We design these Blueprints for use by marketing departments
without the need for dedicated IT staff support. The Blueprints include
easy-to-use templates and sample documents, based on marketing best practices
from a wide range of industries. Our customers can integrate their own
information into the templates for rapid execution of marketing campaigns or
they can customize the tools and templates to suit their specific marketing
practices. The Blueprints enable organizations to target and qualify their
customers and prospects, distribute and manage leads effectively, maintain
personalized customer relationships, and identify and manage their channel and
e-commerce trading partners. We offer the following eMarketing Blueprints:

eDirect Marketing. Creates, designs and executes multi-channel promotional
campaigns through the Web, e-mail and fax. This Blueprint enables our customers
to segment their target audience so that they can personalize their
communications and ensure that the right message reaches the intended
recipient. Using this Blueprint, users can save information on each prospect's
personal preferences and perform real-time reporting and analysis to test and
evaluate campaigns.

Automated Lead Qualification and Distribution. Enables our customers to
qualify and distribute leads to their direct sales channel, efficiently and
cost-effectively. This Blueprint helps organizations nurture leads and turn
them into sales by maintaining personalized contact with prospects and
educating them about the organization's products and services.

Channel Lead Management. Monitors and analyzes the conversion of leads in
indirect sales or distribution channels. This Blueprint allows organizations'
sales and marketing managers to monitor the source of the leads, manage the
distribution of the leads to channel partners and measure lead

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conversion by each channel partner. This Blueprint's monitoring and analyzing
capabilities enable organizations to evaluate and improve their lead generation
and customer acquisition programs so that they can generate more productive
leads and deliver better returns on their channel marketing investments.

Media Response Blueprint. Customizes each visitor's experience at web sites
while gathering and aggregating relevant web site visitor information. Using
this Blueprint, organizations can identify the best leads coming through the
Web and evaluate which of their on-line media placements, such as web banner
advertisements, are more effective.

Automated Web Seminar Management. Enables our customers to target, invite and
register their best prospects for scheduled seminars conducted over the
Internet. This Blueprint allows our customers to conduct an interactive
dialogue with attendees after the seminar through web-based surveys and e-
mails. This Blueprint also includes reporting capabilities that allow our
customers to assess and analyze the success of their web seminar programs at
any stage.

Partner and Channel Management. Develops, manages and maintains a directory
of information for a network of indirect channels of sales and marketing
partners. This Blueprint allows organizations to maintain up-to-date
information about their channel partners.

Event Management. Automates the event management process, from design,
promotion and registration through final billing and individualized follow-up.
This Blueprint provides a set of documents for personalized on-line
communications with invitees. Our customers' prospects automatically receive
announcements, special offers, literature fulfillment and responses to their
requests. This Blueprint enables our customers to measure the results of each
event they sponsor through customer satisfaction surveys and customizable
reports that provide information which can be used to design future events.

E-commerce Trading Partner Development. Allows users to develop and manage e-
commerce trading communities. Organizations can engage in on-line dialogue with
promising partners, use web-based surveys to assess their e-commerce
capabilities, and provide the prospective partners with educational information
through the Web, e-mail, print or fax. This Blueprint supplies processes and
guidelines to measure the success of their e-commerce partner relationships and
quickly track revenues and return on investment by trading partner, company and
other criteria.

Technology

Our solution is based on core technologies that integrate our e-marketing
software platform and the eMarketing Blueprints into a seamless application.
The primary components are listed below:

Application Server. This is the central workflow engine of the MarketFirst
platform. The Application Server is written in C++ and supports both Windows NT
and Solaris platforms. We use commercial componentry software for our
Application Server to provide advanced scalability, reliability and
functionality.

Automated Program Director. The Automated Program Director, or APD, enables
multiple media distribution and input to the Application Server. Written
completely in Java, the APD supports both Windows NT and Solaris platforms. The
APD recognizes media preferences stored in the MarketFirst KnowledgeBase for
individual targets and automatically formats and manages communications to that
target according to the designated media preference.

Report Server. Our Report Server automates the reporting process. By using
the Report Server, our customers can access reports from any Internet-enabled
device through a standard browser. The

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jReport Server supports dynamic analysis and enables real-time reporting. Our
Report Server is based on the industry leading Microsoft Excel Reporting and
the SQRIBE Technologies Reporting Server from Brio Corporation.

MarketFirst KnowledgeBase and the MarketFirst DataMart. These databases house
all of the information for our applications. The KnowledgeBase supports both
Oracle and Microsoft SQL servers and contains all imported list and
segmentation data, the generated application business rules and objects, and
the marketing content files, such as letters, e-mails and text files. The
MarketFirst DataMart contains extracted data from the KnowledgeBase for
reporting purposes.

Professional Services

To complement our product and service offerings, we provide a variety of
professional services to our customers to assist them in the rapid
implementation of our e-marketing solution and to support them as they design
and execute e-marketing campaigns.

e-Marketing Consulting. We bring extensive e-marketing expertise to our
customers by providing a full-range of e-marketing consulting services designed
to assist them in optimizing their marketing initiatives and the use of our
products and services. We work closely with our customers to develop integrated
e-marketing strategies, customer segmentation models, event-driven campaign
designs, and effective campaign test and measurement techniques.

Implementation. We provide customer-specific implementation services, which
include user, technical and systems orientation, hosted operational support and
campaign administration. By using our implementation services, our customers
can deploy and manage their e-marketing campaigns more quickly and effectively.

Training. We provide training and other educational services to our
customers. By attending our training classes, our customers' marketing
professionals can become proficient at using our products and services to
design and launch effective marketing campaigns.

Support and Maintenance. We offer support and maintenance services, which
provide our customers with hotline technical support and remote dial-in
services to maintain and enhance the performance of our solution.

Customers

As of July 31, 2000, more than 40 customers have purchased our e-marketing
services. Our customers include the following:

<TABLE>
<S> <C> <C>
. Autodesk .GE Plastics .Pharmacia
. Brodeur .GTE .QDecor.com
. Castelle .Hire.com .Quantum
. Celarix .Kellogg Northwestern .Rhythms
. Christianity.com .Kern .SalesLogix
. Clarify .Luna .SAP AG
. Commercialware .Micromuse .Sciquest
. CommVault Systems .Micron .ShopNow.com
. Documentum .Niku .Sun Microsystems
. Ernst & Young .Nortel Networks .ViZium
. Excite .NorthPoint Communications
</TABLE>

In addition, as a result of our recent acquisition of FusionDM, we have added
additional customers such as 3Com, 21st Century Insurance and UnitedHealthcare.

42
<PAGE>

The following case studies illustrate how some companies are using our e-
marketing solution.

GTE: Building Customer Loyalty and Retention

GTE.net, GTE's Internet Service Provider, offers dial-up access to consumers
and small businesses.

Business Challenge. GTE found the highest attrition rates occurred in its
customer base within the first three months of service and wanted to provide
new customers during those first three months with pertinent suggestions for
using their new access to the Internet. To meet its customer retention
objectives, GTE required a national on-line marketing program that would build
a one-to-one relationship with each customer so that GTE could personalize its
service to each individual's preferences. GTE believed that if it could provide
relevant usage suggestions, customers would obtain additional value from GTE's
services, thereby increasing customer loyalty and improving overall customer
retention rates.

Solution. GTE selected us to build its personalized relationships through an
e-marketing campaign. Within 30 days of selecting us, GTE implemented a series
of e-mail campaigns, beginning with a welcome letter sent to over 20,000 new
customers every week. Following the welcome letter, weekly e-mail updates were
provided to gather personalized web user information through a series of
multiple-choice questions. These questions initially related to things such as
demographics and familiarity with the Internet, and subsequently became more
specific over time to identify purchasing interests. Using our hosted solution
and the eDirect Marketing Blueprint, GTE was able to analyze responses that
were captured in a dynamic database, which allowed GTE to deploy targeted
ongoing communication. GTE believes that it significantly reduced account
attrition as a result of its new e-marketing campaigns.

NorthPoint Communications: Quick Access to Widely Distributed Markets

NorthPoint Communications provides high-speed Internet access using Digital
Subscriber Lines, or DSL.

Business Challenge. NorthPoint needed to manage and effectively distribute
new DSL customer leads to its extensive partner network, track closing rates
and measure return on investment. The desired solution would drive potential
customers to NorthPoint's web site, educate them, capture geographical
information and automatically respond with the available DSL speeds in their
area. The solution would then automatically distribute individual leads to the
appropriate channel partners and allow for easy follow-up. NorthPoint also
required the ability to measure campaign and partner effectiveness quickly.

Solution. NorthPoint employed our Channel Lead Management Blueprint to manage
its customer leads with its indirect channel partners. When a prospect visits
NorthPoint's web site inquiring about DSL service, a MarketFirst-generated lead
qualification process is initiated. This process includes integration with an
existing program that evaluates DSL availability in specific geographical
regions and uses that information to return a personalized response to the
prospect. Prospects can educate themselves on DSL, understand what options they
have in their specific region and request additional information. After
requesting additional information, the prospects become qualified leads.
NorthPoint's partners receive these leads through e-mail or by visiting a
password-protected web site hosted by MarketFirst. Leads are distributed to
partners using NorthPoint's business rules, and partners are automatically
contacted for follow-up regarding the outcome of each lead, providing
NorthPoint with valuable information on which campaigns are effective and which
partners are experiencing success. Within the first six months of using
MarketFirst, Northpoint generated approximately 100,000 leads. NorthPoint
believes that this program helped it more than double the size of its lead
database.

43
<PAGE>

Quantum Corporation: From Web Advertising to Customer Interaction

Quantum Corporation's Snap Division is a provider of network-attached storage
devices.

Business Challenge. On-line media in the form of web banner advertising is a
key component of Quantum's marketing mix. Quantum needed to track how prospects
reached its web site, qualify their buying potential, and ultimately distribute
leads to the appropriate channel. Quantum believed that a dynamic and
personalized interaction with its prospects would yield higher quality leads.
In addition, with a diverse customer base, ranging from small businesses to
Fortune 1000 companies, and several hundred channel partners, it was critical
for Quantum to distribute leads efficiently.

Solution. Using MarketFirst's hosted solution, Quantum can track which web
banner or other marketing campaigns generated traffic to its web site, allowing
Quantum to provide its prospects with a personalized response. MarketFirst
provides additional qualification questions focused on the prospects' product
interests and storage needs. Depending on the responses to these questions,
prospects are categorized and ranked as leads and then routed to the
appropriate sales channel based on Quantum's business rules. By using
MarketFirst to manage this web-driven lead qualification and distribution
campaign, Quantum has efficiently distributed hundreds of high quality leads to
the appropriate sales channel, resulting in a significant increase in its
customer base.

Sales and Marketing

We primarily utilize a direct sales force to market our products and services
in the United States. We have sales offices in Mountain View, California; Seal
Beach, California; Bellevue, Washington; Dallas, Texas; Atlanta, Georgia;
Natick, Massachusetts; Iselin, New Jersey; Reston, Virginia; and as of July
2000, Middlesex, United Kingdom. We generally sell to senior marketing
management, or, in some organizations, a senior manager of an e-commerce
business unit. Each potential customer's IT group often plays an advisory role
in evaluating our products and services. Our professional services group also
often participates in the sales process by defining implementation and
integration requirements based on an individual customer's needs. The sales
process generally ranges from one to three months.

Our marketing department builds market awareness of our company, our brand
and products and services through web-based seminars, e-mail newsletters and e-
marketing campaigns. We conduct the web seminars twice a month, with attendance
ranging from 25 to over 100 participants. We use these programs to generate and
confirm registrations and to implement follow-up programs. In addition, we
market through traditional direct marketing techniques, such as print
advertisements, billboards, telemarketing, targeted direct mailing and a
variety of trade shows and seminars.

Strategic Relationships

We intend to continue to develop strategic relationships to enhance our e-
marketing solution. These relationships enhance the breadth and depth of our
product and service offerings and complement our sales, marketing and
implementation efforts. We invest in relationships that provide meaningful
value to our business and customers. Our strategic relationships include:

Hosting Relationship. We have a strategic agreement with Exodus
Communications to be an Internet service provider for our hosted customers.
Exodus enhances the reliability of our e-marketing service by providing
continuous management of our hosted application servers and by increasing the
Internet bandwidth available for our customers' solutions.

Technology Relationships. We have formed, and intend to expand, our technical
support relationships with vendors whose products complement our offerings.
These vendors include Acxiom Corporation, zapdata Corporation and SQRIBE
Technologies Corp., a subsidiary of Brio Corporation.

44
<PAGE>

Joint Sales and Marketing Relationships. We have formed, and are currently
expanding, joint sales and marketing relationships under which we will offer
the MarketFirst solution to the customer base of our partners, or together with
the products of our partners, to create an integrated solution that our
partners can sell to their customers. We currently have joint sales and
marketing relationships with Personify Corporation, Clarify Corporation, SAP
Labs, Inc. and US Web Cornerstone. Although we believe these relationships can
provide meaningful value to our business and customers, to date, we have not
sold any of our products or services as a result of these relationships. In
addition, some of these relationships are terminable by either partner upon 30
days' notice.

Professional Consulting Relationships. We work with Ernst & Young on a
project-by-project basis for implementation and value-added consulting
services. We intend to develop more relationships with selected professional
consulting firms to expand the consulting services available to our customers.

Research and Development

We focus our research and development efforts on enhancing our technology and
existing products and developing additional applications that enable
organizations to manage their marketing campaigns. Members of our research and
development group have extensive experience in Internet-based technology,
customer/server database applications and connectivity technologies. Our
engineering team is responsible for enhancing our current products, and
exploring and developing new product technologies. We supplement our internal
software development efforts with outside contractors who can perform discrete
programming tasks effectively. Our software development approach consists of a
well-defined methodology that provides guidelines for planning, controlling and
implementing projects. Our engineering teams work closely with our quality
assurance teams in an effort to ensure quality product releases. When each
product approaches release, the software undergoes rigorous, interactive
testing, code stabilization and documentation. Our future success depends
largely on our ability to continue enhancing existing products and to develop
new ones that reinforce our competitive position and our value proposition to
customers. We will continue to make substantial financial and organizational
investments in research and development.

Competition

The market for e-marketing solutions is highly competitive and subject to
rapid technological change, and we expect competition to continue and to
increase in the future.

We believe that the principal competitive factors affecting our market are:

. ability to provide a cost-effective solution;

. speed of implementation of e-marketing campaigns;

. reliability, scalability and ease-of-use of products;

. quality of professional services and customer support; and

. quality and effectiveness of e-marketing campaigns.

Although we believe that our solution currently competes favorably as to each
of these factors, our market is evolving rapidly and we may not be able to
maintain our current competitive position against existing and new competitors.

45
<PAGE>

While we compete primarily with providers of e-marketing solutions, such as
Annuncio Software Inc. and Rubric, a subsidiary of Broadbase, we expect to
compete with additional companies which may include:

. e-mail marketing application companies, such as Digital Impact, Post
Communications and Responsys.com;

. data-mining and data warehouse companies, such as E.piphany and
Broadbase;

. traditional campaign management companies, such as Prime Response and
Exchange Applications; and

. existing sales force automation and customer support software companies,
such as Siebel, Vantive and Clarify.

Many of our competitors and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do. As a result, they may be able to respond more quickly
than we can to changes in technology or customer requirements, undertake more
extensive promotional activities, offer more attractive pricing terms, and
bundle their product and service offerings in a manner that would put us at a
competitive disadvantage.

Intellectual Property and Proprietary Rights

We regard our technology as proprietary and attempt to protect it by relying
on trademark, service mark, copyright and trade secret laws, confidentiality
agreements and other methods.

We hold United States federal and Canadian trademark registrations for
"MarketFirst." We have applied for registration of other of our marks 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 over the Internet, and policing unauthorized use
of our proprietary information is difficult. We currently have no patents or
patents pending and do not anticipate that patents will become a significant
part of our intellectual property in the foreseeable future

We also generally enter into confidentiality or license agreements with our
customers, employees and consultants, and generally control access to and
distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our proprietary information without authorization or to develop
similar technology independently. Furthermore, the validity, enforceability and
scope of protection of intellectual property in Internet-related industries is
uncertain and still evolving. The laws of some foreign countries do not protect
intellectual property to the same extent as do the laws of the United States.

We may have to enter into litigation to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others with respect to our rights. Litigation is generally very expensive and
can divert the attention of management from daily operations. Accordingly,
intellectual property litigation could harm our business.

We are not aware of any case in which we are infringing the proprietary
rights of others. However, third parties may bring infringement claims against
us. Any such claim is likely to be time consuming and costly to defend, could
cause product delays and could force us to enter into unfavorable royalty or
license agreements with third parties. A successful infringement claim against
us could require us to enter into a license or royalty agreement with the
claimant or develop alternative technology. However, we may not be able to
negotiate favorable license or royalty

46
<PAGE>

agreements, if any, in connection with such claims, and we may fail to develop
alternative technology on a timely basis. Accordingly, a successful product
infringement claim against us could harm our business.

Employees

As of July 31, 2000, we had 159 full-time employees, including 35 in
engineering, 54 in sales and marketing, 12 in finance and administration, and
58 in customer support and professional services. As a result of the
acquisition of FusionDM, we also added an additional 63 employees. Based on our
growth plans, we anticipate hiring a significant number of employees over the
next 12 months. From time to time we also employ independent contractors to
support our research and development, marketing, sales, support and
administrative functions. As of July 31, 2000, we employed 20 contractors, 7 of
which supported our research and development efforts, 7 of which supported our
sales and marketing efforts and 6 of which supported our general and
administrative efforts. Our employees are not represented by any collective
bargaining unit, and we have never experienced a work stoppage. We believe our
relations with our employees to be good.

Facilities

Our corporate headquarters are currently located in a leased facility in
Mountain View, California and consist of approximately 66,000 square feet of
office space. The facility is under a seven-year operating lease, which expires
in April 30, 2007. We believe that our existing facilities are adequate to meet
our current needs and that suitable additional space will be available in the
future, if necessary, on commercially reasonable terms.

Legal Proceedings

We currently are not a party to any material litigation. We may in the future
be party to litigation in the course of our business.

47
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth the names, ages and positions of our executive
officers and directors as of August 31, 2000. The background of each person
listed in the table is described below.

<TABLE>
<CAPTION>
Name Age Position
<C> <S> <C>
Officers:
Peter R. Tierney.................... 55 President, Chief Executive Officer and Director
Anurag Khemka....................... 36 Chief Technology Officer and Director
Christopher E. Peterson............. 40 Senior Vice President and Chief Marketing Officer
Tommy Hawkins....................... 45 Vice President of Engineering
Robert W. Sator..................... 40 Vice President of Finance and Administration
Dean Geannacopulos.................. 45 Vice President of Technical Services
Matthew D. Kuckuk................... 42 Vice President of Professional Services
Thierry Zamora...................... 35 Vice President

Directors:
Douglas A. Lindgren(a)(b)........... 38 Director
Alexander Rosen..................... 32 Director
Randall C. Bolten(b)................ 47 Director
Stephen R. Chapin, Jr.(b)........... 37 Director
James D. Power III(a)............... 69 Director
Thomas N. Clancy.................... 42 Director
</TABLE>
--------
(a) Member of Compensation Committee
(b) Member of Audit Committee

Officers

Peter R. Tierney has served as our President, Chief Executive Officer and
director since July 1998. From April 1998 to May 1998, Mr. Tierney served as a
consultant to Siebel Systems Corporation, a salesforce automation company. From
January 1991 to March 1998, Mr. Tierney served as Chairman, President and CEO
of Inference Corporation, a provider of self-service and knowledge management
tools for the customer service and help desk industries. From January 1986 to
January 1991, Mr. Tierney served as Senior Vice President of Oracle
Corporation, a software company, where he was responsible for worldwide
marketing and served as a member of the Oracle Management Committee. Mr.
Tierney holds a B.S./B.A. in Management and Economics from Northeastern
University.

Anurag Khemka is one of our founders, has served as a director and in many
executive positions since our inception in August 1996 and is currently our
Chief Technology Officer. From February 1995 to June 1996, Mr. Khemka was the
Director of Research and Development at Cambio Networks, a network management
software company. From February 1989 to February 1995, he held several
positions with UB Networks, a computer network company, including software
engineer, Engineering Development Manager and Chief Product Architect for
enterprise-wide customer/server and network management products. Mr. Khemka
holds a Bachelor of Technology in Electrical Engineering from the Indian
Institute of Technology, New Delhi and an M.S. in Computer Science from the
University of Southwestern Louisiana, Lafayette.

Christopher E. Peterson has served as Senior Vice President and Chief
Marketing Officer of MarketFirst since July 2000. He also serves as the Chief
Executive Officer of FusionDM, Inc., a wholly-owned subsidiary of MarketFirst,
which acquired Times Direct Marketing, Inc. in July 2000. From March 1992 to
July 2000, he served as the Chief Executive Officer of Times Direct Marketing,
Inc. Mr. Peterson holds a B.A. in English and Physics from Amherst College.

48
<PAGE>

Tommy Hawkins has served as Vice President of Engineering since November
1998. From May 1998 to June 1998, Mr. Hawkins was Vice President of Engineering
of Front Office Technologies, a software company. From March 1996 to April
1998, he was President of Hawkins Consulting, an independent software
consulting firm. From February 1993 to February 1996, Mr. Hawkins held several
positions with Visigenic Software Incorporated, a software company, including
Vice President of Engineering and Director of Engineering. Mr. Hawkins holds a
B.S. in Information and Computer Science from the Georgia Institute of
Technology and an M.S. in Medical Information Science from the University of
California at San Francisco.

Robert W. Sator has served as Vice President of Finance and Administration
since July 1998. From July 1994 to June 1998, Mr. Sator served as Vice
President of Finance and Operations of WorldPlay Entertainment, an on-line
interactive software developer and a wholly-owned subsidiary of America On-
line. From October 1993 to June 1994, Mr. Sator served as controller for
Woodside Technologies, a developer and reseller of UNIX-based software. From
May 1985 to September 1993, he served as controller for The Prometheus Company,
a diversified real estate development and investment service company. Mr. Sator
began his career with Arthur Andersen & Company, where he served as a senior
auditor advising both hardware and software companies. Mr. Sator is a C.P.A.
and earned a B.S. in Business Administration and Accounting from Cal Poly, San
Luis Obispo.

Dean Geannacopulos has served as Vice President of Technical Services since
August 1999. From June 1997 to August 1999, he was our Director of Engineering
Operations. From January 1997 to June 1997, Mr. Geannocopulos was an
engineering manager at Uniteq Application Systems, a software development
company. From October 1996 to January 1997, Mr. Geannacopulos was an
independent engineering consultant principally designing software products.
From July 1994 to October 1996, he was a senior consultant for EnaTec, a
software development company, in connection with its acquisition by Wonderware,
and following the acquisition he consulted with Wonderware to support
integration of EnaTec's products. Mr. Geannacopulos holds a B.S. in Biology
from San Jose State University.

Matthew D. Kuckuk has served as Vice President of Professional Services since
December 1999. From August 1999 to December 1999, Mr. Kuckuk was the managing
director of e-commerce at IDLX Technology Partners, an IT consulting firm. From
October 1988 to August 1999, he was a Vice President of American Management
Systems, a technology consulting and software company. From September 1983 to
September 1988, Mr. Kuckuk served as a Senior Project Manager of Fair, Isaac
Co., a consulting firm. Mr. Kuckuk holds a Masters in Operations Research from
the University of California-Berkeley and a B.S. in Industrial Engineering from
the University of Wisconsin-Madison.

Thierry Zamora has served as a Vice President of MarketFirst and as the
President of FusionDM, Inc. since July 2000. Mr. Zamora held the position of
Chief Operating Officer of Times Direct Marketing, Inc. from May 1998 until its
recent merger into FusionDM, Inc. From November 1993 until April 1998, he held
various management positions with DraftWorldwide, an advertising agency.
Mr. Zamora holds a Bachelor of Engineering from McGill University (Montreal)
and an M.B.A. from I.F.A.M. (Paris)/Pace University (New York City).

Directors

Douglas A. Lindgren has served as a director of MarketFirst since October
1999. Since April 1995, Mr. Lindgren has held several positions with United
States Trust Company of New York and currently is Managing Director. He has
also served as Chief Investment Officer of Excelsior Private Equity Fund II,
Inc. since its inception in April 1997 and is Excelsior's designee on our
board. From January 1988 through March 1995, Mr. Lindgren served in various
capacities for Inco Venture Capital Management, Inc., including the positions
of President and Managing Principal from January 1993 through March 1995.
Before joining Inco Venture Capital Management, Inc., Mr. Lindgren was

49
<PAGE>

employed at Salomon Brothers Inc and Smith Barney, Harris Upham & Co., Inc. He
is an Adjunct Professor of Finance at Columbia University's Graduate School of
Business, where he has been teaching courses on venture capital since 1993. Mr.
Lindgren currently serves on the board of directors of LifeMinders.com, Inc.
Mr. Lindgren holds an A.B. in Economics and an M.B.A. from Columbia University.

Alexander Rosen has served as a director of MarketFirst since March 2000. Mr.
Rosen has been with the Sprout Group, a venture capital firm, since 1996, most
recently as a general partner. From July 1993 to August 1994, he served as an
associate of General Atlantic Partners, a venture capital firm, focusing on
software investments. He is also a director of Quintus Corporation. Mr. Rosen
received a B.S. in Electrical Engineering and Economics from the Massachusetts
Institute of Technology and an M.B.A. from Stanford University Graduate School
of Business.

Randall C. Bolten has served as a director of MarketFirst since March 2000.
Since September 1, 1995, Mr. Bolten has served in several positions with
BroadVision, Inc., a software company, and he is currently their Executive Vice
President and Chief Financial Officer. From 1994 to 1995, Mr. Bolten served as
a financial consultant to various entrepreneurial enterprises. From 1992 to
1994, Mr. Bolten served as Chief Financial Officer of BioCAD Corporation, a
supplier of drug discovery software products. From 1990 to 1992, Mr. Bolten
served as Chief Financial Officer, Business Development Unit and then Vice
President, Finance of Teknekron, a company engaged in the management of various
high technology companies. Mr. Bolten has also held financial management
positions at Oracle Corporation and Tandem Computers Incorporated. He received
an A.B. in Economics from Princeton University and an M.B.A. from Stanford
University.

Stephen R. Chapin, Jr. has served as a director of MarketFirst since March
2000. Mr. Chapin co-founded LifeMinders.com, Inc. in August 1996 and has served
as its President, Chief Executive Officer and Chairman of the Board since
August 1996. From September 1995 to October 1996, Mr. Chapin served as a Vice
President at First USA Bank. From September 1993 to September 1995, Mr. Chapin
was a management consultant at McKinsey & Company. From 1985 to 1990, Mr.
Chapin served in the U.S. Navy, as the Secretary of the Navy's liaison to
Congress and as a naval engineering and weapons officer. Mr. Chapin received a
B.S. in Engineering from the U.S. Naval Academy and an M.B.A. from the Harvard
Business School.

James D. Power III has served as a director of MarketFirst since April 2000.
Mr. Power founded J.D. Power and Associates, a marketing information company.
Mr. Power has served as Chief Executive Officer of J.D. Power since its
inception in 1968, and as Chairman of the Board since 1996. He is also a
director of The Cobalt Group, Inc. Mr. Power holds an M.B.A. from The Wharton
School of Business and a B.A. from the College of the Holy Cross.

Thomas N. Clancy has served as a director of MarketFirst since August 2000.
Mr. Clancy has been a general partner of Enterprise Partners Venture Capital
since October 1999 and was a venture partner of Enterprise Partners from
February 1999 to October 1999. Prior to joining Enterprise Partners in
September 1996, Mr. Clancy was a partner of Technical Resource Connection, now
Perot Systems, a provider of information technology services, from February
1996 to August 1996. Previously, Mr. Clancy served as the Chief Executive
Officer of Expersoft from May 1994 to January 1996 and as Vice President of
Product Marketing of Expersoft from October 1993 to May 1994. From March 1983
to November 1991, Mr. Clancy was employed by Citibank in engineering management
and product development. He is also a director of Stamps.com Inc. Mr. Clancy
received a B.S. in Computer and Systems Engineering from Rensselaer Polytechnic
Institute.

All executive officers are appointed annually by, and serve at the discretion
of, our board of directors.

50
<PAGE>

Classified Board

Our certificate of incorporation provides that the board of directors will be
divided into three classes. The term of office of directors assigned to class I
will expire at the annual meeting of stockholders in 2001 and at each third
succeeding annual meeting after that. The term of office of directors assigned
to class II will expire at the annual meeting of stockholders in 2002 and at
each third succeeding annual meeting after that. The term of office of
directors assigned to class III will expire at the annual meeting of
stockholders in 2003 and at each third succeeding annual meeting after that.
Our board has resolved that Messrs. Bolten, Chapin and Power will serve as
class I directors, Messrs. Lindgren, Rosen and Clancy will serve as class II
directors, and Messrs. Tierney and Khemka will serve as class III directors.

Committees of the Board of Directors

The board of directors has established an audit committee and a compensation
committee. Messrs. Bolten, Chapin and Lindgren are members of the audit
committee. The functions of the audit committee include recommending to the
board of directors the selection and retention of independent auditors,
reviewing the scope of the annual audit undertaken by our independent auditors
and the progress and results of their work, and reviewing the financial
statements and internal accounting and auditing procedures.

Messrs. Lindgren and Power are members of the compensation committee. The
functions of the compensation committee include establishing the compensation
of the Chief Executive Officer, reviewing and approving executive compensation
policies and practices, reviewing salaries and bonuses for executive officers,
and considering such other matters as may, from time to time, be delegated to
the compensation committee by the board of directors.

Director Compensation

All non-employee directors will receive $2,000 for each meeting they attend
after the close of this offering. We reimburse our directors for all reasonable
and out-of-pocket expenses incurred in connection with their attendance at
board meetings. In addition, each of Messrs. Chapin, Bolten and Power was
granted an option to purchase 40,000 shares of our common stock at an exercise
price of $2.87 per share upon his joining our board of directors. Such options
vest over four years and terminate ten years from the date of grant.

Compensation Committee Interlocks and Insider Participation

Our compensation committee consists of Messrs. Lindgren and Power. No
executive officer has served as a director or member of the compensation
committee, or other committee serving an equivalent function, of any entity
whose executive officers served as a member of the compensation committee of
our board of directors. The full board of directors has in the past made all
decisions regarding executive officer compensation and the granting of stock
options.

Indemnification

Our amended and restated certificate of incorporation provides that no
director shall be personally liable to us or any of our stockholders for
monetary damages or breach of fiduciary duty as a director, except for
liability for (i) breach of their duty of loyalty to us or our stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) unlawful payment of dividends or
unlawful stock repurchases or redemptions, or (iv) any transaction from which
the director derived an improper personal benefit.

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<PAGE>

Executive Compensation

The following table sets forth the aggregate compensation earned by our
President and Chief Executive Officer and each of our other four most highly
compensated executive officers (the "Named Executive Officers") for services
rendered in all capacities for the year ended December 31, 1999. The
compensation table excludes other compensation in the form of perquisites and
other personal benefits that constitutes the lesser of $50,000 or 10% of the
total salary and bonus earned by each of the Named Executive Officers in 1999.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Peter R. Tierney................ $208,000 $54,538 225,581 $23,944(5)
President and Chief Executive
Officer(1)
Ray S. Rike(2).................. 175,000 55,474(4) 40,000 --
Vice President of Sales and
Business Development
Russell J. Henry(3)............. 151,250 59,993 230,000 --
Vice President of Marketing
Anurag Khemka................... 150,000 16,627 40,000 --
Chief Technology Officer
Tommy Hawkins................... 150,000 16,627 52,877 --
Vice President of Engineering
</TABLE>
--------
(1) Does not include $99,000 of his 1998 base salary paid in 1999.

(2) Mr. Rike resigned from MarketFirst in August 2000.

(3) Mr. Henry joined us in February 1999 and resigned from MarketFirst in May
2000.

(4) Represents sales commissions.

(5) Consists of an automobile allowance of $18,000, and the additional amount
of interest the executive would have had to pay if he obtained his company
loan from a third party. See "Certain Transactions--Other Transactions."

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<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth certain information concerning grants of
options to the Named Executive Officers during 1999. No stock appreciation
rights were granted to the Named Executive Officers during 1999.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Appreciation for
Individual Grants Option Term(4)
---------------------------------- -------------------
Numbers of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price/ Expiration
Granted(1) Fiscal Year(2) Share(3) Date 5% 10%
Name ---------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter R. Tierney........ 65,581 4.2 $0.18 1/31/09 835,368 1,330,184
160,000 10.3 0.18 6/30/09 2,038,073 3,245,291
Ray S. Rike............. 40,000 2.6 0.18 10/4/09 509,518 811,323
Russell J. Henry........ 200,000 12.9 0.18 1/31/09 2,547,591 4,056,613
30,000 1.9 0.18 10/4/09 382,139 608,492
Anurag Khemka........... 40,000 2.6 0.18 10/4/09 509,518 811,323
Tommy Hawkins........... 12,877 0.8 0.18 1/31/09 164,027 261,185
40,000 2.6 0.18 10/4/09 509,518 811,323
</TABLE>
--------
(1) Options were granted under our 1996 Equity Incentive Plan and generally
vest over four years from the date of grant. To the extent not already
exercisable, the options generally become exercisable upon a dissolution or
liquidation of MarketFirst, a merger or consolidation of MarketFirst in
which we are not the surviving corporation, or the sale of substantially
all of our assets, unless the options are assumed by the successor
corporation or substantially similar consideration is provided to the
optionees as was provided to our stockholders. However, certain of the
options granted to the Named Executed Officers vest upon such an
acquisition whether or not their options are assumed or similar
consideration is provided. See "Management--Employment and Severance
Arrangements."
(2) Based on an aggregate of 1,550,496 options granted by us in the year ended
December 31, 1999 to our employees, directors and consultants, including
the Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value
per share of common stock on the grant date, as determined by our board of
directors.
(4) The potential realizable values are calculated by:

. Multiplying the number of shares of common stock subject to a given
option by $8.00, the assumed initial public offering price;

. assuming that the amount divided from that calculation compounds at the
annual 5% or 10% rates shown for the entire ten-year term of the option;
and

. subtracting from that result the aggregate option exercise price.

53
<PAGE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

The following table sets forth information regarding option exercises by the
Named Executive Officers during 1999 and options held by them on December 31,
1999.

There was no public trading market for our common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $8.00 per share, less the applicable
exercise price per share, multiplied by the number of shares underlying such
options.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options at
Shares End Fiscal Year End
Acquired on Value ------------------------- -------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter R. Tierney........ -- $ -- 16,666 208,915 $133,328 $1,671,320
Ray S. Rike............. -- -- -- 40,000 0 320,000
Russell J. Henry........ -- -- -- 230,000 0 1,840,000
Anurag Khemka........... -- -- -- 40,000 0 320,000
Tommy Hawkins........... 43,333 -- -- 169,544 0 1,356,352
</TABLE>

Employment and Severance Arrangements

In July 1998, MarketFirst and Mr. Tierney entered into an employment
agreement for a period of four years plus extensions and renewals. As amended
as of January 1, 2000 and as further amended as of July 1, 2000, this agreement
provides Mr. Tierney with a base salary of $235,000, an annual car allowance of
$21,600 and a target bonus of $100,000 per year, payable quarterly upon
satisfaction of performance goals mutually agreed upon by Mr. Tierney and our
board of directors. In addition, the agreement provides other benefits during
its term and upon the termination of the employment of Mr. Tierney. If we
terminate Mr. Tierney's employment without cause, or if he terminates his
employment voluntarily for good reason, then he is entitled to six months of
base salary if he is terminated prior to July 1, 2001, or twelve months of base
salary if he is terminated after July 1, 2001. Upon a change in control, 50% of
the portion of Mr. Tierney's stock options which are unvested on the date of
such change in control shall immediately vest, and the remaining 50% of such
unvested portion shall continue to vest in accordance with their terms. The
employment agreement also includes provisions regarding the protection of our
confidential information and indemnification of Mr. Tierney by us.

Pursuant to our employment offer to Mr. Hawkins, upon the sale of
substantially all of our assets or a merger or consolidation of MarketFirst
("Merger Event") in which our stockholders prior to the Merger Event own less
than a majority of the outstanding shares of the surviving corporation, 50% of
the then unvested options of Mr. Hawkins shall be accelerated with respect to
his option grant of 160,000 shares of common stock on November 9, 1998.

Benefit Plans

2000 Stock Incentive Plan and 1996 Equity Incentive Plan

Introduction

The 2000 Stock Incentive Plan is intended to serve as the successor program
to our 1996 Equity Incentive Plan. The 2000 Stock Incentive Plan was adopted by
the board in April 2000 and approved by the stockholders in May 2000. The 2000
Stock Incentive Plan will become effective when the underwriting agreement for
this offering is signed. At that time, all outstanding options granted under
our 1996 Equity Incentive Plan will be transferred to the 2000 Stock Incentive
Plan, and no further option grants will be made under the predecessor plan. The
transferred options will continue

54
<PAGE>

to be governed by their existing terms, unless our compensation committee
decides to extend one or more features of the 2000 Stock Incentive Plan to
those options. Except as otherwise noted below, the transferred options have
substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 2000 Stock Incentive Plan.

Share Reserve

4,000,000 shares of our common stock have been authorized for issuance under
the 2000 Stock Incentive Plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1996 Equity Incentive Plan
plus an additional increase of approximately 3,600,000 shares. The share
reserve under our 2000 Stock Incentive Plan will automatically increase on the
first trading day in January each year, beginning with calendar year 2001, by
an amount equal to 5% of the total number of shares of our common stock
outstanding on the last trading day of December in the prior year, but in no
event will this annual increase exceed 2,500,000 shares. In addition, no
participant in the 2000 Stock Incentive Plan may be granted stock options or
direct stock issuances for more than 1,000,000 shares of common stock in total
in any calendar year.

Programs

Our 2000 Stock Incentive Plan has three separate programs:

. the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;

. the stock issuance program, under which eligible individuals may be
issued shares of common stock which will vest upon the attainment of
performance milestones or upon the completion of a period of service or
which are fully vested at issuance as a bonus for past services; and

. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition of
special below market stock option grants.

Eligibility

The individuals eligible to participate in our 2000 Stock Incentive Plan
include our officers and other employees, our board members and any consultants
we hire.

Administration

The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances under
those programs, the time or times when the grants or issuances are to be made,
the number of shares subject to each grant or issuance, the status of any
granted option as either an incentive stock option or a nonstatutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The compensation committee will also have the
authority to select the executive officers and other highly compensated
employees who may participate in the salary investment option grant program in
the event that program is put into effect for one or more calendar years.

Plan Features

Our 2000 Stock Incentive Plan will include the following features:

. The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.

55
<PAGE>

. The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1996 Equity Incentive Plan, in return for
the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market value
of our common stock on the new grant date.

. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. No stock appreciation rights are
outstanding under our 1996 Equity Incentive Plan.

Change in Control

The 2000 Stock Incentive Plan will include the following change in control
provisions which may result in the accelerated vesting of outstanding option
grants and stock issuances:

. In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will immediately become
exercisable for all the option shares, and all outstanding unvested
shares will immediately vest, except to the extent our repurchase rights
with respect to those shares are to be assigned to the successor
corporation.

. The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under our 2000 Stock Incentive Plan may
be accelerated upon similar terms and conditions.

. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. Such accelerated
vesting may occur either at the time of such transaction or upon the
subsequent termination of the individual's service.

. The options currently outstanding under our 1996 Equity Incentive Plan
will generally vest immediately in the event of a merger or consolidation
of MarketFirst in which we are not the surviving corporation, or the sale
of substantially all of our assets, unless those options are assumed by
the successor company or substantially similar consideration is provided
to the optionees as was provided to our stockholders.

Salary Investment Option Grant Program

In the event the compensation committee decides to put this program into
effect for one or more calendar years, each of our executive officers and other
highly compensated employees may elect to reduce his or her base salary for the
calendar year by an amount not less than $10,000 nor more than $50,000. Each
selected individual who makes such an election will automatically be granted,
on the first trading day in January of the calendar year for which his or her
salary reduction is to be in effect, an option to purchase that number of
shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of our common stock on the grant
date. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal
to

56
<PAGE>

the amount of the salary reduction. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which
the salary reduction is to be in effect.

Additional Program Features

Our 2000 Stock Incentive Plan will also have the following features:

. Outstanding options under the salary investment option grant program will
immediately vest if we are acquired by a merger or asset sale or if there
is a successful tender offer for more than 50% of our outstanding voting
stock or a change in the majority of our board through one or more
contested elections.

. Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program, and
these rights may also be granted to one or more officers as part of their
option grants under the discretionary option grant program. Options with
this feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.

. The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than April 7, 2010.

2000 Employee Stock Purchase Plan

Introduction

Our 2000 Employee Stock Purchase Plan was adopted by the board in April 2000
and approved by the stockholders in May 2000. The plan will become effective
immediately upon the signing of the underwriting agreement for this offering.
The plan is designed to allow our eligible employees and the eligible employees
of our participating subsidiaries to purchase shares of common stock, at semi-
annual intervals, with their accumulated payroll deductions.

Share Reserve

800,000 shares of our common stock will initially be reserved for issuance.
The reserve will automatically increase on the first trading day in January
each year, beginning in calendar year 2001, by an amount equal to 1 1/2% of the
total number of outstanding shares of our common stock on the last trading day
in December in the prior year. In no event will any such annual increase exceed
800,000 shares.

Offering Periods

The plan will have a series of successive offering periods, each with a
maximum duration of 24 months. The initial offering period will start on the
date the underwriting agreement for this offering is signed and will end on the
last business day in May 2002. The next offering period will start on the first
business day in June 2002, and subsequent offering periods will be set by our
compensation committee.

Eligible Employees

Individuals who have completed at least 90 days of service with MarketFirst
and are scheduled to work more than 20 hours per week for more than five
calendar months per year may join an offering period on the start date or any
quarterly entry date within that period. Quarterly entry dates

57
<PAGE>

will occur on the first business day of March, June, September and December
each year. Individuals who become eligible employees after the start date of an
offering period may join the plan on any subsequent quarterly entry date within
that offering period.

Payroll Deductions

A participant may contribute up to 15% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each quarterly purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the quarterly purchase date. Quarterly purchase dates
will occur on the last business day of February, May, August and November each
year. In no event, however, may any participant purchase more than 5,000 shares
on any purchase date, and not more than 800,000 shares may be purchased in
total by all participants on any purchase date.

Reset Feature

If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day. All
participants in the terminated offering will be transferred to the new offering
period.

Change in Control

Should we be acquired by merger or sale of substantially all of our assets or
more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the participant's entry date into the offering period in which an
acquisition occurs or, if lower, 85% of the fair market value per share
immediately prior to the acquisition.

Plan Provisions

The plan will terminate no later than the last business day of April 7, 2010.
In addition, the board may at any time amend, suspend or discontinue the plan.
Certain amendments may require stockholder approval.

401(k) Plan

Effective January 1, 1997, we established an employee savings and retirement
plan covering all of our employees. Pursuant to our 401(k) Plan, employees who
have attained age 18 may elect to reduce their current compensation by up to
15% of compensation, which will not exceed the annual limit prescribed by
statute of $10,500 in 2000, and contribute the amount of such reduction to the
401(k) Plan. The 401(k) Plan allows for matching contributions to the 401(k)
Plan by us, such matching and the amount of such matching to be determined at
the sole discretion of our board of directors. The 401(k) Plan also allows us
to make contributions to the 401(k) Plan in the sole discretion of our board of
directors. To date, no matching contributions or other discretionary
contributions have been made with respect to the 401(k) Plan. The trustee under
the 401(k) Plan, at the direction of each participant, invests the assets of
the 401(k) Plan in various investment options. Participants generally may
obtain a 401(k) Plan distribution upon termination of employment, at age 65 or
upon financial hardship. Distributions can be made in one lump sum payment or
in installments. Loans are available to participants from the 401(k) Plan. The
401(k) Plan is intended to qualify under Section 401 of the Code so that
contributions by employees to the 401(k) Plan, and income earned on plan
contributions, are not taxable until withdrawn, and so that the contributions
by employees will be deductible by MarketFirst when made.

58
<PAGE>

CERTAIN TRANSACTIONS

Preferred Stock Transactions

In March, April and May 1998 and January, February and March 1999, we issued
to various investors an aggregate of 19,882,358 shares of Series C preferred
stock at a purchase price of $0.68 per share. In September and October 1999, we
issued to various investors an aggregate of 15,407,936 shares of Series D
preferred stock at a purchase price of $1.065 per share. Each share of each
series of preferred stock will convert into 0.4 shares of common stock
simultaneously with the closing of this public offering. Listed below are those
directors, officers and stockholders who beneficially own 5% or more of our
securities who participated in these financings. We believe that the shares
issued in these transactions were sold at the then fair market value and that
the terms of these transactions were no less favorable than we could have
obtained from unaffiliated third parties.

<TABLE>
<CAPTION>
Series C Series D Aggregate
Preferred Preferred Cash
Stock Stock Consideration
Preferred Stockholder --------- --------- -------------
<S> <C> <C> <C>
Holders of More than 5%:
Entities Associated with The Sprout Group(1)
(2)........................................ 9,395,345 3,340,872 $9,946,863
Enterprise Partners IV, L.P.(3)(4).......... 4,779,413 1,699,500 5,059,968
Excelsior Private Equity Fund II, Inc.(5)... -- 4,694,407 4,999,543
SAP America, Inc............................ 3,676,472 938,967 3,500,000
Officers:
Peter R. Tierney............................ 91,912 20,300 84,120
Ray S. Rike................................. 39,706 -- 27,000
</TABLE>
--------
(1) Mr. Rosen, a member of our board of directors, is a general partner of the
Sprout Group and a general partner of DLJ Associates VII, L.P. Mr. Rosen
disclaims beneficial ownership of these securities, except for his
proportionate pecuniary interest in certain of the entities associated with
The Sprout Group. See "Principal Stockholders."
(2) In September 1999, Donaldson, Lufkin and Jenrette Securities Corporation
was also issued a warrant to purchase 301,719 shares of Series D preferred
stock at an exercise price of $1.065 per share.

(3) Mr. Clancy, a member of our board of directors, is a venture partner of
Enterprise Partners Venture Capital. Mr. Clancy disclaims beneficial
ownership of such securities, except to the extent of his pecuniary
interest in such securities. See "Principal Stockholders."

(4) Includes 4,397,060 shares and 382,353 shares of Series C Preferred Stock
held by Enterprise Partners IV, L.P. and Enterprise Partners IV Associates,
L.P., respectively, and includes 1,563,540 shares and 135,960 shares of
Series D Preferred Stock held by Enterprise Partners IV, L.P. and
Enterprise Partners IV Associates, L.P., respectively.

(5) Douglas Lindgren, a director of our company, serves as the Chief Investment
Officer of Excelsior Private Equity Fund II, Inc. (Excelsior). Mr. Lindgren
disclaims beneficial ownership of the securities held by Excelsior, except
to the extent of his proportionate pecuniary interest in Excelsior. See
"Principal Stockholders."

Bridge Financing

59
<PAGE>

addition, upon closing of this offering, and assuming we, as intended, issue
$2,500,000 of additional notes on September 1, 2000, we will issue to these
stockholders unregistered warrants to purchase in the aggregate 333,333 shares
of unregistered common stock, with an exercise price of $0.01 per share;
provided, however, if this offering does not close prior to October 11, 2000,
the number of shares covered by the warrants share increase by 83,333 on that
date and on the 11th day of each subsequent month until this offering is
closed.

Listed below are those stockholders who beneficially own 5% or more of our
securities who participated in this bridge financing. We believe that the terms
of this bridge financing were no less favorable than we could have obtained
from unaffiliated third parties.

<TABLE>
<CAPTION>
Number of Number of
Principal Shares Shares
Amount of Received Upon Underlying
Stockholder Notes(a) Conversion(a) Warrants(a)(b)
----------- ---------- ------------- --------------
<S> <C> <C> <C>
Entities Associated with The Sprout
Group(c)............................. $4,700,000 783,333 156,667
Enterprise Partners IV, L.P.(d)....... $2,162,000 360,333 72,067
Enterprise Partners IV Associates,
L.P.(d).............................. $ 188,000 31,333 6,267
Excelsior Private Equity Fund II,
Inc.(e).............................. $1,700,000 283,333 56,667
</TABLE>
--------
(a) These amounts assume that the intended issuance of additional notes are
issued on September 1, 2000, and none of these stockholders elect to have
their notes repaid.
(b) These amounts also assume this offering will close prior to October 11,
2000; otherwise, as discussed above, these amounts will increase.
(c) See footnote (1) above.

(d) See footnote (3) above.

(e) See footnote (5) above.

Agreement of Merger and Plan of Reorganization

Pursuant to an Agreement of Merger and Plan of Reorganization, dated as of
April 14, 2000, as amended under an Amendment to Merger Agreement dated as of
July 20, 2000, by and among MarketFirst, FusionDM, Inc., our wholly-owned
subsidiary, Times Direct Marketing, Inc., also known as FusionDM, and the
shareholders of FusionDM, namely, Christopher E. Peterson and Thierry Zamora,
we acquired FusionDM. On July 20, 2000, FusionDM was merged into FusionDM,
Inc., and the acquisition was effective. Messrs. Peterson and Zamora are now
executive officers of MarketFirst and FusionDM, Inc.

Under the terms of the merger agreement, we will pay Messrs. Peterson and
Zamora in the aggregate the following:

. $2.5 million, which was paid at the close of the acquisition and
additional cash consideration to be paid after the end of calendar years
2000 and 2001, subject to the achievement of certain operating objectives
of FusionDM, Inc.; and

. up to 1,742,160 shares of our common stock consisting of 871,080 shares
issued at the close of the acquisition, with the remaining 871,080 shares
to be placed in escrow to be released ratably at the end of each of the
three calendar years 2000, 2001 and 2002, subject to the achievement of
certain operating objectives of FusionDM, Inc. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Acquisition of FusionDM."

60
<PAGE>

Option Grants

We have granted options to our directors and executive officers, and we
intend to grant additional options to our directors and executive officers in
the future. See "Management--Option Grants in Last Fiscal Year" and
"Management--Director Compensation."

Employment and Indemnification Agreements

We have entered into an employment agreement with Mr. Tierney and severance
arrangements with certain of the other executive officers, as described in
"Management--Employment and Severance Arrangements."

We plan to enter into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, will indemnify our directors and executive
officers for certain expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by us arising out of such person's services as our
director or executive officer, any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.

Other Transactions

In July 1998, we made a loan to Mr. Tierney in order to fund the exercise of
certain of the stock options held by him. The loan, in the amount of $156,000,
was made under a full-recourse promissory note secured by a pledge of the
purchased shares. The note will mature on July 30, 2002, and bears interest at
a rate of 5.69% per year. We have the right to repurchase unvested shares if
Mr. Tierney's employment is terminated under certain circumstances.

Effective January 24, 2000, we entered into a Software License Agreement with
SAP AG Inc. under which SAP AG Inc. has agreed to pay $409,000 for our products
and services. SAP AG Inc. is an affiliate of SAP America, Inc., which owns in
excess of five percent of our outstanding capital stock. We believe the terms
of this license agreement are no less favorable than we could have obtained
from any other third parties.

Mr. Bolten, a member of our board of directors, is also the Executive Vice
President and Chief Financial Officer of BroadVision, Inc., a publicly-traded
company. BroadVision subleases 28,000 sq. feet of office space from us, at a
monthly rate of $161,000. The sublease commenced June 23, 2000 and expires
March 31, 2002. We believe the terms of the sublease are no less favorable than
we could have obtained from any other third parties.

We have entered into an agreement with the founders of MarketFirst and the
preferred stockholders described above pursuant to which these and other
preferred stockholders will have registration rights with respect to their
shares of common stock following this offering. For a description of these
registration rights, see "Description of Capital Stock--Registration Rights."
Upon the completion of this offering, all shares of our outstanding preferred
stock will be automatically converted into shares of common stock.

61
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us, with respect to
beneficial ownership of our common stock as of July 31, 2000 for:

.each stockholder known by us to own beneficially more than 5% of our
common stock;

.each of our directors;

.each of the Named Executive Officers; and

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

The number of shares beneficially owned and percentage of shares beneficially
owned by each stockholder listed below are based on 23,869,085 shares of common
stock outstanding as of July 31, 2000 assuming conversion of all shares of
preferred stock outstanding as of that date and assuming conversion of all
promissory notes related to our bridge financing into 1,666,667 shares of
common stock as of that date, and are based on 28,869,085 shares of common
stock outstanding upon the closing of this offering.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock options or warrants
that are currently exercisable or exercisable within 60 days of July 31, 2000
are deemed to be outstanding and to be beneficially owned by the person holding
such options or warrants for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.

Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of common
stock, except to the extent spouses share authority under applicable law.

Unless otherwise indicated, the address of each of the individuals listed in
the table is 2061 Stierlin Court, Mountain View, California 94043.

<TABLE>
<CAPTION>
Shares Beneficially Percent Before Percent After
Owned Offering Offering
Name of Beneficial Owner ------------------- -------------- -------------
<S> <C> <C> <C>
Entities Associated with
The Sprout Group(1)..... 6,155,174 25.6% 21.2%
277 Park Avenue, 42nd
Floor
New York, NY 10172

Enterprise Partners IV,
L.P(2).................. 3,061,565 12.8 10.5
7979 Ivanhoe Avenue,
Suite 550
La Jolla, CA 92037

Excelsior Private Equity
Fund II, Inc.(3)........ 2,217,763 9.3 7.7
c/o U.S. Trust
Corporation
114 West 47th Street
New York, NY 10036

SAP America, Inc. ....... 1,846,176 7.7 6.4
3999 West Chester Pike
Newton Square, PA 19073

Alexander Rosen(4)....... 6,155,174 25.6 21.2

Thomas N. Clancy(2)...... 3,061,565 12.8 10.5

Douglas A. Lindgren(3)... 2,217,763 9.3 7.7

Anurag Khemka(5)......... 1,540,800 6.5 5.3

Christopher E.
Peterson(6)............. 1,480,836 6.2 5.1

Peter R. Tierney(7)...... 1,175,886 4.9 4.1
</TABLE>

62
<PAGE>

Thierry Zamora(9)......... 261,324 1.1% *

Tommy Hawkins(10)......... 78,430 * *

Russell J. Henry.......... 62,500 * *

Randall C. Bolten(11)..... 40,000 * *

Stephen R. Chapin,
Jr.(12).................. 5,000 * *

James D. Power III(13).... 2,500 * *
All directors and
executive officers as a
group (16 persons)(14)... 16,393,829 67.7% 56.2%
</TABLE>
--------
* Represents beneficial ownership of less than one percent.
(1) Includes 62,915 shares held by DLJ Capital Corporation. Also includes
120,688 shares to be held by Donaldson, Lufkin & Jenrette Securities
Corporation upon the closing of this offering as a result of their
expected exercise of a warrant to purchase Series D preferred stock prior
to this offering. DLJ Capital Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation are wholly-owned subsidiaries of Donaldson, Lufkin
& Jenrette, Inc. Also includes 2,446,046 shares held by Sprout Capital
VII, L.P. Also includes 118,085 shares held by Sprout Venture Capital,
L.P. Also includes 1,968,082 shares held by Sprout Capital VIII, L.P. Also
includes 46,350 and 453,008 shares held by Sprout CEO Fund, L.P. and DLJ
ESC II, L.P., respectively. DLJ ESC II, L.P. is an Employees' Securities
Corporation as defined in the Investment Company Act of 1940. The general
partner of DLJ ESC II, L.P. is DLJ LBO Plans Management Corporation, and
the limited partners of DLJ ESC II, L.P. are current or former employees
of Donaldson, Lufkin & Jenrette, Inc. and its affiliates. DLJ Capital
Corporation is the managing general partner of Sprout Capital VII, L.P.,
the managing general partner of Sprout Capital VIII, L.P., the general
partner of Sprout Venture Capital, L.P., and the general partner of Sprout
CEO Fund, L.P. DLJ Capital Corporation has the power to vote and dispose
of its shares, as well as those held by Sprout Venture Capital, L.P.,
Sprout Capital VII, L.P., Sprout Capital VIII, L.P. and Sprout CEO Fund,
L.P. Donaldson, Lufkin & Jenrette Securities Corporation has the power to
vote and dispose of its shares. DLJ LBO Plans Management Corporation has
the power to vote and dispose of shares held by DLJ ESC II, L.P. Also
includes 940,000 shares related to shares and warrants issuable with
respect to our bridge financing. See "Certain Transactions--Bridge
Financing."

(2) Includes 2,384,240 shares and 207,325 shares held by Enterprise Partners
IV, L.P. and Enterprise Partners IV Associates, L.P., respectively. Also
includes 470,000 shares related to shares and warrants issuable with
respect to our bridge financing. See "Certain Transactions--Bridge
Financing." Mr. Clancy, a director of our company, is a venture partner of
Enterprise Partners Venture Capital. Mr. Clancy disclaims beneficial
ownership of these shares, except to the except of his pecuniary interest
therein.
(3) Includes 340,000 shares related to shares and warrants issuable with
respect to our bridge financing. See "Certain Transactions--Bridge
Financing." Douglas Lindgren, a director of our company, serves as the
Chief Investment Officer of Excelsior Private Equity Fund II, Inc.
("Excelsior"). Mr. Lindgren disclaims beneficial interest of the
securities held by Excelsior, except to the extent of his pecuniary
interest therein.
(4) Includes 6,155,174 shares held by entities affiliated with DLJ Capital
Corporation. See Note 1 above. Mr. Rosen is an affiliate of DLJ Capital
Corporation. Mr. Rosen disclaims beneficial ownership of these shares,
except to the extent of his proportionate pecuniary interest arising from
his interests in the entities named in Note 1 above.
(5) All of these shares are held jointly by Mr. Khemka and his spouse.

63
<PAGE>

(6) Includes 740,418 shares which are held in escrow to be released in three
equal installments at the end of 2000, 2001 and 2002 subject to the
achievement of certain operating objectives by FusionDM, Inc. during those
years.
(7) All of these shares are held in the Peter and Gail Tierney Family Trust,
and 615,064 of such shares are unvested and subject to MarketFirst's
repurchase option.
(8) Includes 88,542 shares which are held in the Rike Family Trust, and
includes 98,959 of Mr. Rike's individual shares which are unvested and
subject to MarketFirst's repurchase option.
(9) Includes 130,662 shares which are held in escrow to be released in three
equal installments at the end of 2000, 2001 and 2002 subject to the
achievement of certain operating objectives by FusionDM, Inc. during those
years.
(10) Includes 35,097 shares underlying options which are exercisable within 60
days of July 31, 2000.
(11) Includes 35,000 shares which are unvested and subject to Market First's
repurchase option.
(12) Includes 5,000 shares underlying options which are exercisable within 60
days of July 31, 2000.
(13) Includes 2,500 shares underlying options which are exercisable within 60
days of July 31, 2000.
(14) Includes 65,598 shares underlying options which are exercisable within 60
days of July 31, 2000.

64
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Immediately following the consummation of this offering, the authorized
capital stock of MarketFirst will consist of 70,000,000 shares of common stock,
par value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.001 per share. As of July 31, 2000, and assuming completion of this offering,
there were 28,869,085 outstanding shares of common stock, outstanding options
to purchase 3,174,081 shares of common stock and outstanding warrants to
purchase 361,333 shares of common stock. See "--Warrants."

The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation and our bylaws to be effective after the
closing of this offering and the provisions of applicable Delaware law.

Common Stock

Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as our board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative
voting for the election of directors is not provided for in our certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon the occurrence of a liquidation, dissolution or winding-up,
the holders of shares of common stock would be entitled to share ratably in the
distribution of all of our assets remaining available for distribution after
satisfaction of all our liabilities and the payment of the liquidation
preference of any outstanding preferred stock. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and non-assessable.

Preferred Stock

Our board of directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one or more
classes or series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could have the effect of decreasing the market price of the
common stock and could adversely affect the voting and other rights of the
holders of common stock.

Options

As of July 31, 2000, options to purchase a total of 3,174,081 shares of
common stock were outstanding and up to 4,000,000 additional shares of common
stock may be subject to options granted in the future under the 2000 Stock
Incentive Plan. All of the options contain standard anti-dilution provisions.
See "Management--Benefit Plans" and "--Summary of Compensation" for a
description of the "2000 Stock Incentive Plan."

Warrants

As of July 31, 2000, we had one outstanding warrant to purchase a total of
28,000 shares of common stock at an exercise price per share equal to eighty-
five percent (85%) of the initial public offering price, which expires on March
6, 2005.

65
<PAGE>

In addition, assuming we issue additional promissory notes on September 1,
2000, upon the closing of this offering, there will be ten warrants outstanding
to purchase in the aggregate 333,333 shares of common stock at an exercise
price per share equal to $0.01; provided, however, if this offering is not
closed by October 11, 2000, the number of shares covered by the warrants will
increase. See "Certain Transactions--Bridge Financing."

We have also assumed throughout this prospectus the pre-offering cash
exercise of a warrant to purchase a total of 301,719 shares of Series D
preferred stock at $1.065 per share.

Registration Rights

As of the completion of this offering, the holders of an aggregate of
18,152,917 shares of common stock will be entitled to registration rights as
described below. These rights are provided under the terms of an investor
rights agreement between MarketFirst and the holders of the registrable
securities. This agreement provides demand registration rights to substantially
all former holders of our preferred stock. In addition, the holders of all of
the registrable securities are entitled under the agreement, subject to some
limitations, to require us to include their registrable securities in future
registration statements that we may file. Registration of shares of common
stock pursuant to the rights granted in this agreement would result in such
shares becoming freely tradable without restriction under the Securities Act of
1933. However, the agreement provides us the right to delay any registration
request until six months after the effective date of this prospectus. All
registration expenses incurred in connection with the above registrations will
be borne by us.

Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws,
Delaware Law

Our certificate of incorporation authorizes the board to establish one or
more series of undesignated preferred stock, the terms of which can be
determined by the board at the time of issuance. See "--Preferred Stock." In
addition, the certificate of incorporation and bylaws do not permit
stockholders of MarketFirst to call a special meeting of stockholders. Only our
Chief Executive Officer, President, Chairman of the Board or a majority of the
board are permitted to call a special meeting of stockholders. The certificate
of incorporation also provides that the board is divided into three classes,
with each director assigned to a class with a term of three years, and that the
number of directors may only be determined by the board of directors. The
bylaws also require that stockholders give advance notice to our Secretary of
any nominations for director or other business to be brought by stockholders at
any stockholders' meeting, and that the Chairman has the authority to adjourn
any such meeting. The bylaws also require a supermajority vote of stockholders
or a majority vote of the board of directors to amend the bylaws. These
provisions of the restated certificate of incorporation and the bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of MarketFirst. These provisions also may have the effect of
preventing changes in the management of MarketFirst. See "Risk Factors--Our
executive officers, directors and major stockholders will retain significant
control over us after this offering, which may lead to conflicts with other
stockholders over corporate governance matters."

MarketFirst is subject to Section 203 of the Delaware General Corporation
Law, which, subject to limited exceptions set forth in the Delaware General
Corporation Law, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder,
unless:

. prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;

. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the

66
<PAGE>

corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares
owned:

. by persons who are directors and also officers; and

. by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or

. on or subsequent to that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 defines "business combination" to include the following:

. any merger or consolidation involving the corporation and the interested
stockholder;

. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

. subject to some exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder;

. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.

Listing

MarketFirst intends to apply for quotation on the Nasdaq National Market
under the symbol "MKTF."

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have outstanding an aggregate of
28,869,085 shares of common stock outstanding. Of the total outstanding shares,
the 5,000,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares held by our affiliates, as that term is defined under the Securities
Act, may generally only be sold in compliance with the limitations of Rule 144
as described below.

Sales of Restricted Shares

The remaining 23,869,085 shares of common stock held by existing stockholders
were issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act. All of these shares will be subject to
"lock-up" agreements providing that the stockholder will not offer, sell or
otherwise dispose of any of the shares of common stock owned by them for a
period of 180 days after the date of this offering. However, holders of such
restricted shares who have not been officers of MarketFirst on or since the
date of this prospectus may offer, sell or otherwise dispose of 25% of their
shares on the earlier of 90 days after the date of this offering or on the
second trading day after the first public release of MarketFirst's quarterly
results if the last recorded sale price on the Nasdaq National Market for 20 of
the 30 trading days ending on such date is at least twice the price per share
in the initial public offering. These stockholders may also offer, sell or
otherwise dispose of an additional 25% of their shares 135 days after the date
of this offering if the price per share of common stock has achieved the same
target level. However, Donaldson, Lufkin & Jenrette Securities Corporation may
in its sole discretion, at any time without notice, release all or any portion
of the shares subject to lock-up agreements. Upon expiration of the lock-up
agreements, shares will become eligible for sale pursuant to Rule
144(k), shares will become eligible for sale under Rule 144 and
shares will become eligible for sale under Rule 701.

Eligibility of Restricted Shares for Sale in the Public Market
(Listed by date upon which shares become saleable)

<TABLE>
<CAPTION>
Number
of
Shares Comments
Date ------ --------
<S> <C> <C>
At the effective date....... Shares restricted under lock-up provision
90 days after the effective Shares saleable under Rule 701
date or second trading day
following first public
release of quarterly
earnings(1)................
135 days after the effective Shares saleable under Rule 701
date(1)....................
180 days after the effective
date (expiration of lock-
up)........................ Shares saleable under Rule 144, 144(k), 701
, 2001................ Shares saleable under Rule 144
</TABLE>
--------
(1) The number of shares listed may be offered, sold or traded provided that
the last recorded sale price per share for 20 of the 30 trading days ending
on such date is at least twice the initial public offering price per share.

After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock plans.
Based upon the number of shares subject to outstanding options as of July 31,
2000 and currently reserved for issuance under both of these plans, this
registration statement would cover approximately 7,974,081 shares. Shares
registered under the registration statement will generally be available for
sale in the open market immediately after the 180-day lock-up agreements
expire.

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<PAGE>

Rule 144

In general, under Rule 144 as currently in effect, a person including an
affiliate, who has beneficially owned shares of our common stock for at least
one year would be entitled to sell in "broker's transactions" or to market
makers, within any three-month period, a number of shares that does not exceed
the greater of:

. 1% of the number of shares of common stock then outstanding (which will
equal approximately 288,691 shares immediately after this offering); or

. the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current
public information about MarketFirst.

Rule 144(k)

Under Rule 144(k), a person who is deemed to have not been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell such shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.

Rule 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or directors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.
However, holders of shares that would otherwise be saleable under Rule 701 are
subject to the contractual restrictions described above which restrict the sale
or disposition of such shares for 180 days following the effective date.

69
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
dated , 2000, the underwriters named below, for whom Donaldson, Lufkin &
Jenrette Securities Corporation (or DLJ), Dain Rauscher Incorporated, SG Cowen
Securities Corporation and DLJdirect Inc. are acting as representatives, have
severally agreed to purchase, and we have agreed to sell to them, severally,
the respective number of shares of common stock set forth opposite the names of
such underwriters below:

<TABLE>
<CAPTION>
Number
of Shares
---------
<S> <C>
Underwriters:
Donaldson, Lufkin & Jenrette Securities Corporation................
Dain Rauscher Incorporated.........................................
SG Cowen Securities Corporation....................................
DLJdirect Inc. ....................................................
---------
Total............................................................ 5,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to other
specified conditions. The underwriters are obligated to purchase and accept
delivery of all the shares, other than those shares covered by the
overallotment option described below, if they purchase any of the shares.

The underwriters initially propose to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives may change the public offering price and such concessions
at any time without notice.

An electronic prospectus will be available on the web sites maintained by
DLJdirect Inc., an affiliate of DLJ. The information on this web site relating
to the offering is not part of this prospectus and has not been approved or
endorsed by MarketFirst or the underwriters, and should not be relied on by
prospective investors.

We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase, from time to time, in whole or in part,
up to 750,000 additional shares at the public offering price less the
underwriting fees. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise such option, each underwriter will become
obligated, subject to specified conditions, to purchase a number of additional
shares approximately proportionate to such underwriter's initial purchase
commitment.

The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.

<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share..................................................
Total....................................................
</TABLE>

70
<PAGE>

The underwriters have reserved for sale, at the assumed initial public
offering price, shares of the common stock for our employees and
directors, and for other individuals or companies who have commercial
arrangements or personal relationships with us. The number of shares of common
stock available for sale to the general public in this offering will be reduced
to the extent such persons purchase the reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the general public on
the same terms as the other shares offered hereby.

We have agreed to indemnify the underwriters against specified civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
of any of those liabilities.

We estimate that expenses of the offering will total $1,525,000.

Each of MarketFirst, our executive officers and directors and certain of our
stockholders have agreed that, subject to some exceptions for a period of 180
days from the date of this prospectus, we will not, without the prior written
consent of DLJ:

. Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock;

. Purchase any option or contract to sell any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock;

. Grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock; or

. Enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock or any securities convertible into or exercisable or exchangeable
for common stock, regardless of whether any of the transactions described
above is to be settled by the delivery of common stock, or such other
securities, in cash or otherwise.

However, 25% of the shares of common stock subject to the restrictions
described above (other than shares owned by officers) will be released from
these restrictions if the reported last sale price of the common stock on the
Nasdaq National Market is at least twice the initial public offering price for
20 of the 30 consecutive trading days ending on the last trading day of the 90-
day period after the date of this prospectus. These shares will be released on
the later to occur of the 90-day period after the date of this prospectus and
the second trading day after the first public release of our quarterly results.
An additional 25% of the shares subject to the restrictions described above
will be released from these restrictions if the reported last sale price of the
common stock on the Nasdaq National Market is at least twice the initial public
offering price for 20 of the 30 consecutive trading days ending on the last
trading day of the 135-day period after the date of this prospectus.

In addition, during such 180-day period, we also have agreed not to file any
registration statement with respect to, and each of our executive officers and
directors and several of our stockholders have agreed not to make any demand
for, or exercise any right with respect to, the registration of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock without the prior written consent of DLJ.

An application will be made for quotation of our common stock on the Nasdaq
National Market under the symbol "MKTF."

71
<PAGE>

The representatives of the underwriters have advised us that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.

DLJ Capital Corporation, Sprout Capital VII, L.P., Sprout Capital VIII, L.P.,
Sprout Venture Capital, L.P., Sprout CEO Fund, L.P. and DLJ ESC II, L.P.,
collectively referred to as the "Sprout Entities," are affiliates of Donaldson,
Lufkin & Jenrette Securities Corporation, one of the underwriters. As described
under "Principal Stockholders," Donaldson, Lufkin and Jenrette Securities
Corporation and the Sprout Entities beneficially own an aggregate of 6,155,174
shares of the outstanding common stock, which represent more than 10% of the
outstanding common stock. Donaldson, Lufkin and Jenrette Securities Corporation
and the Sprout Entities intend to place a sufficient number of their shares in
a voting trust so that upon the closing of this offering, Donaldson, Lufkin and
Jenrette Securities Corporation and the Sprout Entities will exercise voting
control over less than five percent of the outstanding common stock. The shares
subject to the voting trust will be held and voted by an independent third
party, , as voting trustee. Employees of DLJ beneficially own an aggregate
of 70,416 shares of our Series D preferred stock, each share of which is
convertible into 0.4 shares of our common stock. Alexander Rosen, an affiliate
of DLJ Capital Corporation, is a member of our board of directors.

Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus. This prospectus is not an offer to sell or
a solicitation of an offer to buy any shares of common stock included in this
offering in any jurisdiction where that would not be permitted or legal.

In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot this offering, thereby creating a
syndicate short position. In addition, the underwriters may bid for and
purchase shares of common stock in the open market to cover such syndicate
short position or to stabilize the price of the common stock. These activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.

Because the Sprout Entities affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation beneficially own more than 10% of the outstanding common
stock, this offering is being conducted in accordance with Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc., which
provides that the public offering price of an equity security be no higher than
that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, will assume the
responsibilities of acting as qualified independent underwriter and will
recommend a price in compliance with the requirements of Rule 2720. As
compensation for its services as qualified independent underwriter, we have
agreed to pay $ to on the closing of this offering.

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<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon
for us by Hewitt & McGuire, LLP, Irvine, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Latham & Watkins, San Francisco, California.

EXPERTS

The balance sheets of MarketFirst as of December 31, 1998 and 1999, and the
statements of operations, stockholders' equity (deficit) and cash flows for
each of the years in the three year period ended December 31, 1999 have been
included herein and in the registration statement in reliance upon the report
of KPMG LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing.

The balance sheets of Times Direct Marketing, Inc. as of December 31, 1998
and 1999, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years then ended, have been included herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent auditors, and upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and exhibits thereto. For
further information with respect to MarketFirst and the shares to be sold in
the offering, reference is made to the registration statement and exhibits
thereto. Statements contained in this prospectus regarding the contents of any
contract, agreement or other document to which reference is made are not
necessarily complete, and in each instance where a copy of such contract,
agreement or other document has been filed as an exhibit to the registration
statement, reference is made to the copy so filed, each such statement being
qualified in all respects by such reference.

We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. A copy of the registration statement and the exhibits
thereto may be inspected without charge at the Public Reference Room of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
of all or any part of the registration statement may be obtained from the
Public Reference Section of the SEC upon the payment of the fees prescribed by
the SEC. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as MarketFirst,
that file electronically with the SEC.

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<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
MarketFirst Software, Inc. Financial Statements

Independent Auditors' Report............................................. F-2

Balance Sheets........................................................... F-3

Statements of Operations................................................. F-4

Statements of Stockholders' Equity (Deficit)............................. F-5

Statements of Cash Flows................................................. F-6

Notes to Financial Statements............................................ F-7

Times Direct Marketing, Inc. (d.b.a. FusionDM) Financial Statements

Independent Auditors' Report............................................. F-23

Balance Sheets........................................................... F-24

Statements of Operations................................................. F-25

Statements of Stockholders' Equity (Deficit)............................. F-26

Statements of Cash Flows................................................. F-27

Notes to Financial Statements............................................ F-28

Pro Forma Combined Condensed Financial Statements

Unaudited Pro Forma Combined Condensed Financial Statements.............. F-35

Unaudited Pro Forma Combined Condensed Balance Sheet..................... F-36

Unaudited Pro Forma Combined Condensed Statement of Operations........... F-37

Notes to Unaudited Pro Forma Combined Condensed Financial Statements..... F-39
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
MarketFirst Software, Inc.:

We have audited the accompanying balance sheets of MarketFirst Software, Inc.
(the Company), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three year period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MarketFirst Software, Inc. as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1999,
in conformity with generally accepted accounting principles.

/s/ KPMG LLP
Mountain View, California
March 20, 2000, except as to Note 8,
which is as of July 27, 2000

F-2
<PAGE>

MARKETFIRST SOFTWARE, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, June 30, Equity
------------------------- ------------ June 30,
1998 1999 2000 2000
----------- ------------ ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 261,000 $ 7,427,000 $ 735,000
Short-term
investments........... -- 5,889,000 --
Accounts receivable,
net of allowance for
doubtful accounts of
$10,000 and $128,000
as of December 31,
1999 and June 30,
2000, respectively.... 12,000 693,000 2,897,000
Unbilled revenue....... -- 1,000 210,000
Prepaid expenses and
other................. 128,000 241,000 1,441,000
----------- ------------ ------------
Total current assets.. 401,000 14,251,000 5,283,000
Property and equipment,
net.................... 500,000 781,000 2,969,000
Other assets............ 60,000 1,000 1,261,000
----------- ------------ ------------
Total assets.......... $ 961,000 $ 15,033,000 $ 9,513,000
=========== ============ ============
Liabilities, Redeemable
Convertible Preferred
Stock, and
Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable....... $ 510,000 $ 305,000 $ 1,346,000
Accrued liabilities.... 531,000 431,000 2,070,000
Deferred revenue....... -- 296,000 871,000
----------- ------------ ------------
Total current
liabilities.......... 1,041,000 1,032,000 4,287,000
----------- ------------ ------------

Commitments

Redeemable convertible
preferred stock and
warrant, $0.001 par
value; actual--
44,640,000 shares
authorized; 13,137,056,
39,530,294 and
39,530,294 shares
issued and outstanding
as of December 31,
1998, 1999 and June 30,
2000, respectively;
aggregate liquidation
preference of
$31,539,000 as of
December 31, 1999 and
June 30, 2000; pro
forma--no shares
authorized, issued or
outstanding............ 7,634,000 30,879,000 30,921,000 $ --
Stockholders' equity
(deficit):
Preferred stock, $0.001
par value; actual--no
shares authorized,
issued or outstanding;
pro forma--
5,000,000 shares
authorized; no shares
issued or
outstanding........... -- -- -- --
Common stock, $0.001
par value; actual--
85,000,000 shares
authorized; 4,510,242,
4,889,838, and
5,398,532 shares
issued and outstanding
as of December 31,
1998, 1999 and June
30, 2000,
respectively; pro
forma--70,000,000
shares authorized;
21,331,338 shares
issued and
outstanding........... 5,000 5,000 5,000 21,000
Additional paid-in
capital............... 497,000 3,262,000 10,630,000 41,856,000
Deferred stock-based
compensation.......... (51,000) (1,950,000) (6,770,000) (6,770,000)
Notes receivable from
stockholders.......... (199,000) (207,000) (207,000) (207,000)
Accumulated deficit.... (7,966,000) (17,988,000) (29,353,000) (29,353,000)
----------- ------------ ------------ ------------
Total stockholders'
equity (deficit)..... (7,714,000) (16,878,000) (25,695,000) $ 5,547,000
----------- ------------ ------------ ============
Total liabilities,
redeemable
convertible preferred
stock, and
stockholders' equity
(deficit)............ $ 961,000 $ 15,033,000 $ 9,513,000
=========== ============ ============
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

MARKETFIRST SOFTWARE, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software hosting....... $ -- $ -- $ 339,000 $ 44,000 $ 1,027,000
Software licenses:
Non-related parties... -- 20,000 369,000 62,000 262,000
Related party......... -- -- -- -- 305,000
----------- ----------- ------------ ----------- ------------
-- 20,000 369,000 62,000 567,000
----------- ----------- ------------ ----------- ------------
Professional services:
Non-related parties .. -- 17,000 556,000 203,000 1,697,000
Related party......... -- -- -- -- 104,000
----------- ----------- ------------ ----------- ------------
-- 17,000 556,000 203,000 1,801,000
----------- ----------- ------------ ----------- ------------
Total revenues........ -- 37,000 1,264,000 309,000 3,395,000
----------- ----------- ------------ ----------- ------------
Cost of revenues:
Software hosting....... -- -- 150,000 14,000 830,000
Software licenses...... -- 2,000 29,000 23,000 25,000
Professional services.. -- 2,000 286,000 57,000 1,187,000
Stock-based
compensation.......... -- -- 7,000 -- 371,000
----------- ----------- ------------ ----------- ------------
Total cost of
revenues............. -- 4,000 472,000 94,000 2,413,000
----------- ----------- ------------ ----------- ------------
Gross profit.......... -- 33,000 792,000 215,000 982,000
----------- ----------- ------------ ----------- ------------
Operating expenses:
Research and
development........... 751,000 2,245,000 3,470,000 1,788,000 2,595,000
Sales and marketing.... 103,000 3,384,000 5,600,000 2,400,000 6,915,000
General and
administrative........ 384,000 974,000 1,210,000 603,000 1,267,000
Stock-based
compensation*......... 30,000 91,000 813,000 207,000 1,780,000
----------- ----------- ------------ ----------- ------------
Total operating
expenses............. 1,268,000 6,694,000 11,093,000 4,998,000 12,557,000
----------- ----------- ------------ ----------- ------------
Operating loss........ (1,268,000) (6,661,000) (10,301,000) (4,783,000) (11,575,000)
Interest income......... 5,000 101,000 312,000 78,000 232,000
Interest expense........ (5,000) (8,000) (4,000) (3,000) --
Other income (expense).. (2,000) (1,000) (5,000) (4,000) 20,000
----------- ----------- ------------ ----------- ------------
Net loss.............. (1,270,000) (6,569,000) (9,998,000) (4,712,000) (11,323,000)
Accretion and dividend
on redeemable
convertible preferred
stock.................. (56,000) -- (24,000) -- (42,000)
----------- ----------- ------------ ----------- ------------
Net loss attributable
to common
stockholders......... $(1,326,000) $(6,569,000) $(10,022,000) $(4,712,000) $(11,365,000)
=========== =========== ============ =========== ============
Basic and diluted net
loss per share
attributable to common
stockholders........... $ (0.78) $ (2.37) $ (2.96) $ (1.52) $ (2.59)
=========== =========== ============ =========== ============
Shares used in computing
basic and diluted net
loss per share
attributable to common
stockholders........... 1,696,000 2,770,000 3,381,000 3,097,000 4,395,000
=========== =========== ============ =========== ============
-------------------
* Note: The amortization of deferred stock-based compensation related to the
cost of services revenues and operating expenses is as follows:
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Stock-based
compensation:
Cost of revenues....... $ -- $ -- $ 7,000 $ -- $ 371,000
Research and
development........... 30,000 31,000 192,000 46,000 379,000
Sales and marketing.... -- -- 369,000 123,000 878,000
General and
administrative........ -- 60,000 252,000 38,000 523,000
----------- ----------- ------------ ----------- ------------
$ 30,000 $ 91,000 $ 820,000 $ 207,000 $ 2,151,000
=========== =========== ============ =========== ============
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

MARKETFIRST SOFTWARE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Deferred Receivable Stockholders'
----------------- Paid-in Stock-based from Accumulated Equity
Shares Amount Capital Compensation Stockholders Deficit (Deficit)
--------- ------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1996............... 1,440,000 $1,000 $ 20,000 $ -- $ -- $ (71,000) $ (50,000)
Issuance of restricted
stock to officer....... 860,800 1,000 101,000 (102,000) -- -- --
Issuance of common stock
for cash............... 480,000 1,000 59,000 -- -- -- 60,000
Non-employee stock
compensation........... 80,000 -- 10,000 -- -- -- 10,000
Common stock contributed
by founder............. (40,000) -- -- -- -- -- --
Exercise of common stock
options................ 249,220 -- 22,000 -- -- -- 22,000
Amortization of stock-
based compensation..... -- -- -- 20,000 -- -- 20,000
Dividend on Series A
redeemable convertible
preferred stock........ -- -- -- -- (56,000) (56,000)
Net loss................ -- -- -- -- -- (1,270,000) (1,270,000)
--------- ------ ----------- ----------- --------- ------------ ------------
Balances as of December
31, 1997............... 3,070,020 3,000 212,000 (82,000) -- (1,397,000) (1,264,000)
Exercise of common stock
options for cash and
note receivable........ 1,440,222 2,000 225,000 -- (199,000) -- 28,000
Non-employee stock
compensation........... -- -- 60,000 -- -- -- 60,000
Amortization of stock-
based compensation..... -- -- -- 31,000 -- -- 31,000
Net loss................ -- -- -- -- -- (6,569,000) (6,569,000)
--------- ------ ----------- ----------- --------- ------------ ------------
Balances as of December
31, 1998............... 4,510,242 5,000 497,000 (51,000) (199,000) (7,966,000) (7,714,000)
Exercise of common stock
options for cash and
notes receivable....... 379,596 -- 46,000 -- (8,000) -- 38,000
Deferred stock
compensation related to
employee stock option
grants................. -- -- 2,719,000 (2,719,000) -- -- --
Amortization of stock-
based compensation..... -- -- -- 820,000 -- -- 820,000
Accretion on Series D
redeemable convertible
preferred stock........ -- -- -- -- -- (24,000) (24,000)
Net loss................ -- -- -- -- -- (9,998,000) (9,998,000)
--------- ------ ----------- ----------- --------- ------------ ------------
Balances as of December
31, 1999............... 4,889,838 5,000 3,262,000 (1,950,000) (207,000) (17,988,000) (16,878,000)
Exercise of common stock
options (unaudited).... 508,694 -- 191,000 -- -- -- 191,000
Deferred stock
compensation related to
employee stock option
grants (unaudited)..... -- -- 6,971,000 (6,971,000) -- -- --
Amortization of stock-
based compensation
(unaudited)............ -- -- -- 2,151,000 -- -- 2,151,000
Accretion on Series D
redeemable convertible
preferred stock
(unaudited)............ -- -- -- -- -- (42,000) (42,000)
Issuance of warrants
(unaudited)............ -- -- 206,000 -- -- -- 206,000
Net loss (unaudited).... -- -- -- -- -- (11,323,000) (11,323,000)
--------- ------ ----------- ----------- --------- ------------ ------------
Balances as of June 30,
2000 (unaudited)....... 5,398,532 $5,000 $10,630,000 $(6,770,000) $(207,000) $(29,353,000) $(25,695,000)
========= ====== =========== =========== ========= ============ ============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

MARKETFIRST SOFTWARE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ $(1,270,000) $(6,569,000) $(9,998,000) $(4,712,000) $(11,323,000)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization.......... 16,000 160,000 388,000 151,000 450,000
Proceeds from sales of
property and
equipment............. - - - - (20,000)
Warrants issued in
connection with
agreement............. -- -- -- -- 206,000
Amortization of stock-
based compensation.... 20,000 31,000 820,000 210,000 2,151,000
Issuance of stock and
stock options to
nonemployees for
services.............. 10,000 60,000 -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable... -- (12,000) (681,000) (376,000) (2,204,000)
Unbilled revenue...... -- -- (1,000) -- (209,000)
Prepaid expenses and
other assets......... (32,000) (155,000) (54,000) 54,000 (1,200,000)
Accounts payable and
accrued liabilities.. 43,000 908,000 (305,000) (507,000) 2,680,000
Deferred revenue...... -- -- 296,000 224,000 575,000
----------- ----------- ----------- ----------- ------------
Net cash (used in) by
operating
activities........... (1,213,000) (5,577,000) (9,535,000) (4,956,000) (8,894,000)
----------- ----------- ----------- ----------- ------------
Cash flows from
investing activities:
Purchases of property
and equipment......... (16,000) (608,000) (669,000) (99,000) (2,638,000)
Sale of property and
equipment............. -- -- -- -- 20,000
Purchases of short-term
investments........... -- -- (9,869,000) -- --
Sales and maturities of
short-term
investments........... -- -- 3,980,000 -- 5,889,000
Lease security
deposit............... -- -- -- -- (1,249,000)
Other deposits......... -- -- -- (3,000) (11,000)
----------- ----------- ----------- ----------- ------------
Net cash (used in)
provided by investing
activities........... (16,000) (608,000) (6,558,000) (102,000) 2,011,000
----------- ----------- ----------- ----------- ------------
Cash flows from
financing activities:
Net proceeds from sale
of redeemable
convertible preferred
stock and warrants.... 1,083,000 5,997,000 23,221,000 7,447,000 --
Issuance of common
stock................. 82,000 28,000 38,000 -- --
Repayment of preferred
stockholder notes
receivable............ 260,000 -- -- -- --
Exercise of stock
options............... -- -- -- 6,000 191,000
----------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities........... 1,425,000 6,025,000 23,259,000 7,453,000 191,000
----------- ----------- ----------- ----------- ------------
Net increase (decrease)
in cash and cash
equivalents............ 196,000 (160,000) 7,166,000 2,395,000 (6,692,000)
Cash and cash
equivalents at
beginning of
year/period............ 225,000 421,000 261,000 261,000 7,427,000
----------- ----------- ----------- ----------- ------------
Cash and cash
equivalents at end of
year/period............ $ 421,000 $ 261,000 $ 7,427,000 $ 2,656,000 $ 735,000
=========== =========== =========== =========== ============
Supplemental disclosures
of noncash investing
and financing
activities:
Common stock issued in
exchange for notes
receivable............ $ -- $ 199,000 $ 8,000 $ -- $ --
=========== =========== =========== =========== ============
Restricted stock issued
to officer............ $ 102,000 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ============
Accretion and dividends
on redeemable
convertible preferred
stock................. $ 56,000 $ -- $ 24,000 $ -- $ 42,000
=========== =========== =========== =========== ============
Deferred stock-based
compensation related
to employee stock
option grants......... $ -- $ -- $ 2,719,000 $ 819,000 $ 6,971,000
=========== =========== =========== =========== ============
Issuance of warrant in
connection with
agreement............. $ -- $ -- $ -- $ -- $ 206,000
=========== =========== =========== =========== ============
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1997, 1998 and 1999

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Organization

MarketFirst Software, Inc. (the Company) provides a comprehensive software
and hosted e-marketing solution that enables organizations to execute
interactive marketing campaigns over the Internet. The MarketFirst solution is
comprised of four core components: an e-marketing software platform; software
templates for e-marketing campaigns called eMarketing Blueprints; a hosted
service; and strategic e-marketing consulting and implementation services.

The Company was incorporated in Delaware on August 8, 1996, with headquarters
in Mountain View, California.

(b) Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities
of three months or less at the date of purchase to be cash equivalents. As of
December 31, 1999 and June 30, 2000 cash equivalents consisted of money market
funds, corporate bonds and municipal bonds. As of December 31, 1998, cash
equivalents consisted solely of money market funds. The Company is exposed to
credit risk in the event of default by the financial institutions or the
issuers of these investments to the extent of the amounts recorded on the
balance sheets in excess of amounts that are insured by the FDIC.

Investments in debt securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value with any unrealized
gains or losses recorded as a component of other comprehensive income (loss).
To date, unrealized gains or losses have not been significant. Gains and losses
are calculated using the specific identification method.

(d) Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on estimated useful lives, generally two years for
computer equipment and software and five years for furniture and fixtures.

(e) Impairment of Long-Lived Assets

The Company reviews the recoverability of the carrying amount of its long-
lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset might not be recoverable. In the event that facts
and circumstances indicate that the carrying amount of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with
assets to be held and used would be compared to the asset's carrying amount to
determine if a write-down to fair value is required. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
assets.

F-7
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(f) Software Development Costs

Capitalization of software development costs begins upon the establishment of
technological feasibility. Historically, technological feasibility on software
releases has coincided with the general release of the product for sale because
no beta version was developed. Accordingly, software development costs incurred
subsequent to the establishment of technological feasibility have not been
material.

(g) Stock-Based Compensation

The Company uses the intrinsic-value method to account for its employee
stock-based compensation plans. As such, compensation expense is recorded for
stock options granted to employees when the fair value of the underlying stock
exceeds the exercise price at the grant date. The Company amortizes deferred
stock-based compensation over the vesting period on an accelerated basis in
accordance with Financial Accounting Standards Board (FASB) Interpretation
No. 28.

(h) Income Taxes

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities. A valuation allowance is recorded to reduce
deferred tax assets to an amount more likely than not to be recovered.

(i) Revenue Recognition

The Company obtains revenue from software licenses, software hosting
services, professional services and maintenance and support. The Company
accounts for software license fees in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9. SOP 97-2, as
amended, generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements. The fair value of professional services and maintenance
and support has been determined based on Company specific objective evidence of
fair value based on the price charged when these elements are sold separately.
Accordingly, license revenue is recorded under the residual method described in
SOP 98-9 for arrangements in which licenses are sold with these elements.

Revenue from software license fees is recognized when evidence of an
arrangement exists, delivery of the product has occurred, acceptance is
certain, the fee is fixed or determinable and collection is probable. The
Company's software does not involve significant production, customization or
modification. In situations where the Company licenses its software in
connection with a software hosting arrangement, software license revenue is
only recognized if the customer has the right to take possession of the
software and host the application on its own or with another hosting vendor
without substantial cost or penalty. If the customer does not have the right to
take possession of the software, then the fees related to the arrangement are
deferred and recognized over the hosting term. Software maintenance and support
fees are included with professional services on the accompanying statements of
operations, and are recognized ratably over the term of the maintenance and
support period.

Revenue from software hosting services is recognized ratably over the hosting
term, typically 6 to 12 months. The Company earns additional fees when a
customer exceeds a specified usage limit.

F-8
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

These fees are recorded in the period in which the customer incurs the fee;
however, such fees have not been significant to date. Initial set-up fees are
deferred and amortized over the hosting term or the estimated term of the
customer relationship, if longer.

Revenue from professional services consists of the Company's consulting
services and is comprised primarily of time and expense arrangements. Revenue
is recognized as time and expenses are incurred.

Deferred revenue includes amounts billed to customers for which revenues have
not been recognized and generally results from the following: (1) deferred
maintenance and support, (2) hosting set-up fees, (3) prepaid hosting fees and
(4) consulting services not yet rendered.

(j) 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 liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.

(k) Comprehensive Loss

The Company did not have any significant components of other comprehensive
loss for any periods presented.

(l) Concentrations of Credit Risk

The Company sells its products primarily to customers in North America. The
Company's products are concentrated in the Internet commerce industry, which is
highly competitive and subject to rapid technological changes. The Company
performs ongoing evaluations of its customers' financial condition and
generally requires no collateral. The Company has not experienced any
significant losses in the past. As of December 31, 1998, December 31, 1999, and
June 30, 2000, the allowance for doubtful accounts was $0, $10,000 and
$128,000, respectively.

(m) Net Loss per Share

Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock, excluding common stock subject to
repurchase. Diluted net loss per share is computed using the weighted-average
number of outstanding shares of common stock and, when dilutive:

(a) potential common shares from options and warrants to purchase common
stock, using the treasury stock method;

(b) common stock subject to repurchase using the treasury stock method;
and

All potential common shares have been excluded from the computation of
diluted net loss per share for all periods presented because the effect would
have been antidilutive.

F-9
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

Diluted net loss per share does not include the effect of the following
antidilutive common equivalent shares:

<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, March 31,
------------------------------ --------------------
1997 1998 1999 1999 2000
--------- --------- ---------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Shares issuable under stock
options................... 749,400 1,157,586 2,041,332 1,530,785 2,068,596
Shares of restricted common
stock subject to
repurchase................ 693,422 1,561,911 839,724 1,335,110 780,295
Shares of redeemable
convertible preferred
stock on an "as if
converted" basis.......... 1,696,000 5,254,822 15,812,117 9,648,943 15,812,117
Shares issuable pursuant to
warrants.................. -- -- 120,688 -- 148,688
</TABLE>

The weighted-average exercise price of outstanding stock options was $0.13,
$0.15, $0.18, $0.16 and $0.69 for the years ended December 31, 1997, 1998, and
1999 and the six month periods ended June 30, 1999 and 2000, respectively. The
weighted-average purchase price of restricted stock was $0.06, $0.15, $0.16,
$0.15 and $0.38 for the years ended December 31, 1997, 1998, and 1999 and the
six month periods ended June 30, 1999 and 2000, respectively. The weighted-
average effective exercise price of the common shares issuable under the
warrants was $2.66 at December 31, 1999 and $3.60 at June 30, 2000.

Pro forma basic and diluted net loss per share attributable to common
stockholders for the year ended December 31, 1999, and for the six months ended
June 30, 2000, reflects per share data assuming the conversion of all
outstanding redeemable convertible preferred shares on a basis of one common
share for 2.5 shares of preferred stock, and the exercise and conversion of
outstanding warrants into 120,688 shares of common stock, as if the conversion
had taken place at the beginning of 1999 or at the date of issuance, if later.
This data is unaudited.

<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended
1999 June 30, 2000
------------ -------------
<S> <C> <C>
Net loss used in computing pro forma basic and
diluted net loss per share
Net loss.......................................... $ (9,998,000) $(11,323,000)
Add: Accretion of redeemable convertible preferred
stock............................................ (24,000) (42,000)
------------ ------------
$(10,022,000) $(11,365,000)
============ ============
Shares used in computing pro forma basic and
diluted net loss per share
Shares used in net loss per share calculation..... 3,381,000 4,395,000
Weighted-average shares of redeemable convertible
preferred stock assuming conversion.............. 11,175,000 15,812,000
Exercise and conversion of a Series D preferred
stock warrant ................................... 121,000 121,000
------------ ------------
14,677,000 20,328,000
============ ============
Pro forma basic and diluted net loss per share.... $ (0.68) $ (0.56)
============ ============
</TABLE>

(n) Fair Value of Financial Instruments

The value of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
approximate their carrying values due to their short maturity.

F-10
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(o) Advertising Expense

The Company expenses advertising costs as incurred. Advertising costs
expensed from August 6, 1996 (Inception) through December 31, 1998, the year
ended December 31, 1999 and for the three months ended June 30, 2000 were
$2,000, $101,000 and $178,000, respectively.

(p) Initial Public Offering and Unaudited Pro Forma Balance Sheet Information

In April 2000, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC), that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO). Following the closing
of the IPO, the Company's number of authorized shares of preferred and common
stock will be 5,000,000 and 70,000,000, respectively. If the offering is
consummated under the terms presently anticipated, all the then outstanding
shares of the Company's redeemable convertible preferred stock will
automatically convert into shares of common stock on a one-for-2.5 basis and
the warrant to purchase 301,719 Series D preferred shares will be exercised at
$1.065 per share and converted to 120,688 shares of common stock upon the
closing of the proposed IPO. The unaudited pro forma balance sheet information
reflects the exercise of the warrant, and the conversion of all of the
redeemable convertible preferred stock as if it has occurred on June 30, 2000.

(q) Unaudited Financial Statements

The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, the accompanying unaudited interim
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for the fair presentation of the Company's
financial position at June 30, 2000 and the results of its operations and its
cash flows for the six months ended June 30, 1999 and 2000. Results for the six
months ended June 30, 2000 are not necessarily indicative of future results of
operations.

(r) Recent Accounting Pronouncements

In June 1998, the FASB 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, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. This statement will be effective for all
annual and interim periods beginning after January 1, 2001. Management does not
believe the adoption of SFAS No. 133 will have a material effect on the
Company's consolidated financial position or results of operations.

F-11
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

recognize revenue and provides guidance for disclosure related to revenue
recognition policies. In June 2000, the SEC issued SAB 101B that delayed the
implementation of SAB 101. The Company must adopt SAB 101 no later than the
fourth quarter of 2000. The SEC has recently indicated it intends to issue
further guidance with respect to the adoption of specific issues addressed by
SAB 101. Until such time as this additional guidance is issued, the Company is
unable to assess the impact, if any, it may have on its financial position or
results of operations.

In March 2000, the Emerging Issues Task Force (EITF) published their
consensus on EITF Issue No. 00-2, Accounting for Web Site Development Costs,
which requires that costs incurred during the development of web site
applications and infrastructure, involving developing software to operate the
web site, including graphics that affect the "look and feel" of the web page
and all costs relating to software used to operate a web site should be
accounted for under Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, (SOP 98-1). However,
if a plan exists or is being developed to market the software externally, the
costs relating to the software should be accounted for pursuant to FASB
Statement No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed (SFAS No. 86). The Company will be required to
adopt EITF No. 00-2 in its first fiscal quarter, beginning after June 30, 2000,
although earlier application is encouraged. To date, the Company has not
entered into activities covered by EITF 00-2, as all software developed
internally has been offered under license to customers.

In March 2000, the EITF published their consensus on EITF Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. The Issue states that a software element covered by SOP 97-2
is only present in a hosting arrangement if the customer has the contractual
right to take possession of the software at any time during the hosting period
without significant penalty and it is feasible for the customer to either run
the software on its own hardware or contract with another party unrelated to
the vendor to host the software. The Company's hosting arrangements generally
do not allow customers the contractual right to take possession of the software
without significant penalty.

In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), an
interpretation of APB 25, "Accounting for Stock Issued to Employees." FIN 44
addresses inconsistencies in accounting for stock-based compensation that arise
from implementation of APB 25. The Company is currently evaluating the effect
that FIN 44 will have on its accounting policies and does not anticipate that
it will have a significant impact on the Company's financial statements, cash
flows or results of operations. The Company has adopted FIN 44 effective July
1, 2000.

(2) PROPERTY AND EQUIPMENT

A summary of property and equipment as of December 31, 1998 and 1999 and June
30, 2000 follows:

<TABLE>
<CAPTION>
1998 1999 June 30, 2000
--------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Computer equipment and software......... $ 395,000 $ 993,000 $2,016,000
Office furniture and equipment.......... 282,000 341,000 1,956,000
--------- ---------- ----------
677,000 1,334,000 3,972,000
Less accumulated depreciation and
amortization........................... 177,000 553,000 1,003,000
--------- ---------- ----------
$ 500,000 $ 781,000 $2,969,000
========= ========== ==========
</TABLE>

F-12
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(3) ACCRUED LIABILITIES

A summary of accrued liabilities as of December 31, 1998 and 1999 and June
30, 2000 follows:

<TABLE>
<CAPTION>
1998 1999 June 30, 2000
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Compensation and related benefits............ $409,000 $248,000 $ 730,000
Advance rent................................. -- -- 161,000
Consulting and professional fees............. 65,000 68,000 191,000
Software royalties........................... -- 54,000 45,000
Accrued payables............................. -- 34,000 881,000
Other........................................ 57,000 27,000 62,000
-------- -------- ----------
$531,000 $431,000 $2,070,000
======== ======== ==========
</TABLE>

(4) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

(a) Redeemable Convertible Preferred Stock

Redeemable convertible preferred stock and a warrant to purchase Series D
redeemable convertible preferred stock outstanding as of June 30, 2000,
follows:

<TABLE>
<CAPTION>
Shares Issued and Liquidation Carrying
Designated Outstanding Preference Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series:
A........................... 2,140,000 2,040,000 $ 510,000 $ 555,000
B........................... 3,000,000 2,200,000 1,100,000 1,082,000
C........................... 21,500,000 19,882,358 13,520,000 13,444,000
D........................... 18,000,000 15,407,936 16,409,000 15,657,000
Warrants...................... -- -- -- 183,000
---------- ---------- ----------- -----------
44,640,000 39,530,294 $31,539,000 $30,921,000
========== ========== =========== ===========
</TABLE>

The rights, preferences and privileges of the holders of Series A, B, C and D
preferred stock are as follows:

. Dividends are noncumulative and payable only upon declaration by the
Company's Board of Directors at a rate of $0.0125, $0.025, $0.034 and
$0.053 per share for Series A, B, C and D preferred stock, respectively.
If, after dividends in the full preferential amount have been paid to the
holders of Series A, B, C and D preferred stock, the Board of Directors
declares additional dividends, then such additional dividends shall be
declared on the common and preferred stock on a pro rata basis.

. The holders of Series A, B, C and D preferred stock have a liquidation
preference of $0.25, $0.50, $0.68 and $1.065 per share, respectively,
plus any declared but unpaid dividends.

. Each share of preferred stock is convertible at any time into common
stock on a basis of one common share for 2.5 preferred shares, subject to
certain antidilution provisions.

. The holders of preferred stock have voting rights equal to common stock
on an "as if converted" basis.

F-13
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

. At any time after December 31, 2002, the Company is required to redeem,
at the option of any holder of at least 1,000,000 shares of preferred
stock, all or any portion of the holder's shares. The redemption price is
equal to the original issue price plus all declared and unpaid dividends
on the shares of preferred stock.

(b) Warrants

On September 15, 1999, the Company issued a fully vested warrant in exchange
for services provided in connection with the Company's Series D preferred stock
financing. The warrant entitles the holder to purchase up to 301,719 shares of
the Company's Series D preferred stock at a price of $1.065 per share. The
warrant must be exercised before the earliest to occur (a) the closing of an
acquisition of the Company, (b) the closing of the Company's IPO or (c) the
expiration date of September 15, 2004. Upon the exercise of the warrant, the
shares of Series D preferred stock will be convertible into 120,688 shares of
common stock. The fair value of the warrant issued, calculated using the Black-
Scholes option pricing model, using $1.065 as the fair value of the underlying
redeemable convertible preferred stock, and the following assumptions: no
dividends; contractual life of five years; risk-free interest rate of 5.94%;
expected volatility of 60%; was $183,000. This amount will be accreted to the
carrying value of Series D redeemable convertible preferred stock so that the
carrying value of preferred stock will equal its redemption value on December
31, 2002.

In March 2000, the Company issued a fully vested, non-forfeitable warrant to
purchase 28,000 shares of common stock pursuant to an agreement to provide
licensing, hosting and professional services. The warrant issued is at an
exercise price of 85% of the IPO offering price or $12.50 per share if the IPO
is not closed within 15 months. The warrant is exercisable at the closing of
the initial public offering, or 15 months. The warrant expires in five years.
The $206,000 fair value of the warrant was calculated based upon the Black-
Scholes option pricing model, using $5.10 as the fair value of the underlying
common stock and the following weighted average assumptions: no dividends;
contractual life of 5 years; risk-free interest rate of 6.0%; and expected
volatility of 60%. The fair value of the warrant was recorded as a $38,000
reduction in revenues corresponding to the revenues recognized from services
provided to the counterparty in the period ended March 2000. The $168,000
remaining balance of the fair value of the warrant was recorded as cost of
sales at the grant date, as the counterparty had no remaining performance
requirements.

In 1996, the Company adopted the 1996 Equity Incentive Plan (the Plan), as
amended on October 20, 1999, pursuant to which incentive stock options and
nonstatutory stock options may be granted to employees and consultants of the
Company. The exercise price for incentive stock options is at least 100% of the
fair market value on the date of grant for employees owning less than 10% of
the voting power of all classes of stock and at least 110% of the fair market
value on the date of grant for employees owning more than 10% of the voting
power of all classes of stock. For nonstatutory stock options, the exercise
price is at least 110% of the fair market value on the date of grant for
employees owning more than 10% of the voting power of all classes of stock and
at least 85% for employees owning less than 10% of the voting power of all
classes of stock. Options generally expire in 10 years; however, they may be
limited to 5 years if the optionee owns stock representing more than 10% of the
Company. Vesting periods are determined by the Company's Board of Directors and
generally provide for ratable vesting over 4 years. As of December 31, 1999,
4,590,123 shares of common stock were reserved for issuance under the Plan, and
479,753 shares were available for grants. Certain shares were

F-14
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

issued to officers upon exercise of stock options for full recourse promissory
notes with an aggregate principal amount of $207,000, interest rates ranging
from 5.00% to 5.69% and terms of four years.

In April and May 2000, the Company's Board of Directors and stockholders
approved, subject to the closing of an initial public offering, the 2000 Stock
Incentive Plan (2000 Incentive Plan) which will be the successor to the 1996
Equity Incentive Plan (1996 Plan). All options available for grant under the
1996 Plan will be transferred to the 2000 Incentive Plan on its effective date
and will continue to have substantially the same terms. Common stock authorized
for issuance under the 2000 Incentive Plan is 4,000,000 shares which will
automatically increase annually by an amount equal to 5% of the total number of
shares of common stock outstanding on the last trading day of December of the
previous year, but in no event will this annual increase exceed 2,500,000
shares.

The 2000 Plan allows (1) option grants to employees with exercise prices at
not less than the fair market value of these shares, (2) issuance of shares to
individuals which will vest upon performance or completion of a service period
or as a bonus for past services, and (3) a salary investment program for highly
compensated employees to apply a portion of their base salary to purchase
special below market stock options.

Also in April and May 2000, the Company's Board of Directors and stockholders
approved, subject to the closing of an initial public offering, the 2000
Employee Stock Purchase Plan (2000 Purchase Plan) that will allow employees to
purchase shares of common stock, at quarterly intervals, with accumulated
payroll deductions. Common stock authorized for issuance under the 2000
Purchase Plan is 800,000 shares which will automatically increase annually by
an amount equal to 1.5% of the total number of shares outstanding on the last
trading day of December of the previous year. In no event will any annual
increase exceed 800,000 shares.

(d) Stock-Based Compensation

The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted or restricted stock sold
because the exercise price of each option or purchase price of each share of
restricted stock equaled or exceeded the fair value of the underlying common
stock as of the grant date for each stock option or purchase price of each
restricted stock share, except for 860,800 shares of restricted stock sold in
1997 and stock options granted from January 1, 1999 through June 30, 2000. With
respect to the stock options granted from January 1, 1999 to June 30, 2000, the
Company recorded deferred stock compensation of $10,593,000 for the difference
at the grant or issuance date between the exercise price of each stock option
granted and the fair value of the underlying common stock. This amount is being
amortized on an accelerated basis over the vesting period, generally four
years, consistent with the method described in FASB Interpretation No. 28.
Amortization of the June 30, 2000 balance of deferred stock-based compensation
for the six months ended December 31, 2000 and fiscal years ended 2001, 2002
and 2003, will approximate $2,584,000; $2,629,000; $1,174,000 and $383,000,
respectively.

F-15
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

Had compensation costs been determined in accordance with SFAS No. 123, for
all of the Company's stock-based compensation plans, net loss attributable to
common stockholders (in thousands) and basic and diluted net loss per share
attributable to common stockholders, would have been as follows:

<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
--------------------------------- ----------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss attributable to
common stockholders:
As reported............ $1,326,000 $6,569,000 $10,022,000 $4,712,000 $11,365,000
Pro forma.............. 1,333,000 6,580,000 10,051,000 4,722,000 11,425,000
Basic and diluted net
loss per share:
As reported............ $ 0.78 $ 2.37 $ 2.96 $ 1.49 $ 2.59
Pro forma.............. 0.79 2.38 2.97 1.49 2.60
</TABLE>

The fair value of each option was estimated on the date of grant using the
minimum-value method with the following weighted-average assumptions: no
dividends; risk-free interest rate of 6.1%, 4.4%, 5.73% and 6.54% for the years
ended December 31, 1997, 1998 and 1999 and the six months ended June 30, 2000,
respectively; and expected life of four years.

During the year ended December 31, 1997, the Company issued 80,000 shares of
common stock to non-employees in exchange for services rendered. The fair value
of these shares were $10,000 at the issuance date.

During the year ended December 31, 1998, the Company granted approximately
99,000 options to purchase common stock to non-employees in exchange for
services rendered. The fair value of the options were $10,000, calculated based
upon the Black-Scholes option pricing model. The fair value of the options was
recorded as general and administrative expense at the grant date.

During the year ended December 31, 1999, no grants of options to purchase
common stock were made to non-employees.

(e) Reverse Stock Splits and Dividend on Redeemable Convertible Preferred
Stock

In conjunction with the 1997 Series B redeemable convertible preferred stock
financing, the two common stockholders who each owned 50% of the outstanding
shares of common stock, each returned an equal number of shares to the Company.
This transaction has been reflected in the accompanying financial statements as
a 1-for-2.2 reverse stock split. The outstanding shares of Series A redeemable
convertible preferred stock were not subject to this split, thereby increasing
the Series A stockholders' ownership interest on an "as-if-converted" basis.
The additional economic benefit to the Series A stockholders of $56,000 was
recognized as a dividend equal to the fair value of the conversion benefit. The
stock split has been presented as if it had occurred as of December 31, 1996.

On April 13, 2000, the Board of Directors and stockholders approved a 1 for
2.5 reverse stock split of its common shares. All common stock share amounts
have been adjusted to reflect this stock split.

F-16
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(f) Restricted Common Stock

The Company has 575,740, 167,055 and 37,500 additional shares of restricted
stock outstanding subject to repurchase at $0.18, $0.50 and $2.88,
respectively, per share as of June 30, 2000. These shares were sold to officers
in 1998 and 2000 at fair value and vest over a four-year period.

Stock option activity is presented below:

<TABLE>
<CAPTION>
1997 1998 1999 June 30, 2000
-------------------- --------------------- -------------------- --------------------
Weighted- Weighted- Weighted- Weighted-
average average average average
Number Exercise Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price of Shares Price
--------- --------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year/period......... 240,000 $0.08 749,400 $0.13 1,157,585 $0.15 2,041,332 $0.17
Granted................. 814,620 0.10 2,192,410 0.18 1,550,496 0.18 903,450 1.53
Exercised............... (249,220) 0.08 (1,440,222) 0.15 (379,596) 0.15 (508,694) 0.38
Canceled................ (56,000) 0.13 (344,002) 0.15 (287,153) 0.18 (367,492) 0.33
-------- ---------- --------- ---------
Outstanding, end of
year/period............ 749,400 0.13 1,157,586 0.15 2,041,332 0.18 2,068,596 0.69
======== ========== ========= =========
Exercisable, end of
year/period............ 276,400 0.10 246,865 0.10 208,620 0.15 184,945 0.18
======== ===== ========== ===== ========= ===== ========= =====
Weighted-average fair
value of options
granted during the year
with exercise price
equal to fair value at
date of grant.......... 814,620 $0.03 2,192,410 $0.03 -- $ -- -- $ --
Weighted-average fair
value of options
granted during the year
with exercise price
less than fair value at
date of grant.......... -- -- -- -- 1,550,496 $1.78 903,450 $9.08
</TABLE>

Information regarding the stock options outstanding as of June 30, 2000, is
summarized below:

<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------------------- -----------------
Weighted-
average
Remaining Weighted- Weighted-
Number of Contractual average Number average
Options Life Exercise of Exercise
Exercise Prices Outstanding (Years) Price Options Price
--------------- ----------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.08.................... 80,151 6.85 $ 0.07 43,817 $ 0.07
$0.13.................... 65,751 7.24 0.13 13,333 0.13
$0.18.................... 1,107,244 8.83 0.18 124,587 0.18
$0.50.................... 442,750 9.54 0.50 708 0.50
$2.00.................... 93,200 9.63 2.00 -- 0.00
$2.88.................... 279,500 9.74 2.88 2,500 2.88
--------- -------
$0.08 to $2.88........... 2,068,596 8.90 0.69 184,945 0.18
========= ==== ====== ======= ======
</TABLE>

F-17
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(5) LEASE COMMITMENTS

The Company leases its corporate facilities under an operating lease
agreement that expires on April 5, 2000. Total rent expense for the six months
ended June 30, 1999 and 2000 was approximately $96,000 and $935,000,
respectively. Total rent expense for the years ended December 31, 1998 and
1999, was approximately $133,000 and $197,000, respectively.

In January 2000, the Company entered into a non-cancelable operating lease
for new corporate headquarters in Mountain View, California. The Company also
leases sales offices in Natick, MA, Waltham, MA, Plano, TX, Iselin, NJ, Reston,
VA, Atlanta, GA, Seal Beach, CA and Middlesex, UK under operating lease
agreements that expire on November 30, 2000, September 30, 2001, October 1,
2000, May 29, 2001, August 31, 2000, October 1, 2000 and December 11, 2000.
Future minimum lease payments under these leases total:

<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000............................................................ $ 1,461,000
2001............................................................ 2,663,000
2002............................................................ 2,637,000
2003............................................................ 2,717,000
2004............................................................ 2,796,000
-----------
Total.......................................................... $12,274,000
===========
</TABLE>

As of June 30, 2000, the Company had $1,249,000 invested in a certificate of
deposit as security for a letter of credit issued to a lessor in connection
with a facility lease agreement. This letter of credit expires in March 31,
2006. Accordingly, this restricted cash amount has been included in other long-
term assets on the March 31, 2000 balance sheet.

A company with an officer on the Company's board of directors will sublease
office space at the new corporate headquarters, at a monthly rate of $161,000.
The sublease commences June 23, 2000 and expires March 31, 2002. As of June 30,
2000, the related party has paid $161,000 in advance to be applied against the
July rent.

(6) INCOME TAXES

The Company has not recognized income tax expense for the years ended
December 31, 1997, 1998 and 1999. The reconciliation of the Company's income
tax expense for the years ended December 31, 1997, 1998 and 1999 to income
taxes computed using the Federal statutory rate of 34% is as follows:

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Federal income tax benefit at the
statutory rate...................... $(432,000) $(2,233,000) $(3,399,000)
Net operating loss not benefited..... 421,000 2,212,000 3,212,000
Other................................ 11,000 21,000 187,000
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>

F-18
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

The tax effects of temporary differences that give rise to deferred tax
assets are as follows:

<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves............................ $ 120,000 $ 177,000
Depreciation and amortization.................... 1,011,000 811,000
Net operating loss and credit carryforwards...... 2,424,000 6,413,000
----------- -----------
Total deferred tax assets...................... 3,555,000 7,401,000
Less valuation allowance......................... (3,555,000) (7,401,000)
----------- -----------
Net deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>

Management has established a valuation allowance for the portion of deferred
tax assets for which realization is uncertain. The net change in the total
valuation allowance for the years ended December 31, 1997, 1998 and 1999 was
$542,000, $2,989,000 and $3,846,000, respectively.

As of December 31, 1999, the Company has net operating loss carryforwards for
Federal and state income tax purposes of approximately $14,789,000 and
$10,057,000, respectively, available to reduce future income subject to income
taxes. The Federal net operating loss carryforwards expire beginning in 2013
through 2019. State net operating loss carryforwards expire beginning in 2003
through 2005.

As of December 31, 1999, the Company has research and other credit
carryforwards for Federal and California income tax purposes of approximately
$163,000 and $185,000 available to reduce future income taxes. The Federal
research and other credit carryforwards expire in 2019.

The Internal Revenue Code of 1986 substantially restricts the ability of a
corporation to utilize existing net operating losses in the event of an
"ownership change" of the corporation. If such ownership changes occur,
utilization of the net operating losses will be subject to an annual limitation
in future years.

(7) SEGMENT REPORTING

SFAS No, 131, Disclosure About Segments of an Enterprise and Related
Information, establishes standards for the reporting by public companies of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.

F-19
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

The Company's chief operating decision maker is considered to be the
Company's chief executive officer (CEO). The CEO reviews financial information
presented on a consolidated basis for purposes of making decisions and
assessing financial performance. The financial information reviewed by the CEO
is identical to the information presented in the accompanying consolidated
statements of operations, and the Company has no significant foreign
operations. Therefore, the Company operates in a single operating segment.
Disaggregated product information is as follows:

<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------ -------------------
1997 1998 1999 1999 2000
----- ------- ---------- -------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software hosting............... $ -- $ -- $ 339,000 $ 44,000 $1,027,000
Software licenses:
Non-related parties........... -- 20,000 369,000 62,000 262,000
Related party................. -- -- -- -- 305,000
----- ------- ---------- -------- ----------
-- 20,000 369,000 62,000 567,000
----- ------- ---------- -------- ----------
Professional services:
Non-related parties .......... -- 17,000 556,000 203,000 1,697,000
Related party................. -- -- -- -- 104,000
----- ------- ---------- -------- ----------
-- 17,000 556,000 203,000 1,801,000
----- ------- ---------- -------- ----------
Total revenues.................. $ -- $37,000 $1,264,000 $309,000 $3,395,000
===== ======= ========== ======== ==========
</TABLE>

Significant customer information is as follows:

<TABLE>
<CAPTION>
Percentage of
Percentage of Total Revenue
Total Revenue Accounts Six Months Accounts
Years Ended Receivable Ended Receivable
December 31, as of June 30, as of
------------- December 31, ------------- June 30,
1998 1999 1999 1999 2000 2000
------ ------ ------------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A...... 54% -- -- -- -- --
Customer B...... 46% -- -- -- -- --
Customer C...... -- 15% -- -- -- --
Customer D...... -- -- 25% -- -- --
Customer E...... -- -- 13% -- -- --
Customer F...... -- -- -- -- 12% 17%
Customer G...... -- -- -- -- 14% 13%
Customer H...... -- -- -- -- 11% 12%
Customer I...... -- -- -- 17% -- --
Customer J...... -- -- -- 11% -- --
Customer K...... -- -- -- 22% -- --
</TABLE>

Customer F owns approximately 1,846,000 shares of the Company's preferred
stock (after reverse split).

(8) SUBSEQUENT EVENTS

(a) Acquisition of FusionDM

On July 20, 2000, MarketFirst acquired Times Direct Marketing, Inc., also
known as FusionDM, a direct marketing consulting agency.

F-20
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

Under the terms of the acquisition agreement, the Company will pay the
following:

. $2.5 million, which was paid at the close of the acquisition and
additional cash consideration to be paid after the end of calendar year
2000 and 2001, subject to the achievement of certain operating
objectives of FusionDM discussed below; and

. Up to 1,742,160 shares of our common stock consisting of 871,080 shares
issued at the close of the acquisition, with the remaining 871,080
shares to be placed in escrow to be released ratably after the end of
each of the three calendar years 2000, 2001 and 2002, subject to the
achievement of certain operating objectives of FusionDM discussed below.

The operating objectives which must be satisfied prior to the payout of the
additional cash consideration relate to FusionDM being in a net income position
for the years ended December 31, 2000 and 2001 and achieving specified
projected gross revenues. The specified projected revenues for the years ended
December 31, 2000 and 2001 are $8.9 million and $11.6 million, respectively.
The targeted cash consideration payout for 2000 and 2001 is $1.3 million per
year, assuming FusionDM's actual gross revenues meets its specified projected
levels. The actual cash consideration payout in each year may vary on a prorata
basis from the targeted amount to the extent that actual gross revenues are
higher or lower than projected levels.

The operating objectives which must be satisfied prior to the issuance of
additional shares of common stock relate to FusionDM being in a net income
position for the years ended December 31, 2000, 2001 and 2002 and achieving
specified projected gross revenues. The specified projected revenues for the
years ended December 31, 2000, 2001 and 2002 are $8.9 million, $11.6 million
and $15.0 million, respectively. The targeted number of shares to be released
each year cannot exceed 290,360 shares. The actual number of shares to be
released at the end of each year will be determined on a prorata basis of
actual gross revenues as a proportion of specified projected gross revenues, up
to 290,360 shares.

(b) Stock-based compensation

On July 27, 2000, the Company granted to employees options to purchase
1,137,134 shares of common stock, at an exercise price of $11.48 per share.
These options vest over a four year period. In connection with these option
grants, the Company does not expect to incur significant deferred stock
compensation charges.

On July 11, 2000, the Company signed an agreement to issue up to $10,000,000
of convertible promissory notes to existing stockholders. The notes bear 9%
interest and are due June 30, 2001 or upon the IPO, if sooner. The notes are
convertible into shares upon the earliest of the following conversion events:

a) In a $10 million private equity financing, the notes will convert to the
shares sold in the financing at the price per share of the stock issued
in the financing;

b) In a $20 million IPO, the notes will convert to common stock at a price
per share equal to 75% of the mid-point of the filing range; or

F-21
<PAGE>

c) In an acquisition, the shares will convert to common stock at a price
per share equal to 75% of the fair market value per share of the
consideration received in the acquisition.

Upon the occurrence of a conversion event set forth above, the note holders
will receive warrants, exercisable at $0.01 conversion per share, for shares of
stock equal to 20% of the notes outstanding divided by the conversion price per
share determined based upon which of the conversion events, if any, occurs.
Should a conversion event not occur for more than three months from July 11,
2000, the 20% rate will increase to 25% in the fourth month and by 5% every
month thereafter until such a conversion event occurs. The fair value of the
warrants and the intrinsic value, if any, of the embedded beneficial conversion
feature described above, will be recorded as interest expense in the period in
which the conversion event, if any, occurs. The amount of the interest expense
to be recorded will vary depending upon which, if any, of the three conversion
events occur, the amount of accrued interest at the date of conversion, and the
timing of the conversion. The fair value of the warrants issuable upon a
conversion event that occurs prior to October 11, 2000 will be $2 million in
the case of a qualifying private equity financing, and $2.7 million in the case
of a qualifying IPO or a qualifying acquisition. These amounts will increase
for every month beginning October 11, 2000 until a qualifying conversion event
occurs, as discussed above. The intrinsic value of the embedded beneficial
conversion feature will be $3.3 million (excluding accrued interest) in the
event of a qualifying IPO or a qualifying acquisition only. In the event of a
qualifying private equity financing, there will be no embedded beneficial
conversion feature and accordingly, no interest expense will be recorded.

F-22
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors of
Times Direct Marketing, Inc. d.b.a. FusionDM:

We have audited the accompanying balance sheets of Times Direct Marketing,
Inc. d.b.a. FusionDM (the Company) as of December 31, 1998 and 1999, and the
related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement preservation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Times Direct Marketing, Inc.
d.b.a. FusionDM, as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the years then ended, in conformity
with generally accepted accounting principles.

/s/ KPMG LLP

San Francisco, California
April 7, 2000, except as to Note 10,
which is as of July 20, 2000

F-23
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
---------------------- June 30,
1998 1999 2000
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $ -- $ 122,000 $ 93,000
Accounts receivable, less allowance for
doubtful accounts of $0, $50,000, and
$259,000 as of December 31, 1998 and
1999, and June 30, 2000, respectively.... 778,000 2,450,000 2,584,000
Cost in excess of billings on contracts in
progress................................. 10,000 298,000 251,000
Prepaid expenses and other current
assets................................... 12,000 13,000 97,000
---------- ---------- ----------
Total current assets..................... 800,000 2,883,000 3,025,000
Deposits and other assets.................. 47,000 263,000 353,000
Property and equipment, net................ 568,000 801,000 995,000
---------- ---------- ----------
Total assets............................. $1,415,000 $3,947,000 $4,373,000
========== ========== ==========

Liabilities and Stockholders' Deficit

Current liabilities:
Accounts payable.......................... $ 656,000 $1,064,000 $1,792,000
Accrued liabilities....................... 119,000 398,000 791,000
Accrued reimbursable out-of-pocket costs.. 556,000 1,735,000 1,112,000
Current portion of capital lease
obligations.............................. 57,000 114,000 125,000
Billing in excess of costs on contracts in
progress ................................ 124,000 609,000 409,000
Line of credit............................ 89,000 -- 402,000
Due to officers........................... -- -- 281,000
---------- ---------- ----------
Total current liabilities................ 1,601,000 3,920,000 4,912,000
Long-term portion of capital lease
obligation................................ 55,000 212,000 171,000
---------- ---------- ----------
Total liabilities........................ 1,656,000 4,132,000 5,083,000
---------- ---------- ----------

Stockholders' deficit:
Common stock, $1.00 par value; 100,000
shares authorized; 25,858 shares issued
and outstanding as of December 31, 1998
and 1999, and June 30, 2000.............. 26,000 26,000 26,000
Additional paid-in capital ............... 34,000 34,000 34,000
Accumulated deficit....................... (301,000) (245,000) (770,000)
---------- ---------- ----------
Total stockholders' deficit.............. (241,000) (185,000) (710,000)
---------- ---------- ----------
Total liabilities and stockholders'
deficit................................. $1,415,000 $3,947,000 $4,373,000
========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-24
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December Six Months Ended June
31, 30,
----------------------- ----------------------
1998 1999 1999 2000
----------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Revenue for services, net of
reimbursed costs of
$4,788,000, $7,076,000,
$2,116,000 and $5,420,000 in
the years ended December 31,
1998 and 1999 and in the six
month periods ended June 30,
1999 and 2000............... $ 2,222,000 $5,470,000 $2,068,000 $3,981,000
Cost of services............. 1,447,000 2,826,000 1,068,000 1,795,000
----------- ---------- ---------- ----------
Gross profit............... 775,000 2,644,000 1,000,000 2,186,000
----------- ---------- ---------- ----------
Operating expenses:
Sales and marketing......... 93,000 194,000 166,000 58,000
General and administrative.. 2,020,000 2,592,000 1,075,000 2,142,000
----------- ---------- ---------- ----------
Total operating expenses... 2,113,000 2,786,000 1,241,000 2,200,000
----------- ---------- ---------- ----------
Operating income (loss).... (1,338,000) (142,000) (241,000) (14,000)
Other income (expense):
Interest and other income... -- 298,000 288,000 7,000
Interest expense............ (34,000) (65,000) (51,000) (29,000)
Loss on disposal of fixed
assets..................... -- (19,000) -- (162,000)
----------- ---------- ---------- ----------
Income (loss) before income
taxes...................... (1,372,000) 72,000 (4,000) (198,000)
Income tax expense.......... -- 16,000 -- --
----------- ---------- ---------- ----------
Net income (loss) ........... $(1,372,000) $ 56,000 $ (4,000) $ (198,000)
=========== ========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-25
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Retained
Common stock Additional Earnings Total
-------------- Paid-in (Accumulated Stockholders'
Shares Amount Capital Deficit) Equity (Deficit)
------ ------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance as of December
31, 1997............... 21,979 $22,000 $ -- $ 1,071,000 $ 1,093,000
Issuance of common stock
for services........... 3,879 4,000 34,000 -- 38,000
Net loss................ -- -- -- (1,372,000) (1,372,000)
------ ------- ------- ----------- -----------
Balance as of December
31, 1998............... 25,858 26,000 34,000 (301,000) (241,000)
Net income.............. -- -- -- 56,000 56,000
------ ------- ------- ----------- -----------
Balance as of December
31, 1999............... 25,858 26,000 34,000 (245,000) (185,000)
Net loss (unaudited).... -- -- -- (198,000) (198,000)
Distribution to
stockholders
(unaudited)............ -- -- -- (327,000) (327,000)
------ ------- ------- ----------- -----------
Balance as of June 30,
2000 (unaudited)....... 25,858 $26,000 $34,000 $ (770,000) $ (710,000)
====== ======= ======= =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-26
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December Six Months Ended
31, June 30,
------------------------ --------------------
1998 1999 1999 2000
----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $(1,372,000) $ 56,000 $ (4,000) $(198,000)
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Depreciation and
amortization................ 189,000 228,000 147,000 119,000
Loss on disposal of fixed
asset....................... -- 19,000 -- 162,000
Allowance for bad debts...... -- 50,000 32,000 209,000
Employee stock based
compensation................ 38,000 -- -- --
Changes in operating assets
and liabilities:
Accounts receivable......... 852,000 (1,722,000) (651,000) (343,000)
Prepaid expenses and other
assets..................... (12,000) (135,000) (40,000) (125,000)
Cost in excess of billings
on contracts in progress... (10,000) (288,000) (104,000) 47,000
Accounts payable............ (24,000) 408,000 50,000 728,000
Accrued liabilities......... (409,000) 279,000 323,000 393,000
Accrued reimbursable out-of-
pocket costs............... 556,000 1,179,000 127,000 (623,000)
Billing in excess of cost on
contracts in progress...... 124,000 485,000 144,000 (200,000)
----------- ----------- --------- ---------
Net cash provided by (used
in) operating activities.. (68,000) 559,000 24,000 169,000
----------- ----------- --------- ---------
Cash flows used in investing
activities:
Purchases of property and
equipment..................... (113,000) (191,000) (125,000) (458,000)
Other assets................... (22,000) (82,000) (171,000) (49,000)
----------- ----------- --------- ---------
Net cash used in investing
activities................ (135,000) (273,000) (296,000) (507,000)
----------- ----------- --------- ---------
Cash flows (used in) provided
by financing activities:
Capital lease payments......... (39,000) (75,000) (38,000) (47,000)
Proceeds (payments) from/on
line of credit................ 89,000 (89,000) 310,000 402,000
Distributions to shareholders.. -- -- -- (327,000)
Proceeds from loan from
officer....................... -- -- -- 281,000
----------- ----------- --------- ---------
Net cash provided by (used
in) financing activities.. 50,000 (164,000) 272,000 309,000
----------- ----------- --------- ---------
Net (decrease) increase in cash
and cash equivalents.......... (153,000) 122,000 -- (29,000)
Cash and cash equivalents,
beginning of year/period...... 153,000 -- -- 122,000
----------- ----------- --------- ---------
Cash and cash equivalents, end
of year/period................ $ -- $ 122,000 $ -- $ 93,000
=========== =========== ========= =========
Supplemental disclosure of cash
flow information:
Cash paid during year/period
for interest................. $ 17,000 $ 23,000 $ 30,000 $ 28,000
=========== =========== ========= =========
Noncash investing and financing
activities:
Property and equipment
obtained under capital
lease........................ $ 82,000 $ 289,000 $ 137,000 $ 17,000
=========== =========== ========= =========
</TABLE>

See accompanying notes to financial statements.

F-27
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1999

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Organization and Basis of Presentation

Times Direct Marketing, Inc., d.b.a. FusionDM (the Company), was incorporated
in California on March 5, 1992. The Company is a direct marketing consulting
agency providing marketing professional services that combine Internet
technology services with traditional marketing services, such as strategic
consulting, creative services, media planning and database marketing.

(b) Contract Accounting

Revenue from time and material contracts for services is recognized based on
contract costs incurred during the year. Contract costs include direct
materials, labor, and subcontracting costs, and those indirect costs related to
contract performance such as indirect labor and supply costs. General and
administrative costs are charged to expenses as incurred.

Revenue from fixed fee contracts for services is recognized ratably over the
life of the contract. Contract costs are recognized when incurred. Contract
costs include all direct material, labor, and subcontracting costs, and those
indirect costs related to contract performance such as indirect labor and
supply costs. General and administrative costs are charged to expense as
incurred.

Provision for estimated losses on contracts in progress are made in the
period in which such losses are determined. Changes in contract requirements,
estimated profitability, and final contract settlements may result in revisions
to costs and revenues and are recognized in the period in which the revisions
are determined.

Revenue for services is presented net of reimbursed costs. These costs
include printing, postage, prizes and other direct out-of-pocket expenses
specifically associated with contracts.

The asset "costs in excess of billings on contracts in progress" represents
costs incurred in advance of billings. The liability "billings in excess of
costs and estimated earnings on contracts in progress" represents billings in
excess of income recognized.

Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities of less than 90 days at the date of purchase. The Company
is exposed to credit risk in the event of default by the financial institutions
or the issuers of these investments to the extent of the amounts recorded on
the balance sheet in excess of amounts that are insured by the FDIC. As of
December 31, 1998 and 1999, and June 30, 2000, cash equivalents consisted
principally of a money market account.

(d) Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation and
amortization. Depreciation is calculated using the double-declining balance
method over the estimated useful lives of the respective assets, generally
three to four years. Leasehold improvements and capital leased equipment are
amortized on a straight-line basis over the shorter of the estimated useful
lives of the assets or the lease term.

F-28
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(e) Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.

(f) Advertising Costs

The Company's policy is to expense advertising costs as incurred. The
Company's advertising and promotion expense was $36,000, $6,000, $5,000 and
$21,000 for the years ended December 31, 1998 and 1999, and for the six months
ended June 30, 1999 and 2000, respectively.

(g) 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.

(h) Income Taxes

As of December 31, 1998, the Company was a "C" Corporation. During 1998,
income taxes were accounted for under the assets and liability method. Deferred
tax assets and liabilities were recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities were
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences were expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates was recognized in income in the period that includes the enactment date.
Valuation allowances were established when necessary to reduce deferred tax
assets to the amounts to be recovered. During 1999, the Company converted from
a "C" Corporation to "S" Corporation status for federal income tax purposes. As
a result, there is no provision for federal income tax expense in 1999. State
franchise tax for "S" Corporation is assessed at the rate of 1.5% at the
corporate level.

(i) Comprehensive Income (Loss)

The Company did not have any significant components of other comprehensive
income (loss) for the years ended December 31, 1998 and 1999, and for the six
months ended June 30, 1999 and 2000.

(j) Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company has not experienced significant credit

F-29
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

losses in the past. The Company maintains an allowance for doubtful accounts
receivable based upon their expected collectibility.

(k) Recent Accounting Pronouncements

In June 2000, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment to SFAS No. 133. SFAS No. 138 addresses a
limited number of issues causing implementation difficulties for companies that
are required to apply SFAS No. 133. SFAS No. 133, as amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities, establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Because the Company does not currently hold any derivative
instruments and does not engage in hedging activities, the Company expects that
the adoption of SFAS No. 133 will not have a material impact on its financial
position, results of operations, or cash flows. The Company will be required to
adopt SFAS No. 133 in the first quarter of fiscal year 2001.

(l) Unaudited Interim Financial Statements

(2) PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following:

<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Computer equipment and office equipment... $ 496,000 $ 803,000 $ 912,000
Software.................................. 95,000 122,000 173,000
Furniture and fixtures.................... 166,000 258,000 348,000
Leasehold improvements.................... 257,000 276,000 267,000
---------- ---------- ----------
1,014,000 1,459,000 1,700,000
Accumulated depreciation and
amortization............................. 446,000 658,000 705,000
---------- ---------- ----------
$ 568,000 $ 801,000 $ 995,000
========== ========== ==========
</TABLE>

Equipment under capital leases aggregated $158,000, $447,000, and $464,000 as
of December 31, 1998 and 1999, and June 30, 2000, respectively. Accumulated
amortization on the assets under capital leases aggregated $31,000, $80,000,
and $117,000 as of December 31, 1998 and 1999, and June 30, 2000, respectively.

F-30
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(3) LEASES

The Company has a noncancelable operating lease for office space. The office
space lease was entered into in May 1999 and extends for five years. The
Company also entered into several capital leases for equipment.

Future minimum lease payments as of December 31, 1999, were as follows:

<TABLE>
<CAPTION>
Capital Operating
Year Ended December 31, Leases Lease
----------------------- -------- ----------
<S> <C> <C>
2000................................................. $150,000 $ 388,000
2001................................................. 123,000 388,000
2002................................................. 87,000 388,000
2003................................................. 29,000 388,000
2004................................................. 9,000 128,000
-------- ----------
Total minimum lease payments......................... 398,000 $1,680,000
==========
Less amount representing imputed interest............ 72,000
--------
Present value of minimum lease payments.............. 326,000
Less current portion................................. 114,000
--------
Capital lease obligation, less current portion....... $212,000
========
</TABLE>

In January 2000, the Company exercised its option to lease additional office
space pursuant to the lease agreement entered into in May 1999. The lease term
of the additional office space extends from April 2000 to May 2004. The
additional future minimum lease payments for the years ended December 31, 2000
through December 31, 2004 will be $438,000, $584,000, $584,000, $584,000 and
$243,000, respectively. The Company has subleased a portion of this additional
office space to a third party. The lease term of the sublease if from August
2000 to July 2001. In connection with this sublease, the Company has received
approximately $420K from the third party, which amount is included in accrued
liabilities in the accompanying June 30, 2000 balance sheet.

The Company's rent expense was $210,000, $366,000, $116,000 and $357,000 for
the years ended December 31, 1998 and 1999, and the six months ended June 30,
1999 and 2000, respectively.

(4) CREDIT FACILITIES

The Company has two lines of credit with Merrill Lynch totaling $700,000. The
lines of credit bear interest at the 30-Day Commercial Paper Rate plus 3.30%
per year, 9.17% and 9.32% as of December 31, 1998 and 1999, respectively. As of
December 31, 1999, no amounts were outstanding under these lines of credit. The
lines of credit are secured by first liens and security interests in collateral
granted to the financial institution. One of the lines of credit is personally
guaranteed by the CEO. The line of credit for $500,000 is subject to yearly
renewal; the line of credit for $200,000 expires in May 2002. In January 2000,
the line of credit for $500,000 was increased to $750,000.

As of June 30, 2000, $402,000 was outstanding under the $750,000 line of
credit. Under the two lines of credit, the Company is required to maintain
certain financial ratios. As of June 30, 2000, the Company was in compliance
with or had received a waiver for such financial ratios.

F-31
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

(5) RELATED PARTY TRANSACTION

In March 2000, the Company obtained a short term loan from the Company's
chief executive officer for $281,000. The loan will be repaid on or before
December 31, 2000 and bears interest at the rate of 10% per annum.

(6) STOCKHOLDERS' DEFICIT

In June 1992, the founder contributed approximately $5,000 in cash and
$17,000 in furniture and equipment to the Company in return for 21,979 shares
of the Company.

In April 1998, the Company granted a 15% interest in the Company to the chief
operating officer (COO) as part of the COO's employment agreement. The value of
this ownership interest was based on the fair value of the common stock on the
date of issue. These shares of common stock were vested upon grant.
Accordingly, the Company granted 3,879 shares of common stock to the COO valued
at $38,000 which was recorded as compensation expense during the year ended
December 31, 1998.

(7) INCOME TAXES

Income tax expense for the years ended December 31, 1998 and 1999 consisted
of:

<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ -------
<S> <C> <C>
Current:
Federal........................................................ $ -- $ --
State.......................................................... -- 16,000
------ -------
Total current tax expense....................................... -- 16,000
Deferred:
Federal........................................................ -- --
State.......................................................... -- --
------ -------
Total deferred tax expense...................................... -- --
------ -------
Total tax expense............................................... $ -- $16,000
====== =======
</TABLE>

F-32
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

The types of temporary differences that give rise to significant portions of
the Company's deferred tax assets and liabilities are set out below:

<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
--------- --------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves..................................... $ 325,000 $ 28,000
Net operating loss and credit carryforwards............... 487,000 --
--------- --------
Gross deferred tax assets.................................. 812,000 28,000
Valuation allowance........................................ (799,000) (26,000)
--------- --------
Total deferred tax assets.................................. 13,000 2,000
Deferred tax liabilities:
Plant and equipment....................................... (13,000) (2,000)
--------- --------
Total deferred tax liabilities............................. (13,000) (2,000)
--------- --------
Net deferred tax assets.................................... $ -- $ --
========= ========
</TABLE>

The Company elected S corporation status on March 1, 1999. Prior to the
election, the Company's year end had been February 28. The provision for income
taxes at December 31, 1998 has been calculated as if the Company had a calendar
year end.

The decrease in the valuation allowance of $773,000 is due to the reduction of
federal and partial state deferred income tax assets and liabilities as of
December 31, 1999 as a result of the S Corporation status election.

The Company has net operating loss carryforwards through February 1999 for
federal and state income tax purposes of approximately $1,300,000 and $652,000,
respectively. However, due to the S Corporation election, the losses are
suspended until such time the company changes to a C Corporation. The Federal
net operating loss carryforwards expire in 2019. The California net operating
loss carryforwards expire in 2004.

(8) SEGMENT REPORTING

SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, establishes standards for the reporting by public companies of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.

The Company's chief operating decision maker is considered to be the
Company's chief executive officer (CEO). The CEO reviews financial information
presented for purposes of making decisions and assessing financial performance.
The financial information reviewed by the CEO is identical to the information
presented in the accompanying statements of operations, and the Company has no
significant foreign operations. Therefore, the Company operates in a single
operating segment.

F-33
<PAGE>

TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)

NOTES TO FINANCIAL STATEMENTS--(Continued)

(Information as of June 30, 2000 and for the six-month periods ended June 30,
1999
and 2000 is unaudited.)

Significant customer information is as follows. Amounts not presented were
less than 10 percent.

<TABLE>
<CAPTION>
Percent of Net Sales
------------------------------- Percent of
Six months total
Year ended ended Accounts
December 31, June 30, Receivable
--------------- ------------- June 30,
1998 1999 1999 2000 2000
------ ------ ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Customer A...................... 23% 18% 14% 15% --
Customer B...................... 13% 13% 22% -- --
Customer C...................... -- 12% 17% -- 15%
Customer D...................... -- 10% -- -- --
Customer E...................... -- -- -- 10% 12%
Customer F...................... -- -- -- 19% 32%
Customer G...................... -- -- 10% -- --
</TABLE>

(9) EMPLOYEE BENEFIT PLAN

In July 1997, the Company adopted a 401(k) employee retirement plan under
which eligible employees may contribute up to 15% of their annual compensation
on a pre-tax basis. The administrative costs of this plan are paid by the
Company. Employees vest immediately in their contributions and earnings
thereon. The plan allows for, but does not require, Company matching
contributions. As of December 31, 1999, the Company had not made any
significant contributions to the employee benefit plan. During the six months
ended June 30, 2000, the Company contributed $16,000 to the employee benefit
plan.

(10) SUBSEQUENT EVENT

(a) Agreement to be Acquired by MarketFirst

On July 20, 2000, the Company was acquired by MarketFirst Software, Inc.
(MarketFirst). Under the terms of the acquisition agreement, consideration
to the shareholders of the Company is summarized as follows:

. $2.5 million, which was received at the close of the acquisition and
additional cash consideration to be received after the end of calender
year 2000 and 2001, subject to the achievement of certain operating
objectives as discussed below; and

. Up to 1,742,160 shares of common stock of MarketFirst consisting of
871,080 shares issued at the close of the acquisition, with the remaining
871,080 shares to be placed in escrow to be released ratably after the
end of each of the three calender years 2000, 2001 and 2002, subject to
the achievement of certain operating objectives as discussed below.

The operating objectives which must be satisfied prior to the payout of the
additional cash consideration relate to the Company being in a net income
position for the years ended December 31, 2000 and 2001 and achieving
specified projected gross revenues. The specified projected revenues for
the years ended December 31, 2000 and 2001 are $8.9 million and $11.6
million, respectively. The targeted cash consideration payout for 2000 and
2001 is $1.3 million per year, assuming the Company's actual gross revenues
meets its specified projected levels. The actual cash consideration payout
in each year may vary on a prorata basis from the targeted amount to the
extent that actual gross revenues are higher or lower than projected
levels.

The operating objectives which must be satisfied prior to the issuance of
additional shares of common stock relate to the Company being in a net
income position for the years ended December 31, 2000, 2001 and 2002 and
achieving specified projected gross revenues. The specified projected
revenues for the years ended December 31, 2000, 2001 and 2002 are $8.9
million, $11.6 million and $15.0 million, respectively. The targeted number
of shares to be released each year cannot exceed 290,360 shares. The actual
number of shares to be released at the end of each year will be determined
on a prorata basis of actual gross revenues as a proportion of specified
projected gross revenues, up to 290,360 shares.

F-34
<PAGE>

MARKETFIRST SOFTWARE, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

On July 20, 2000, MarketFirst acquired Times Direct Marketing, Inc., also
known as FusionDM, a direct marketing consulting agency.

Under the terms of the acquisition agreement, the Company will pay the
following:

. $2.5 million, which was paid at the close of the acquisition, and
additional cash consideration to be paid after the end of calender year
2000 and 2001, subject to the achievement of certain operating
objectives of FusionDM as discussed below; and

. up to 1,742,160 shares of our common stock consisting of 871,080 shares
issued at the close of the acquisition, with the remaining 871,080
shares to be placed in escrow to be released ratably after the end of
each of the three calender years 2000, 2001, and 2002, subject to the
achievement of certain operating objectives of FusionDM as discussed
below.

The operating objectives which must be satisfied prior to the payout of the
additional cash consideration relate to FusionDM being in a net income
position for the years ended December 31, 2000 and 2001 and achieving
specified projected gross revenues. The specified projected revenues for
the years ended December 31, 2000 and 2001 are $8.9 million and $11.6
million, respectively. The targeted cash consideration payout for 2000 and
2001 is $1.3 million per year, assuming FusionDM's actual gross revenues
meets its specified projected levels. The actual cash consideration payout
in each year may vary on a prorata basis from the targeted amount to the
extent that actual gross revenues are higher or lower than projected
levels.

The operating objectives which must be satisfied prior to the issuance of
additional shares of common stock relate to FusionDM being in a net income
position for the years ended December 31, 2000, 2001 and 2002 and achieving
specified projected gross revenues. The specified projected revenues for
the years ended December 31, 2000, 2001 and 2002 are $8.9 million, $11.6
million and $15.0 million, respectively. The targeted number of shares to
be released each year cannot exceed 290,360 shares. The actual number of
shares to be released at the end of each year will be determined on a
prorata basis of actual gross revenues as a proportion of specified
projected gross revenues, up to 290,360 shares.

The pro forma adjustments are preliminary and based on management's estimates
of the value of the tangible and intangible assets acquired. The actual
adjustments may differ materially from those presented in these pro forma
financial statements. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to the long-
term tangible and intangible assets, or in some circumstances, resulting in a
change to the statement of operations. The effect of these changes on the
statement of operations will depend on the nature and amounts of the assets and
liabilities adjusted.

The unaudited pro forma combined condensed balance sheet assumes that the
acquisition took place on June 30, 2000 and combines MarketFirst's unaudited
June 30, 2000 balance sheet with FusionDM's unaudited June 30, 2000 balance
sheet. The unaudited pro forma combined condensed statements of operations
assume the acquisition took place on January 1, 1999, and combine MarketFirst's
audited statement of operations for the year ended December 31, 1999 with
FusionDM's audited statement of operations for the year ended December 31,
1999, and MarketFirst's unaudited condensed statement of operations for the six
months ended June 30, 2000 with FusionDM's unaudited condensed statement of
operations for the six months ended June 30, 2000.

Finally, only a portion of the total consideration was conveyed at the
acquisition date. The remaining consideration is subject to performance
contingencies over three years. Accordingly, the common shares issued as
contingent consideration will be recorded as an additional cost of the
acquisition at the date the shares become distributable during the three-year
period, at the then fair value of those shares. The effect of this contingent
consideration is unknown, but could materially impact the values assigned to
long-term intangible assets and significantly increase the amount of annual
amortization (see Note 3 to the unaudited pro forma combined condensed
financial statements).

F-35
<PAGE>

MARKETFIRST SOFTWARE, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

June 30, 2000

<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ -----------------------------
MarketFirst Fusion Adjustments Combined
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 735,000 $ 93,000 $(2,500,000)(1a) $ --
1,672,000
Short-term
investments........... -- -- -- --
Accounts receivable.... 2,897,000 2,584,000 -- 5,481,000
Unbilled revenue....... 210,000 -- -- 210,000
Cost in excess of
billings on contracts
in progress........... -- 251,000 -- 251,000
Prepaid expenses and
other current assets.. 1,441,000 97,000 -- 1,538,000
------------ ---------- ----------- ------------
Total current assets.. 5,283,000 3,025,000 (828,000) 7,480,000
Property and equipment,
net.................... 2,969,000 995,000 -- 3,964,000
Other assets............ 1,261,000 353,000 -- 1,614,000
Goodwill and other
intangible assets,
net.................... -- -- 13,310,000 (1a) 13,310,000
------------ ---------- ----------- ------------
$ 9,513,000 $4,373,000 $12,482,000 $ 26,368,000
============ ========== =========== ============

Liabilities, Redeemable
Convertible Preferred
stock, and
Stockholders' Equity
(Deficit)

Current liabilities:
Accounts payable....... $ 1,346,000 $1,792,000 $ -- $ 3,138,000
Accrued liabilities.... 2,070,000 791,000 100,000 (1a) 2,961,000
Accrued reimbursable
out-of-pocket costs... -- 1,112,000 -- 1,112,000
Current portion of
capital lease
obligations .......... -- 125,000 -- 125,000
Due to officers........ -- 281,000 -- 281,000
Line of credit......... -- 402,000 1,672,000 2,074,000
Deferred revenue and
billings in excess
of costs.............. 871,000 409,000 -- 1,280,000
------------ ---------- ----------- ------------
Total current
liabilities.......... 4,287,000 4,912,000 1,772,000 10,971,000
------------ ---------- ----------- ------------
Long-term capital lease
obligations............ -- 171,000 -- 171,000
------------ ---------- ----------- ------------
Redeemable convertible
preferred stock and
warrants............... 30,921,000 -- -- 30,921,000
------------ ---------- ----------- ------------
Stockholders' equity
(deficit):
Common stock........... 5,000 26,000 (26,000)(1a) 6,000
1,000 (1a)
Additional paid-in
capital............... 10,630,000 34,000 9,999,000 (1a) 20,629,000,
(34,000)(1a)
Deferred stock-based
compensation.......... (6,770,000) -- -- (6,770,000)
Notes receivable from
stockholders.......... (207,000) -- -- (207,000)
Accumulated deficit.... (29,353,000) (770,000) 770,000 (1a) (29,353,000)
------------ ---------- ----------- ------------
Total stockholders'
equity (deficit)..... (25,695,000) (710,000) 10,710,000 (15,695,000)
------------ ---------- ----------- ------------
$ 9,513,000 $4,373,000 $12,482,000 $ 26,368,000
============ ========== =========== ============
</TABLE>

See accompanying notes to unaudited pro forma combined condensed financial
statements.

F-36
<PAGE>

MARKETFIRST SOFTWARE, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

Year Ended December 31, 1999

<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ -----------------------------
MarketFirst FusionDM Adjustments Combined
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Software hosting....... $ 339,000 $ -- $ -- $ 339,000
Software licenses...... 369,000 -- -- 369,000
Professional services.. 556,000 5,470,000 -- 6,026,000
------------ ---------- ----------- ------------
Total revenues........ 1,264,000 5,470,000 -- 6,734,000
------------ ---------- ----------- ------------
Cost of revenues:
Software hosting....... 150,000 -- -- 150,000
Software licenses...... 29,000 -- -- 29,000
Professional services.. 286,000 2,826,000 -- 3,112,000
Stock-based
compensation.......... 7,000 -- -- 7,000
------------ ---------- ----------- ------------
Total cost of
revenues............. 472,000 2,826,000 -- 3,298,000
------------ ---------- ----------- ------------
Gross profit.......... 792,000 2,644,000 -- 3,436,000
------------ ---------- ----------- ------------
Operating expenses:
Research and
development........... 3,470,000 -- -- 3,470,000
Sales and marketing.... 5,600,000 194,000 -- 5,794,000
General and
administrative........ 1,210,000 2,592,000 -- 3,802,000
Stock-based
compensation.......... 813,000 -- -- 813,000
Amortization of
goodwill and other
intangible assets..... -- -- 3,570,000 (2a) 3,570,000
------------ ---------- ----------- ------------
Total operating
expenses............. 11,093,000 2,786,000 3,570,000 17,449,000
------------ ---------- ----------- ------------
Operating loss........ (10,301,000) (142,000) (3,570,000) (14,013,000)
Interest and other,
net.................... 303,000 198,000 -- 501,000
------------ ---------- ----------- ------------
Net income (loss)..... (9,998,000) 56,000 (3,570,000) (13,512,000)
Accretion and dividend
on redeemable
convertible preferred
stock.................. (24,000) -- -- (24,000)
------------ ---------- ----------- ------------
Net loss attributable
to common
stockholders......... $(10,022,000) $ 56,000 $(3,570,000) $(13,536,000)
============ ========== =========== ============
Basic and diluted net
loss per share
attributable to
common stockholders.. $ (2.96) $ (3.18)
============ ============
Shares used to compute
basic and diluted net
loss per share
attributable to
common stockholders.. 3,381,000 871,000 (2b) 4,252,000
============ ============
</TABLE>

See accompanying notes to unaudited pro forma combined condensed financial
statements.

F-37
<PAGE>

MARKETFIRST SOFTWARE, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

Six months ended June 30, 2000

<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ -----------------------------
MarketFirst Fusion Adjustments Combined
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Hosting............... $ 1,027,000 $ -- $ -- $ 1,027,000
Licenses.............. 567,000 -- -- 567,000
Professional
services............. 1,801,000 3,981,000 -- 5,782,000
------------ ---------- ----------- ------------
Total revenues...... 3,395,000 3,981,000 -- 7,376,000
------------ ---------- ----------- ------------
Cost of revenues:
Hosting............... 830,000 -- -- 830,000
Licenses.............. 25,000 -- -- 25,000
Professional
services............. 1,187,000 1,795,000 -- 2,982,000
Stock-based
compensation......... 371,000 -- -- 371,000
------------ ---------- ----------- ------------
Total cost of
revenues........... 2,413,000 1,795,000 -- 4,208,000
------------ ---------- ----------- ------------
Gross profit........ 982,000 2,186,000 -- 3,168,000
------------ ---------- ----------- ------------
Operating expenses:
Research and
development.......... 2,595,000 -- -- 2,595,000
Sales and marketing... 6,915,000 58,000 -- 6,973,000
General and
administrative....... 1,267,000 2,142,000 -- 3,409,000
Stock-based
compensation......... 1,780,000 -- -- 1,780,000
Amortization of
goodwill and other
intangible assets.... -- -- 1,786,000 (2a) 1,786,000
------------ ---------- ----------- ------------
Total operating
expenses........... 12,557,000 2,200,000 1,786,000 16,543,000
------------ ---------- ----------- ------------
Operating income
(loss)............. (11,575,000) (14,000) (1,786,000) (13,375,000)
Interest and other net.. 252,000 (184,000) -- 68,000
------------ ---------- ----------- ------------
Net income (loss)... (11,323,000) (198,000) (1,786,000) (13,307,000)
Accretion and dividend
on redeemable
convertible preferred
stock.................. (42,000) -- -- (42,000)
------------ ---------- ----------- ------------
Net loss
attributable to
common
stockholders....... $(11,365,000) $(198,000) $(1,786,000) $(13,349,000)
============ ========== =========== ============
Basic and diluted net
loss per share
attributable to
stockholders........... $ (2.59) (2.53)
============ ============
Shares used to compute
basic and diluted net
loss per share
attributable to
stockholders........... 4,395,000 871,000 (2b) 5,266,000
============ ============
</TABLE>

See accompanying notes to Unaudited pro forma combined condensed financial
statements.

F-38
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

March 31, 2000 and the Year Ended December 31, 1999 and the three month period
ended March 31, 2000

(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

The pro forma combined condensed balance sheet as of June 30, 2000 gives
effect to the acquisition as if it had occurred on June 30, 2000.

The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:

(a) To record consideration to be issued by MarketFirst at the close of the
acquisition and applicable purchase accounting entries for the acquisition of
FusionDM using $11.48 as the per share value of the common shares issued in the
acquisition. This adjustment does not reflect the additional consideration that
may be paid subject to the achievement of certain operating objectives.

Under purchase accounting, the total purchase price will be allocated to
FusionDM's assets and liabilities based on their relative fair values. Amounts
allocated to assembled workforce will be amortized on a straight-line basis
over an estimated useful life of three years. Amounts allocated to customer
lists will be amortized over two years. Amounts allocated to tradenames,
FusionDM's proprietary marketing process and goodwill will be amortized over an
estimated useful life of four years. Allocations are subject to valuations as
of the date of the consummation of the acquisition. The amounts and components
of the estimated purchase price, along with the preliminary allocation of the
estimated purchase price to assets purchased, are as follows:

<TABLE>
<S> <C>
Cash............................................................ $ 2,500,000
Common stock.................................................... 10,000,000
Estimated transaction costs..................................... 100,000
-----------
Total purchase price........................................... $12,600,000
===========
Cash and cash equivalents....................................... $ 93,000
Accounts receivable............................................. 2,584,000
Prepaid expenses and other current assets....................... 348,000
Deposits and other assets....................................... 353,000
Property and equipment.......................................... 995,000
Accounts payable................................................ (1,792,000)
Accrued liabilities and other................................... (2,711,000)
Deferred revenue................................................ (409,000)
Long-term obligations........................................... (171,000)
-----------
Fair value of net tangible assets of FusionDM.................. (710,000)
Assembled workforce............................................. 1,641,000
Customer lists.................................................. 420,000
Tradenames...................................................... 662,000
Marketing process............................................... 3,079,000
Goodwill........................................................ 7,508,000
-----------
Net assets acquired............................................ $12,600,000
===========
</TABLE>

The actual allocation of the initial purchase price will depend upon the
composition of FusionDM's net assets on the closing date and MarketFirst's
evaluation of the fair value of the net assets as of the date indicated.
Consequently, the actual allocation of the purchase price could differ from
that presented above.

F-39
<PAGE>

MARKETFIRST SOFTWARE, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (Continued)

(2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS

The pro forma combined condensed statements of operations give effect to the
acquisition as if it had occurred on January 1, 1999.

The following adjustments have been reflected in the unaudited pro forma
combined condensed statements of operations:

(a) Adjustment to record the amortization of goodwill and intangible assets
resulting from the preliminary allocation of the FusionDM purchase price
calculated as follows:

<TABLE>
<CAPTION>
Estimated
Useful Annual Six Month
Value Life (Years) Amortization Amortization
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assembled workforce....... $ 1,641,000 3 $ 547,000 $ 274,000
Customer lists............ 420,000 2 210,000 105,000
Tradenames................ 662,000 4 166,000 83,000
Marketing process......... 3,079,000 4 770,000 385,000
Goodwill.................. 7,508,000 4 1,877,000 939,000
----------- ---------- ----------
$13,310,000 $3,570,000 $1,786,000
=========== ========== ==========
</TABLE>

(b) To reflect the shares of common stock to be issued as consideration for
the acquisition of FusionDM.

(3) EFFECT OF CONTINGENT CONSIDERATION

Assuming all of the contingent share consideration becomes issuable and the
contingent cash consideration is $2,500,000, the following table presents the
potential increases to long- term intangible assets, and the resulting
increases to the annual amortization presented in 2(a) above based upon varying
common stock fair values. The common stock fair values presented do not purport
to represent the potential range of fair values possible at each contingent
consideration measurement date during the three-year contingent consideration
measurement period:

<TABLE>
<CAPTION>
Increase to
Assumed Fair Value per Annual
Share of Common Stock Increase to Goodwill Amortization
---------------------- -------------------- ------------
<S> <C> <C>
$10.00................................. $11,211,000 $ 2,803,000
$15.00................................. 15,566,000 3,892,000
$20.00................................. 19,922,000 4,981,000
$25.00................................. 24,277,000 6,069,000
$50.00................................. 46,054,000 11,514,000
</TABLE>

F-40
<PAGE>

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
, 2000
[MARKETFIRST LOGO]

5,000,000 Shares of Common Stock

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

PROSPECTUS

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

Donaldson, Lufkin & Jenrette

Dain Rauscher Wessels

SG Cowen

DLJdirect Inc.

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

We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of
MarketFirst have not changed since the date hereof.

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

Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to their unsold allotments or subscriptions.

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission, NASD and Nasdaq National Market
fees. All of the expenses below will be paid by MarketFirst.

<TABLE>
<CAPTION>
Amount to
be Paid
----------
<S> <C>
Registration fee................................................. $ 13,662
NASD filing fee.................................................. 6,250
Nasdaq National Market listing fee............................... 95,000
Blue sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 250,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 800,000
Transfer Agent and Registrar fees................................ 20,000
Miscellaneous.................................................... 28,570
----------
Total............................................................ $1,525,000
==========
</TABLE>

Item 14. Indemnification of Officers and Directors

Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of MarketFirst under certain conditions and subject
to certain limitations. Section 145 of the Delaware General Corporation Law
also provides that a corporation has the power to purchase and maintain
insurance on behalf of its officers and directors against any liability
asserted against such person and incurred by him or her in such capacity, or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify him or her against such liability under the
provisions of Section 145 of the Delaware General Corporation Law.

Article VII, Section 6 of the Amended and Restated Bylaws of MarketFirst
provides that MarketFirst shall indemnify its directors to the fullest extent
allowed by the Delaware General Corporation Law. The rights to indemnity
thereunder continue as to a person who has ceased to be a director and inure to
the benefit of the heirs, executors and administrators of the person. In
addition, expenses incurred by a director in defending any civil, criminal,
administrative or investigative action, suit or proceeding by reason of the
fact that he or she is or was a director of MarketFirst (or was serving at
MarketFirst's request as a director or officer of another corporation) shall be
paid by MarketFirst in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by MarketFirst as authorized by the relevant section
of the Delaware General Corporation Law.

As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article VIII of MarketFirst's Restated Certificate of Incorporation provides
that a director of MarketFirst shall not be personally liable for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to MarketFirst or its
stockholders, (ii) for acts or omissions not in good faith or acts or omissions
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived any improper personal benefit.

II-1
<PAGE>

MarketFirst intends to enter into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
will attempt to provide the maximum protection permitted by Delaware law as it
may be amended from time to time. Moreover, the indemnification agreements will
provide for certain additional indemnification. Under such additional
indemnification provisions, however, an individual will not receive
indemnification for judgments, settlements or expenses if he or she is found
liable to MarketFirst (except to the extent the court determines he or she is
fairly and reasonably entitled to indemnity for expenses), for settlements not
approved by MarketFirst or for settlements and expenses if the settlement is
not approved by the court. The indemnification agreements with provide for
MarketFirst to advance to the individual any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending any
such action, suit or proceeding. In order to receive an advance of expenses,
the individual must submit to MarketFirst copies of invoices presented to him
or her for such expenses. Also, the individual must repay such advances upon a
final judicial decision that he or she is not entitled to indemnification.

MarketFirst plans to purchase directors' and officers' liability insurance.

Item 15. Recent Sales of Unregistered Securities

(a) In the past three years, we have issued and sold the securities described
below:

(1) In June 1997, we issued and sold 40,000 shares of unregistered
Series A preferred stock at a price per share of $0.25 to one investor for
aggregate cash consideration of $10,000. These shares were sold pursuant to
a Series A preferred stock purchase agreement between the investor and us.
We relied upon Section 4(2) of the Securities Act of 1933, in connection
with the sale of these securities.

(2) In September 1997, we issued and sold 480,000 shares of unregistered
common stock at a price per share of $0.125 per share to two consultants
for aggregate cash consideration of $60,000. These shares were sold
pursuant to restricted purchase agreements between these consultants and
us. We relied upon Section 4(2) of the Securities Act of 1933, in
connection with the sale of these securities.

(3) In October 1997, we issued and sold 80,000 shares of unregistered
common stock to one of our stockholders in consideration for the
stockholder obtaining a release of certain claims against him and us. We
relied upon Section 4(2) of the Securities Act of 1933, in connection with
the sale of these securities.

(4) In October 1997, we issued and sold 2,200,000 shares of unregistered
Series B preferred stock at a price per share of $0.50 to nine investors
for aggregate cash consideration of approximately $1,100,000. These shares
were sold pursuant to a Series B preferred stock purchase agreement between
such investors and us. We relied upon Section 4(2) of the Securities Act of
1933 and Regulation D, Rule 506, in connection with the sale of these
securities.

(5) In March, April and May 1998, we issued and sold 8,897,058 shares of
unregistered Series C preferred stock at a price per share of $0.68 to 13
investors for aggregate cash consideration of approximately $6,050,000.
These shares were sold pursuant to a Series C preferred stock purchase
agreement between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.

(6) In January, February and March 1999, we issued and sold 10,985,300
shares of unregistered Series C preferred stock at a price per share of
$0.68 to 15 investors for aggregate cash consideration of $7,470,004. These
shares were sold pursuant to a Series C preferred stock purchase agreement
between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.

II-2
<PAGE>

(7) In September and October 1999, we issued and sold 15,407,936 shares
of unregistered Series D preferred stock at a price per share of $1.065 to
31 investors for aggregate cash consideration of approximately $16,410,000.
These shares were sold pursuant to a Series D preferred stock purchase
agreement between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.

(8) In September 1999, in connection with the sale of the Series D
preferred stock discussed above, we issued an unregistered warrant to
purchase an aggregate of 301,719 shares of unregistered Series D preferred
stock, with an exercise price per share of $1.065, to Donaldson, Lufkin &
Jenrette Securities Corporation. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.

(9) In March 2000, in connection with the purchase of our e-marketing
services pursuant to the terms of a Warrant Purchase Agreement, we issued
unregistered warrants to purchase an aggregate of 28,000 shares of
unregistered common stock to General Electric Company. The exercise price
per share shall be equal to eighty-five percent (85%) of our offering price
in our initial public offering. We relied upon Section 4(2) of the
Securities Act of 1933, in connection with the sale of these securities.

(10) In July and August 2000, we issued convertible promissory notes in
the aggregate amount of $7,500,000 to 10 of our existing stockholders, all
of whom were qualified institutional buyers under Rule 144A of the
Securities Act of 1933, pursuant to a Note and Warrant Purchase Agreement
(the "Bridge Agreement"). See "Certain Transactions--Bridge Financing." We
also intend to issue on September 1, 2000, additional convertible
promissory notes in the aggregate amount of $2,500,000 to these
stockholders pursuant to the Bridge Agreement. Unless one or more of these
stockholders elect to have their notes repaid (See "Use of Proceeds"), upon
closing of this offering all of the principal and accrued interest of these
notes will be converted into in an aggregate of approximately 1,666,667
shares of unregistered common stock. In addition, upon closing of this
offering, and assuming we, as intended, issue $2,500,000 of additional
notes on September 1, 2000, we will issue to these stockholders
unregistered warrants to purchase in the aggregate 333,333 shares of
unregistered common stock, with an exercise price of $0.01 per share;
provided, however, if this offering is not closed prior to October 11,
2000, the number of shares covered by these warrants will increase. See
"Certain Transactions--Bridge Financing." We relied upon Section 4(2) of
the Securities Act of 1933 in connection with the sale of these securities.

(11) As of July 31, 2000, we have issued options to purchase an
aggregate of 6,843,509 shares of common stock to certain of our employees,
directors and consultants under our 1996 Equity Incentive Plan, with
exercise prices ranging from $0.06 to $12.75 per share. None of the
optionees paid any cash consideration for such options. As of July 31,
2000, we have issued and sold an aggregate of 2,577,727 shares of
unregistered common stock pursuant to exercises of stock options for
aggregate cash consideration of approximately $485,337 of which
approximately $207,000 is subject to outstanding promissory notes payable
to us. As to each of our directors, officers, employees, former employees
and consultants who were issued such securities, we relied upon Rule 701 of
the Securities Act of 1933. Each such person purchased our securities
pursuant to a written contract between such person and us. In addition, we
met the conditions imposed under Rule 701(b).

The recipients of securities in each transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof. Appropriate legends were
affixed to the share certificates issued in the transactions described above.
All recipients had adequate access, though their relationships with us or by
information furnished by us to them, to information about us.

(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).

II-3
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits.

<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement

2.1+ Agreement of Merger and Plan of Reorganization dated April 14, 2000,
by and among the Company, FusionDM, Inc., Times Direct Marketing,
Inc., Christopher E. Peterson and Thierry Zamora

2.2+ Amendment to Merger dated as of July 20, 2000, by and among the
Company, FusionDM, Inc., Times Direct Marketing, Inc., Christopher E.
Petersen and Thierry Zamora

3.1+ Amended and Restated Certificate of Incorporation of the Company as
filed with the Delaware Secretary of State in September 1999

3.2+ Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Company, as filed with the Delaware Secretary of
State in April 2000

3.3+ Amended and Restated Certificate of Incorporation of the Company, to
be filed with the Delaware Secretary of State upon consummation of
this offering

3.4+ Amended and Restated Bylaws of the Company

4.1* Specimen certificate representing shares of common stock of the
Company

4.2+ Fifth Amended and Restated Investor Rights Agreement dated as of
September 10, 1999, by and among the Company and certain investors

4.3+ Warrant to Purchase Series D Preferred Stock dated as of September 15,
1999 issued to Donaldson, Lufkin & Jenrette Securities Corporation

4.4+ Note and Warrant Purchase Agreement dated as of July 11, 2000, by and
among the Company and certain stockholders of the Company

5.1+ Form of Opinion of Hewitt & McGuire, LLP

10.1+ Form of Indemnification Agreement to be entered into between the
Company and each of its directors and executive officers

10.2+ Amended and Restated Employment Agreement dated January 1, 2000 by and
between Peter R. Tierney and the Company

10.3+ 1996 Equity Incentive Plan

10.4+ 2000 Stock Incentive Plan

10.5+ 2000 Employee Stock Purchase Plan

10.6+ Amended and Restated Secured Full Recourse Promissory Note made by
Peter R. Tierney in favor of the Company

10.7+ Software License Agreement dated as of January 24, 2000, by and
between the Company and SAP AG Inc.

10.8+ Office Lease Agreement dated January 24, 2000, by and between EOP-
Shoreline Technology Park, L.L.C., and the Company

10.9+ Amendment to Employment Agreement dated as of July 1, 2000 by and
between Peter R. Tierney and the Company

21.1+ List of Subsidiaries

23.1 Consent of KPMG LLP (MarketFirst)

23.2 Consent of KPMG LLP (Times Direct Marketing)

23.3+ Consent of Hewitt & McGuire, LLP (contained in Exhibit 5.1)
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------------------------------------------------------
<C> <S>
24.1+ Power of Attorney (contained on signature page on page II-6)

27.1+ Financial Data Schedule

27.2+ Financial Data Schedule

27.3 Financial Data Schedule
</TABLE>
--------

* To be filed by amendment.

+ Previously filed

Item 17. Undertakings

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mountain
View, State of California, on the 31st day of August, 2000.

MARKETFIRST SOFTWARE, INC.

/s/ Peter R. Tierney
By: ________________________________
Peter R. Tierney
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Peter R. Tierney Chairman of the Board, August 31, 2000
____________________________________ President, and Chief
Peter R. Tierney Executive Officer
(principal executive
officer)

* Chief Technology Officer and August 31, 2000
____________________________________ Director
Anurag Khemka

/s/ Robert W. Sator Vice President, Finance and August 31, 2000
____________________________________ Administration (principal
Robert W. Sator financial and accounting
officer)

* Director August 31, 2000
____________________________________
Stephen R. Chapin, Jr.
* Director August 31, 2000
____________________________________
Alexander Rosen

* Director August 31, 2000
____________________________________
Douglas A. Lindgren

* Director August 31, 2000
____________________________________
Randall C. Bolten

* Director August 31, 2000
____________________________________
James D. Power III

/s/ Robert W. Sator August 31, 2000
*By: _________________________________
Robert W. Sator
Attorney-in-fact
</TABLE>

II-6
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement

2.1+ Agreement of Merger and Plan of Reorganization dated April 14, 2000,
by and among the Company, FusionDM, Inc., Times Direct Marketing,
Inc., Christopher E. Peterson and Thierry Zamora

2.2+ Amendment to Merger dated as of July 20, 2000, by and among the
Company, FusionDM, Inc., Times Direct Marketing, Inc., Christopher E.
Petersen and Thierry Zamora

3.1+ Amended and Restated Certificate of Incorporation of the Company as
filed with the Delaware Secretary of State in September 1999

3.2+ Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Company, as filed with the Delaware Secretary of
State in April 2000

3.3+ Amended and Restated Certificate of Incorporation of the Company, to
be filed with the Delaware Secretary of State upon consummation of
this offering

3.4+ Amended and Restated Bylaws of the Company

4.1* Specimen certificate representing shares of common stock of the
Company

4.2+ Fifth Amended and Restated Investor Rights Agreement dated as of
September 10, 1999, by and among the Company and certain investors

4.3+ Warrant to Purchase Series D Preferred Stock dated as of September 15,
1999 issued to Donaldson, Lufkin & Jenrette Securities Corporation

4.4+ Note and Warrant Purchase Agreement dated as of July 11, 2000, by and
among the Company and certain stockholders of the Company

5.1+ Form of Opinion of Hewitt & McGuire, LLP

10.1+ Form of Indemnification Agreement to be entered into between the
Company and each of its directors and executive officers

10.2+ Amended and Restated Employment Agreement dated January 1, 2000 by and
between Peter R. Tierney and the Company

10.3+ 1996 Equity Incentive Plan

10.4+ 2000 Stock Incentive Plan

10.5+ 2000 Employee Stock Purchase Plan

10.6+ Amended and Restated Secured Full Recourse Promissory Note made by
Peter R. Tierney in favor of the Company

10.7+ Software License Agreement dated as of January 24, 2000, by and
between the Company and SAP AG Inc.

10.8+ Office Lease Agreement dated January 24, 2000, by and between EOP-
Shoreline Technology Park, L.L.C., and the Company

10.9+ Amendment to Employment Agreement dated as of July 1, 2000 by and
between Peter R. Tierney and the Company

21.1+ List of Subsidiaries

23.1 Consent of KPMG LLP (MarketFirst)

23.2 Consent of KPMG LLP (Times Direct Marketing)

23.3+ Consent of Hewitt & McGuire, LLP (contained in Exhibit 5.1)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------------------------------------------------------
<C> <S>
24.1+ Power of Attorney (contained on signature page on page II-6)

27.1+ Financial Data Schedule

27.2+ Financial Data Schedule

27.3 Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.

+ Previously filed