E CENTIVES INC, S-1/A, 2000-09-25

E CENTIVES INC
S-1/A, 2000-09-25
BUSINESS SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 2000

REGISTRATION NO. 333-42574

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 3

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

E-CENTIVES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7389 52-1988332
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>

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

6903 ROCKLEDGE DRIVE, SUITE 1200
BETHESDA, MARYLAND 20817
(301) 564-6700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------

JASON R. KARP, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
E-CENTIVES, INC.
6903 ROCKLEDGE DRIVE, SUITE 1200
BETHESDA, MARYLAND 20817
(301) 564-6700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------

Copies to:

<TABLE>
<S> <C>
STEVEN M. KAUFMAN, ESQ. DR. FRANCOIS M. BIANCHI
HOGAN & HARTSON L.L.P. NIEDERER KRAFT & FREY
555 THIRTEENTH STREET, N.W. BAHNHOFSTR. 13
WASHINGTON, D.C. 20004 CH-8001 ZURICH
TELEPHONE: (202) 637-5600 TELEPHONE: +41-1-217-1000
FACSIMILE: (202) 637-5910 FACSIMILE: +41-1-217-1400
</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 of 1933, please check the
following box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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 of 1933, 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 PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(3) OFFERING PRICE(1)(3) REGISTRATION FEE(2)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01... 3,700,000 $11.03 $40,811,000 $10,897
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.

(2) Previously paid.

(3) Assumes an exchange rate of 1.723 Swiss francs per one U.S. Dollar as of
September 4, 2000.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION AND AMENDMENT, DATED SEPTEMBER 22, 2000

PRELIMINARY OFFERING CIRCULAR AND LISTING PROSPECTUS

<TABLE>
<S> <C>
[e-centives Logo] E-CENTIVES, INC.
</TABLE>

(a stock corporation under the laws of the United States, State of Delaware)

--------------------------------------------------------------------------------
3,700,000 SHARES
COMMON STOCK
USD 0.01 PAR VALUE PER SHARE
--------------------------------------------------------------------------------

This is the initial public offering of e-centives, Inc. We are offering
3,700,000 shares of our common stock in Switzerland. No offers or sales of our
common stock will be made in the United States. We anticipate that the price
range of the initial public offering price will be between CHF 17 and CHF 19 per
share.

Prior to this offering, there has been no public market for our common stock. We
have applied to list our common stock on the SWX New Market of the SWX Swiss
Exchange under the symbol "ECEN." After this offering, there will be no public
market for our common stock in the United States.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE RISK FACTORS BEGINNING ON
PAGE 7 BEFORE MAKING AN INVESTMENT DECISION.

NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, ANY UNITED STATES
STATE SECURITIES COMMISSION, NOR ANY SWISS FEDERAL OR CANTONAL GOVERNMENTAL
AUTHORITY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Public offering discounts and e-centives
price commissions (before expenses)
--------------- -------------- -----------------
<S> <C> <C> <C>
Per Share.............................
Total.................................
</TABLE>

<TABLE>
<S> <C>
SWISSFIRST BANK AG PICTET & CIE.
</TABLE>

The date of this prospectus is , 2000
<PAGE> 3

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information and financial statements and accompanying notes appearing elsewhere
in this prospectus before making an investment decision. Unless otherwise noted,
the information in this prospectus assumes the conversion of each outstanding
share of preferred stock into one share of common stock, which will occur upon
the closing of this offering.

E-CENTIVES, INC.

We provide an online direct marketing system that delivers promotions,
which we call e-centives, to consumers on behalf of marketers across the web
sites of our network partners and by e-mail. Our system allows marketers to
offer a wide range of promotions, such as digital coupons or sales notices, for
products and services in which consumers have expressed interest. Consumers
register to receive e-centives at our network partners' web sites or through our
web site, www.e-centives.com. Our consumer members provide demographic
information and indicate interests in product categories in return for
e-centives targeted to their shopping preferences. We create an online account
for each member which can be accessed on the web site of the network partner
through which they joined and on our web site. During the six months ended June
30, 2000, we delivered e-centives for approximately 125 marketers.

Our network partners, which include high-traffic portal, community and
content web sites, offer e-centives accounts and promotions to their users on a
co-branded basis, maintaining the look and feel of the network partner's web
site. As of the date of this prospectus, we had agreements with 15 network
partners. We rely on our network partners to increase our membership base and
provide entry points into our system for members. Membership in our service is
offered during the registration process of each of our network partners' web
sites and a member can then access their e-centives account on that web site.
Approximately 90% of our membership has come from registration for our service
on our network partners web sites. In particular, we are dependent on our
relationship with Excite because we have obtained approximately 77% of our
members through its web site, www.excite.com, as of the date of this prospectus.
Excite has also agreed to provide us with at least 12 million new members during
the term of our agreement for which we shall pay Excite a per member fee of up
to approximately USD 19.65 million over the term of the agreement in quarterly
payments of USD 1.6 million. We believe our relationships with our network
partners, and with Excite in particular, enable us to expand our database of
consumers, provide convenient access for our members, attract new marketers to
our system and build awareness of our brand in the marketplace. We believe that
the growth of our membership base is important to our ability to attract and
retain marketer clients to our system.

As of the date of this prospectus, we maintained over 4.4 million
e-centives online accounts for members. We do not charge members a fee for our
service. Instead we generate revenue primarily from marketers for the delivery
of e-centives to members. During the six months ended June 30, 2000, we
generated over 78% of our revenue from the delivery of e-centives to members on
behalf of marketers. Delivering e-centives to members by e-mail accounted for
approximately 48% of our revenue and delivering e-centives to member accounts
accounted for approximately 30% of our revenue during this period. In the case
of delivering e-centives by e-mail, we generate revenue when an e-mail is
transmitted to a member. In the case of delivering e-centives to member
accounts, we do not generate revenue from the delivery of an e-centive promotion
unless a member accesses his or her account. During the first six months of
2000, approximately 5% of the then-current total membership interacted with
their accounts at least once a month. In addition, for the six months ended June
30, 2000, we generated approximately 21% of our revenue from the delivery of
e-mail messages for one of our network partners, ZDNet, to our members.

Forrester Research estimates that online consumer promotions in the U.S.
will increase from USD 1.8 billion in 2000 to USD 14.4 billion in 2005. We have
developed a direct marketing system designed to enable marketers to access
consumers across a network of web sites. We believe that by developing a

1
<PAGE> 4

system that benefits our marketers, network partners and members, we will be
positioned to take advantage of this increased demand for online consumer
promotions.

The benefits of our direct marketing system include:

- Marketer Benefits. Our technology enables us to deliver targeted
promotions for our marketers based on the demographic and purchase
preference information of our members. We also offer technology to our
marketers that automatically recognizes our members when they enter the
marketer's website, and highlights and applies relevant e-centives during
the shopping and purchase process.

- Network Partner Benefits. We provide our network partners with a
web-based software application that can be integrated into their web
sites which allows them to offer a new service to their users. We also
provide our network partners with a new revenue stream. We compensate all
of our network partners for members we acquire through their web sites
either by paying a fee for new members or by paying a percentage of the
revenue we generate from the delivery of e-centives to such new members
or both.

- Member Benefits. We seek to deliver relevant offers to our members based
on the demographic and purchase preference information they provide us.
All e-centives delivered to members, including those delivered by e-mail,
are stored in the member's personal account organizer where they can be
easily accessed. We do not disclose any individual member information to
third parties and all information in our member databases are digitally
encoded, anonymous and secure to maintain the privacy of our members.

Investing in our common stock involves risk. In particular, we are a new
company and have a history of significant operating losses. Our net losses in
1999, 1998 and 1997 were USD 16.2 million, USD 4.6 million and USD 2.5 million,
respectively. For the six months ended June 30, 2000, we incurred net losses of
USD 14.4 million. We anticipate incurring substantial net losses and negative
cash flow for the foreseeable future. As of June 30, 2000 we had an accumulated
deficit of approximately USD 38.6 million. In addition, we operate in a highly
competitive market with low barriers to entry and many of our competitors have
significantly greater financial resources than us. See "Risk Factors" beginning
on page 7 for a more detailed discussion of the risks of investing in our common
stock.

We were incorporated as Imaginex, Inc. in the United States in the State of
Delaware in August 1996 and changed our corporate name to Emaginet, Inc. in
October 1996. In March 1999, we changed our corporate name to e-centives, Inc.
Our principal offices are located at 6903 Rockledge Drive, Suite 1200, Bethesda,
Maryland, USA 20817. Our telephone number is ++1 (301) 564-6700. Our web site is
located at www.e-centives.com. The information on our web site is not a part of
this prospectus.

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

We have obtained a U.S. trademark registration for e-centives. We have
filed for U.S. trademark registration of the e-centives logo, PromoCast,
PromoCommerce and PromoMail. This prospectus also contains other trademarks of
ours, including Campaign Manager. We claim rights in other names and marks. This
prospectus contains the marks and names of other entities which are the property
of their respective owners.

2
<PAGE> 5

THE OFFERING

This offering is being conducted in Switzerland. No offers or sales of our
common stock will be made in the United States. There will be no public trading
market for our shares in the United States. We have applied to list our common
stock on the SWX New Market of the SWX Swiss Exchange. This prospectus contains
additional information required by the listing rules of the SWX Swiss Exchange
and the additional rules for listing on the SWX New Market.

We are not authorized to offer shares in this offering to the public in the
United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulations 1996. The shares being offered and sold in this offering
may not be lawfully offered or sold to persons in the United Kingdom except in
circumstances which do not result in an offer to the public in the United
Kingdom within the meaning of the United Kingdom Public Offers of Securities
Regulations 1996 or otherwise in compliance with all applicable provisions of
such regulations and the United Kingdom Financial Services Act 1986. This
prospectus may only be issued or passed on in the United Kingdom to a person who
is of a kind described in Article 11(3) of the United Kingdom Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or to whom it may
otherwise lawfully be issued to or passed on.

Common Stock Offered by
e-centives............... 3,700,000 shares

Common Stock to be
Outstanding After this
Offering................. 15,146,559 shares (1)

Estimated Price Range...... Between CHF 17 and CHF 19 per share, or, between
approximately USD 9.87 and USD 11.03 per share(2)

Offer Price................ The offer price per share is expected to be set by
us and swissfirst Bank AG upon completion of the
bookbuilding period on September , 2000, and will
be published in the electronic media as well as in
Neue Zurcher Zeitung and Le Temps, two nationally
circulated newspapers in Switzerland.

Use of Proceeds............ For general corporate purposes, including working
capital, hiring personnel, capital expenditures,
expansion of sales and marketing activities,
development of technology, and payment of accrued
dividends on our Series A preferred stock.

Estimated Net Proceeds to
e-centives............... USD 34,958,450 (2)

Risk Factors............... See "Risk Factors" on page 7 for a discussion of
factors you should consider before deciding to
invest in shares of our common stock.

Bookbuilding Period........ The bookbuilding period for the offering commenced
on September , 2000 and is expected to end on
September 25, 2000.

Listing and Trading........ We have applied to list all of our shares of common
stock issued and outstanding after the offering on
the SWX New Market of the SWX Swiss Exchange. It is
expected that the shares will be listed, and that
dealings will commence, on or about September ,
2000.

Lock-up Agreements......... All of our existing stockholders have entered into
lock-up agreements with the underwriters whereby
they have agreed not to sell or otherwise dispose
of their shares for periods of at least six months
from the date of the initial listing of our shares
on the SWX New Market. See "Risk Factor -- Many of
our shares will be eligible for

3
<PAGE> 6

sale within a short time offering which could
result in a decline in our stock price."

Certification of Shares.... The shares to be issued in this offering will be
represented by a global certificate and the
investors participating in this offering will have
no entitlement to have their shares printed or
physically delivered without removing their shares
from the listing on the SWX New Market.

Clearance and Settlement... We have applied for the shares to be accepted for
clearance and settlement through SIS
SegaIntersettle AG. We will deliver the shares in
collective custody in Switzerland at SIS
SegaIntersettle AG. It is expected that payment
for, and delivery by book-entry of the offered
shares will take place on about September , 2000.

Market Making.............. swissfirst Bank AG will serve as a market maker for
the shares on the SWX New Market until September
, 2001 in accordance with Article 11 of the
Additional Rules for the Listing on the SWX New
Market.

Investment Research
Studies.................... swissfirst Bank AG has undertaken to make every
effort to provide regular, at the minimum
semi-annual investment research studies of
e-centives during the first two years from the
first listing of the shares on the SWX New Market
in accordance with Article 15 of the Additional
Rules for the Listing on the SWX New Market.

Clearing Codes............. Swiss Security Number: 1101814
Stock Exchange Symbol: ECEN
ISIN Number: US26830H1032
CUSIP Number: 26830H103
---------------

(1) The number of shares of our common stock that will be outstanding after this
offering excludes:

- 2,851,250 shares of common stock issuable upon exercise of employee stock
options outstanding as of the date of this prospectus at a weighted
average exercise price of USD 5.44 per share;

- 790,625 shares of common stock available for future grant under our
employee stock option plan as of the date of this prospectus; and

- 599,485 shares of common stock issuable upon exercise of warrants
outstanding as of the date of this prospectus, that are currently
exercisable at a weighted average exercise price of USD 5.82 per share.

(2) Assumes an exchange rate of 1.723 Swiss francs per one U.S. Dollar as of
September 4, 2000.

4
<PAGE> 7

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

The tables below present summary financial data of e-centives which you
should read together with our financial statements prepared in accordance with
generally accepted accounting principles in the United States and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented elsewhere in this prospectus.

Our historical financial information may not necessarily reflect our
results of operations or financial position in the future. The shares used to
compute pro forma unaudited basic and diluted net loss per share give effect to
the conversion of 6,528,434 shares of preferred stock into common stock at the
closing of this offering. The shares used to compute 1999 and June 30, 2000
supplemental pro forma unaudited basic and diluted net loss per share includes
90,490 and 108,792 shares, respectively, representing the number of shares whose
proceeds would be necessary to cover the USD 945,625 and USD 1,136,875,
respectively, for payment of accrued, unpaid dividends at the assumed offering
price of USD 10.45 per share. The following table sets forth our statement of
operations data for the periods presented.

<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2,
1996 (DATE OF
INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------------------- ----------------------
1996 1997 1998 1999 1999 2000
------------- --------- --------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $ -- $ -- $ -- $ 740 $ -- $ 3,204
Gross profit (loss)............. -- -- -- (287) (369) 2,370
Loss from operations............ (201) (2,672) (4,877) (16,472) (5,691) (14,876)
Net loss........................ (197) (2,485) (4,567) (16,170) (5,482) (14,612)
Preferred stock dividend
requirements and accretion of
convertible redeemable
preferred stock............... -- (180) (383) (383) (191) (350)
--------- --------- --------- ---------- --------- ----------
Net loss applicable to common
stockholders.................. $ (197) $ (2,665) $ (4,950) $ (16,553) $ (5,673) $ (14,962)
========= ========= ========= ========== ========= ==========
Basic and diluted loss per
common share.................. $ (0.07) $ (0.56) $ (1.02) $ (3.40) $ (1.17) $ (3.06)
========= ========= ========= ========== ========= ==========
Shares used to compute basic and
diluted net loss per common
share......................... 2,881,053 4,726,882 4,860,000 4,869,601 4,860,000 4,882,458
========= ========= ========= ========== ========= ==========
Pro forma unaudited basic and
diluted net loss per common
share......................... $ (1.42) $ (1.28)
Shares used to compute pro forma
unaudited basic and diluted
net loss per common share..... 11,398,035 11,410,892
Supplemental pro forma unaudited
basic and diluted net loss per
common share.................. $ (1.41) $ (1.27)
Shares used to compute
supplemental pro forma
unaudited basic and diluted
net loss per common share..... 11,488,525 11,519,684
</TABLE>

5
<PAGE> 8

The following table sets forth a summary of our balance sheet as of June
30, 2000:

- on an actual basis;

- on a pro forma basis giving effect to the issuance of 6,528,434 shares of
common stock upon conversion of all of our preferred stock outstanding as
of June 30, 2000 into common stock at the closing of this offering; and

- on a pro forma as adjusted basis to reflect the preceding pro forma
adjustment and the sale of 3,700,000 shares of our common stock in this
offering, assuming an offering price of USD 10.45 per share after
deducting underwriting discounts and commissions of USD 2,706,550
assuming such per share price and our estimated offering expenses of USD
1,000,000 and payment of accrued dividends on the Series A preferred
stock.

<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,939 $ 5,939 $39,760
Working capital............................................. 6,162 6,162 39,983
Total assets................................................ 13,908 13,908 47,730
Deferred revenue............................................ 1,849 1,849 1,849
Convertible redeemable preferred stock...................... 21,843 -- --
Stockholders' equity (deficit).............................. (11,858) 9,985 43,806
</TABLE>

6
<PAGE> 9

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus, including the financial statements and related notes, before
deciding to invest in shares of our common stock. If any of the following risks
or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer. In that event, the market price of our
common stock could decline and you could lose all or part of the money you paid
to buy our common stock.

RISKS RELATED TO OUR BUSINESS

OUR FUTURE RESULTS ARE UNCERTAIN BECAUSE OUR SERVICE HAS ONLY BEEN AVAILABLE FOR
A SHORT TIME.

We were incorporated in August 1996 and launched our e-centives online
direct marketing system in November 1998. We did not charge for our services and
did not begin to generate revenues until the third quarter of 1999, and
therefore have had only four quarters of financial results reflecting sales of
our services. We have never operated during a general national economic
downturn, which typically adversely affects advertising and marketing
expenditures and retail sales. Accordingly, our future results are uncertain and
our results to date may not be representative of our future results.

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

To date, we have had little revenue and have not been profitable. We did
not begin to generate revenues until the third quarter of 1999. As of June 30,
2000, we had an accumulated deficit of approximately USD 39.1 million. We
incurred net losses in 1999, 1998 and 1997 of USD 16.2 million, USD 4.6 million
and USD 2.5 million, respectively, and USD 14.6 million for the six months ended
June 30, 2000. We expect to continue to incur significant net losses and
negative cash flow for the foreseeable future. We expect to spend significant
financial resources to expand our business. We have not yet determined the
specific amounts of operating expenses and capital expenditures we expect to
incur, although we currently anticipate spending over the next 12 months,
principally from the proceeds of this offering, approximately USD 14 million on
marketing, approximately USD 9 million for acquisition of new members and
approximately USD 5 million on capital expenditures and expenses associated with
expanding our system capacity. We expect that operating expenses will increase
in 2000 by approximately USD 21 million over the prior year and may increase as
a percentage of revenue. We do not know when or if we will become profitable. If
we cannot achieve operating profitability or positive cash flows from operating
activities, our stock price may decline and we may be unable to continue our
operations.

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

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

Factors over which we have some level of control include:

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

- our ability to compete successfully in our market; and

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

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<PAGE> 10

Factors outside our control include:

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

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

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

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

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

Our ability to generate revenue depends in part on frequent and regular
member activity. During the six months ended June 30, 2000, we recognized over
78% of our revenue from the delivery of e-centives to members on behalf of
marketers. Delivering e-centives to members by e-mail accounted for
approximately 48% of our revenue and delivering e-centives to members' online
accounts accounted for approximately 30% of our revenue during this period. In
the case of delivering e-centives to members' online accounts, we do not
recognize revenue from the sale of e-centives unless our members access their
online accounts. If we are unable to increase the frequency with which our
members use our system, our ability to generate revenues by the delivery of
e-centives to member accounts will be adversely affected and our business will
suffer. We currently track our members' interaction with their accounts. During
the first six months of 2000, approximately 5% of the then-current total
membership interacted with their accounts at least once a month. In addition, if
our members do not visit the web sites of our marketers in response to
e-centives, marketers may not continue to use our system.

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

Our success depends on our ability to establish relationships with and
deliver our service through high-traffic portal, community and content web
sites, such as Excite.com. We rely on these relationships to increase our
membership base and to provide entry points into our system for members. We
compensate all of our network partners for members we acquire through their web
sites either by paying a fee for new members or by paying a percentage of the
revenue we generate from the delivery of e-centives to such new members or both.
We pay two of our network partners a fee, typically ranging from USD 1.25 to USD
2.50, for each new member that registers for our service through their web
sites. Twelve of our network partners receive a percentage of the net revenue
generated by us for the delivery of e-centives to the new members we obtained
through their web sites. This percentage is typically between 20% and 50% of net
revenue. One of our network partners, Excite, receives a combination of both. We
pay Excite a per member fee for new members up to 12 million members, and for
each new member over 12 million, we pay Excite a percentage of our net revenue
for the delivery of e-centives to those new members. We agreed to pay Excite
approximately USD 19.7 million, or USD 1.6 million per quarter, over the term of
our agreement. We are dependent on our relationship with Excite because as of
the date of this prospectus, we have obtained approximately 77% of our new
members through its web site, www.excite.com. In addition, we are dependent on
our relationship with ZDNet for a significant portion of our revenue. Delivering
e-mail messages to our members on behalf of ZDNet accounted for approximately
21% of our revenue during the six month period ended June 30, 2000. Furthermore,
we receive 50% of the revenue ZDNet generates from selling access to our system
to its merchant and advertising clients. We have also agreed to pay ZDNet 50% of
the revenue we generate from the delivery of e-centives to ZDNet members,
although to date, no such revenue has been generated. Our agreement with ZDNet
will terminate in August 2001.

We cannot assure you that we will be able to maintain our existing
relationships or enter into additional relationships with new network partners,
on favorable terms, if at all. Our agreement with Excite is non-exclusive,
except for services substantially similar in functionality as ours, and may be
terminated by Excite prior to the expiration of its term if our services are not
at least comparable to those of other
8
<PAGE> 11

sources, with regard to any two of the following: content, functionality,
personalization and ease of use. If we are unable to maintain our existing
relationship with Excite and ZDNet or with our other network partners, or if we
fail to establish successful relationships with new network partners, our
membership base may not continue to grow in a timely manner, or at all, and our
business and financial condition would be adversely affected.

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

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

- our market's increasing size;

- our market opportunity becoming more visible;

- minimal barriers to entry; and

- industry consolidation.

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

- e-mail marketers, such as LifeMinders.com and YesMail;

- rewards programs, such as Netcentives and Mypoints; and

- coupon providers such as coolsavings.com.

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

Our ability to successfully compete depends on many factors.

Factors over which we have some level of control include:

- success in developing and expanding a membership base;

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

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

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

Factors outside our control include:

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

- changes in pricing policies of our competitors;

- entry of new competitors in the market; and

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

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

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

To be successful, we must continue to build and increase market recognition
of our corporate brand because our market is competitive with low barriers to
entry. We do not advertise to attract visitors to our web site, but rather are
attempting to build a brand that marketers and network partners identify with

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<PAGE> 12

online promotions. We believe that the recognition of the e-centives brand is
critical to our success and the importance of this will increase as more
companies enter our market and competition for marketers', network partners' and
consumers' attention increases. Building recognition of the e-centives brand
will require us to expend significant funds on marketing. We currently
anticipate spending between USD 12 million and USD 15 million on marketing over
the next twelve months. The outcome of our marketing efforts are hard to
predict. If we are not successful in our marketing efforts to increase our brand
awareness, our ability to attract marketing clients could be harmed which would
cause our financial results to suffer.

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

For the six months ended June 30, 2000, over 78% of our revenue came from
marketers and our success depends on our ability to enter into and maintain
agreements with marketers. We currently have agreements with over 150 marketers,
although we have only delivered e-centives for approximately 125 of those
marketers during the first six months of 2000. If we do not continue to enter
into new agreements with marketers, we may not be able to increase our revenues,
which would materially affect our financial condition and results of operations.

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

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

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

We currently anticipate that the net proceeds from this offering, together
with our funds from operations, will be sufficient to meet our need for working
capital, capital expenditures and business expansion for at least the next
eighteen months. However, we are dependent on the proceeds of this offering to
continue our operations at the present level of expenditures. If we do not close
this offering, we will need to reduce our operating expenses and find an
alternative source of financing. Further, even if we do close this offering, we
may need to raise additional funds sooner than we expect. For example, we may
need additional financing if we:

- are unable to increase our revenues as anticipated;

- decide to expand faster than planned;

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

- need to respond to competitive pressures; or

- need to acquire complementary products, businesses or technologies.

We cannot be certain that additional financing will be available on
acceptable terms. If we raise additional capital through the issuance of equity
securities, the common stock interest of investors participating in this
offering would be diluted. In addition, we may raise any necessary additional
capital through the issuance of preferred stock, with rights superior to those
of the common stock purchased by investors participating in this offering. If
adequate funds are not available on acceptable terms, we may not be able to fund
our expansion, develop or enhance our products or services or respond to
competitive pressures.

10
<PAGE> 13

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

We are the first U.S. company to list solely on the SWX Swiss Exchange. We
are not listed on any U.S. exchange. Because we are the first U.S. company to do
this, we are uncertain what effect, if any, our listing on only the SWX New
Market of the SWX Exchange will have upon our ability to raise additional
financing in the U.S. capital markets. If the listing of our shares solely on
the SWX New Market of the SWX Swiss Exchange is received by investors with
uncertainty, the listing may discourage potential investors and could hinder our
ability to raise necessary financing on acceptable terms. In addition, after the
expiration of the various lock-up periods entered into by our current
stockholders in connection with this offering, all of the shares of our common
stock will be eligible for trading on the SWX New Market. If a significant
amount of such shares are offered for sale on the SWX New Market after the
lock-up periods expire, it could decrease our stock price.

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

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

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

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

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

- human error;

- fire and flooding;

- power loss;

- telecommunications failure; and

- online or physical sabotage.

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

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<PAGE> 14

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

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

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

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

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

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

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

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

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

Proprietary Technology

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<PAGE> 15

Patents

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

Trademarks

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

Internet Domain Names

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

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

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

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

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

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<PAGE> 16

AN ONLINE COUPON PROVIDER HAS FILED A LAWSUIT AGAINST US CLAIMING THAT WE
INFRINGED ON ITS PATENT, WHICH COULD HARM OUR BUSINESS EVEN IF WE PREVAIL.

In August 1998, coolsavings.com, Inc., an online coupon provider, filed a
patent infringement lawsuit against us claiming that we have infringed and are
infringing a patent held by coolsavings.com. The patent involved in this
litigation relates to a data processing system used to issue electronic
certificates online. In its complaint, coolsavings.com seeks an unspecified
amount of money damages which would depend on the extent our technology has
infringed coolsavings.com's patent, and an injunction barring us from further
use of such technology. This litigation could harm us, even if we prevail. It
may divert financial resources, management's attention and could make it more
difficult for us to raise financing or enter into additional agreements with
third parties. It may also impede our ability to move forward with the
development of our system in a timely manner. If we do not prevail in this
litigation, we could become liable to coolsavings.com for substantial money
damages or be subject to an injunction preventing us from using certain
technology in our system, or both. Any such injunction could require us to
develop new technology, license alternative technology or seek a license from
and pay royalties to coolsavings.com to use its technology. Such licenses might
not be made available to us on reasonable terms, if at all. Implementation of
any of these alternatives could be costly and time consuming and may have a
material adverse effect on our business.

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

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

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

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

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

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

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

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<PAGE> 17

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

We may not be successful in managing our rapid growth. We have grown from
60 employees on June 30, 1999 to 99 employees on June 30, 2000. We plan to hire
32 sales and marketing personnel and 28 research and development personnel over
the next twelve months. Past growth in these areas has placed, and future growth
will continue to place, a significant strain on our management and resources,
related to the successful integration of personnel.

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

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

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

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

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

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

Stock based compensation represents an expense associated with the
recognition of the difference between the fair market value of common stock at
the time of an option grant and the option exercise price. Stock compensation is
amortized over the vesting period of the options, generally four years. We
estimate the charge relating to stock option grants will be USD 1,800,000, USD
1,400,000, USD 1,400,000 and USD 1,300,000 in 2000, 2001, 2002 and 2003,
respectively. These charges will dilute earnings for those years and may have a
negative impact on our stock price.

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<PAGE> 18

RISKS RELATED TO OUR INDUSTRY

THE DEMAND FOR INTERNET DIRECT MARKETING SERVICES IS UNCERTAIN.

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

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

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

RISKS RELATED TO THIS OFFERING

THE TOTAL PRICE YOU WILL PAY FOR OUR COMMON STOCK IN THIS OFFERING WILL
SUBSTANTIALLY EXCEED THE VALUE OF OUR ASSETS AFTER SUBTRACTING OUR LIABILITIES.

The price you will pay for our common stock will be substantially higher
than the book value per share of our outstanding stock after this offering. In
addition, investors in this offering will contribute 43.9% of the total amount
paid by all investors in us but will own only 24.5% of the shares outstanding,
based on the shares outstanding as of June 30, 2000. Assuming the exercise of
all of the options and warrants to purchase our shares outstanding as of June
30, 2000, investors in this offering will contribute 38.9% of the total amount
paid by all investors in us but will own only 20.6% of the outstanding shares.

MANY OF OUR SHARES WILL BE ELIGIBLE FOR SALE WITHIN A SHORT PERIOD AFTER THIS
OFFERING, WHICH COULD RESULT IN A DECLINE IN OUR STOCK PRICE.

If our shareholders sell substantial amounts of common stock in the public
market following this offering, the market price of our common stock could fall.
These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Based on shares outstanding as of the date of this prospectus, upon
completion of this offering, we will have 15,146,559 shares of common stock
outstanding. Of these shares, the 3,700,000 shares being offered by this
prospectus will be freely tradable, and the remaining 11,446,559 shares will
become eligible for sale in the public market as follows:

<TABLE>
<CAPTION>
NUMBER
OF SHARES DATE
--------- ----
<S> <C>
884,042.................................................... March --, 2001
3,815,520................................................... September --, 2001
3,815,520................................................... March --, 2002
2,931,478................................................... September --, 2002
</TABLE>

This table reflects "lock-up agreements" ranging from six to twenty-four
months, to which all existing shareholders are subject as described below.
Although we have received no indication that the underwriters

16
<PAGE> 19

will waive such lock-up restrictions, they may do so at any time except as
described below. The waiver of these restrictions would allow our shareholders
to sell their common stock in the public market sooner than anticipated and
could adversely affect our stock price.

Because this lock-up restriction is required by the SWX Swiss Exchange for
holders of 2% or more of our issued and outstanding capital stock, this lock-up
is not waivable by the underwriters with respect to such 2% or greater holders.

All holders of more than 2% of our capital stock, along with some other
existing investors, holding approximately 8,794,434 shares in the aggregate,
have agreed that they will not offer, sell, contract to sell or otherwise
dispose of, or otherwise enter into any transaction, including derivative
transaction, having an economic effect similar to that of a sale of, or announce
the offering of, any other shares currently held or any security which is
convertible into or exchangeable for, or which otherwise represents the right to
acquire any of the shares currently held for a period from the date we execute
the underwriting agreement until twenty-four months from the date of the initial
listing of the shares on the SWX New Market except that each such shareholder
may dispose of one-third of his initial shareholding after twelve months
following the initial listing of the shares on the SWX New Market and one-third
of his initial shareholding after eighteen months following the initial listing
of the shares on the SWX New Market.

Employee shareholders (other than senior management) and some other
investors holding approximately 2,652,125 shares in the aggregate have further
agreed that they will not offer, sell, contract to sell or otherwise dispose of,
or otherwise enter into any transaction, including derivative transaction,
having an economic effect similar to that of a sale of, or announce the offering
of, any other shares currently held or any security which is convertible into or
exchangeable for, or which otherwise represents the right to acquire any of the
shares currently held for a period from the date we execute the underwriting
agreement until eighteen months from the date of the initial listing of the
shares on the SWX New Market except that each such shareholder may dispose of
one-third of his initial shareholding after six months following the initial
listing of the shares on the SWX New Market and one-third of his initial
shareholding after twelve months following the initial listing of the shares on
the SWX New Market.

None of Kamran Amjadi, Mehrdad Akhavan or Peter Friedli, who will in the
aggregate beneficially own approximately 47.1% of our capital stock upon
completion of this offering, is restricted from selling e-centives securities,
other than as provided by lock-up agreements with swissfirst Bank AG and
applicable U.S. federal and state securities laws.

WE WILL HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS OFFERING,
AND THERE IS A RISK THAT WE MIGHT USE THEM INEFFECTIVELY.

The majority of the proceeds of this offering will be used for working
capital and general corporate purposes and have not been designated for any
particular purpose. We will have broad discretion as to the use of the net
proceeds from this offering. Accordingly, you cannot determine at this time the
value or propriety of our management's application of the proceeds and you may
not agree with our decisions. To the extent that any of the net proceeds of this
offering are maintained in Swiss francs, we will be subject to the risks
associated with currency exchange rate fluctuation.

17
<PAGE> 20

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Much of the information in this prospectus consists of forward-looking
statements based on our current expectations. These statements are inherently
predictive and speculative, and you must not assume that they will prove to be
correct. You can often identify these statements by forward-looking words such
as:

- "may";

- "will," "intend," "plan to";

- "expect," "anticipate," "project," "believe," "estimate"; and

- "continue" or similar words.

You should read such statements very carefully because they:

- discuss our future plans or expectations;

- contain projections of our future financial condition or results of
operations; or

- state other forward-looking information.

When you consider such forward-looking statements, you should keep in mind
the risk factors above and the other cautionary statements in this prospectus
because they provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements.

SPECIAL NOTE REGARDING MARKET DATA

We use market data and industry forecasts in this prospectus which we have
obtained from market research, publicly available information and industry
publications. These publications generally state that the information they
provide has been obtained from sources believed to be reliable, but that the
accuracy and completeness of such information is not guaranteed. While we
believe that the surveys and market research others have performed are reliable,
we have not independently verified this information.

18
<PAGE> 21

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately USD
34,958,450 from the sale of 3,700,000 shares of our common stock, at the initial
public offering price of USD 10.45 per share, after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses
payable by us. The estimated offering expenses payable by us, in addition to the
underwriting discounts and commissions, are approximately USD 1,000,000, which
consists primarily of legal, accounting and printing costs, fees associated with
our registrar and transfer agent, the SWX New Market listing fees and filing
fees paid to the Securities and Exchange Commission.

The principal purpose of this offering is to increase our working capital.
We intend to use the net proceeds of this offering primarily for general
corporate purposes and working capital. We generally anticipate spending the net
proceeds of this offering as follows:

- approximately USD 6 million on hiring of additional technical, sales and
marketing personnel;

- approximately USD 14 million on advertising and marketing efforts to
improve the recognition of our e-centives brand;

- approximately USD 9 million on payments to our network partners for the
acquisition of new members;

- approximately USD 5 million on capital expenditures and expenses
associated with improving our system; and

- approximately USD 1 million on the payment of accrued but unpaid
dividends on the Series A Preferred Stock.

Although we do not currently anticipate changing the above uses, we may
allocate our current anticipated uses in different amounts. The actual amounts
and timing of these expenditures will vary depending on a number of factors,
including the actual amount of the net proceeds we receive from this offering,
the amount of cash generated by our operations, competitive and technological
developments and the rate of growth, if any, of our business.

We may also use a portion of the net proceeds to acquire additional
businesses, services, products or technologies that we believe will complement
our current or future business. However, we have no specific plans, agreements
or commitments to do so and are not currently engaged in any negotiations for
any acquisition or joint venture. As a result, we will retain broad discretion
in the allocation of the net proceeds of this offering. Pending the uses
described above, we will invest the net proceeds of this offering in short-term
interest-bearing, investment-grade securities. We cannot predict whether the
proceeds will be invested to yield a favorable return. We believe that our
available cash, with the net proceeds of this offering, will be sufficient to
meet our capital requirements for the next twelve months.

DIVIDEND POLICY

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

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

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<PAGE> 22

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000:

- on an actual basis;

- on a pro forma as adjusted basis to give effect to the offering of common
stock as described in the "Use of Proceeds" section and the conversion of
the shares of preferred stock into common stock on the closing of this
offering.

The presentation below does not include 2,292,600 shares of common stock
issuable upon exercise of stock options and warrants outstanding as of June 30,
2000. You should read this information together with our financial statements
and related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN U.S. DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Convertible redeemable preferred stock:
Series C convertible preferred stock, $.01 par value,
2,330,000 shares authorized, 2,328,434 shares issued
and outstanding actual, no shares authorized, issued
and outstanding pro forma and pro forma as adjusted.... $ 21,842 $ -- $ --
-------- -------- --------
Total convertible redeemable preferred stock...... 21,842 -- --
-------- -------- --------
Stockholders' equity:
Preferred stock, undesignated, $.01 par value, 2,670,000
shares authorized and no shares issued and outstanding
actual, 10,000,000 shares authorized and no shares
issued and outstanding pro forma and pro forma as
adjusted(1)............................................ -- -- --
Series A convertible preferred stock, $.01 par value,
2,000,000 shares authorized, 1,700,000 shares issued
and outstanding actual, no shares authorized, issued
and outstanding pro forma and pro forma as adjusted.... 17 -- --
Series B convertible preferred stock, $.01 par value,
3,000,000 shares authorized, 2,500,000 shares issued
and outstanding actual, no shares authorized, issued
and outstanding pro forma and pro forma as adjusted.... 25 -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 4,879,375 shares issued and outstanding
actual, 11,407,809 shares issued and outstanding pro
forma, and 15,107,809 shares issued and outstanding pro
forma as adjusted...................................... 48 114 151
Additional paid-in capital.................................. 27,121 48,939 82,725
Accumulated deficit......................................... (39,069) (39,069) (39,069)
-------- -------- --------
Total stockholders' equity (deficit).............. (11,858) 9,984 43,807
-------- -------- --------
Total capitalization.............................. $ 9,984 $ 9,984 $ 43,807
======== ======== ========
</TABLE>

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

(1) Ten million shares of preferred stock are authorized, of which 2,000,000
shares were designated as Series A convertible preferred stock, 3,000,000
shares were designated as Series B convertible preferred stock and 2,330,000
were designated as Series C convertible preferred stock.

20
<PAGE> 23

DILUTION

Our pro forma net tangible book value as of June 30, 2000 was approximately
USD 8,234,649, or USD 0.72 per share of common stock. We have determined pro
forma net tangible book value per share by subtracting intangible assets from
pro forma stockholders' equity and dividing that number by 11,407,809 pro forma
shares of common stock outstanding as of June 30, 2000, giving effect to the
conversion of all shares of convertible preferred stock outstanding as of the
date of this prospectus into 6,528,434 shares of common stock.

If we sell 3,700,000 shares of our common stock in this offering at an
initial public offering price of USD 10.45 per share and assume our receipt of
the estimated net proceeds therefrom, our pro forma as adjusted net tangible
book value as of June 30, 2000 would have been approximately USD 42,056,224, or
USD 2.78 per share. This represents an immediate increase in such net tangible
book value of USD 2.06 per share to existing stockholders and an immediate
dilution of USD 7.67 per share to new investors. The following table illustrates
this per share dilution.

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... USD 10.45
Pro forma net tangible book value per share as of June 30,
2000................................................... USD 0.72
Increase per share of common stock attributable to the
offering............................................... 2.06
--------
Pro forma net tangible book value per share after the
offering.................................................. USD 2.78
---------
Net tangible book value per share dilution to new
investors................................................. USD 7.67
=========
</TABLE>

The following table summarizes on a pro forma basis as of June 30, 2000,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors (at an assumed initial offering price of USD
10.45 per share and without giving effect to the underwriting discount and
estimated offering expenses).

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
-------------------- ------------------------ PAID PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 11,407,809 75.5% USD 49,411,715 56.1% USD 4.33
New investors...................... 3,700,000 24.5% USD 38,665,000 43.9 10.45
---------- ----- -------------- -----
Total.................... 15,107,809 100.0% USD 88,076,715 100.0%
========== ===== ============== =====
</TABLE>

The foregoing discussion does not include options or warrants to purchase
our common stock outstanding as of June 30, 2000. As of June 30, 2000, there
were options outstanding to purchase a total of 2,292,600 shares of common stock
with a weighted average per share exercise price of USD 3.36 per share and
warrants outstanding to purchase a total of 599,485 shares of common stock with
a weighted average per share exercise price of USD 5.82 per share. To the extent
that any of the options and warrants are exercised there would be further
dilution to new investors.

21
<PAGE> 24

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

You should read the selected financial data shown below together with our
financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
data included elsewhere in this prospectus. Our statements of operations data
for each of 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 financial
statements which have been audited by KPMG LLP, independent certified public
accountants, included elsewhere in this prospectus. Our statement of operations
data for the period from August 2, 1996 (inception) through December 31, 1996
and the balance sheet data as of December 31, 1997 have been derived from our
audited financial statements not included in this prospectus. Our statements of
operations data for the three months ended June 30, 1999 and 2000 and the
balance sheet data as of June 30, 2000 is derived from our unaudited financial
statements included elsewhere in this prospectus. Our unaudited financial
statements have been prepared on the same basis as the audited financial
statements, and in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information.

The shares used to compute pro forma unaudited basic and diluted net loss
per share give effect to the conversion of 6,528,434 shares of preferred stock
into common stock at the closing of this offering. The shares used to compute
1999 and June 30, 2000 supplemental pro forma unaudited basic and diluted net
loss per share include 90,490 and 108,792 shares, respectively, representing the
number of shares whose proceeds would be necessary to cover the USD 945,625 and
USD 1,136,875, respectively, for payment of accrued, unpaid dividends at the
assumed offering price of USD 10.45 per share.

<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1996
(DATE OF
INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------------ ------------------------
1996 1997 1998 1999 1999 2000
-------------- ---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue..................... $ -- $ -- $ -- $ 740 $ -- $ 3,204
Cost of revenue............. -- -- -- 1,027 368 834
---------- ---------- ---------- ---------- ---------- -----------
Gross profit (loss)....... -- -- -- (287) (368) 2,370
Product development
exclusive of stock-based
compensation.............. 17 814 1,160 2,427 1,144 1,460
General and administrative
exclusive of stock-based
compensation.............. 159 753 1,237 4,083 1,416 3,120
Sales and marketing
exclusive of stock-based
compensation.............. 25 1,105 2,480 8,620 2,015 11,534
Stock-based compensation:
Product development....... -- -- -- 475 171 616
General and
administrative.......... -- -- -- 297 267 120
Sales and marketing....... -- -- -- 283 310 396
---------- ---------- ---------- ---------- ---------- -----------
Loss from continuing
operations................ (201) (2,672) (4,877) (16,472) (5,691) (14,876)
Interest income, net........ 4 187 310 268 200 239
Other income/(expense)...... -- -- -- 34 9 25
---------- ---------- ---------- ---------- ---------- -----------
Loss before income
taxes................... (197) (2,485) (4,567) (16,170) (5,482) (14,612)
Income taxes................ -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -----------
Net loss.................... (197) (2,485) (4,567) (16,170) (5,482) (14,612)
Preferred stock dividend
requirements and accretion
of convertible redeemable
preferred stock........... -- (180) (383) (383) (191) (350)
---------- ---------- ---------- ---------- ---------- -----------
Net loss applicable to
common stockholders....... $ (197) $ (2,665) $ (4,950) $ (16,553) $ (5,673) $ (14,962)
========== ========== ========== ========== ========== ===========
</TABLE>

22
<PAGE> 25

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------- ---------------
1997 1998 1999 2000
----- ----- ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... 7,084 2,377 427 5,939
Working capital......................................... 6,916 2,117 872 6,162
Total assets............................................ 7,390 3,031 5,490 13,908
Deferred revenue........................................ -- -- 791 1,849
Convertible redeemable preferred stock.................. -- -- -- 21,843
Stockholders' equity (deficit).......................... 7,154 2,587 995 (11,858)
</TABLE>

23
<PAGE> 26

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

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

OVERVIEW

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

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

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

- developing and protecting our intellectual property;

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

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

- securing financing for working capital and capital expenditures.

We launched our e-centives service in November 1998. Between November 1998
and June 1999, while we were introducing our service, we allowed marketers to
use our system at no charge. We began generating revenue in the third quarter of
1999. In 1999 and for the six months ended June 30, 2000 we generated 100% and
79% of our revenue, respectively, by delivering e-centives to members on behalf
of marketers. The remaining 21% during the latter period was derived for
delivering e-mails for ZDNet.

We typically enter into contracts for the delivery of our service on behalf
of marketers and our network partners. We deliver e-centives through our suite
of services which is principally comprised of PromoCast, PromoCommerce and
PromoMail. During the six month period ended June 30, 2000, we generated 25% of
our revenue from PromoCast, 6% from PromoCommerce and 48% from PromoMail. In
1999, we derived 23% of our revenue from PromoCast, 8% from PromoCommerce and
69% from PromoMail.

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

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

24
<PAGE> 27

Our PromoCommerce service consists of several components including a
PromoCast package, perpetual software license and maintenance on such software.
Revenue related to the incorporated PromoCast package is recognized ratably over
the term of the contract. The software components enable the subscribing
merchant's site to recognize our members when they enter and automatically
detect, highlight and apply relevant e-centives during the shopping and purchase
process. The maintenance component provides subscribing marketers with product
updates and telephone support services. Our customer support contracts typically
have a one-year term, and revenue is recognized ratably over the term of the
contract.

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

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

We currently do not guarantee the delivery of the specific number of
e-centives that the marketer purchases under these contracts. Under these
contracts, if there are any remaining e-centives not used by the marketer at the
end of the contract period, those unused e-centives would be forfeited. As of
the date of this prospectus, no contract has had any unused e-centives remaining
at the end of the term.

In March 2000, we began delivering e-mails to promote the services of one
of our network partners, ZDNet, under an addendum to our agreement which expires
in August 2001. ZDNet agreed to pay us approximately USD 167,000 per month to
deliver e-mails which contain content supplied by ZDNet. We recognize revenue
upon delivery of the e-mails. For the six months ended June 30, 2000, we
generated approximately 21% of our revenue from the delivery of e-mails for
ZDNet. ZDNet also sells access to our direct marketing system to its advertising
clients for a fee. We receive 50% of these fees which we recognize as revenue at
the end of each month upon communication of the amount by ZDNet. We also
purchase banner advertisements from ZDNet to promote our co-branded service on
its web site from March 2000 through September 2000 for USD 1 million. At this
time, we expect to continue to purchase these banner advertisements for at least
the next six months. We have no obligation to purchase these banner
advertisements and may cancel at any time. See "Business -- Network Partners"
for a discussion of our agreement with ZDNet.

We entered into a new agreement with one of our other network partners,
Excite, under which Excite agreed to purchase a minimum number of e-centives
which would cost Excite at least USD 3.75 million over three years. At the
beginning of each quarter, Excite is contractually obligated to purchase USD
312,500 worth of e-centives. We recognize revenue upon the expiration date of
each delivered offer. If Excite does not sell the e-centives within six months
of purchase, they are forfeited and the value of the unsold e-centives will be
recognized as revenue. To date, we have not recognized any revenue from Excite's
purchases under this agreement. Excite has also agreed to provide us with at
least 12 million new members during the term of our agreement for which we shall
pay Excite a per member fee of up to approximately USD 19.65 million over the
term of the agreement in quarterly payments of USD 1.6 million. If Excite does
not provide us with 12 million new members over the term, we are entitled to a
refund for users not provided. We are currently dependent on Excite for new
members and expect this trend to continue. As of the date of this prospectus,
approximately 77% of our membership has come from Excite. See
"Business -- Network Partners" for a discussion of our agreements with Excite.

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

The following presents our financial position and results of operation as
of June 30, 2000. Since then, we have continued to incur substantial losses. We
expect to continue to incur losses for the foreseeable

25
<PAGE> 28

future as we continue to promote, develop and deploy our online direct marketing
system. We expect our expenses to increase in absolute dollars in future periods
as we hire additional personnel and incur additional costs related to the growth
of our business and our operations as a public company. In addition, there has
been a recent slowdown in the Internet sector in the United States. Although our
revenues have continued to grow since March 31, 2000, we have experienced a
decrease in our deferred revenues based on a reduction in contracts booked since
March 31, 2000. We believe this decrease is primarily due to market conditions
which have caused marketers to purchase e-centives for use in the period when
purchased, rather than for future periods.

RESULTS OF OPERATIONS

Six months ended June 30, 2000 and 1999.

Revenue. Revenue for the six months ended June 30, 2000 was USD 3,203,567.
We had no revenue for the six months ended June 30, 1999 as we did not charge
for our service during that period.

Cost of Revenue. Cost of revenue represents expenses related to providing
online promotions for our marketers, including a portion of the salaries,
benefits and related expenses of our client services, network operations and
technical services personnel. Cost of revenue increased by USD 465,000 to USD
834,000 in the six months ended June 30, 2000 compared to USD 369,000 in the six
months ended June 30, 1999. We primarily attribute this increase to the
additional salaries of USD 327,000 resulting from an increase in the number of
personnel.

Product Development. Product development costs include expenses we incur
for research, design and development of our proprietary online promotion
technology. We expense product development costs as we incur them. Product
development expenses increased by USD 315,000 to USD 1,459,000 in the six months
ended June 30, 2000, compared to USD 1,144,000 in the six months ended June 30,
1999. The majority of this increase resulted from increased product development
personnel costs of USD 186,000 associated with the development of our online
direct marketing system, including its infrastructure and computer software.

General and Administrative. General and administrative expenses consist of
salaries for executive and selected senior management, finance and
administrative personnel and associated employee benefits, facilities costs,
computer and office equipment operating leases, training, and all other
corporate costs, including depreciation and amortization. General and
administrative expenses increased by USD 1,705,000 to USD 3,120,000 in the six
months ended June 30, 2000, compared to USD 1,415,000 in the six months ended
June 30, 1999. This increase principally resulted from an increase of USD
290,000 from the increase in the number of general and administrative personnel,
includes an increase of USD 500,000 from increased legal costs and an increase
of USD 87,000 from increased rent for additional office space. In addition, we
have experienced increased depreciation of fixed assets in connection with our
increased capital expenditures for computer equipment of USD 500,000.

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, associated benefits and travel expenses for our sales and marketing
personnel, promotional expenses and member acquisition costs. Member acquisition
costs include the fees we pay some of our network partners for members we
acquire through their web sites either as fees for new members or by paying a
percentage of the revenue we generate from the delivery of e-centives to the new
members. We record these payments as sales and marketing expenses. Sales and
marketing expenses increased by USD 9.5 million to USD 11.5 million in the six
months ended June 30, 2000, compared to USD 2 million in the six months ended
June 30, 1999. We mainly attribute this increase to increases in the number of
direct sales personnel of USD 700,000, increased marketing expenditures targeted
at attracting more marketers to our direct marketing system of USD 5.9 million
and increased member acquisition costs of USD 2.1 million from building more
relationships with high-traffic portal, community and content web sites.

Interest income, net. Interest income, net consists of income on our cash
balances less interest expense on short-term debt. Net interest income increased
by USD 39,000 to USD 239,000 in the six months ended June 30, 2000, compared to
USD 200,000 for the six months ended June 30, 1999. This

26
<PAGE> 29

increase was due to an increase in interest income resulting from an increase in
cash balances from the latest round of financing.

Stock-based compensation. Stock-based compensation expenses consist of the
accrual of the difference between the estimated fair value of our common stock
and the exercise price of certain performance-based options prior to the
measurement date. Stock-based compensation expenses increased by USD 384,000 to
USD 1,132,000 in the six months ended June 30, 2000, compared to USD 748,000 for
the six months ended June 30, 1999. The increase resulted from additional
options granted to employees at exercise prices less than fair market value.

Net Loss. Net Loss increased by USD 9.1 million to USD 14.6 million in the
six months ended June 30, 2000, compared to USD 5.5 million for the six months
ended June 30, 1999. The increase is primarily attributed to the increase in
operating costs of USD 11.8 million to USD 17.0 million in the six months ended
June 30, 2000, compared to USD 5.2 million for the six months ended June 30,
1999.

Years ended December 31, 1999, 1998 and 1997.

Revenue. We generated USD 740,000 in revenue in 1999 as we began charging
for our service in July 1999. We did not generate revenue in 1998 or 1997
because we were a development stage entity devoting substantially all of our
efforts to develop and market our direct marketing infrastructure.

Cost of Revenue. We incurred USD 1,028,000 in cost of revenue expenses in
1999. As a development stage company, we incurred no cost of revenue expenses in
1998 or 1997.

Product Development. Product development expenses were USD 2,400,000, USD
1,161,000 and USD 814,000 in 1999, 1998 and 1997, respectively. We attribute USD
1.2 million of the 1999 increase and USD 330,000 of the 1998 increase to product
development personnel costs associated with the development of our online direct
marketing system, including its infrastructure and computer software.

General and Administrative. General and administrative expenses were USD
4,083,000, USD 1,237,000 and USD 753,000 in 1999, 1998 and 1997, respectively.
We attribute USD 440,000 of the 1999 and USD 20,000 of the 1998 increase to
additional personnel in the general and administrative area, USD 730,000 of the
1999 increase and USD 190,000 of the 1998 increase to higher legal costs and USD
180,000 of the 1999 increase and USD 50,000 of the 1998 increase for rent for
increased office space. In addition, USD 250,000 of the 1999 increase and USD
100,000 of the 1998 increase resulted from increased depreciation of fixed
assets in connection with our increased capital expenditures for computer
equipment and USD 750,000 of the 1999 increase was caused by the amortization of
a patent that was purchased in 1999.

Sales and Marketing. Sales and marketing expenses were USD 8,620,000, USD
2,480,000 and USD 1,106,000 in 1999, 1998 and 1997, respectively. We attribute
USD 1,630,000 of the 1999 increase and USD 790,000 of the 1998 increase to
increases in the number of direct sales personnel and USD 3.3 million and USD
470,000 for 1999 and 1998, respectively for increased marketing expenditures
targeted at attracting more marketers to our direct marketing system and USD
550,000 of the 1999 change and USD 160,000 of the 1998 increase as a result of
increased member acquisition costs from building more relationships with
high-traffic portal, community and content web sites.

Stock-based compensation. Stock-based compensation expenses were USD
1,054,000 in 1999. We incurred no stock-based compensation expenses in 1998 or
1997.

Interest income, net. Interest income, net was USD 268,000, USD 310,000
and USD 188,000 in 1999, 1998 and 1997, respectively. The decrease from 1998 to
1999 was due to a decrease in cash balances as funds were used to meet operating
expenses. The increase from 1997 to 1998 was due to an increase in available
funds for investment in short term investments as we raised USD 6,861,000 in
July 1997.

Net Loss. Net loss was USD 16.2 million, USD 4.6 million and USD 2.5
million in 1999, 1998 and 1997, respectively. The increase is primarily
attributed to the increase in operating costs of USD 11.9 million to USD 17.2
million in the six months ended June 30, 2000, compared to USD 5.3 million for
the six months ended June 30, 1999.

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<PAGE> 30

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations since inception primarily from the private
sale of our convertible preferred stock and common stock, through which we
raised net proceeds of USD 45,829,578 through June 30, 2000. The most recent
offering was completed in February 2000, in which we issued 2,328,434 shares of
our Series C convertible preferred stock with approximate total proceeds of USD
23,800,000. As of June 30, 2000, cash, cash equivalents and marketable
securities totaled USD 6,594,655.

Cash used in operating activities was USD 4,299,091 for the year ended
December 31, 1998, USD 12,904,109 for the year ended December 31, 1999 and USD
13,607,673 for the six months ended June 30, 2000. Net cash flows from operating
activities in each period reflect increasing net losses and, to a lesser extent,
increases in accounts receivable and prepaid expenses due to increased
operations.

Cash used in investing activities was USD 407,744 for the year ended
December 31, 1998, USD 4,570,697 for the year ended December 31, 1999 and USD
1,349,950 for the six months ended June 30, 2000. Net cash used for investing
activities in each period primarily reflects purchases of computer equipment.
Cash used in investing activities for the year ended December 31, 1999 was also
impacted by the USD 3.0 million purchase of a patent.

Cash provided by financing activities was USD 15,524,688 for the year ended
December 31, 1999 and USD 20,469,390 for the six months ended June 30, 2000.
Cash provided by financing activities for these periods was derived primarily
from private sales of our convertible preferred stock. In addition, cash
provided by financing activities for the year ended December 31, 1999 increased
due to long-term borrowings of USD 2.0 million. There was no cash provided by
financing activities for the year ended December 31, 1998.

We believe that the net proceeds from this offering, together with our cash
resources, will be sufficient to meet our anticipated cash needs for working
capital, repayment of debt and capital expenditures for at least the next
eighteen months. However, we are dependent on the proceeds of this offering to
continue our operations at the present level of expenditures. If we do not close
this offering, we will need to reduce our operating expenses and find an
alternate source of financing. We have received a commitment from Peter Friedli,
one of our major investors and a director, that he or entities he controls will
finance our operations for the next twelve months in the event that this
offering is not consummated. However, even if we do close this offering, we may
need to raise additional funds sooner to fund our planned expansion, to develop
new or enhanced products or services, to respond to competitive pressures or to
make acquisitions. We cannot be certain that additional financing will be
available to us on acceptable terms, or at all. If adequate funds are not
available, or not available on acceptable terms, we may not be able to continue
or expand our business.

We do not have any present plans for further equity offerings in the next
six months. In addition, pursuant to an agreement with the underwriters, we have
agreed not to issue our shares in capital raising transactions for a period of
six months following the completion of this offering. We may conduct a U.S.
offering after such six-month period depending on market conditions and our need
for capital at the time. The timing of such an offering in the U.S. cannot be
determined at the present time. We are not party to any arrangement or
understanding under which an offering would be triggered automatically in the
event of an increase in our share price.

SIGNIFICANT TECHNOLOGY-RELATED EXPENDITURES

The following tables list our recent significant technology-related
expenditures and planned technology related expenditures for the third quarter
of 2000. This information is being provided pursuant to the listing rules of the
SWX Swiss Exchange.

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<PAGE> 31

The following table is a list of our significant technology-related
expenditures planned for the third quarter of 2000 and the estimated costs.

<TABLE>
<CAPTION>
INVESTMENT AMOUNT (USD)
---------- ------------
<S> <C>
Internal desktop licenses................................... 176,000
New, expanded phone system.................................. 110,000
</TABLE>

The following table is a list of our significant technology-related
expenditures in the first six months of 2000 and the approximate costs.

<TABLE>
<CAPTION>
INVESTMENT AMOUNT (USD)
---------- ------------
<S> <C>
Additional e-mail servers................................... 38,000
Upgrades and memory for web servers......................... 50,000
System expansion............................................ 30,000
Disk storage upgrades....................................... 110,000
</TABLE>

The following table is a list of our significant technology-related
expenditures in 1999 and the approximate costs.

<TABLE>
<CAPTION>
INVESTMENT AMOUNT (USD)
---------- ------------
<S> <C>
Website file servers........................................ 282,000
U.S. Patent ("Electronic Couponing Method and Apparatus")... 3,000,000
Database licenses........................................... 111,000
E-mail management/tracking software......................... 120,000
</TABLE>

The following table is a list of our significant technology-related
expenditures in 1998 and 1997 and the approximate costs.

<TABLE>
<CAPTION>
INVESTMENT AMOUNT (USD)
---------- ------------
<S> <C>
Object-oriented database software........................... 50,000
Web server hardware......................................... 104,000
Telephone system and desk handsets.......................... 24,000
</TABLE>

RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting For Derivative Instruments and Hedging Activities. The new standard
establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. This statement, as
amended, is effective for all fiscal quarters beginning after June 15, 2000. We
do not expect SFAS 133 to have a material impact on our financial condition,
results of operations or cash flows.

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

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

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion

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<PAGE> 32

No. 25. With the exception of certain provisions which require earlier
application, this interpretation is effective for all applicable transactions
beginning July 1, 2000. We do not expect that the adoption of this
Interpretation will have a material impact on our financial condition, results
of operations or cash flows.

QUALITATIVE AND QUANTITATIVE DISCUSSION OF MARKET RISK

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

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

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<PAGE> 33

BUSINESS

OVERVIEW

We provide an online direct marketing system that enables marketers to
access consumers across the web sites of our network partners and by e-mail. Our
system allows marketers to offer a wide range of promotions for products and
services in which consumers have expressed interest. These promotions can
include, among others, digital coupons, sales notices, free shipping offers,
minimum purchase discounts and repeat purchase incentives. We call these online
promotions e-centives. We developed a web-based application which enables
consumers to register to receive e-centives at our network partners' web sites
or through our web site, www.e-centives.com. Our members provide demographic
information and indicate interests in product categories in return for
e-centives targeted to their shopping preferences. We create an online account
for each member which can be accessed on the web site of the network partner
through which they joined and on our web site. Members can also elect to receive
e-centives by e-mail. We also offer technology to our marketers that
automatically recognizes our members when they enter the marketer's web site,
and highlights and applies relevant e-centives during the shopping and purchase
process. During the six months ended June 30, 2000, we delivered e-centives for
over 125 marketers, including leading brands such as Disney, Egghead.com,
REI.com, ShopSports.com and Tower Records.

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

As of the date of this prospectus, we maintained over 4.4 million
e-centives accounts. Although we keep our members' identities confidential, we
analyze our database of demographic and preference information with
sophisticated tracking and data analysis to help our marketers execute more
effective promotional campaigns. We believe our combination of network partners,
marketers and members across a network of web sites creates a robust
infrastructure for offering targeted promotions over the Internet.

INDUSTRY BACKGROUND

Growth of the Internet, Online Commerce and Advertising

The Internet continues to expand at a rapid pace as measured by the number
of people using the Internet and the volume of commerce transacted online. IDC,
an information technology research firm, estimates that the number of people
using the Internet will grow from approximately 239.6 million worldwide in 1999
to approximately 602.4 million worldwide in 2003. Many businesses have
established methods to use the Internet to sell and distribute products and
services to consumers. According to IDC, online commerce will increase from
approximately $130.5 billion in 1999 to $1.6 trillion in 2003. IDC further
estimates that the percentage of people purchasing products and services on the
Internet will increase from approximately 26% at the end of 1999 to
approximately 38% in 2003.

As the number of people using online commerce grows, advertisers are
increasingly using the Internet to locate customers, advertise products and
services and facilitate transactions. Forrester Research estimates that online
consumer marketing spending in the U.S. will increase from USD 7.1 billion in
2000 to USD 41.1 billion in 2005.

Growth of Online Direct Marketing and Promotions

Early online advertising strategies focused on building brand awareness and
primarily employed banner advertisements on high volume web sites. As the volume
of online advertising has expanded, however, banner advertisements have proven
to be ineffective for attracting customers and promoting

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<PAGE> 34

purchases. According to Net Ratings, response or click-through rates for banner
advertisements were approximately 0.42% in March 2000, down from approximately
0.63% in April 1999.

According to the Forrester Research, online marketers are increasingly
focusing resources on direct marketing techniques. The Internet is particularly
well suited to direct marketing because of its ability to access broad audiences
or precisely defined consumer groups. The Internet enables marketers to collect
data regarding the success of marketing and promotional programs. Forrester
Research estimates that online consumer promotions in the U.S. will increase
from USD 1.8 billion in 2000 to USD 14.4 billion in 2005.

OPPORTUNITY FOR AN ONLINE DIRECT MARKETING SYSTEM

As advertisers expand their use of direct marketing, we believe that
existing marketing services fail to address the full range of their needs. In
particular, marketers not only want to attract visitors to their web sites, but
also want to convert visitors to buyers and generate repeat purchases. While
some online services are effective in addressing any one of these objectives, we
believe that each has limitations and, more importantly, that no solution
effectively addresses all three goals.

- Attract Visitors. Marketers employ a variety of tools to attract
visitors, including banner advertisements and e-mail. With the decreasing
effectiveness of banner advertisements, marketers are increasingly
focusing on more targeted and cost effective tools such as
permission-based e-mail and performance-based marketing programs. While
permission-based e-mail services aggregate an audience of consumers, they
reach only a small portion of the traffic on the Internet. In particular,
we believe these services fail to effectively capitalize on the brand
equity and broad reach of a wide network of high-traffic web sites and,
as such, fail to reach consumers where they access the Internet and spend
their time online. Marketers are also utilizing performance-based
marketing programs which typically have payment terms based on the number
of click-throughs or commission on sales. Although these programs may be
cost effective, we believe they lack the database and analysis
capabilities for targeted online direct marketing.

- Convert Visitors to Buyers. In addition to attracting visitors, marketers
face considerable difficulty in converting visitors to buyers once they
visit a web site. According to Forrester Research, less than 2% of web
site visits result in a purchase. To improve purchase rates, marketers
are relying on coupons and price discounts typically delivered by e-mail.
These methods assume that consumers are prepared to purchase when the
offer is received, and do not easily enable the consumer to store and
access the offer at his or her convenience. In addition, offers
distributed by e-mail typically lack integration with the merchant site
and fail to influence the purchase decision at the stage of the buying
cycle that has the most impact on conversion. These promotions often
complicate the transaction for the consumer during the purchase process
by requiring the consumer to enter a promotion code at the point of
purchase. Finally, unless the marketer wants to send unsolicited offers,
the marketer must either distribute the offers to its own customers,
which limits the reach of the promotion, or rely on a third-party
delivery service whose brand may not be associated with product savings.

- Generate Repeat Purchases. Marketers must successfully attract new
customers, retain existing customers, and generate repeat purchase
activity. Marketers often rely on rewards such as points programs and
frequent flier miles to drive these repeat purchases. However, third
party providers of these programs typically offer points or awards
available and redeemable for a variety of products and services across a
range of merchant sites. Therefore, we believe that such programs
primarily generate customer loyalty to the respective program itself,
rather than to the individual marketer. Further, we believe that targeted
promotional offers represent a more effective means of generating repeat
purchases. According to Jupiter Communications, approximately 73% of
consumers report that they wait for a promotion at a web site before
making a repeat purchase.

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<PAGE> 35

We believe that there is a need for a comprehensive direct marketing
infrastructure that can deliver the broad range of promotional tools necessary
to meet all three objectives. We believe the best system to address this need
combines the targeting capabilities of permission e-mail, the broad reach and
convenience of a network and the flexibility and integration of a customized
merchant-specific promotional program.

OUR SYSTEM

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

Marketer Benefits

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

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

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

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

Network Partner Benefits

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

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

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<PAGE> 36

consulting services to support the relationship and customer service for
our network partners' users and their advertising clients.

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

- New revenue stream. We provide our network partners with a new revenue
stream. We compensate all of our network partners for members we acquire
through their web sites either by paying a fee for new members or by
paying a percentage of the revenue we generate from the delivery of
e-centives to such new members or both. We pay two of our network
partners a fee, typically ranging from USD 1.25 to USD 2.50, for each new
member that registers for our service through their web sites. Twelve of
our network partners receive a percentage of the net revenue generated by
us for the delivery of e-centives to the new members we obtained through
their web sites. This percentage is typically between 20% and 50% of net
revenue. One of our network partners receives a combination of both. We
pay Excite a per member fee for new members up to 12 million members, and
for each new member over 12 million, we pay Excite a percentage of our
net revenue for the delivery of e-centives to those new members. We
anticipate entering into more agreements with network partners in the
future with either a per member fee or a revenue sharing component, or
both.

Member Benefits

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

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

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

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

GROWTH STRATEGY

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

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

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<PAGE> 37

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

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

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

- Expand internationally. To date, we have focused on pursuing
opportunities in the United States. As the Internet market outside the
United States grows, we intend to expand into Europe and other countries.
We believe the anticipated international growth of Internet usage and
electronic commerce may generate significant market opportunities for us.
We are currently considering expanding into Switzerland, the United
Kingdom and Germany.

OUR DIRECT MARKETING SYSTEM

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

Marketers. During the three months ended June 30, 2000, we delivered
approximately 56.7 million e-centives for over 125 marketers. Below is a list of
our largest clients for whom we delivered e-centives during the six months ended
June 30, 2000, none of whom accounted for more than 7% of our revenue.

<TABLE>
<S> <C> <C>
800.com Furniture.com Omahasteaks.com
audiobookclub.com GreatFlowers.com onehanesplace.com
CarParts.com HealthCentral.com OurHouse.com
Cooking.com healthshop.com Overstock.com
Covad iPrint.com Petstore.com
Cyberian Outpost Kardz.com PlanetRx
deltathree.com more.com ROXY.com
dSports.com mySEASONS RxDrugstore
eNutrition NetFlix.com SmarterKids.com
Everything Wireless Netgrocer.com Staples.com
</TABLE>

We currently offer marketers three types of online direct marketing
services: PromoCast(TM), PromoCommerce(TM) and PromoMail(TM).

Our PromoCast service enables marketers to deliver targeted e-centives to
our members' accounts. Once marketers purchase e-centives, we assist them in
launching their promotional campaigns quickly and easily. Marketers typically
use our client services team to create and distribute their e-centives. Once a
member clicks on the offer, our system links the member directly to the
appropriate page on the

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<PAGE> 38

marketer's web site. We provide periodic reports to marketers to help them
assess the effectiveness of each campaign. For the six months ended June 30,
2000, PromoCast accounted for approximately 25% of our revenue.

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

Through our PromoCommerce service, e-centives are automatically applied at
the point of purchase with pricing and any other terms of the transaction
appropriately adjusted. The member does not need to provide any additional codes
or entries. Our authentication technology helps prevent fraudulent online use of
offers. For the six months ended June 30, 2000, PromoCommerce accounted for
approximately 6% of our revenue.

Our PromoMail service is offered as an added service and is used in
conjunction with PromoCommerce or PromoCast. Our PromoMail service enables
marketers to deliver targeted offers to members by electronic mail. PromoMail
messages can be planned to coincide with special occasions, such as Valentine's
Day and Mother's Day, and highlight specific promotions relevant to the occasion
and the member. A PromoMail message can include e-centives from a limited number
of marketers, each of which is stored in members' accounts. We track, measure
and report response rates to the marketer for each mailing. For the six months
ended June 30, 2000, PromoMail accounted for approximately 48% of our revenue.

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

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

We currently have agreements with the following network partners:

<TABLE>
<S> <C> <C>
AllCommunity Mom.com theglobe.com
CoVia NetZero ThirdAge Media
Deja.com NextCard Uproar
Excite Parents.com USATODAY.com
iVillage.com Prodigy Internet ZDNet
</TABLE>

As of the date of this prospectus, approximately 90% of our members have
come from our relationships with our network partners, and we expect this trend
to continue. We expect to spend between USD 6 and USD 8 million in 2000 and
between USD 8 and USD 10 million in 2001 on payments to

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<PAGE> 39

partners to acquire new members. See "-- Network Partner Benefits" for a
discussion of how we pay our network partners for the acquisition of new members
through our network partners.

Our agreements with Excite and ZDNet are described below.

- Excite. Excite has been one of our network partners since March 1999.
Since then, we have registered new members and delivered e-centives
through Excite's web site. We entered into a new agreement with Excite in
February 2000 under which we will register members through Excite's
registration process and deliver a co-branded service called "Excite
Special Offers, powered by e-centives." Excite has agreed to provide us
with at least 12 million new members during the term of our agreement. We
agreed to pay Excite a per member fee of approximately USD 19.65 million
over the term of the agreement, which is approximately USD 1.6 million on
a quarterly basis. In addition, select e-centives may be displayed on
some of Excite's most visible web pages, including Excite's home page.
Excite has also agreed to purchase a minimum number of our e-centives
over three years, which would cost Excite a minimum of USD 3.75 million.
To date, we have not recognized any revenue from Excite's purchases under
this agreement. We estimate that this enhanced service will be launched
in the third quarter of 2000. This agreement will terminate three-years
from the launch date. Excite is also one of our stockholders. See
"Related Party Transactions" for details of Excite's ownership interest
in us. Under the terms of our agreement and subject to our right to cure
any deficiencies, Excite may terminate prior to the expiration of the
term if our services are not at least comparable to that of other sources
with regard to any two of the following: content, functionality,
personalization and ease of use.

- ZDNet. ZDNet has been one of our network partners since May 1999. We
register new members and deliver "ZDNet e-centives" through ZDNet's web
site. As of the date of this prospectus, we provide our service to over
1.58 million members through our relationship with ZDNet. However,
because we only deliver computer related offers to these members, we do
not count these members as part of our 4.4 million general membership.
These ZDNet members sign-up through ZDNet's registration process,
enabling customers to become e-centives members when they become ZDNet
members. ZDNet shares 50% of the revenue it generates from the sale of
e-centives by ZDNet to its advertising clients. Our agreement with ZDNet
is unique in that ZDNet users currently receive e-centives only from
ZDNet merchants and advertising clients. Our direct marketing system is
also integrated with ZDNet's ComputerShopper.com web site, allowing
e-centives to be displayed alongside product search results. Our
agreement with ZDNet will terminate in August 2001. We also purchase
banner advertisements from ZDNet to promote our co-branded service on its
web site from March 2000 through September 2000 for USD 1 million. At
this time, we expect to continue to purchase these banner advertisements
for at least the next six months. We have no obligation to purchase these
banner advertisements and may cancel at any time.

Members. As of the date of this prospectus, we maintained over 4.4 million
e-centives accounts. We provide our members with control over many aspects of
our system, including what categories of offers they receive and when those
offers are redeemed. To join our system, consumers sign-up for and personalize
their e-centives account through any of our network partner web sites or our web
site. When creating or updating their account, our members provide demographic
information and select categories in which they have an interest. These
categories currently include:

<TABLE>
<S> <C> <C>
Automotive Gifts & Gourmet Music & Video
Baby Stuff Groceries Office
Books & Magazines Health & Beauty Pets
Computers Hobbies Services
Electronics Home & Gardening Sports & Fitness
Fashion Local Toys & Games
Travel
</TABLE>

37
<PAGE> 40

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

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

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

SALES AND MARKETING

We seek to establish relationships with marketers principally through our
direct sales force. We also work with our network partners to establish
relationships with their advertisers and work with advertising or promotional
agencies to reach their clients. We maintain sales personnel in major
metropolitan areas of Washington, D.C., San Francisco, New York, Los Angeles and
Denver. We currently employ 13 full-time sales persons and plan to significantly
increase our sales force to broaden distribution of our products and services.
We intend to hire an additional 30 sales and marketing personnel and spend
approximately USD 15 million of the proceeds of this offering on our sales and
marketing efforts over the next 12 months.

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

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

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

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<PAGE> 41

TECHNOLOGY

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

- database and user interface servers;

- software components for PromoCommerce; and

- Campaign Manager(TM) software.

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

- a backup of membership and application data is completed daily;

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

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

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

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

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

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

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

We spent approximately USD 2.4 million, USD 1.2 million and USD 0.8 million
in 1999, 1998 and 1997, respectively, on research, design and development
activities.

COMPETITION

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

- both online and offline direct marketing and promotion companies;

- Internet-based marketing and advertising firms; and

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

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<PAGE> 42

Current or potential competitors include:

- e-mail marketers, such as LifeMinders.com and YesMail;

- rewards programs, such as Netcentives, Mypoints and Cybergold; and

- coupon providers, such as coolsavings.com.

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

Our ability to compete depends on many factors.

Factors over which we have some level of control:

- success in developing and expanding our membership base;

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

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

- timely development and marketing of new promotion services; and

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

Factors outside our control include:

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

- changes in pricing policies of our competitors; and

- entry of new competitors in the market.

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

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

INTELLECTUAL PROPERTY RIGHTS

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

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

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

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

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

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

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

EMPLOYEES

As of June 30, 2000, we had 99 full-time employees. Of these, 40 were sales
and marketing, 49 were product development, and 10 were general and
administrative personnel. None of our employees is represented by a labor union,
nor have we ever experienced a work stoppage. We believe our employee relations
are good.

Number of employees (year-end)

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<PAGE> 44

FACILITIES

We do not currently own any real estate. Our headquarters and principal
administrative, finance, legal, sales and marketing operations are located in
approximately 16,000 square feet of leased office space in Bethesda, Maryland, a
suburb of Washington, D.C. Our lease is for a term of three years and expires on
September 30, 2000. On June 29, 2000, we signed an amendment to our existing
lease to move our principal offices to 6901 Rockledge Drive, in Bethesda,
Maryland, comprising approximately 47,000 square feet. We anticipate moving our
principal offices to this space by October 2000. Under our new lease amendment,
our rent expense will be approximately $132,000 per month. We also maintain
offices in Redwood City, California, Santa Monica, California and New York, New
York. We expect that we will need additional space as we expand our business and
believe that we will be able to obtain space as needed.

LEGAL PROCEEDINGS

In August 1998, coolsavings.com, Inc., an online coupon provider, filed a
patent infringement lawsuit against us in the U.S. District Court for the
Northern District of Illinois. In its complaint, coolsavings.com alleges that we
have infringed and are infringing a patent held by coolsavings.com entitled
"Interactive Marketing Network and Process Using Electronic Certificates." The
patent is described in its abstract as a "data processing system issuing
electronic certificates through 'online' networks of personal computers,
televisions or other devices with video monitors or telephones." The patent
involved in this litigation relates to a data processing system used to issue
electronic certificates online. In its complaint, coolsavings.com seeks an
unspecified amount of money damages which would depend on the extent we have
used coolsavings.com's patented technology, and an injunction barring us from
further use. We contend that we have not and are not infringing the patent, that
the patent is invalid and was improperly procured, and that coolsavings.com is
interfering with our business. A trial is currently scheduled for December 2000.

In April 1999, we filed a patent infringement lawsuit against
coolsavings.com in the U.S. District Court for the District of Maryland. In our
complaint, we allege that coolsavings.com is infringing a patent held by us,
U.S. Patent No. 5,710,886. Our patent, entitled "Electronic Couponing Method and
Apparatus" is described in its abstract as a "method and apparatus for
distributing, generating, and redeeming discount coupons, rebate or gift
certificates or the like that tracks each coupon using a consumer ID number
printed on the coupon." Coolsavings.com contends that it has not and is not
infringing the patent, and that the patent is invalid. The parties are in the
process of discovery which has a deadline set for September 21, 2000. There is
no trial date set in the case.

In March 2000, we filed an additional patent infringement lawsuit against
coolsavings.com in the U.S. District Court for the District of Maryland. In our
complaint, we alleged that coolsavings.com is infringing our U.S. Patent No.
6,035,280. Our patent, entitled "Electronic Discount Couponing Method and
Apparatus For Generating an Electronic List of Coupons" is described in its
abstract as a "method and apparatus for distributing, generating, and redeeming
discount Virtual Coupons, rebate or gift certificates or the like which may be
used in conjunction with a frequency card program or the like." Coolsavings.com
contends that it has not and is not infringing the patent, and that the patent
is invalid and was improperly procured. This litigation has been consolidated
into the litigation filed in April 1999.

We believe that we have strong defenses against coolsavings.com's lawsuit.
We believe that our system and the methods we employ to operate the system are
substantially different than the methodology covered by the coolsavings.com
patent. Furthermore, we believe that the coolsavings.com patent does not
represent a novel advance and will be held invalid based on prior art,
including, but not limited to our patent discussed above, which predates the
coolsavings.com patent. Accordingly, we intend to defend the action vigorously.

However, litigation is subject to inherent uncertainties, especially in
intellectual property cases such as these where technical issues are involved.
Any litigation, regardless of the merits of the complaint, will likely be
time-consuming, costly and a diversion of our resources and our management's
attention. We may not prevail in this litigation. If we do not prevail, we may
be forced to make substantial modifications
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<PAGE> 45

to our system and the way we operate our business. We may also be required to
develop new technologies, license alternate technologies or have to obtain a
license from coolsavings.com for the method covered by its patent, which might
not be made available to us on reasonable terms, if at all. Implementation of
any of these alternatives could be costly and time consuming and may have a
material adverse effect on our business.

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

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<PAGE> 46

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

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

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
---- --- ------------------------
<S> <C> <C>
Kamran Amjadi......................... 36 Chairman and Chief Executive Officer
Mehrdad Akhavan....................... 36 President, Chief Operating Officer,
Secretary and Director
Michael Sullivan...................... 42 Chief Financial Officer and Treasurer
Lawrence Brand........................ 46 Senior Vice President of Sales and
Business Development
Homayoon Tajalli...................... 41 Senior Vice President of Products and
Engineering
Jason Karp............................ 32 Vice President and General Counsel and
Assistant Secretary
Barbara Barclay....................... 36 Vice President of Client Services
Ira Becker............................ 32 Vice President of Strategic Alliances
Sandra Keeling-Wainwright............. 47 Vice President of Marketing
David Nelson.......................... 40 Vice President of Network Operations
Peter Friedli......................... 46 Director
James Caccavo......................... 38 Director
</TABLE>

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

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

Michael Sullivan has served as our Chief Financial Officer since May 1999.
From April 1990 until May 1999, Mr. Sullivan held various positions with
Manugistics Group, Inc., a supply chain management solutions developer, and
served most recently as Vice President, Corporate Finance. From April 1988 until
November 1989, Mr. Sullivan was Vice President, Product Development at Best
Software, a developer of financial software.

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

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

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<PAGE> 47

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

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

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

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

David Nelson has served as our Vice President of Network Operations since
May 2000. From May 1998 until April 2000, Mr. Nelson held various positions at
Net2000 Communications, Inc., and served most recently as Vice President,
Network and Customer Operations. From October 1993 to May 1998, he was Vice
President, Customer Service and Operations at Loral Orion, Inc., a satellite
owner, operator and provider of private multi-media networks. From June 1989 to
October 1993, Mr. Nelson held several positions in operations, sales and
marketing at Northern Telecom Inc.

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

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

BOARD OF DIRECTORS

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

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<PAGE> 48

automatically convert into shares of common stock upon the closing of this
offering. This right of the holders of the Series C convertible preferred stock
to elect a director will simultaneously be eliminated.

Board Committee

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

Director Compensation

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

Compensation Committee Interlocks and Insider Participation

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

EXECUTIVE COMPENSATION

The following table sets forth in U.S. Dollars the compensation paid to or
earned by our named executive officers which includes our Chief Executive
Officer and the four other most highly compensated executive officers whose
salary and bonus for services rendered in all capacities for the fiscal year
ended December 31, 1999 exceeded USD 100,000. We will use the term "named
executive officers" to refer to these people later in this prospectus.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(S) YEAR SALARY ($) BONUS($) OPTIONS
------------------------------ ---- ---------- -------- ------------
<S> <C> <C> <C> <C>
Kamran Amjadi
Chairman and Chief Executive Officer............... 1999 $170,000 $50,000 100,000

Mehrdad Akhavan
President, Chief Operating Officer, Secretary and
Director........................................... 1999 $150,000 $50,000 100,000

Michael Sullivan
Chief Financial Officer and Treasurer.............. 1999 $ 81,000(1) 50,000

Homayoon Tajalli
Senior Vice President of Products and
Engineering........................................ 1999 $ 31,000(2) 220,800

Lawrence Brand
Senior Vice President of Sales and Business
Development........................................ 1999 $148,000 $38,000 40,000
</TABLE>

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

(1) Mr. Sullivan commenced his employment in May 1999 at an annual base salary
of $130,000.

(2) Mr. Tajalli commenced his employment in October 1999 at an annual base
salary of $150,000.

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<PAGE> 49

Employment Agreements

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

OPTION GRANTS IN LAST FISCAL YEAR

The following table summarizes the options granted to each of our named
executive officers during the fiscal year ended December 31, 1999.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION FOR OPTION TERM (1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------------------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 0% 5% 10%
---- ---------- -------------- -------- ---------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kamran Amjadi........ 100,000 8.45% USD 2.50 5/15/09 USD 132,010 USD 372,254 USD 740,836
Mehrdad Akhavan...... 100,000 8.45% 2.50 5/15/09 132,010 372,254 740,836
Michael Sullivan..... 50,000 4.23% 2.50 5/17/09 68,295 189,857 376,357
Homayoon Tajalli..... 220,800 18.66% 3.50 10/14/09 838,135 1,851,243 3,405,550
Lawrence Brand....... 40,000 3.38% 3.50 9/15/09 125,312 292,165 548,151
</TABLE>

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

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

FISCAL YEAR-END OPTION VALUES

The following table presents information with respect to stock options
owned by each of our named executive officers at December 31, 1999.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999(1)
-------------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Kamran Amjadi....................... 100,000 -- USD 795,000 USD --
Mehrdad Akhavan..................... 100,000 -- 795,000 --
Michael Sullivan.................... -- 50,000 -- 397,500
Homayoon Tajalli.................... 30,000 190,800 208,500 1,326,060
Lawrence Brand...................... 98,427 72,809 782,495 538,787
</TABLE>

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

(1) 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 $10.45 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.

47
<PAGE> 50

OPTIONS GRANTED AS OF THE DATE OF THIS PROSPECTUS

The following table sets forth the options granted to named executive
officers, directors and employees as of the date of this prospectus.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING OPTIONS
AS OF THE DATE OF THIS PROSPECTUS
----------------------------------------------
EXERCISABLE SIX
MONTHS FOLLOWING
THE DATE OF THIS AVERAGE EXERCISE
NAME EXERCISABLE UNEXERCISABLE PROSPECTUS PRICE(1)
---- ----------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Kamran Amjadi.......................... 175,000 200,000 175,000 USD 10.20
Mehrdad Akhavan........................ 175,000 200,000 175,000 10.20
Peter Friedli.......................... 30,000 10,000 40,000 3.50
Michael Sullivan....................... 56,250 43,750 59,375 3.75
Lawrence Brand......................... 143,210 77,590 170,810 2.91
Homayoon Tajalli....................... 220,800 -- 220,800 3.50
All directors, officers and employees
as a group........................... 1,203,064 1,648,186 1,374,837 5.44
</TABLE>

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

(1) This number represents the average exercise price of all of the exercisable
and unexercisable options held by such person or persons.

STOCK INCENTIVE AND OPTION PLAN

Our Amended and Restated Stock Incentive and Option Plan provides for the
grant of options, restricted stock and other stock-based compensation to our
employees, consultants and advisors. We have 3,700,000 shares of common stock
reserved for issuance under this plan. As of the date of this prospectus, there
were options to purchase 2,851,250 shares of common stock at a weighted average
exercise price of USD 5.44 per share outstanding under our 1996 Stock Incentive
Plan. Options granted under both plans typically vest over time, usually ratably
over four years from the date of grant, subject to acceleration in the event of
a change of control of e-centives. Typically, an option granted under either
plan expires ten years after it is granted. In addition, the plans allow for
grants of options the vesting of which is tied to the employee's performance. As
of the date of this prospectus, our board of directors has issued only stock
options under the 1996 Stock Incentive Plan.

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

- which eligible individuals receive option grants or share issuances;

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

- the exercise price per share under each option;

- the term of each option; and

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

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

401(k) PLAN

We have a tax-qualified employee savings plan which covers all of our
employees who are at least 21 years of age. Eligible employees may defer up to
20% of their pre-tax earnings, subject to the Internal Revenue Service's annual
contribution limit. Our 401(k) plan permits us to make additional discretionary
matching contributions on behalf of all participants in our 401(k) plan in an
amount determined by us. Our 401(k) plan is intended to qualify under Section
401 of the Internal Revenue Code of 1986 so that

48
<PAGE> 51

contributions by employees or by us to our 401(k) plan, and income earned on
plan contributions, are not taxable to employees until withdrawn from the plan,
and so that contributions by us, if any, will be deductible by us when made.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

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

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

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

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

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

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

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<PAGE> 52

RELATED PARTY TRANSACTIONS

STOCK PURCHASES AND RELATED MATTERS

Peter Friedli, a stockholder and one of our directors, has relationships
with several of our other stockholders. He serves as the investment advisor to
Joyce, Ltd., Pine, Inc., Savetech, Inc., Spring Technology Corp., USVentech,
Inc., and Venturetec, Inc. Mr. Friedli serves as President of Venturetec and its
parent corporation New Venturetec AG. As of June 30, 2000, Mr. Friedli
beneficially owned approximately 10% of Pine, 3% of New Venturetec and 12% of
Spring Technology.

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

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

In June 1997, we sold 1,700,000 shares of our Series A convertible
preferred stock at a per share price of USD 4.50 for an aggregate consideration
of USD 7.65 million to raise capital to finance our operations. Upon completion
of this offering, each share of Series A convertible preferred stock
automatically will convert into one share of common stock. The following table
summarizes purchases, valued in excess of USD 60,000, of shares of our Series A
convertible preferred stock by our directors, executive officers and 5%
stockholders, including the number of shares of Series A convertible preferred
stock bought, the aggregate consideration paid for the shares and the aggregate
value of the shares, assuming conversion of the shares into our common stock and
an assumed offering price of USD 10.45 per share:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SERIES AGGREGATE PRO FORMA
A PREFERRED STOCKHOLDER PRICE AGGREGATE
STOCK PAID VALUE
---------------- ----------------- -------------
<S> <C> <C> <C>
Venturetec.................................... 800,000 USD 3,600,000 USD 8,360,000
Spring Technology............................. 140,000 630,000 1,463,000
</TABLE>

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

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

The following table summarizes purchases, valued in excess of USD 60,000,
of shares of our Series B convertible preferred stock by our directors,
executive officers and 5% stockholders, including the number of shares of Series
B convertible preferred stock bought, the aggregate consideration paid for the
shares and the aggregate value of the shares, assuming the conversion of the
shares into our common stock and an assumed offering price of 10.45 per share:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SERIES AGGREGATE PRO FORMA
B PREFERRED STOCKHOLDER PRICE AGGREGATE
STOCK PAID VALUE
---------------- ----------------- --------------
<S> <C> <C> <C>
Venturetec.................................. 2,000,000 USD 12,000,000 USD 20,900,000
</TABLE>

50
<PAGE> 53

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

In February 2000, we sold 2,328,434 shares of our Series C convertible
preferred stock at a price of USD 10.20 per share for an aggregate consideration
of USD 23.75 million to raise capital to finance our operations. Upon completion
of this offering, each share of Series C convertible preferred stock will
automatically convert into one share of common stock. The following table
summarizes purchases, valued in excess of USD 60,000, of shares of our Series C
convertible preferred stock by our directors, executive officers and 5%
stockholders, including the number of shares of Series C convertible preferred
stock bought, the aggregate consideration paid for the shares and the aggregate
value of the shares, assuming conversion of the shares into our common stock and
an assumed offering price of USD 10.45 per share:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SERIES AGGREGATE PRO FORMA
C PREFERRED STOCKHOLDER PRICE AGGREGATE
STOCK PAID VALUE
---------------- ----------------- -------------
<S> <C> <C> <C>
Venturetec.................................... 196,080 USD 2,000,016 USD 2,049,036
Spring Technology............................. 49,020 500,004 512,259
Peter Friedli................................. 49,608 506,002 518,404
</TABLE>

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

Each of the warrants we have granted entitles its registered holder to
"piggyback" registration rights for the common stock underlying the warrants in
certain public offerings of our securities, subject to underwriter restrictions.
See "Description of Capital Stock -- Registration Rights -- Warrant Holders" for
a discussion of the terms of these warrants.

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

LOANS TO MEMBERS OF MANAGEMENT AND BOARD OF DIRECTORS

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

OTHER TRANSACTIONS

In July 1996, we entered into a consulting agreement with Friedli Corporate
Finance, Inc., whereby Mr. Friedli provides us with financial consulting
services and investor relations advice. Pursuant to this agreement, Friedli
Corporate Finance is paid USD 4,000 per month plus reimbursement of expenses
related to Mr. Friedli's services and accrues an additional USD 2,000 per month
upon profitability. We paid Friedli Corporate Finance USD 63,000, USD 87,000 and
USD 24,000, respectively, for Mr. Friedli's services rendered to us during 1998,
1999 and the first six months of 2000, under this agreement. In addition, under
this agreement, we granted Friedli Corporate Finance:

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

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

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

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

51
<PAGE> 54

Friedli Corporate Finance has waived its preemptive rights to purchase our
preferred stock issued since the date of this agreement. Friedli Corporate
Finance has permanently waived its rights to purchase shares of common stock in
this and future offerings and its rights to allocate 10% of the shares of common
stock in this offering. This agreement will be amended to terminate such
preemptive rights upon the closing of this offering.

REPURCHASE OF SHARES

As of the date of this prospectus, we have not repurchased any of our
shares.

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<PAGE> 55

PRINCIPAL STOCKHOLDERS

The following table presents information regarding the beneficial ownership
of common stock as of the date of this prospectus and as adjusted to reflect the
sale of common stock in this offering by:

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

- each of our named executive officers;

- each of our directors; and

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

Unless otherwise indicated, the address of each person identified is c/o
e-centives, Inc., 6903 Rockledge Drive, Suite 1200, Bethesda, Maryland 20817.

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

<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY OWNED
OWNED -------------------
------------ PRIOR TO AFTER
NAME NUMBER OFFERING OFFERING
---- ------------ -------- --------
<S> <C> <C> <C>
Kamran Amjadi(1)......................................... 1,771,000 15.2 11.6
Mehrdad Akhavan(2)....................................... 835,000 7.2 5.4
Peter Friedli(3)......................................... 5,234,341 44.3 33.8
c/o Friedli Corporate Finance AG
Freigutstrasse 5
8002 Zurich, Switzerland
Venturetec, Inc.(4)...................................... 3,696,080 32.3 24.4
c/o Friedli Corporate Finance AG
Freigutstrasse 5
8002 Zurich, Switzerland
Michael Sullivan(5)...................................... 56,250 * *
Homayoon Tajalli(6)...................................... 220,800 1.9 1.4
Lawrence Brand(7)........................................ 164,614 1.4 1.1
All executive officers and directors as a group (6
persons)(8)............................................ 8,282,005 70.3 53.5
</TABLE>

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

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

(1) Includes 175,000 shares issuable upon exercise of vested stock options.

(2) Includes 175,000 shares issuable upon exercise of vested stock options.

(3) Includes 30,000 shares issuable upon exercise of vested stock options and
110,000 shares issuable upon exercise of warrants to purchase held by Mr.
Friedli individually, as well as shares of common stock and common stock
underlying warrants held by entities over which Mr. Friedli has control, as
follows: Joyce, Ltd. -- 235,000 shares of common stock; Pine Inc. -- 255,000
shares of common stock, 20,000 warrant shares; Savetech, Inc. -- 165,383
shares of common stock; Spring Technology Corp. -- 128,500 shares of common
stock, 140,000 shares of common stock underlying Series A convertible

53
<PAGE> 56

preferred stock, 49,020 shares of common stock underlying Series C
convertible preferred stock and 200,000 warrant shares; Venturetec,
Inc. -- 700,000 shares of common stock, 800,000 shares of common stock
underlying Series A convertible preferred stock, 2,000,000 shares of common
stock underlying Series B convertible preferred stock, and 196,080 shares of
common stock underlying Series C convertible preferred stock; and
USVentech -- 145,750 shares of common stock. As investment advisor to these
entities, Mr. Friedli has voting and investment power with respect to these
shares. See "Related Party Transactions -- Stock Purchases and Related
Matters" for a description of Mr. Friedli's relationships with these
entities. New Venturetec AG may be deemed to control Venturetec by virtue of
its ownership of 100% of Venturetec's capital stock and its corresponding
right to elect Venturetec's directors, and, therefore, our capital stock
owned by Venturetec may also be deemed to be beneficially owned by New
Venturetec.

(4) Includes 800,000 shares of Series A convertible preferred stock, 2,000,000
shares of Series B convertible preferred stock, and 196,080 shares of Series
C convertible preferred stock.

(5) Includes 56,250 shares issuable upon exercise of vested stock options.

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

(7) Includes 164,614 shares issuable upon exercise of vested stock options.

(8) Includes 821,664 shares issuable upon exercise of vested stock options and
330,000 shares issuable upon exercise of warrants.

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<PAGE> 57

DESCRIPTION OF THE COMPANY

Set out below is certain information concerning e-centives and a brief
summary of certain significant provisions of our by-laws and the Delaware
General Corporation Law. This description does not purport to be complete and is
qualified by reference to the certificate of incorporation, by-laws and the
Delaware General Corporation Law. Much of the disclosure in this section is
required by the listing particulars of the SWX New Market of the SWX Swiss
Exchange.

E-CENTIVES, INC.

We are a duly organized stock corporation under the laws of the United
States, State of Delaware, established for an indefinite period by a certificate
of incorporation dated July 30, 1996. Our certificate of incorporation was filed
with the Office of the Secretary of State of the State of Delaware on August 2,
1996. Our registered offices in the State of Delaware are located at the
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801, United States of America.

The purpose of the company, as stated in article third of our certificate
of incorporation, is to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law.
Pursuant to this article, we have all power necessary or convenient to the
conduct, promotion or attainment of such acts and activities.

STOCKHOLDERS' MEETINGS

Purpose of Meetings

We are required by the Delaware General Corporation Law to hold annual
meetings of our stockholders for the election of directors. Directors serve
until the next annual meeting of stockholders called for the purpose of electing
directors and until the election and qualification of a successor or until such
director's earlier death, resignation, retirement or removal by a majority vote
of the shares entitled to vote (as described below). The Delaware General
Corporation Law also provides that certain transactions that affect the
structure of the corporation must be approved by the stockholders, such as
amendments to the certificate of incorporation, mergers, or sales of
substantially all the assets of the corporation.

Place and Notice of Meetings

Our bylaws provide that our annual meeting shall be held at our principal
office or at such other place as the board of directors may select. The date of
such annual meeting shall be not more than six months following the close of our
fiscal year which is December 31. In addition, special meetings of our
stockholders can be called at any time by our President, or by the President or
Secretary at the written request of a majority of the board of directors or
forty percent or more of the stockholders by number or aggregate share
ownership. Our bylaws provide that written notice of any annual or special
meeting of stockholders shall be either served personally or by mail, not less
than 45 nor more than 60 days before such meeting.

Quorum and Voting

The presence in person or by proxy of stockholders holding of record a
majority of the total number of shares then issued and outstanding, is necessary
and sufficient to constitute a quorum for the transaction of any business at a
meeting. Except as otherwise provided by law or our certificate of
incorporation, at each meeting of stockholders, each holder of record of stock
entitled to vote thereat shall be entitled to one vote for each share of stock
held by such stockholder and registered in his name on our corporate records.

Except for the election of directors and as otherwise provided by law or
our certificate of incorporation, the affirmative vote of those stockholders
holding of record in the aggregate at least a majority of the issued and
outstanding shares of stock present in person or by proxy and entitled to vote
at

55
<PAGE> 58

the meeting of stockholders with respect to a question or matter properly
brought before such meeting is necessary and sufficient to decide such question
or matter. Members of our board of directors are elected by the vote of
shareholders holding of record in the aggregate at least a plurality of the
shares of stock present in person or by proxy and entitled to vote on such
election.

Each stockholder entitled to vote may vote by proxy. The instrument
authorizing such proxy to act shall be signed by the stockholder or by his duly
authorized attorney-in-fact. No proxy is valid for longer than 11 months unless
the proxy specifically provides the length of time it is to continue in force.
Such instrument shall be exhibited to the secretary at the meeting and shall be
filed with our corporate records.

Actions by Written Consent

The Delaware General Corporation Law provides that any action required to
be taken at an annual or special meeting of stockholders or any action which may
be taken at any annual or special meeting, may be taken without a meeting,
without prior notice and without a vote if a consent or consents in writing,
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, and such consent or consents are delivered
to the corporation.

Notice to Shareholders

Notices to the shareholders required under the Listing Rules of the SWX
Swiss Exchange will be published in two financial newspapers published in Zurich
and Geneva in German and French. The board of directors may designate further
means of publication for notifying the shareholders, including by mail.

Notification and Disclosure of Major Share Interests

Under the terms and conditions of our listing agreement with SWX Swiss
Exchange we are required to notify and disclose to the SWX Disclosure Office the
attainment of beneficial ownership of 5, 10, 20, 33 1/3, 50 or 66 2/3 percent of
our issued and outstanding shares of common stock within four days of the
attainment of such ownership should such ownership become known to us. We have
also agreed that we will within 10 days publish certain information regarding
such share acquisition in the Swiss Commercial Gazette and in at least one of
the main electronic media specializing in stock market data under the Ordinance
of the Federal Banking Commission on Stock Exchanges and Securities Trading.

56
<PAGE> 59

DESCRIPTION OF CAPITAL STOCK

GENERAL

We currently have 25,000,000 shares of common stock authorized, par value
USD 0.01 per share, and 4,879,375 shares of common stock outstanding as of the
date of this prospectus. We currently have 10,000,000 shares of preferred stock
authorized, par value USD 0.01 per share, of which 2,000,000 shares are
designated as Series A convertible preferred stock, 3,000,000 shares are
designated as Series B convertible preferred stock and 2,330,000 are designated
as Series C convertible preferred stock. We had 1,700,000 shares of Series A
preferred stock outstanding, 2,500,000 shares of Series B preferred stock
outstanding and 2,328,434 shares of Series C preferred stock outstanding as of
the date of this prospectus. All of the shares of preferred stock of e-centives
will automatically convert on a one-for-one basis under the terms of our
certificate of incorporation into shares of common stock upon the completion of
this offering. After conversion, each former holder of shares of our preferred
stock will be entitled to stock certificates representing shares of common stock
upon surrender of that holder's stock certificates representing shares of
preferred stock and will continue to be subject to that holder's "lock-up"
agreement. See "Shares Eligible for Future Sale -- Lock-up Agreements" for a
description of "lock-up" agreements.

As of the date of this prospectus, 56 record holders owned 5,058,125 shares
of our outstanding common stock. Based on the number of shares outstanding as of
the date of this prospectus and giving effect to our issuance of 3,700,000
shares of our common stock in this offering and the conversion of our
outstanding preferred stock, we will have 15,146,559 shares of common stock
outstanding upon completion of this offering.

CHANGES IN CAPITALIZATION SINCE INCORPORATION

We were incorporated on August 2, 1996 having 22,000,000 shares of capital
stock authorized, par value USD 0.01 per share, 20,000,000 shares of common
stock and 2,000,000 shares of preferred stock. In October 1996, we issued
1,000,000 shares of common stock at a price of USD .25 per share. At the same
time, warrants were issued to purchase 60,000 shares of common stock at an
exercise price of USD 0.10 per share. In December 1996, we issued 500,000 shares
of common stock for USD 1.00 per share. In February 1997, we sold 900,000 shares
of common stock for USD 2.50. In July 1997, we issued 1,700,000 shares of Series
A preferred stock at a price of USD 4.50 per share. At the same time, warrants
were issued to purchase 170,000 shares of common stock at an exercise price of
USD 4.50 per share. On February 3, 1999, the number of shares of preferred stock
authorized was increased to 5,000,000 shares. In February 1999, we issued
2,500,000 shares of Series B preferred stock at a price of USD 6.00 per share.
At the same time, warrants were issued to purchase 250,000 shares of common
stock at USD 6.00 per share. In January 2000, the number of shares of preferred
stock authorized was increased to 10,000,000 shares. In February 2000, 2,328,434
shares of Series C preferred stock were issued at a price of USD 10.20 per
share. At the same time, warrants were issued to purchase 199,485 shares of
common stock at USD 10.20 per share. As of the date of this prospectus, we have
options to purchase a total of 2,851,250 shares of common stock outstanding
under our 1996 Stock Incentive Plan.

On August 14, 2000, our board of directors authorized the issuance of up to
3,900,000 shares of our common stock in this offering. The initial offering
price per share of our common stock and the specific number of shares to be
issued in this offering are subject to the further approval by the pricing
committee of our board of directors.

COMMON STOCK

After the conversion of all of our issued and outstanding preferred stock
into common stock upon the closing of this offering and assuming the issuance of
3,700,000 shares of common stock in this offering, we will have 9,853,441 shares
of common stock authorized and unissued.

Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a stockholder vote. They do not have cumulative voting
rights. As a result, holders of a majority of the
57
<PAGE> 60

shares of our common stock entitled to vote in any election of directors may
elect all of the directors standing for election. Holders of our common stock
are entitled, from the date of issuance, to receive ratably dividends, if any,
as the board of directors may declare out of funds legally available, subject to
any preferential dividend rights of any then-outstanding preferred stock. Upon
our liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available after all debts and other
liabilities are paid and any obligations to any holders of our preferred stock
are fulfilled. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights. Our outstanding shares of common stock are, and
the shares we are offering in this prospectus will be, when issued in
consideration for payment, fully paid and non-assessable. The rights of the
holders of shares of any series of our preferred stock which we may designate
and issue in the future may adversely affect the rights, preferences and
privileges of holders of our common stock. Please see our discussion below under
the caption "-- Preferred Stock."

The shares to be issued in this offering will be represented by a global
certificate and will be held in collective custody at SIS SegaIntersettle AG.
Shareholders will not have the right to request printing and delivery of share
certificates. We have the sole discretion to print and deliver share
certificates. Any shareholder may, however, at any time request that we issue a
confirmation regarding its shareholdings. Such confirmation is not a negotiable
instrument.

PREFERRED STOCK

After this offering closes, our board of directors will be authorized,
without further stockholder approval, to issue from time to time up to an
aggregate of 10,000,000 shares of preferred stock in one or more series. The
board of directors may fix or alter the designations, preferences, rights and
any qualification, limitations or restrictions of the shares of any series,
including:

- dividend rights;

- conversion rights;

- voting rights;

- redemption terms and prices;

- liquidation preferences; and

- number of shares.

Although our board of directors' ability to designate and issue preferred stock
could provide flexibility in possible acquisitions or for other corporate
purposes, preferred stock issuances may have adverse effects on the holders of
our common stock. Such adverse effects include:

- restrictions on the payment of dividends on our common stock if dividends
on the preferred stock have not been paid;

- dilution of the voting power of our common stock to the extent the
preferred stock has voting rights; and

- deferral of participation in the distribution of our assets upon
liquidation until satisfaction of any liquidation preference granted to
holders of the preferred stock.

In addition, the issuance of preferred stock could make it more difficult
for a third party to acquire a majority of our outstanding voting stock and
accordingly may be used as an "anti-takeover" device. Our board of directors,
however, currently does not contemplate issuing any preferred stock and is not
aware of any pending transactions that would be affected by such issuance.

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<PAGE> 61

WARRANTS OUTSTANDING AS OF THE DATE OF THIS PROSPECTUS

As of the date of this prospectus, we had outstanding warrants to purchase
599,485 shares of our common stock. Warrants for 60,000 shares of our common
stock are exercisable at USD 0.10 per share, 170,000 are exercisable at USD 4.50
per share, 250,000 are exercisable at USD 6.00 per share and 119,485 are
exercisable at USD 10.20 per share. All warrants are exercisable at any time by
their holders. The following table presents information with respect to those
holders of warrants to purchase more than 50,000 shares of our common stock in
the aggregate as of the date of this prospectus.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING WARRANTS
AS OF THE DATE OF AVERAGE EXERCISE
NAME THIS PROSPECTUS PRICE(1)
---- -------------------- ----------------
<S> <C> <C>
Peter Friedli............................................... 110,000 USD 2.31
Spring Technology Corp...................................... 200,000 5.25
Logitech Corp............................................... 136,000 6.00
Deutsche Bank Alex. Brown................................... 119,485 10.20
All warrant holders combined................................ 599,485 5.82
</TABLE>

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

(1) This number represents the average exercise price of all of the warrants
held by such person or persons.

All outstanding warrants to purchase shares of our common stock expire on
December 31, 2003 except for the warrants held by Deutsche Bank Alex. Brown
which expire on February 18, 2005. All warrants holders have registration rights
with respect to the shares of common stock underlying their warrants. See
"-- Registration Rights -- warrant holders" for a description of these rights.

REGISTRATION RIGHTS

Warrant Holders

Upon completion of this offering, holders of warrants exercisable for an
aggregate of 599,485 shares of our common stock will have the right to require
us to include all or a portion of the shares underlying their warrants if we
propose to register our securities under the Securities Act. All of these shares
are subject to lock-up agreements. In the future, if we register with the SEC
the sale of any of our equity securities, each warrant holder will have the
right to request that the shares underlying its warrants be registered in the
same registration statement. However, if we distribute our shares in a
registered offering through an underwriter, the underwriter may restrict the
number of shares the warrant holders may register for sale in the registration
statement.

Holders of Series C Convertible Preferred Stock

Holders of our Series C convertible preferred stock exercisable for an
aggregate of 2,328,434 shares of common stock, referred to below as registrable
securities, have registration rights with respect to the registrable securities.
The holders of the registrable securities have signed lock-up agreements in
connection with this offering. See "Shares Eligible for Future Sale -- Lock-up
Agreements."

Six months after the completion of this offering, holders of registrable
securities may request that we file a registration statement covering all or a
portion of the registrable securities held by them, provided that the proceeds
are at least USD 10 million. We are only obligated to effect two of these demand
registrations in any 12-month period. In addition, if we become eligible to use
a Form S-3 or similar form of registration statement to register an offering of
our securities, holders of registrable securities may request that we file a
registration statement on such form covering all or a portion of the registrable
securities held by them, provided that the proceeds from that offering are at
least USD 3.0 million. We are only obligated to effect three of these short-form
demand registrations in any 12-month period. If the holders of registrable
securities request a firm commitment underwritten offering, the number of shares
included in the offering may be limited by the underwriters if they determine
such inclusion would adversely affect the public offering. We have the right to
defer the filing of one registration statement in

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<PAGE> 62

any 12-month period for up to 120 days if we determine that it would be
seriously detrimental for us to file the registration statement.

In addition, if we propose to register our securities under the Securities
Act, other than under the registration rights noted above or in connection with
an employee benefit plan or certain acquisitions, the holders of the registrable
securities may require us to include all or a portion of their securities in
such registration. However, the underwriters, if any, of that offering have the
right to limit the number of registrable securities proposed to be included in
that registration.

We will bear all of the costs and expenses incurred in connection with
these registrations, except that the holders of registrable securities
participating in any registration would pay their own underwriting discounts,
selling commissions and stock transfer taxes applicable to the sale of their
securities. These registration rights of the holders of Series C convertible
preferred stock terminate three years after the completion of this offering.

PRE-EMPTIVE RIGHTS

There are no pre-emptive rights with respect to any shares of our common
stock.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW

Section 203 of Delaware Law. After this offering is completed, Section 203
of the Delaware General Corporation Law will apply to our company. This section
will prohibit us from engaging in a business combination with an interested
stockholder. A business combination includes:

- a merger;

- an asset sale or disposition; and

- another transaction resulting in a financial benefit to an interested
stockholder.

Generally, an interested stockholder is a person who, together with affiliates
and associates, owns, or within three years did own, 15% or more of our voting
stock. This restriction will apply for three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Section 203 could
delay, defer or prevent a change in control of our company. It might also reduce
the price that investors might be willing to pay in the future for shares of our
common stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

DIVIDEND PAYING AGENT

swissfirst Bank AG serves as dividend paying agent for our shares traded on
the SWX Swiss Exchange.

LISTING

We have applied to have our common stock listed on the SWX New Market of
the SWX Swiss Exchange under the trading symbol "ECEN." There is no trading
market for our shares in the U.S.

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<PAGE> 63

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock and
we cannot assure you that a trading market for our common stock will develop or
be sustained after this offering. This offering is being conducted in
Switzerland. No offers on sales of our common stock will be made in the United
States and there will be no trading market for our shares in the United States
after this offering. We have applied to list our common stock on the SWX New
Market of the SWX Swiss Exchange.

As described below, no shares currently outstanding will be available for
sale immediately after this offering due to contractual restrictions on their
resale set forth in lock-up agreements between our shareholders and the
underwriters. Sales of substantial amounts of our common stock in the Swiss
public market after these restrictions lapse or the anticipation thereof could
adversely affect our common stock's market price and our ability to raise equity
capital in the future. Although we have received no indication that and know of
no criteria whereby the underwriters will waive such restrictions, the
underwriters may waive these restrictions at any time.

Upon completion of this offering, we will have outstanding 15,146,559
shares of our common stock, assuming no exercise of outstanding options or
warrants. Of these shares, the 3,700,000 shares sold in this offering will be
freely tradable without restriction under the Securities Act unless purchased by
"affiliates" of us as that term is defined in Rule 144 under the Securities Act.
The remaining 11,446,559 restricted shares held by existing stockholders, are
subject to various contractual lock-up agreements described below providing
that, with limited exceptions, the stockholder will not offer, sell, contract to
sell or otherwise dispose of, or otherwise enter into any transaction (including
any derivative transaction) having an economic effect similar to that of a sale
of, or announce the offering of, any shares held prior to this offering or any
security which is convertible into or exchangeable for, or which otherwise
represents the right to acquire, shares prior to this offering for the periods
described below. Though these shares may be eligible for earlier sale under the
provisions of Rules 144, 144(k) and 701 under the Securities Act, none of these
shares will be saleable until the expiration of the applicable lock-up period
under these lock-up agreements. After the expiration of the applicable lock-up
periods, all the restricted shares held by existing stockholders shall be
eligible for sale on the SWX New Market.

The following table presents the number of shares available for sale as of
the dates indicated and assuming the exercise of all options and warrants
outstanding as of the date of this prospectus.

<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES
---- ----------
<S> <C>
At the effective date....................................... 3,700,000
180 days after the effective date........................... 4,977,258
One year after the effective date........................... 9,943,023
Two years after the effective date.......................... 18,597,294
</TABLE>

Sales of restricted securities on the SWX New Market, however, will still
be subject to U.S. securities laws including Regulation S or Rule 144 which may,
as applicable to each stockholder, restrict such sales. Under Rule 144, a
stockholder who is not an "affiliate" of us, as defined in Rule 144, will be
able to sell restricted securities held for at least a year, subject to volume
limits, manner of sale and other restrictions. Shares held for two years by a
non-"affiliate" stockholder would be saleable on the SWX New Market without
these limits. Under Regulation S, a stockholder who is not an affiliate of us
and is not a distributor will be able to sell shares on the SWX New Market
without restriction provided that there are no directed selling efforts in the
United States as defined in Regulation S.

In addition, as of the date of this prospectus, there were outstanding
options to purchase 2,851,250 shares of common stock, none of which options are
expected to be exercised prior to the closing of this offering. All of the
shares issued upon such exercises will be subject to lock-up agreements.

Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year
is entitled to sell within any three-month period up to that number of shares
that does

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<PAGE> 64

not exceed the greater of: (1) 1% of the number of shares of common stock then
outstanding, which will be approximately 151,466 shares after this offering, or
(2) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the sale.
Sales under Rule 144 are also subject to certain "manner of sale" provisions,
notice requirements and the requirement that current public information about us
be available. Under Rule 144(k), a person who is not deemed to have been an
affiliate of us 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,
including the holding period of any prior owner except an affiliate, is entitled
to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

Rule 701. Rule 701 permits resales of qualified shares held by some
affiliates in reliance upon Rule 144 but without compliance with some
restrictions, including the holding period requirement, of Rule 144. Any
employee, officer or director of or consultant to us who purchased his or her
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 further provides that
non-affiliates may sell shares in reliance on Rule 144 without having to comply
with the holding period, public information, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares of common stock are
required to wait until 90 days after the date of this prospectus before selling
shares. However, all shares issued pursuant to Rule 701 are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of their applicable lock-up period.

LOCK-UP AGREEMENTS

The company and all of our existing shareholders have signed "lock-up"
agreements with the underwriters as described below which limit their ability to
sell their shares following this offering. Except as provided below, the
underwriters may waive any or all of these restrictions at any time. The waiver
of these restrictions would allow our shareholders to sell their common stock in
the public market sooner than anticipated and could adversely affect our stock
price. However, we have received no indication that and know of no criteria
whereby the underwriters will waive such restrictions.

Messrs. Kamran Amjadi, Mehrdad Akhavan, Peter Friedli, and Bank SCS
Alliance AG, Excite, Inc., Joyce Ltd., Maerki, Baumann & Co., Moore Technology
Venture Fund LP II, Pine Inc., Ringier AG, Seligman New Technologies Fund, Inc.
and Venturetec, each holding more than 2% of our issued and outstanding capital
stock, have agreed along with certain other shareholders, holding approximately
8,794,434 shares in the aggregate, that they will not, except for certain
limited circumstances, offer, sell, contract to sell or otherwise dispose of, or
otherwise enter into any transaction, including any derivative transaction,
having an economic effect similar to that of a sale of, or announce the offering
of, any other shares currently held or any security which is convertible into or
exchangeable for, or which otherwise represents the right to acquire any of the
shares currently held for a period from the date we execute the underwriting
agreement until twenty-four months from the date of the initial listing of the
shares on the SWX New Market except that each such shareholder may dispose of
one-third of his initial shareholding after twelve months following the initial
listing of the shares on the SWX New Market and one-third of his initial
shareholding after eighteen months following the initial listing of the shares
on the SWX New Market. Because this lock-up restriction is required by the SWX
Swiss Exchange for holders of 2% of more of our issued and outstanding capital
stock, this lock-up is not waivable by the underwriters with respect to such 2%
or greater holders for the first six months.

Employee shareholders and certain other shareholders, holding approximately
2,652,125 shares in the aggregate, have further agreed that they will not,
except for certain limited circumstances, offer, sell, contract to sell or
otherwise dispose of, or otherwise enter into any transaction, including any
derivative transaction, having an economic effect similar to that of a sale of,
or announce the offering of, any other shares currently held or any security
which is convertible into or exchangeable for, or which otherwise represents the
right to acquire any of the shares currently held for a period from the date we
execute the underwriting agreement until eighteen months from the date of the
initial listing of the shares on the SWX New Market except that each such
shareholder may dispose of one-third of his initial shareholding after

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<PAGE> 65

six months following the initial listing of the shares on the SWX New Market and
one-third of his initial shareholding after twelve months following the initial
listing of the shares on the SWX New Market.

In addition, except for certain limited circumstances, we have agreed with
swissfirst Bank AG that we will not issue, or announce the intent to issue,
shares or other securities convertible or exchangeable into shares or
representing rights to subscribe for shares, for a period from the date we
execute the underwriting agreement until six months from the date of the initial
listing of the shares on the SWX New Market.

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<PAGE> 66

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom swissfirst bank AG is acting as lead manager, and Pictet &
Cie. is acting as co-manager, the following respective numbers of shares of
common stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
swissfirst Bank AG.......................................... 3,200,000
Pictet & Cie. .............................................. 500,000
---------
Total............................................. 3,700,000
=========
</TABLE>

The underwriting agreement provides that the lead manager is obligated to
purchase all of the shares of common stock in the offering if any are purchased.
The underwriters have no over-allotment option or other arrangement with us to
purchase additional shares in connection with this offering. The underwriters
propose to offer shares of our common stock in Switzerland initially at the
public offering price on the cover page of this prospectus.

The following table shows the per share and total compensation and
estimated expenses to be paid to the underwriters by us in connection with this
offering. The underwriting discount will be determined through negotiations
between us and the underwriter. The underwriting discount, which is expected to
be 7% of the initial offering price, will be determined on the basis of several
factors, including, among others, marketing expenses, advertising expenses,
legal expenses, market factors and costs of funds.

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------------
<S> <C> <C>
Underwriting discounts and commissions paid by us........... USD 0.73 USD 2,706,550
Expenses payable by us...................................... USD 0.27 USD 1,000,000
</TABLE>

The expenses of the offering, exclusive of the underwriting discounts, will
be approximately USD 1 million. These fees and expenses are payable entirely by
us. These fees include, among other things, our legal and accounting fees, our
printing expenses, our expenses incurred in connection with meetings with
potential investors, the filing fees of the Securities and Exchange Commission
and the listing fees of the SWX New Market of the SWX Swiss Exchange.

We have agreed to indemnify the underwriters against liabilities under the
Swiss Law, or contribute to payments which the underwriters may be required to
make in that respect.

We, along with all of our shareholders have agreed not to offer, sell,
contract to sell or otherwise dispose of, or otherwise enter into any
transaction having an economic effect similar to that of a sale of, or announce
the offering of, any shares of our common stock or securities convertible into
or exchangeable for our common stock for periods of at least six months from the
date of the initial listing of our shares on the SWX New Market of the SWX Swiss
Exchange. See "Shares Eligible for Future Sale -- Lock-up Agreements" for a
description of these agreements.

The lead manager may, to the extent permitted by, and in accordance with,
applicable laws and regulations, effect transactions on the Swiss New Market of
the Swiss Exchange in connection with the offer and sale of the shares of common
stock being sold in this offering with a view to establishing or maintaining the
market price of the shares at levels which might not otherwise prevail. For
example, the underwriters may bid for, and purchase shares of common stock in
the open market. These activities may stabilize or maintain the market price of
our common stock above independent market levels. The lead manager is not
required to engage in these activities, and may end these activities at any
time.

We have applied to list the shares of our common stock on the SWX New
Market of the SWX Swiss Exchange under the symbol "ECEN." After the completion
of this offering, there will be no trading market for our shares in the United
States.

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<PAGE> 67

This is a firm commitment offering by the underwriters. Prior to this
offering, there has been no public market for our common stock. The price range
for our common stock has been determined by negotiation between us and
swissfirst Bank AG. The principal factors considered in determining this price
range include:

- the information set forth in this prospectus and otherwise available to
the representatives;

- the history and prospects of our business and the industry in which we
compete;

- an assessment of our management and the present state of our development;

- our current financial condition, and the prospects for our future
earnings;

- the general condition of the securities markets at the time of the
offering;

- the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to ours;

- market conditions for initial public offerings, the U.S. economy, and the
industry in which we compete; and

- estimates of our business potential.

The actual initial public offering price for our common stock will be fixed
by us and swissfirst Bank AG based on the outcome of the bookbuilding. We cannot
assure you that the initial public offering price will correspond to the price
at which our common stock will trade in the Swiss public market subsequent to
the offering or that an active trading market for our common stock will develop
and continue after the offering.

TRANSFER OF SHARES ON THE SWX SWISS EXCHANGE

The common stock to be issued in this offering will be represented by a
global certificate and holders will not receive a physical stock certificate.
Instead, the common stock will be issued only in registered form, which means
that the holder of such shares is registered in our stock register maintained by
our transfer agent and registrar. The transfer agent and registrar for our
common stock is American Stock Transfer & Trust Co. A stockholder must remove
their shares from trading on the SWX New Market of the SWX Swiss Exchange in
order to receive a physical stock certificate representing their shares.

The global certificate representing the shares of common stock to be issued
in this offering will be held by Rush & Co. In general, the common stock to be
issued in this offering will trade on the SWX Swiss Exchange only through
transfers of beneficial interests held through transfers of shares registered in
the name of Rush & Co. Rush & Co. provides nominee services for the benefit of
the beneficial holders of the shares. Rush & Co. holds the shares as nominee on
behalf of DTC, the Depository Trust & Clearing Company, for the account of Swiss
American Securities Inc. which is a corporation incorporated in New York and is
acting as depository for SIS SegaInterSettle AG (SIS), the Swiss security
clearing system.

Any investor who holds a certificate representing shares of common stock
directly, rather than such beneficial interests registered in the name of Rush &
Co., and who desires to sell such shares of common stock on the SWX Swiss
Exchange, will be required to deposit the certificate with the United States
transfer agent. The United States transfer agent will register the shares in the
name of Rush & Co. in order to make the share certificates eligible for SIS, the
Swiss security clearing system, and tradable on the SWX Swiss Exchange and the
investor will receive a beneficial interest therein. Certificates representing
shares of common stock held through Rush & Co. will not be issued unless such
shares are withdrawn from Rush & Co., in which case the shares will not be
eligible to trade on the SWX Swiss Exchange unless redeposited as described
above. Rush & Co. will be the registered owner of all shares of Common Stock
that are held by investors through Rush & Co.

Generally, all transfers of common stock will be registered by brokers and
other financial institutions and SIS in Rush & Co.'s books. In this connection,
SIS is acting as clearing house for transactions involving more than one broker
or other financial institutions. The United States transfer agent will not know
the beneficial owners of the common stock that is held through Rush & Co. The
brokers and other

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<PAGE> 68

financial institutions will be responsible for keeping account of the common
stock holdings on behalf of their customers.

Communications by us to our stockholders regarding stockholders' meetings
and dividend payments will be transmitted through the U.S. transfer agent to
Rush & Co. Rush & Co. will transmit these communications via DTC and Swiss
American Securities Inc. to SIS which will make available such communications to
brokers or other financial institutions for the benefit of the investors. Such
communications will also be made by publications in newspapers in Zurich and
Geneva and on at least one electronic media such as Reuters or Bloomberg.

Rush & Co. will consent or vote with respect to such shares on behalf of
beneficial owners thereof provided it receives appropriate instructions from
brokers or other financial institutions acting on behalf of beneficial owners in
accordance with Rush & Co.'s standard rules and procedures and any laws or other
regulations applicable to e-centives.

Any dividend or other payments on common stock held through Rush & Co. will
be made by us to the U.S. transfer agent who upon receipt of such payments, will
credit Rush & Co. for the amount of such payments. Payments by Rush & Co. to the
beneficial owners of common stock will be governed by Rush & Co.'s and SIS's
customary practices, and will be the sole responsibility of Rush & Co. subject
to any statutory or regulatory requirements as may be in effect from time to
time. Any dividends will be converted into Swiss Francs and distributed by Rush
& Co.

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PRINCIPAL U.S. TAX CONSEQUENCES

The following is a general discussion of certain U.S. federal income tax
considerations relevant to Non-U.S. Holders (as defined below) of our common
stock and is being furnished pursuant to listing requirements of the SWX Swiss
Exchange and the SWX New Market. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal
Revenue Service ("IRS") rulings and judicial decisions now in effect, all of
which are subject to change (possibly with retroactive effect) or different
interpretations. There can be no assurance that the IRS will not challenge one
or more of the tax consequences described herein, and we have not obtained, nor
do we intend to obtain a ruling from the IRS with respect to the U.S. federal
income tax consequences of acquiring or holding the common stock. This
discussion does not purport to deal with all aspects of U.S. federal income
taxation that may be relevant to a particular holder in light of the holder's
circumstances (for example, persons subject to the alternative minimum tax
provisions of the Code). Also, it is not intended to be wholly applicable to all
categories of investors, some of which (such as dealers in securities, banks,
insurance companies and tax-exempt organizations) may be subject to special
rules. This discussion also does not discuss any aspect of state, local or
foreign law that may be relevant to non-U.S. holders.

THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX
CONSEQUENCES TO YOU OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS. See "Swiss Taxation" for a
description of certain Swiss securities transfer stamp duties that may be
payable upon the sale of shares of common stock on the SWX Swiss Exchange.

As used herein, the term "Non-U.S. Holder" means a beneficial owner of
e-centives common stock that is not, for United States federal income tax
purposes, (i) a citizen or resident (as defined in Section 7701(b) of the Code)
of the United States, (ii) a corporation, partnership or other entity formed
under the laws of the United States or any political subdivision thereof, (iii)
an estate the income of which is includable in gross income for U.S. federal
income tax purposes regardless of its source or (iv) a trust which is subject to
the supervision of a court within the United States and the control of a United
States person as described in Section 7701(a)(30) of the Code.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder of e-centives common stock
will be subject to withholding of U.S. federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. However,
dividends that are either effectively connected with a trade or business carried
on by the Non-U.S. Holder in the U.S. or, where a relevant income tax treaty
applies, attributable to a permanent establishment in the U.S. maintained by the
Non-U.S. Holder (or, in the case of an individual, a "fixed base" in the United
States), are generally not subject to the withholding tax, but instead are
subject to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates. Certain certification and disclosure
requirements must be complied with in order for dividends which are effectively
connected with a U.S. trade or business or attributable to a U.S. permanent
establishment to be exempt from withholding. Any such dividends received by a
Non-U.S. Holder that is a corporation may also, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty.

To determine the applicability of an income tax treaty providing for a
lower rate of withholding tax, under current rules dividends paid to an address
in a foreign country generally are presumed (about actual knowledge to the
contrary) to be paid to a resident of such country. Under recently finalized
United States Treasury regulations ("Final Regulations"), however, a Non-U.S.
Holder of e-centives common stock who wishes to claim the benefit of an
applicable treaty rate for dividends paid after December 31, 2000 would be
required to satisfy applicable certification and other requirements, which would
include the requirement

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that the Non-U.S. Holder files a form which contains the holder's name and
address or provides certain documentary evidence issued by foreign governmental
authorities to prove residence in the foreign country. Non-U.S. Holders should
consult their tax advisors concerning the effect of such Final Regulation on an
investment in the e-centives common stock.

A Non-U.S. Holder of e-centives common stock that is eligible for a reduced
rate of U.S. withholding tax pursuant to an income treaty may obtain a refund of
any amounts currently withheld in excess of such reduced rate by timely filing
an appropriate claim for a refund with the IRS.

SALE OR OTHER DISPOSITION OF COMMON STOCK

Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale or other
disposition of e-centives common stock generally will not be subject to U.S.
federal income tax, unless (i) such gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder (or a U.S. partnership, trust, or
estate in which the non-U.S. Holder is a partner or beneficiary) in the United
States or, where a relevant income tax treaty applies, is attributable to a
permanent establishment or fixed base in the United States maintained by the
Non-U.S. Holder, (ii) the Non-U.S. Holder is an individual who holds the common
stock as a capital asset and is present in the United States for 183 days or
more in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain U.S. expatriates (including
certain former citizens or residents of the United States), or (iv) in general,
e-centives is or has been a "U.S. real property holding corporation" for U.S.
federal income tax purposes. We do not believe that we are currently a "United
States real property holding corporation," or that we will become one in the
future.

Special rules may apply to certain Non-U.S. Holders, such as "controlled
foreign corporations", "passive foreign investment companies" and "foreign
personal holding companies", that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the U.S.
federal, state, local and other tax consequences that may be relevant to them.

FEDERAL ESTATE TAX

Our common stock owned or treated as owned by an individual Non-U.S. Holder
at the date of death will be included in such individual's gross estate for U.S.
federal estate tax purposes, and therefore may be subject to United States
federal estate tax, unless an applicable estate tax or other treaty otherwise
applies.

INFORMATION REPORTING AND BACKUP WITHHOLDING

We must report annually to the IRS and to each Non-U.S. Holder the amount
of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable income tax treaty. Copies of these
information returns may also be made available, under the provisions of a
specific treaty or agreement, to the tax authorities of the country in which the
Non-U.S. Holder resides.

Backup withholding and information reporting generally will apply to
dividends paid to a Non-U.S. Holder at an address in the U.S., if such holder
fails to establish an exemption or to provide certain other information to the
payor. Under current rules, U.S. backup withholding tax (which is generally
imposed at a 31% rate) generally will not apply to dividends paid on e-centives
common stock prior to January 1, 2000 to a Non-U.S. Holder at an address outside
of the U.S. (unless the payor has knowledge that the payee is a U.S. person).
For dividends paid after December 31, 2000, however, a Non-U.S. Holder that
fails to certify its Non-U.S. Holder status in accordance with the requirements
of the Final Regulations may be subject to U.S. backup withholding tax on
payments of dividends. Non-U.S. Holders should consult their tax advisors
concerning the effect, if any, of such Final Regulations on an investment in the
e-centives common stock.

The payment of the proceeds from the sale or other disposition e-centives
common stock to or through the U.S. office of any broker, U.S. or foreign, will
be subject to information reporting and possible backup withholding unless the
Non-U.S. Holder certifies to the broker as to its Non-U.S. Holder status

68
<PAGE> 71

under penalties of perjury or other wise establishes an exemption, provided that
the broker does not have actual knowledge that the holder is a U.S. Holder or
that the conditions of any other exemption are not, in fact, satisfied. The
payment of the proceeds from the sale or other disposition of e-centives common
stock to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
person or a U.S. related person will not be subject to information reporting or
backup withholding. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation" for U.S. federal income tax purposes, (ii) a
foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business, or (iii) a foreign partnership with certain U.S.
connections (for payments made after December 31, 2000).

In the case of the payment of proceeds from the disposition of e-centives
common stock to or through a non-U.S. office of a broker that is either a U.S.
person or a U.S. related person, information reporting is required on the
payment unless the broker has documentary evidence in the files that the owner
is a Non-U.S. Holder and the broker has no knowledge to the contrary. In
addition, effective after December 31, 2000, backup withholding may apply to the
payment of disposition proceeds by or through a non-U.S. office of a broker in
the above cases unless certain certification requirements are satisfied or an
exemption is otherwise established and the broker has no actual knowledge or
reason to know that the holder is a U.S. person. In addition, effective after
December 31, 2000, backup withholding may apply to the payment of disposition
proceeds by or through a Non-U.S. office of a broker in the above cases unless
certain certificate requirements are satisfied or an exemption is otherwise
established and the broker has no actual knowledge or reason to know that the
holder is a U.S. person.

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.

CERTAIN SWISS TAX CONSEQUENCES

The following is a summary of certain Swiss tax matters that may be
relevant with respect to the acquisition, ownership and disposition of our
common stock and is being furnished pursuant to the listing requirements of the
SWX Swiss Exchange and the SWX New Market. This summary does not relate to
persons in the business of buying and selling shares or other securities and
does not address every potential tax consequence of an investment in our common
stock under Swiss tax laws. The summary is of general nature only and does not
constitute tax advice. You are advised to consult your own tax advisors with
respect to tax consequences in Switzerland. The summary is based on the tax laws
of Switzerland as in effect on the date hereof.

GAIN ON SALE OF COMMON STOCK

The gain on the sale of our common stock of individuals resident in
Switzerland is generally not subject to income tax provided the common stock is
part of their private property. Private gains realized upon the repurchase of
our common stock by us may, however, be deemed taxable dividend income if
certain conditions are met.

Gains realized on our common stock as part of the business property of a
Swiss resident are included in the taxable income of such person.

Under current Swiss tax law, a holder of our common stock who (i) is a
non-resident of Switzerland, (ii) during the taxable year has not engaged in a
trade or business through a permanent establishment within Switzerland and (iii)
is not subject to taxation in Switzerland for any other reason will be exempt
from Swiss Federal, Cantonal or Municipal Income Tax or other tax on gains
realized during the year on the sale of e-centives common stock.

STAMP DUTY UPON TRANSFER OF COMMON STOCK

The transfer of our common stock may be subject to Swiss security transfer
stamp tax of 0.3%, as well as SWX Turnover Fee including FBC surcharge of an
aggregate of 0.02% calculated on the sale

69
<PAGE> 72

proceeds, if it is made through or with a Swiss bank or other Swiss securities
dealer, as defined in the Swiss Federal Stamp Tax Act.

WITHHOLDING TAX ON DIVIDENDS AND DISTRIBUTIONS

Dividends paid and similar cash or in kind distributions made by us to a
stockholder are not subject to Swiss Federal Withholding Tax.

INCOME TAX ON DIVIDENDS

Swiss residents receiving dividends or similar distribution (including
stock dividends and liquidation proceeds in excess of the nominal value of
shares held) from us are required to include such amount in their personal
income tax returns. Swiss stockholders who are corporations may, under certain
circumstances, benefit from the relief from the income tax with respect to
dividends.

LEGAL MATTERS

The validity of the shares of common stock being offered hereby and other
legal matters will be passed upon for us by Hogan & Hartson L.L.P., Washington,
D.C. Certain legal matters in connection with the offering will be passed upon
for the underwriters by Niederer Kraft & Frey. Niederer Kraft & Frey, recognized
by the Admission Board of the SWX Swiss Exchange according to article 50 of the
Listing Rules of the SWX, has filed on behalf of e-centives an application for
the listing of the shares on the SWX New Market.

EXPERTS

The financial statements and schedule of e-centives, Inc. as of December
31, 1998 and 1999, and 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 reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

GENERAL INFORMATION AND RESPONSIBILITY

The following disclosure is being provided pursuant to the listing rules of
the SWX Swiss Exchange and the additional rules for listing on the SWX New
Market. e-centives, Inc., Bethesda, Maryland (USA), assumes responsibility that,
to the best of its knowledge the facts contained in this prospectus are true and
accurate in all material respects and that there are no other material facts the
omission of which would make misleading any statement herein. Other than as
described in this prospectus, there has not been a material adverse change in
the business or financial situation of e-centives since June 30, 2000.
e-centives did not cease its business activities in the previous or current
fiscal year.

70
<PAGE> 73

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1. It
includes exhibits and schedules. This prospectus is part of the registration
statement. It does not contain all of the information that is in the
registration statement. The registration statement contains more information
about our company and our common stock. Statements contained in this prospectus
concerning the provisions of documents filed as exhibits to the registration
statement are necessarily summaries of such documents. Each of these statements
is qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. You may read and copy all or any portion of the registration
statement at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents, upon payment
of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room's
operations. The registration statement is also available to you on the SEC's web
site (www.sec.gov). We intend to furnish our stockholders with annual reports
containing financial statements audited by our independent accountants and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.

71
<PAGE> 74

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
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
</TABLE>

F-1
<PAGE> 75

INDEPENDENT AUDITORS' REPORT

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

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of e-centives, Inc. as of
December 31, 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 accounting principles generally accepted in the United States of
America.

KPMG LLP
McLean, Virginia
June 20, 2000

F-2
<PAGE> 76

E-CENTIVES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1998 1999 2000
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents......................... $ 2,376,905 $ 426,787 $ 5,938,554
Short-term investments............................ 104,630 109,020 656,101
Accounts receivable, net of allowance for doubtful
accounts of $27,125 at December 31, 1999....... -- 793,490 3,375,947
Prepaid expenses.................................. 57,756 276,414 105,757
Other............................................. 22,088 17,461 8,908
----------- ------------ ------------
Total current assets...................... 2,561,379 1,623,172 10,085,267
Property and equipment, net......................... 438,795 1,584,273 1,975,768
Intangible asset, net............................... -- 2,250,000 1,750,000
Other assets........................................ 30,872 32,926 96,990
----------- ------------ ------------
Total assets.............................. $ 3,031,046 $ 5,490,371 $ 13,908,025
=========== ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. 190,907 1,361,348 1,915,732
Accrued expenses.................................. 250,000 321,282 146,870
Deferred revenue.................................. -- 791,027 1,848,910
Other liabilities................................. 3,558 21,580 11,864
----------- ------------ ------------
Total current liabilities................. 444,465 2,495,237 3,923,376
Long-term debt...................................... -- 2,000,000 --
----------- ------------ ------------
Total liabilities......................... 444,465 4,495,237 3,923,376
----------- ------------ ------------
Commitments and contingencies....................... -- -- --
Convertible redeemable preferred stock:
Series C convertible preferred stock (voting),
$.01 par value, 2,330,000 shares authorized,
2,328,434 (unaudited) shares issued and
outstanding.................................... -- -- 21,842,761
----------- ------------ ------------
Total convertible redeemable preferred
stock................................... -- -- 21,842,761
----------- ------------ ------------
Stockholders' equity:
Series A convertible preferred stock (voting),
$.01 par value, 2,000,000 shares authorized,
1,700,000 shares issued and outstanding
(liquidation preference -- $8,786,875
(unaudited) at June 30, 2000).................. 17,000 17,000 17,000
Series B convertible preferred stock (voting),
$.01 par value, 3,000,000 shares authorized,
2,500,000 shares issued and outstanding
(liquidation preference -- $15,000,000
(unaudited) at June 30, 2000).................. -- 25,000 25,000
Common stock, $.01 par value, 25,000,000 shares
authorized, 4,860,000, 4,874,375, and 4,879,375
(unaudited) shares issued and outstanding at
December 31, 1998, 1999 and June 30, 2000,
respectively................................... 48,600 48,744 48,794
Additional paid-in capital........................ 9,769,900 24,323,640 27,120,502
Accumulated deficit............................... (7,248,919) (23,419,250) (39,069,408)
----------- ------------ ------------
Total stockholders' equity (deficit)...... 2,586,581 995,134 (11,858,112)
----------- ------------ ------------
Total liabilities and stockholders' equity
(deficit)............................... $ 3,031,046 $ 5,490,371 $ 13,908,025
=========== ============ ============
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 77

E-CENTIVES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................... $ -- $ -- $ 740,305 $ 99 $ 3,203,567
Cost of revenue (exclusive of
depreciation and
amortization).................. -- -- 1,027,696 368,681 834,031
----------- ----------- ------------ ----------- ------------
Gross profit (loss)..... -- -- (287,391) (368,582) 2,369,536
----------- ----------- ------------ ----------- ------------
Operating expenses:
Product development, exclusive
of stock-based
compensation................. 813,931 1,160,521 2,426,695 1,143,732 1,459,384
General and administrative,
exclusive of stock-based
compensation................. 752,800 1,236,685 4,083,459 1,415,412 3,119,613
Sales and marketing, exclusive
of stock-based
compensation................. 1,105,542 2,479,863 8,620,066 2,015,198 11,534,317
Stock-based compensation: .....
Product development.......... -- -- 474,503 171,144 616,138
General and administrative... -- -- 297,155 267,266 120,221
Sales and marketing.......... -- -- 282,538 309,907 395,925
----------- ----------- ------------ ----------- ------------
Loss from operations.... (2,672,273) (4,877,069) (16,471,807) (5,691,241) (14,876,062)
Interest income, net............. 187,679 309,691 267,712 200,338 238,904
Other income..................... -- -- 33,764 8,685 25,000
----------- ----------- ------------ ----------- ------------
Loss before income
taxes................ (2,484,594) (4,567,378) (16,170,331) (5,482,218) (14,612,158)
Income taxes..................... -- -- -- -- --
----------- ----------- ------------ ----------- ------------
Net loss................ (2,484,594) (4,567,378) (16,170,331) (5,482,218) (14,612,158)
Preferred stock dividend
requirements and accretion of
convertible redeemable
preferred stock................ (180,625) (382,500) (382,500) (191,250) (350,189)
----------- ----------- ------------ ----------- ------------
Net loss applicable to common
stockholders................... $(2,665,219) $(4,949,878) $(16,552,831) $(5,673,468) $(14,962,347)
=========== =========== ============ =========== ============
Basic and diluted net loss per
common share................... $ (0.56) $ (1.02) $ (3.40) $ (1.17) $ (3.06)
Shares used to compute basic and
diluted net loss per common
share.......................... 4,726,882 4,860,000 4,869,601 4,860,000 4,882,458
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 78

E-CENTIVES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------- --------- ------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996....................... -- $ -- -- $ -- 3,960,000 $39,600 $ 684,900 $ (196,947)
Issuance of common stock.... -- -- -- -- 900,000 9,000 2,241,000 --
Issuance of Series A
convertible preferred
stock...................... 1,700,000 17,000 -- -- -- -- 6,844,000 --
Net loss.................... -- -- -- -- -- -- -- (2,484,594)
--------- ------- --------- ------- --------- ------- ----------- ------------
Balance, December 31,
1997....................... 1,700,000 17,000 -- -- 4,860,000 48,600 9,769,900 (2,681,541)
Net loss.................... -- -- -- -- -- -- -- (4,567,378)
--------- ------- --------- ------- --------- ------- ----------- ------------
Balance, December 31,
1998....................... 1,700,000 17,000 -- -- 4,860,000 48,600 9,769,900 (7,248,919)
Issuance of Series B
convertible preferred
stock...................... -- -- 2,500,000 25,000 -- -- 13,475,000 --
Exercise of stock options... -- -- -- -- 14,375 144 24,544 --
Stock-based compensation.... -- -- -- -- -- -- 1,054,196 --
Net loss.................... -- -- -- -- -- -- -- (16,170,331)
--------- ------- --------- ------- --------- ------- ----------- ------------
Balance, December 31,
1999....................... 1,700,000 17,000 2,500,000 25,000 4,874,375 48,744 24,323,640 (23,419,250)
Issuance of warrants related
to convertible redeemable
preferred stock
(unaudited)................ -- -- -- -- -- -- 773,068 --
Exercise of stock options
(unaudited)................ -- -- -- -- 5,000 50 12,450 --
Stock-based compensation
(unaudited)................ -- -- -- -- -- -- 1,132,283 --
Accretion of convertible
redeemable preferred stock
to redemption value
(unaudited)................ -- -- -- -- -- -- (158,939) --
Net loss (unaudited)........ -- -- -- -- -- -- -- (14,612,158)
--------- ------- --------- ------- --------- ------- ----------- ------------
Balance, June 30, 2000
(unaudited)................ 1,700,000 $17,000 2,500,000 $25,000 4,879,375 $48,794 $27,120,502 $(39,069,408)
========= ======= ========= ======= ========= ======= =========== ============

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31,
1996....................... $ 527,553
Issuance of common stock.... 2,250,000
Issuance of Series A
convertible preferred
stock...................... 6,861,000
Net loss.................... (2,484,594)
------------
Balance, December 31,
1997....................... 7,153,959
Net loss.................... (4,567,378)
------------
Balance, December 31,
1998....................... 2,586,581
Issuance of Series B
convertible preferred
stock...................... 13,500,000
Exercise of stock options... 24,688
Stock-based compensation.... 1,054,196
Net loss.................... (16,170,331)
------------
Balance, December 31,
1999....................... 995,134
Issuance of warrants related
to convertible redeemable
preferred stock
(unaudited)................ 773,068
Exercise of stock options
(unaudited)................ 12,500
Stock-based compensation
(unaudited)................ 1,132,283
Accretion of convertible
redeemable preferred stock
to redemption value
(unaudited)................ (158,939)
Net loss (unaudited)........ (14,612,158)
------------
Balance, June 30, 2000
(unaudited)................ $(11,858,112)
============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 79

E-CENTIVES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(2,484,594) $(4,567,378) $(16,170,331) $(5,482,218) $(14,612,158)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 43,334 143,442 1,170,829 409,885 911,374
Stock-based compensation............ -- -- 1,054,196 748,317 1,132,283
(Increase) decrease in:
Accounts receivable............... -- -- (793,490) -- (2,582,457)
Prepaid expenses and other
assets......................... (21,592) (83,599) (216,085) (90,310) 115,146
Increase (decrease) in:
Accounts payable.................. 204,906 (86,832) 1,170,441 423,653 554,384
Deferred revenue.................. -- -- 791,027 41,667 1,057,883
Accrued expenses and other
liabilities.................... 503 295,276 89,304 (222,935) (184,128)
----------- ----------- ------------ ----------- ------------
Net cash used in operating
activities................... (2,257,443) (4,299,091) (12,904,109) (4,171,941) (13,607,673)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Purchases of short-term investments,
net................................. (61,505) (43,125) (4,390) (6,606,651) (547,081)
Acquisition of property and
equipment........................... (228,795) (364,619) (1,566,307) (778,680) (802,869)
Purchase of intangible asset.......... -- -- (3,000,000) (3,000,000) --
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities................... (290,300) (407,744) (4,570,697) (10,385,331) (1,349,950)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of debt........ -- -- 2,000,000 -- --
Issuance of common stock.............. 2,250,000 -- -- -- --
Issuance of Series A convertible
preferred stock..................... 6,861,000 -- -- -- --
Issuance of Series B convertible
preferred stock..................... -- -- 13,500,000 13,500,000 --
Issuance of Series C convertible
redeemable preferred stock.......... -- -- -- -- 20,456,890
Exercise of stock options............. -- -- 24,688 -- 12,500
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities................... 9,111,000 -- 15,524,688 13,500,000 20,469,390
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash
and cash equivalents......... 6,563,257 (4,706,835) (1,950,118) (1,057,272) 5,511,767
Cash and cash equivalents, beginning
of period............................. 520,483 7,083,740 2,376,905 2,376,905 426,787
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents, end of
period................................ $ 7,083,740 $ 2,376,905 $ 426,787 $ 1,319,633 $ 5,938,554
=========== =========== ============ =========== ============
Supplemental Disclosure of Noncash
Financing Activities:
</TABLE>

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

See accompanying notes to financial statements.

F-6
<PAGE> 80

E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS

(1) ORGANIZATION

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

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

The Company operates in a highly competitive environment and inherent in
the Company's business are various risks and uncertainties including its limited
operating history and unproven business model. The Company's success may depend
in part upon the emergence of the Internet as a communications medium,
prospective product and service development efforts, and the acceptance of the
Company's offerings by the marketplace. The Company expects to expand its
operations through continued capital investment. The Company is not currently
generating sufficient cash flows from operations to support its current
operating and capital requirements and is dependent on additional financing to
fund these requirements. The Company has been dependent upon its stockholders to
fund working capital deficiencies. Management believes current working capital
and other funding sources are sufficient to continue operations through 2000.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

All highly liquid investments with a maturity of three months or less
when purchased are considered cash equivalents and those with a maturity
greater than three months are considered short-term investments. Cash and
cash equivalents consists of cash on deposit with banks and money market
funds stated at cost which approximates fair value. In accordance with
Statement of Financial Accounting Standards No. ("SFAS") 115, Accounting
for Certain Investments in Debt and Equity Securities, the Company
classifies all short-term investments as available-for-sale. Accordingly,
these investments are carried at fair value. The fair value of such
securities approximates cost and there were no material unrealized gains or
losses at December 31, 1998 or 1999. The Company's portfolio of short-term
investments at December 31, 1999 matures during 2000. Short-term
investments consist of certificates of deposit.

(b) Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consists of cash and cash equivalents,
short-term investments and accounts receivable. The Company maintains its
cash and cash equivalents and short-term investments with high quality
financial institutions. At times, these accounts may exceed federally
insured limits. The Company has not experienced any losses in such bank
accounts. The credit risk related to receivables is spread over diverse
customers who make up the Company's customer base. The Company believes it
is not exposed to significant credit risk related to cash and cash
equivalents, short-term investments and accounts receivable.

One customer accounted for 11% of the Company's accounts receivable at
December 31, 1999. During each of the periods presented, no one customer
accounted for more than 10% of revenue.

The Company considers the carrying value of the Company's financial
instruments, which include cash equivalents, short-term investments,
accounts receivable, accounts payable, and accrued expenses to approximate
fair value at December 31, 1998 and 1999 because of the relatively short
period of

F-7
<PAGE> 81
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

time between origination of the instruments and their expected realization
or settlement. The carrying value of the Company's long-term debt
approximates fair value at December 31, 1999 because of the relatively
short period of time between origination of the debt and its expected
maturity or conversion into Series C Convertible Redeemable Preferred
Stock.

(d) Property and Equipment

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

(e) Intangibles

Intangible assets consists of a purchased patent which is amortized
over the economic useful life and reviewed for impairment whenever the
facts and circumstances indicate that the carrying amount may not be
recoverable.

(f) Revenue Recognition

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

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

The PromoCommerce service, sold to merchants, represents a fixed-fee
contract consisting of several components including a PromoCast package,
perpetual software license and maintenance on the accompanying software.
Revenue for this service is recognized ratably over the term of the
contract. The Company has not sold software or maintenance separately;
therefore, vendor specific objective evidence has not been established. The
related revenue is recognized ratably over the term of the contract in
accordance with SOP 97-2, Software Revenue Recognition, as amended by SOP
98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions.

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

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

(g) Deferred Revenue

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

F-8
<PAGE> 82
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(h) Cost of Revenue

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

(i) Product Development Costs

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

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

(j) Stock-Based Compensation

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

(k) Advertising

Advertising costs are expensed as incurred. Advertising expense was
$710, $472,764 and $3,738,570 during 1997, 1998, and 1999, respectively.

(l) Income Taxes

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

(m) Long-Lived Assets

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

F-9
<PAGE> 83
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(n) Net Income (Loss) Per Share

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

(o) Use of Estimates

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

(p) Comprehensive Income

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

(q) Segment Information

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

(r) Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS
133, Accounting For Derivative Instruments and Hedging Activities. The new
standard establishes accounting and reporting standards for derivative
instruments including those embedded in other contracts and for hedging
activities. This statement, as amended, is effective for all fiscal
quarters beginning after June 15, 2000. The Company does not expect SFAS
133 to have a material impact on its financial condition, results of
operations or cash flows.

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

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

F-10
<PAGE> 84
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

(s) Development Stage Enterprise

During July 1999, the Company commenced its planned principal
operations. Therefore, it is no longer considered a development stage
enterprise.

(t) Allowance for Doubtful Accounts Receivable

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

(u) Start-Up Costs

The costs of start-up activities, including organizational costs, are
expensed as incurred in accordance with AICPA Statement of Position ("SOP")
No. 98-5, Reporting on the Costs of Start-Up Activities.

(v) Sales and Marketing Expense

Sales and marketing costs include expenses incurred by the Company for
ongoing sales, marketing and advertising activities, which are expensed as
incurred, as well as contractual payments made to partners. These partner
payments are being accrued ratably into sales and marketing expense over
the term of the respective agreement.

(w) Retirement Plan

The Company sponsors a defined contribution retirement plan
established under the provisions of Internal Revenue Code 401(k).
Participating employees may elect to contribute up to 20% of their eligible
wages. The Company contributes amounts to the plan on a discretionary basis
up to 5% of each eligible employees' wages. The Company has not made any
discretionary contributions.

(x) Unaudited Interim Financial Information

The unaudited interim financial information as of June 30, 2000 and
for the six months ended June 30, 1999 and 2000 have been prepared in
accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, such information
contains all adjustments, consisting of only normal recurring adjustments,
considered necessary for fair presentation. The operating results for any
interim period are not necessarily indicative of the results for the entire
year or for any future periods.

F-11
<PAGE> 85
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
Computer equipment.......................................... $ 563,776 $2,046,520
Furniture and equipment..................................... 52,051 127,021
Leasehold improvements...................................... 11,394 19,986
--------- ----------
627,221 2,193,527
Less: accumulated depreciation and amortization............. (188,426) (609,254)
--------- ----------
$ 438,795 $1,584,273
========= ==========
</TABLE>

(4) INTANGIBLE ASSET ACQUIRED

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

(5) LONG-TERM DEBT

During 1999, the Company issued two debt instruments totaling $2,000,000.
Each instrument has a face value of $1,000,000, bears interest at 7.0 percent
and is convertible into Series C Convertible Redeemable Preferred Stock ("Series
C") during the period from initial designation of the Series C shares through
February 15, 2000 unless extended by the Company. Each note is convertible into
the number of shares of Series C equal to the principal amount divided by the
original Series C issue price. Upon conversion, all accrued unpaid interest
shall be payable in a single installment on the date of conversion.

As of December 31, 1999, the outstanding balance and the related accrued
interest was $2,000,000 and $10,740, respectively.

On February 18, 2000, the debt was converted into 196,078 shares of Series
C stock at $10.20 per share. As a result of this conversion, the debt was
classified as long-term as of December 31, 1999.

(6) CONVERTIBLE PREFERRED STOCK

Convertible preferred stock as of December 31, 1999 consists of the
following:

<TABLE>
<CAPTION>
SHARES
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Series A.................................................... 2,000,000 1,700,000
Series B.................................................... 3,000,000 2,500,000
--------- ---------
5,000,000 4,200,000
========= =========
</TABLE>

The holders of the preferred stock have various rights and preferences as
follows:

(a) Voting Rights and Protective Provisions

The Series A and Series B stockholders may vote with the common stock
as a single class on all actions to be taken by the stockholders.

F-12
<PAGE> 86
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(b) Dividends

Series A stock accrues cumulative dividends at a rate of 5 percent per
share per annum whether or not the dividends are declared by the Board of
Directors. Unpaid and undeclared dividends on the Series A stock was
approximately $563,125 and $945,625 as of December 31, 1998 and 1999,
respectively.

Series A stock, par value of $.01, is senior to all other issuances of
stock in liquidation. In the event of liquidation as defined in the
Preferred Stock Purchase Agreements, the Series A stockholders are entitled
to receive a preferential liquidating distribution of $4.50 per share plus
any unpaid cumulative dividends, whether or not declared.

In the event of liquidation as defined in the Preferred Stock Purchase
Agreements, the Series B stockholders are entitled to receive a
preferential liquidating distribution of $6 per share, in preference to
common stockholders.

(d) Conversion

The Series A and Series B stock are convertible on a one-for-one basis
into shares of common stock at the option of the holder. The Series A and
Series B stock are automatically converted into common stock in the event
of an initial public offering of shares of common stock in which the price
paid per share by the public is at least $10.00 and gross proceeds are at
least $10,000,000.

(7) RELATED PARTY TRANSACTION

In July 1996, the Company entered into a consulting agreement with Friedli
Corporate Finance, Inc. ("FCF"). Peter Friedli, President of FCF, is related to
the Company through his direct and indirect ownership of 56,500 shares of common
stock, 24,000 shares of Series A Convertible Preferred Stock, 60,000 shares of
Series B Convertible Preferred Stock and 112,000 warrants. The agreement expires
during December 2004.

Under the agreement, FCF provides services to the Company in the form of
consultation, advice and other assistance upon the Company's request. Such
services may include, but are not limited to, (a) providing general business,
financial and investment advice to the Company during the term of the agreement,
and (b) serving as liaison between FCF clients/investors and the Company by
disseminating information to such investors on behalf of the Company. Consulting
expense under the FCF agreement was approximately $63,000, $63,000 and $87,000
for the years ended December 31, 1997, 1998 and 1999, respectively.

During 1999, the Company issued a convertible long-term debt instrument for
$1,000,000 to an investment group controlled by FCF.

(8) STOCK COMPENSATION

(a) Stock Options

The Company has a stock option plan which provides for the granting of
options to directors and employees of the Company to purchase shares of its
common stock within prescribed periods. The options generally vest over
four years, one-fourth of the shares on each of the first through fourth
anniversaries of the date of grant, and expire ten years after the grant
date. As of December 31, 1999, the Company has reserved 3,200,000 shares of
common stock for issuance under the plan.

During 1997 and 1998, 100,018 performance-based option grants were
made to certain key employees at an exercise price of $2.50. During 1999,
160,400 additional performance-based option grants were made to certain key
employees, with an exercise price of $2.50 for 50,000 of these options

F-13
<PAGE> 87
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and $3.50 for the remaining 110,400 options. Compensation expense of
$681,972 was recorded in 1999 related to these options.

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

In accordance with APB 25, because the exercise price of the Company's
employee stock options equaled the fair value of the underlying stock on
the date of grant, no compensation expense was recognized in 1997 or 1998.
In 1999 the Company recorded equity-based compensation expense of $372,224
relating to options to purchase 960,800 shares granted in 1999 equal to the
difference between the fair value of the Company's common stock on the
grant date and the exercise price of the options. Additionally, the Company
expects to incur approximately $6.1 million of compensation expense during
the period 2000 through 2004 relating to options granted in 1999 equal to
the difference between the fair value of the Company's common stock on the
grant date and the exercise price of the options. The expense will be
recognized ratably over the vesting period of the options, which is
generally 4 years.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported................................ $(2,665,219) $(4,949,878) $(16,552,831)
Pro forma.................................. (2,673,418) (4,998,884) (16,682,893)
Basic and diluted net loss per share:
As reported................................ $ (0.56) $ (1.02) $ (3.40)
Pro forma.................................. (0.57) (1.03) (3.43)
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rates.................................... 5.7% 4.6% 6.4%
Expected lives (in years)................................... 5.0 5.0 5.0
Dividend yield.............................................. -- -- --
Expected volatility......................................... -- -- --
</TABLE>

The weighted-average fair value of stock options granted during 1997,
1998 and 1999 was $0.58, $0.53, and $4.46, respectively.

F-14
<PAGE> 88
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
SHARES PRICE
--------- -----
<S> <C> <C>
Balance, December 31, 1996.................................. 15,000 $0.25
Granted..................................................... 250,736 2.29
Exercised................................................... -- --
---------
Balance, December 31, 1997.................................. 265,736 2.18
Granted..................................................... 381,500 2.50
Exercised................................................... -- --
---------
Balance, December 31, 1998.................................. 647,236 2.37
Granted..................................................... 1,183,300 2.95
Exercised................................................... (14,375) 1.72
Canceled.................................................... (65,125) 2.33
---------
Balance, December 31, 1999.................................. 1,751,036 $2.77
=========
</TABLE>

The following table summarizes information concerning currently
outstanding and exercisable options at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
WEIGHTED-
NUMBER AVERAGE OPTIONS
OUTSTANDING REMAINING EXERCISABLE
EXERCISE AT CONTRACTUAL AT
PRICE 12/31/99 LIFE 12/31/99
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.25 15,000 6.8 years 11,250
$1.00 20,000 7.0 years 10,000
$2.50 1,180,736 8.8 years 612,427
$3.50 535,300 9.7 years 30,000
--------- -------
1,751,036 9.4 years 663,677
========= =======
</TABLE>

(b) Warrants

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

<TABLE>
<CAPTION>
SHARES PRICE
------- -----
<S> <C> <C>
Balance, December 31, 1996.................................. 60,000 $0.10
Granted..................................................... 170,000 4.50
Exercised................................................... -- --
-------
Balance, December 31, 1997.................................. 230,000 3.35
Granted..................................................... -- --
Exercised................................................... -- --
-------
Balance, December 31, 1998.................................. 230,000 3.35
Granted..................................................... 250,000 6.00
Exercised................................................... -- --
-------
Balance, December 31, 1999.................................. 480,000 $4.73
=======
</TABLE>

F-15
<PAGE> 89
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1997, 1998 and 1999, all of the warrants were
exercisable on a one-for-one basis into shares of common stock at the
option of the holder. As of December 31, 1999, the remaining life of all
outstanding warrants was 4 years.

(9) COMMITMENTS

(a) Leases

The Company is obligated under one noncancelable operating lease for
office space. As of December 31, 1999, the future minimum lease obligation
under this noncancelable operating lease approximates $196,000 for 2000.
The lease expires in September 2000.

Rent expense under operating leases was approximately $130,000,
$185,000 and $357,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.

(b) Partner Payments

During March 1999, the Company entered into a two-year agreement with
Excite. This agreement requires monthly payments commencing in March 1999
and totaling approximately $540,000 over the two-year term of the agreement
for sponsorship and advertising fees. Such amount is being accrued ratably
into sales and marketing expense over the term of the agreement. In return
for these fees, the partner must run a specified number of the Company's
advertising banners and promotional placements on its high-traffic Internet
site. The term of the contract will be extended if this specified number is
not met within the two-year period. During February 2000, this agreement
was renegotiated (see Note 13).

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

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

The Company's commitment related to all partner agreements for the
years 2000 and 2001 is approximately $1,273,000 and $308,000, respectively.

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

F-16
<PAGE> 90
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(10) INCOME TAXES

No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented. As of December
31, 1999, the Company had net operating loss carryforwards available to offset
future taxable income of approximately $12,728,000 which will expire between
2011 and 2019. Further, as a result of certain capital transactions, an annual
limitation on the future utilization of the net operating loss carryforward may
have occurred. The actual income tax benefit differed from the income tax
benefit which would be computed based upon the statutory federal tax rates as a
result of recording of a valuation allowance. The valuation allowance was
recorded as it is not more likely than not that the deferred tax assets will be
recoverable.

Temporary differences that give rise to deferred tax assets and liabilities
at December 31, 1998 and 1999 are as follows:

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets/liabilities:
Net operating loss and general business credits
carryforwards......................................... $ 1,005,296 $ 5,212,842
Start-up costs and organizational costs.................. 1,944,574 3,439,739
Deferred compensation.................................... -- 318,286
Property and equipment................................... (13,498) (21,290)
Intangible assets........................................ -- 237,300
Accrued expenses......................................... -- 26,368
Other.................................................... 10 --
----------- -----------
Total gross deferred tax assets (liabilities).... 2,936,382 9,213,245
Less: valuation allowance.................................. (2,936,382) (9,213,245)
----------- -----------
Net deferred tax assets (liabilities)............ $ -- $ --
=========== ===========
</TABLE>

Based upon the projections for future taxable income over the periods in
which the net operating loss carryforwards are available to reduce income taxes
payable, management has established a valuation allowance such that the net
deferred tax asset is $0 at December 31, 1998 and 1999. The valuation allowance
for deferred tax assets (liabilities) as of January 1, 1998 and 1999 was
$975,384 and $2,936,382, respectively. The net change in the valuation allowance
for the years ended December 31, 1998 and 1999, was an increase of $1,960,998
and $6,276,863, respectively.

(11) BASIC AND DILUTED NET LOSS PER SHARE

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss............................................. $(2,484,594) $(4,567,378) $(16,170,331)
Preferred stock dividend requirements................ (180,625) (382,500) (382,500)
----------- ----------- ------------
Net loss applicable to common stockholders........... $(2,665,219) $(4,949,878) $(16,552,831)
=========== =========== ============
Weighted average shares of common stock
outstanding........................................ 4,726,882 4,860,000 4,869,601
=========== =========== ============
Basic and diluted net loss per common share.......... $ (0.56) $ (1.02) $ (3.40)
=========== =========== ============
</TABLE>

F-17
<PAGE> 91
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Diluted net loss applicable to common stockholders for the years ended
December 31, 1997, 1998 and 1999 excludes convertible preferred stock, stock
options, and warrants at a weighted average price of $4.09, $3.86 and $4.64,
respectively, due to their antidilutive effect.

(12) CONTINGENCIES

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

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

In management's opinion, based upon discussion with legal counsel and other
considerations, the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.

(13) INTERIM FINANCIAL INFORMATION (UNAUDITED)

Series C Convertible Redeemable Preferred Stock

On January 19, 2000, the Company amended and restated its Articles of
Incorporation to authorize 2,330,000 shares of Series C convertible redeemable
preferred stock ("Series C stock") with a par value of $.01. On February 18,
2000, the Company issued 2,328,434 shares of Series C stock at a price of $10.20
per share and approximate total proceeds of $23,800,000 including $2,000,000
related to the conversion of long-term debt.

(a) Voting Rights and Protective Provisions

The Series C stockholders may vote with the common stock as a single
class on all actions to be taken by the stockholders.

(b) Dividends

The holders of Series C shares shall be entitled to receive dividends
when and as declared by the Board of Directors.

Series C stock is senior to all other issuances of stock in
liquidation. In the event of liquidation as defined in the Preferred Stock
Purchase Agreements, the Series C stockholders are entitled to receive an
amount equal to the original share price paid plus any declared and unpaid
dividends. As of March 31, 2000, the liquidation value of the Series C
stock was $23,750,026.

(d) Conversion

The Series C stock is convertible on a one-for-one basis into shares
of common stock at the option of the holder. The Series C stock is
automatically converted into common stock upon the earliest of: (i) in the
event of an initial public offering of shares of common stock in which the
gross proceeds are least $20,000,000 and an offering price per share
greater than or equal to 150% of the then-applicable conversion price; or
(ii) upon the written consent of the holders of at least 66 2/3% of the
Series C shares then outstanding.

(e) Redemption

Holders of a majority of the outstanding Series C shares may elect, at
any time and from time to time on and after December 31, 2004, to have the
Company redeem all then outstanding Series C shares at the original
purchase price plus any declared but unpaid dividends.

F-18
<PAGE> 92
E-CENTIVES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(f) Warrants

In conjunction with this preferred stock sale, the Company issued
warrants to purchase 119,485 shares of common stock at $10.20 per share.
These warrants were valued at $773,068.

New Partner Agreements

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

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

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

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

During the six months ended June 30, 2000, ZDNet accounted for 21% of
the Company's revenue.

F-19
<PAGE> 93

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

You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy common stock in any circumstances under which the offer or
solicitation is unlawful.
---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 7
Use of Proceeds...................... 19
Dividend Policy...................... 19
Capitalization....................... 20
Dilution............................. 21
Selected Financial Data.............. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................. 31
Management........................... 44
Related Party Transactions........... 50
Principal Stockholders............... 53
Description of the Company........... 55
Description of Capital Stock......... 57
Shares Eligible for Future Sale...... 61
Underwriting......................... 64
Legal Matters........................ 70
Experts.............................. 70
Where You Can Find More
Information........................ 71
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
SHARES

[E-CENTIVES LOGO]

E-CENTIVES, INC.
COMMON STOCK
------------------------

PROSPECTUS
------------------------

SWISSFIRST BANK AG
PICTET & CIE.

, 2000

------------------------------------------------------
------------------------------------------------------
<PAGE> 94

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various fees and expenses, other than
the underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereby. All amounts shown are
estimates except for the Securities and Exchange Commission registration fee and
the SWX New Market listing fee.

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee........................................ $
SWX New Market listing fee..................................
Blue sky qualification fees and expenses....................
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing and engraving expenses.............................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
--------
Total............................................. $
========
</TABLE>

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

* To be provided supplementally.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our restated certificate of incorporation and bylaws provide for the
indemnification of our directors and officers to the fullest extent authorized
by, and subject to the conditions set forth in the Delaware General Corporation
Law, except that we will indemnify a director or officer in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by our board of directors. The indemnification
provided under our restated certificate of incorporation and bylaws includes the
right to be paid by us the expenses (including attorneys' fees) in advance of
any proceeding for which indemnification may be had in advance of its final
disposition, provided that the payment of such expenses (including attorneys'
fees) incurred by a director or officer in advance of the final disposition of a
proceeding may be made only upon delivery to us of an undertaking by or on
behalf of such director or officer to repay all amounts so paid in advance if it
is ultimately determined that such director or officer is not entitled to be
indemnified. Pursuant to our bylaws, if a claim for indemnification is not paid
by us within 60 days after we have received a written claim, the claimant may at
any time thereafter bring an action against us to recover the unpaid amount of
the claim, and, if successful in whole or in part, the claimant will be entitled
to be paid also the expense of prosecuting such action.

As permitted by the Delaware General Corporation Law, our restated
certificate of incorporation provides that our directors shall not be liable to
us or our stockholders 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 us or our stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under section 174 of the Delaware General Corporation Law, relating to unlawful
payment of dividends or unlawful stock purchase or redemption or (iv) for any
transaction from which the director derived an improper personal benefit. As a
result of this provision, we and our stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.

Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, against any liability asserted against such person or incurred by
such person in any such capacity, or arising out of such person's status as
such, and related expenses, whether or not we would have the power to indemnify
such person against such liability under the

II-1
<PAGE> 95

provisions of the Delaware General Corporation Law. We maintain director and
officer liability insurance on behalf of our directors and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The information presented below does not reflect the conversion of our
preferred stock into common stock upon the closing of the offering:

(a) In February 1999, we sold 2,500,000 shares of Series B convertible
preferred stock to the following accredited investors in the following amounts
at $6.00 per share for aggregate consideration of $15 million:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Banque SCS Alliance S.A. ................................... 156,000
Ringier AG.................................................. 150,000
Martin Werfeli.............................................. 25,000
Josef Bollag................................................ 20,000
ZFP Holding................................................. 99,000
CITCO GLOBAL CUSTODY N.V. CASH.............................. 30,000
Venturetec, Inc. ........................................... 2,000,000
Bank Sal. Oppenheim jr. & Cie. (Schweiz) AG................. 20,000
</TABLE>

In connection with this transaction, we granted the following investors warrants
exercisable for an aggregate of 250,000 shares of common stock at an exercise
price of $6.00 per share:

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME UNDERLYING WARRANTS
---- -------------------
<S> <C>
Spring Technology Corp. ................................... 100,000
Logitech Corp. ............................................ 136,000
Thierry Weber.............................................. 1,000
Khaleel Hassan............................................. 1,000
Beat Merz.................................................. 1,000
Walter Flueck.............................................. 1,000
Hilde Schwab............................................... 2,000
Sascha Federer............................................. 250
Nicole Brandes............................................. 2,000
Giuseppe Casutt............................................ 1,750
Peter Friedli.............................................. 4,000
</TABLE>

These securities were issued without registration under the Securities Act
in reliance upon exemptions from registration under Section 4(2) thereof and
Regulation S thereunder.

II-2
<PAGE> 96

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

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

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

(c) Between October 24, 1996 and the date of this prospectus, we granted
options to purchase a total of 3,157,100 shares of common stock under our stock
incentive plan to certain of its employees and directors. During that period,
eleven optionees exercised options to purchase 58,125 shares of common stock,
and options to purchase 247,725 shares of common stock were forfeited by
employees leaving the company. These securities were issued without registration
under the Securities Act in reliance upon an exemption from registration under
Securities Act Rule 701.

None of the foregoing transactions was effected with an underwriter.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

See Index to Exhibits.

(b) Financial Statement Schedules

See Schedule II attached.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as may be required by the underwriter
to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under item 14 of this
registration statement, 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

II-3
<PAGE> 97

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, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon rule 430A and contained in the
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, 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-4
<PAGE> 98

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bethesda, State of
Maryland, on September 22, 2000.

E-CENTIVES, INC.

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

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

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

* Chairman and Chief Executive September 22, 2000
----------------------------------------------------- Officer (Principal
Kamran Amjadi Executive Officer)

* President, Chief Operating September 22, 2000
----------------------------------------------------- Officer, Secretary and
Mehrdad Akhavan Director

* Chief Financial Officer and September 22, 2000
----------------------------------------------------- Treasurer (Principal
Michael Sullivan Financial and Accounting
Officer)

Director September 22, 2000
-----------------------------------------------------
Peter Friedli

* Director September 22, 2000
-----------------------------------------------------
James Caccavo

*By Attorney-in-fact
/s/ JASON KARP
-----------------------------------------------------
Jason Karp
</TABLE>

II-5
<PAGE> 99

INDEPENDENT AUDITORS' REPORT

The Board of Directors
e-centives, Inc.:

Under date of June 20, 2000, we reported on the balance sheets of
e-centives, Inc. as of December 31, 1998 and 1999 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1999 which are included in this
Registration Statement. In connection with our audits of the aforementioned
financial statements, we also audited the related financial statement schedule.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.

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

KPMG LLP
McLean, Virginia
June 20, 2000
<PAGE> 100

SCHEDULE II

E-CENTIVES, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ------------------------- -------- ----------
ADDITIONS CHARGED BALANCE
BALANCE AT CHARGED TO TO OTHER AMOUNTS AT END
BEGINNING COSTS AND ACCOUNTS WRITTEN OF
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE(1) OFF PERIOD
-------------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful
accounts..................... $ -- $ -- $ -- $-- $ --
========== ========== ======= === ==========
Valuation allowance on deferred
tax asset.................... $ 81,578 $ 893,806 $ -- $-- $ 975,384
========== ========== ======= === ==========
Year ended December 31, 1998
Allowance for doubtful
accounts..................... $ -- $ -- $ -- $-- $ --
========== ========== ======= === ==========
Valuation allowance on deferred
tax asset.................... $ 975,384 $1,960,998 $ -- $-- $2,936,382
========== ========== ======= === ==========
Year ended December 31, 1999
Allowance for doubtful
accounts..................... $ -- $ -- $27,125 $-- $ 27,125
========== ========== ======= === ==========
Valuation allowance on deferred
tax asset.................... $2,936,382 $6,433,561 $ -- $-- $9,369,943
========== ========== ======= === ==========
</TABLE>

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

(1) deferred revenue
<PAGE> 101

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1(2) Form of Underwriting Agreement.
3.1.1(2) Restated Certificate of Incorporation of e-centives, Inc.
3.1.2(1) Form of Restated Certificate of Incorporation of e-centives,
Inc. to be filed after the closing of this offering.
3.2(1) Form of Certificate of Elimination to Certificate of
Designations, Rights and Preferences of Series C
Convertible Preferred Stock of e-centives, Inc. to be
filed after the closing of this offering.
3.3(1) Amended and Restated Bylaws of e-centives, Inc.
4.1(2) Specimen certificate representing the Common Stock.
4.2(1) Registration Rights Agreement, dated February 18, 2000, by
and among e-centives, Inc. and certain stockholders named
therein.
5(2) Opinion of Hogan & Hartson L.L.P.
10.1(1) 1996 Stock Incentive Plan.
10.2(1)* e-centives -- Excite@Home Co-Branding Agreement, dated
February 16, 2000, by and between e-centives, Inc. and At
Home Corporation.
10.3(1) Technology and Marketing Agreement, dated May 13, 1999, by
and between e-centives, Inc. and ZDNet, as amended.
10.4(1) Internet Data Center Services Agreement, dated March 23,
1998, by and between e-centives, Inc. and Exodus
Communications, Inc.
10.5(2) Employment Agreement for Kamran Amjadi, dated May 8, 1998,
as amended.
10.6(2) Employment Agreement for Mehrdad Akhavan, dated May 8, 1998,
as amended.
10.7(1) Lease Agreement, dated September 23, 1997, by and between
e-centives, Inc. and Democracy Associates Limited
Partnership, as amended and modified on June 29, 2000.
10.8(1) Amended and Restated e-centives, Inc. Stock Option Plan.
23.1(2) Consent of KPMG LLP.
23.2(2) Consent of Hogan & Hartson L.L.P. (included in Exhibit 5).
24.1(1) Power of Attorney.
27.1(1) Financial Data Schedule.
</TABLE>

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

(1) Previously filed.

(2) Filed herewith.

(3) To be filed by amendment.

* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text. This Exhibit has been filed separately with
the Secretary of the Commission without such text pursuant to our
Application Requesting Confidential Treatment under Rule 406 of the
Securities Act.