<PAGE>

     As filed with the Securities and Exchange Commission on July 22, 1999
                                                   Registration No. 333-[     ]
-------------------------------------------------------------------------------
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                ---------------

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

                               NETCENTIVES INC.
            (Exact Name of Registrant as Specified in Its Charter)
                                ---------------
<TABLE>
<S>                                <C>                                <C>
            Delaware                             7389                            93-1213291
 (State or Other Jurisdiction of     (Primary Standard Industrial             (I.R.S. Employer
 Incorporation or Organization)       Classification Code Number)           Identification Number)
</TABLE>

                               690 Fifth Street
                            San Francisco, CA 94107
                                (415) 538-1888
  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)
                                ---------------
                                West Shell, III
                     Chairman and Chief Executive Officer
                               Netcentives Inc.
                               690 Fifth Street
                            San Francisco, CA 94107
                                (415) 538-1888
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
                             of Agent for Service)
                                ---------------
                                  Copies to:
<TABLE>
<S>                                                <C>
                 Craig W. Johnson                                  Mark A. Bertelsen
                 Elias J. Blawie                                     Jose F. Macias
                 Sanjay K. Khare                                       Betsey Sue
                 Matthew Oshinsky                                  Melissa V. Hollatz
                VENTURE LAW GROUP                           WILSON SONSINI GOODRICH & ROSATI
            A Professional Corporation                          Professional Corporation
               2800 Sand Hill Road                                 650 Page Mill Road
               Menlo Park, CA 94025                               Palo Alto, CA 94304
                  (650) 854-4488                                     (650) 493-9300
</TABLE>
                                ---------------
  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
                                ---------------
  If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
  If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
  If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                        CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
                                               Proposed
 Title Of Each Class Of Securities To Be   Maximum Aggregate     Amount Of
                Registered                 Offering Price (1) Registration Fee
------------------------------------------------------------------------------
<S>                                        <C>                <C>
Common Stock, par value $0.001...........     $69,000,000         $19,182
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act.

  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 this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED JULY 22, 1999

                                       Shares



                                  Common Stock

                                   ---------

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$      and $      per share. We will apply to list the common stock on The
Nasdaq Stock Market's National Market under the symbol "NCNT."

  The underwriters have an option to purchase a maximum of         additional
shares to cover over-allotments of shares.

  Investing in the common stock involves risks. See "Risk Factors" on page 4.

<TABLE>
<CAPTION>
                                                            Underwriting
                                               Price to    Discounts and   Proceeds to
                                                Public      Commissions    Netcentives
                                            -------------- -------------- --------------
<S>                                         <C>            <C>            <C>
Per Share..................................     $              $              $
Total......................................  $              $              $
</TABLE>

  Delivery of the shares of common stock will be made on or about       , 1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

                               Hambrecht & Quist

                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is       , 1999
<PAGE>


                             [INSIDE FRONT COVER]

                       [Netcentives Symbol with stylized
                      logo containing descriptions of the
                       four major Netcentives products]
 [Netcentives name and logo w/ the Netcentives logo enlarged in the middle of
     the page with stylized text around the logo in the shape of the logo]

Text: ClickRewards is an Internet-based rewards transaction system and
promotional network that enables Internet marketers to increase sales and win
customer loyalty. ClickRewards is a secure, scalable processing system that
lets a company reward ClickMiles (i.e., frequent flyer miles) into a
customer's account in real time. ClickRewards is the exclusive points-based
Internet network program that rewards consumers with frequent flyer miles on
eight major airlines as well as other valuable merchandise. Online customers
can earn ClickMiles when they make purchases and other qualifying transactions
at ClickRewards Merchant Partner sites. Consequently, ClickRewards is
effective at driving Web traffic and building lasting relationships.

Text: Netcentives is able to extend its own proprietary technology through
Enterprise Incentive Solutions. Using ClickMiles, the program can be used to
achieve a wide set of on-the-job goals- from encouraging recruitment drives to
completing sales objectives or for any performance goal a company chooses. A
company can motivate an entire workforce, individual departments, even its
business partners. Deployed to the workplace via the Internet, an intranet, or
an extranet, Netcentives' Enterprise Incentive Solutions are automated online,
where employees can check their ClickMiles balance on a statement designed
with the look and feel of the Company.

Text: A team of experts is ready to help online and off-line companies develop
cost-effective e-commerce and other electronic business applications.
Netcentives Professional Services (NPS) offers a full range of IT services,
including e-commerce systems design, Web assessment and development, and
database management. NPS specializes in the integration of online technologies
with key infrastructure systems, helping transform e-commerce into mainstream
commerce for our client's businesses. Key NPS benefits include security,
scalability, and reliability. In summary, NPS is a client's e-commerce
partner. Centered around client relationships, dedicated to success, trusted
by customers, and focused on delivering a project into production.

Text: Any large organization with ample transaction volume and customer
earning opportunities can create their own branded rewards network using a
Custom Loyalty Network from Netcentives. Using Netcentives' proven scalable
technology, patented processes, and trusted expertise, a business can work to
increase their Return on Loyalty (not just ROI) in the e-commerce marketplace.
Netcentives evaluates a company's needs and economics, designs a customized
program with the proper rewards program and functionality, then provides the
software, planning, online and off-line advertising - plus Web site design and
network support - to launch and maintain an ongoing, successful customer
loyalty program.
<PAGE>


                                [GATEFOLD ONE]
                             GATE FOLD DESCRIPTION

                         [ClickRewards Name and Logo]

Text: The ClickRewards Network is a powerful online promotion and loyalty
program that allows e-commerce sites to reward consumers with ClickMiles, a
digital promotion currency. Top e-commerce companies, including
BarnesandNoble.com, E*Trade, Mags.com, OfficeMax.com and Preview Travel, use
ClickMiles as an incentive to convert browsers to buyers and reward loyalty.
The program is free for consumers to join, and it's easy for them to earn
ClickMiles for doing things like purchasing products, downloading software, or
filling out surveys. Currently, over 1,400,000 members have joined.

Text: ClickMiles, the promotion currency of the ClickRewards Network, can be
redeemed one-for-one for frequent flyer miles or for valuable goods and
services. ClickRewards is the only points-based Internet promotions network to
have exclusive agreement with eight major airlines.

Text: JOIN. Membership is free and easy. Members can sign up at the
ClickRewards Web site or simply take advantage of a qualifying offer at one of
the merchants in the ClickRewards Network.

Text: SHOP. Members shop at a variety of online merchants in the ClickRewards
Network. Each merchant can customize the number of ClickMiles awarded for
purchases made at their Web site.

Text: EARN: Members can earn ClickMiles for doing things like purchasing
products, downloading software or filling out surveys.

Text: TRACK. Members can easily access their password-protected account
statement by visiting the ClickRewards Web site.

Text: REDEEM. Members can redeem their ClickMiles by submitting a redemption
request at the ClickRewards Web site. ClickMiles are redeemable one-for-one
for frequent flyer miles on eight major airlines, as well as for other
valuable rewards. ClickMiles can be combined with the member's already
existing frequent flyer miles in order to earn award travel faster on the
airline of their choice.

Text: ClickRewards is a flexible promotional tool that is designed to enable
merchants to convert browsers to buyers, increase average purchase size, drive
repeat purchases and build consumer loyalty.

[Screen Shot of the ClickRewards.com Internet home page]

CLICKREWARDS MERCHANT NETWORK:

[Logos: barnesandnoble.com, macy's.com, theknot.com, Preview Travel, CDNOW,
enutrition, msn Shopping, OfficeMax.com, REDHERRING, First Auction, eBags,
E*TRADE, brain Play.com, garden.com, www.WEBFLYER.com, Sports Superstore
Online, 1-800-flowers, xoom.com, Cooking.com.]

Text: ClickRewards members can redeem their ClickMiles for valuable rewards
including the frequent flyer miles of major airlines. REDEEM MILES AT PARTNER
COMPANIES SUCH AS: Logos: AAdvantage, EXECUTIVE CLUB British Airways,
Continental Airlines One Pass, Delta Air Lines, NORTHWEST AIRLINES WORLD
PERKS, Marriott, USAIRWAYS DIVIDEND MILES, AVIATORS TWA, MILEAGE PLUS United
Airlines.
<PAGE>


                                 [GATEFOLD TWO]
<PAGE>

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

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   2
Risk Factors.............................................................   4
Special Note Regarding Forward-Looking Statements........................  15
Use of Proceeds..........................................................  16
Dividend Policy..........................................................  16
Capitalization...........................................................  17
Dilution.................................................................  18
Selected Consolidated Financial Data.....................................  19
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  20
Business.................................................................  30
</TABLE>
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Management.................................................................  45
Related Party Transactions.................................................  56
Principal Stockholders.....................................................  58
Description of Capital Stock...............................................  60
Shares Eligible for Future Sale............................................  62
Underwriting...............................................................  64
Notice to Canadian Residents...............................................  67
Legal Matters..............................................................  68
Experts....................................................................  68
Where You Can Find More Information........................................  68
Index to Consolidated Financial Statements................................. F-1
</TABLE>
                                 ------------

  You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

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

  All information in this prospectus assumes:

  . no exercise of the underwriters' over-allotment option;
  . our reincorporation in Delaware prior to completion of this offering;
  . the exercise of outstanding warrants to purchase 46,891 shares of stock
    which expire upon the closing of this offering;
  . the conversion of all outstanding shares of our convertible preferred
    stock into an aggregate of 20,522,235 shares of common stock upon
    completion of this offering; and
  . the filing of our Amended and Restated Certificate of Incorporation,
    authorizing a class of 5,000,000 shares of undesignated preferred stock
    upon completion of this offering.

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

  Netcentives, ClickRewards, ClickMiles, Custom Loyalty Networks, Enterprise
Incentive Solutions, RewardBroker, Secure Value Transfer Protocol,
SecureRewards Architecture, the Netcentives logo and the ClickRewards logo are
trademarks of Netcentives. This prospectus also contains brand names,
trademarks, or service marks of companies other than Netcentives, which are the
property of their respective holders.

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

                     Dealer Prospectus Delivery Obligation

  Until       , 1999 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.

                                       1
<PAGE>

                               PROSPECTUS SUMMARY

  This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.

                                Netcentives Inc.

  Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. Netcentives' flagship program, the ClickRewards Network, is a
powerful online promotion and loyalty program that allows e-commerce sites to
reward consumers with ClickMiles, a digital promotion currency, for making
online purchases. Launched in March 1998, the ClickRewards Network, as of July
21, 1999, included over 1.4 million members who have earned, in the aggregate,
over 250 million ClickMiles. Top e-commerce companies, including
barnesandnoble.com, E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview
Travel, purchase ClickMiles from us and award them to consumers in order to
convert browsers to buyers, increase average purchase size, drive repeat
purchases and build loyalty to their site. Our robust, secure, scalable
transaction processing technology allows consumers to earn rewards currency at
the point of purchase on sites throughout the Web and to track and manage them
in their own personal account at a central Web site.

  Utilizing the technology platform we have developed for the ClickRewards
Network and our expertise with promotional products and services, we have
expanded our product offerings to provide Custom Loyalty Networks to portals,
companies with major brands and other Web sites with substantial membership. We
enable these sites to launch self-branded loyalty programs featuring their own
promotion currency. We launched our first Custom Loyalty Network for Looksmart
in July 1999 and are developing additional Custom Loyalty Networks, including
one for the GO Network that we expect to launch in the fourth quarter of 1999.
We have also launched Enterprise Incentive Solutions programs, such as
ClickRewards@Work, that enable corporations to utilize the power of the
ClickMile currency to motivate and reward employees, partners and stakeholders
across their intranets and extranets. We also offer a broad array of
complementary services to our ClickRewards merchants and Custom Loyalty and
Enterprise Incentive customers, including technical consulting and development,
marketing consulting, on-line advertising and sponsorship, partnership
marketing programs and sponsored e-mail offers.

  We have exclusive agreements with eight major airlines for the use of their
frequent flyer miles in points-based Internet promotions networks. These
relationships allow consumers to redeem ClickMiles one-for-one for frequent
flyer miles from American Airlines, British Airways (USA), Continental
Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines and US
Airways. These exclusive agreements give our ClickRewards merchants the ability
to attract and retain online shoppers using a compelling, relevant, and
differentiated rewards currency. They also give our merchants access to
frequent flyer program members, a set of consumers that we believe has a
demographic profile closely aligned with that of online shoppers. In addition
to frequent flyer miles, ClickRewards and our other programs offer redemption
options such as merchandise and other travel awards.

  In order to drive purchases at the merchant Web sites participating in the
ClickRewards Network and to make our products more valuable to them, we
actively recruit a consumer membership base for ClickRewards. Consumers
participating in the ClickRewards and our Custom Loyalty Networks can learn
about offers and track and redeem their loyalty currencies at a centralized Web
site for each network. In addition, for ClickRewards merchants and our Custom
Loyalty Network customers we offer a variety of direct marketing services.
These services include building a rich database of consumer profiles based on
transaction behavior across each network, offering targeted e-mail marketing
using this information and providing promotion management services.

                                       2
<PAGE>


                                 This Offering

<TABLE>
 <C>                                          <S>
 Common Stock offered........................            shares
 Common Stock to be outstanding after this
  offering...................................            shares
 Use of proceeds............................. For general corporate purposes,
                                              including working capital
 Proposed Nasdaq National Market symbol...... NCNT
</TABLE>

  The information in the above table excludes:

  . 4,845,736 shares issuable upon exercise of outstanding options at a
    weighted average exercise price of $1.93 per share as of June 30, 1999;
  . 615,448 shares issuable upon exercise of outstanding warrants at a
    weighted average exercise price of $1.13 per share as of June 30, 1999;
    and
  . an aggregate of 2,261,888 shares available for future issuance under our
    employee benefit plans as of June 30, 1999.

                      Summary Consolidated Financial Data
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                               Inception      Years Ended       Three Months
                            (June 21, 1996)   December 31,     Ended March 31,
                            to December 31, -----------------  ----------------
                                 1996        1997      1998     1998     1999
                            --------------- -------  --------  -------  -------
<S>                         <C>             <C>      <C>       <C>      <C>
Consolidated Statements of
 Operations Data:
  Total revenues..........         --       $     9  $    647  $    15  $ 1,656
  Loss from operations....      $ (273)      (4,265)  (14,408)  (2,133)  (8,311)
  Net loss................        (266)      (4,180)  (14,111)  (2,080)  (8,208)
  Basic and diluted net
   loss per share.........      $(0.97)     $ (5.70) $  (8.58) $ (1.63) $ (2.73)
  Shares used to compute
   basic and diluted
   net loss per share.....         273          734     1,644    1,276    3,004
</TABLE>

<TABLE>
<CAPTION>
                                                               March 31, 1999
                                                             -------------------
                                                             Actual  As Adjusted
                                                             ------- -----------
<S>                                                          <C>     <C>
Consolidated Balance Sheets Data:
  Cash and equivalents...................................... $31,994
  Working capital...........................................  25,277
  Deferred revenues--product and services...................   2,857    2,857
  Long-term obligations.....................................     887      887
  Total stockholders' equity................................  30,296
</TABLE>

  See Note 8 to our Consolidated Financial Statements for an explanation of the
method used to determine the number of shares used to compute the loss per
share amounts.

  The as adjusted information in the above table is adjusted to reflect the
sale of           shares of common stock offered by Netcentives at an assumed
public offering price of $         per share after deduction of the estimated
underwriting discounts and commissions and estimated offering expenses.

  Netcentives was incorporated in California in June 1996, and we expect to
reincorporate into Delaware prior to completing this offering. Our principal
executive offices are located at 690 Fifth Street, San Francisco, California
94107, and our telephone number is (415) 538-1888. Our corporate Web site
address is www.netcentives.com. The ClickRewards consumer web site is found at
www.clickrewards.com. Information contained on our Web sites shall not be
deemed to be a part of this prospectus.

                                       3
<PAGE>

                                 RISK FACTORS

  You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks not presently known to us or that we currently deem
immaterial also may impair our business operations. Our business, operating
results or financial condition could be harmed by any of these risks or other
risks. In addition, the trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
consolidated financial statements and the related notes.

Business Risks

  Because we have a limited operating history, it is difficult to evaluate our
business and prospects.

  We were incorporated in June 1996 and launched our first product in March
1998. Therefore, we have a limited operating history on which you can base an
investment decision. Furthermore, the Internet promotion and direct marketing
industry is a new industry. As such, our business is subject to certain
challenges that a more mature company or a company operating in a more mature
industry may not face, such as:

  . we have an unproven business model;
  . members may redeem ClickMiles or our custom loyalty currencies in
    unexpected patterns, which may exceed our available cash resources and
    cause fluctuations in our operating results;
  . we are dependent upon the expansion of the Internet and the growth of e-
    commerce;
  . we expect competition to intensify as new competitors emerge and existing
    competitors offer new products and services;
  . we may be unsuccessful in establishing or maintaining our brand;
  . we depend on the promotional efforts of our merchants and other third
    parties; and
  . our sales cycles are unpredictable and may result in quarterly
    fluctuations in our operating results which could lower our stock price.

  If the market for e-commerce fails to grow, our revenues will not grow.

  Our success will depend in large part on the continued growth in the use of
the Internet for commerce. We do not have direct control over the expansion of
e-commerce, and to the extent that the market for e-commerce does not
increase, our customer base and revenues will not grow.

  In addition, critical and unresolved issues concerning the commercial use of
the Internet may affect the development of the market for our products and
services, including:

  . the ability of consumers, sellers and other intermediaries to conduct e-
    commerce on a secure basis;
  . the reliability of the Internet for e-commerce, including the regular
    availability of e-commerce sites;
  . the availability of low-cost access to the Internet for consumers; and
  . availability of sufficient telecommunications bandwidth to consumers to
    enhance their ability to interact in the e-commerce shopping process.

   If our supplier relationships become non-exclusive or are terminated, our
   competitive position will be harmed.

  We believe that our relationships with major airlines and their frequent
flyer programs are a source of competitive advantage, particularly to the
extent that they remain exclusive in the area of points-based Internet
promotions networks. While we believe that we have established a broad scope
of exclusivity within our agreements with airlines, our competitors could
circumvent the terms of these agreements. Furthermore, in

                                       4
<PAGE>

some cases, airlines may terminate the exclusivity contained in these
agreements following specified notice periods. If the ClickRewards Network
ceases to be the sole points-based Internet promotions network provider of
frequent flyer miles for multiple airlines, our business would be harmed.

  Additionally, while most of our agreements for the purchase of frequent
flyer miles and other rewards have extended terms, each of these agreements
may, in some cases, following certain notice periods, be terminated. To the
extent that the ClickRewards program can no longer offer frequent flyer miles
from one or more of our current airline partners or other valuable rewards,
our business would be harmed.

   If our merchants terminate their relationships with us, our competitive
   position and financial results may suffer.

  Our merchants may generally terminate their relationships with us on not
longer than 90 days prior notice. These terminations could occur as a result
of changes in our product or service offerings, competitive developments,
changes affecting the particular merchant's business or otherwise. Any
termination of merchant relationships could harm our business and financial
results either directly through the loss of revenues we generate through these
merchants or more generally through a perception of decreased value by our
members or other merchants participating in the ClickRewards Network.

   We are subject to intense competition, and we expect to face increased
   competition in the future.

  As a provider of loyalty, direct marketing and promotion products and
services, we generally compete with advertising and other promotional programs
for a portion of a customer's total marketing budget. In addition, within the
promotions market, we compete with a variety of businesses in connection with
each of our three programs. For the ClickRewards Network our primary
competition can be categorized as follows:

  . loyalty programs operated by and/or for portals and other large e-
    commerce sites, such as AOL Rewards;
  . Custom Loyalty Networks we operate on behalf of third parties; and
  . standalone loyalty programs and promotional tools developed by and/or for
    e-commerce sites, such as Autobytel.com Mobalist Rewards, CDnow Fast
    Forward Rewards, CBS SportsLine Rewards, Cybergold and MyPoints.

  We believe that we face substantial obstacles competing against internally
developed products created by our existing and potential customers. Our
Enterprise Incentive Solutions products and services compete with existing,
offline incentive products provided by parties such as Maritz Marketing
Research, Carlson Marketing Group, Loyalty Group, a division of Alliance Data
Systems and BI Performance Services. Our Custom Loyalty Network and Enterprise
Incentive Solution products and services also compete with products offered by
third parties, such as MyPoints.com.

  For each of our programs, we expect competition to intensify as more
competitors enter our market. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. While we
currently operate as a partner with many rewards suppliers, such as airline
frequent flyer programs, any of these suppliers could themselves enter into
our markets and provide us with substantial competition.

   Many of our competitors have greater resources than we do, which may impair
   our ability to compete.

  Many of our current and potential competitors, and in particular offline
promotions companies and offline rewards programs, have longer operating
histories, stronger brand names and significantly greater financial,
technical, marketing and other resources than we do. In addition, these
companies may have existing relationships with our potential customers and may
be able to respond to changes in market dynamics and technology faster than we
can. We cannot assure you that we will be able to compete successfully against
our current or future competitors. If we are unable to compete successfully
against current or future competitors, our business would suffer.

                                       5
<PAGE>

   Because our business model is unproven, we cannot assure you that our
   revenue will grow or that we will become profitable.

  Our business model depends upon our ability to leverage and to expand our
network of ClickRewards Network merchants, Custom Loyalty Network customers,
Enterprise Incentive Solutions customers, rewards partners and members to
generate multiple revenue streams. The potential profitability of this
business model is unproven, and to be successful we must, among other things,
develop and market additional products and services to existing customers
effectively. Finally, we may be forced by competitive pressures, industry
consolidation or otherwise, to change our business model for certain or all of
our customers, in which case our financial results could be harmed. Our
business model may not be successful and we may not sustain revenue growth or
achieve or sustain profitability.

   Recent changes to our ClickMiles terms and conditions may cause revenues to
   decline.

  We recently changed the terms and conditions on which our merchants can
purchase ClickMiles. We cannot provide any assurances that our current
participating customers will accept these policies and remain in our programs
or that we will be able to attract new customers to our programs. Moreover, we
cannot provide any assurances that we will not have to change our pricing
policies again in the future to retain and attract new customers.

   If consumers redeem loyalty currencies in unexpected patterns, our
   available cash resources could be depleted and our operating results could
   fluctuate.

  A significant element of our business model is based on the effective
management of the potential financial liabilities associated with our points-
based loyalty products. For example, over time, if the number of ClickMiles or
custom currency points in circulation increases, we will have increasing
liabilities for the potential eventual redemption of these points, and
consequently we will need to maintain adequate cash balances for any such
future redemptions. Because we have very limited historical data with respect
to our members' redemption behavior, we cannot assure you that members will
not redeem their points in unexpected patterns. If redemption requests are
inconsistent with our expectations or exceed our available cash resources, our
financial condition could be harmed. In addition, because we recognize a
portion of our revenues upon redemption by the consumer, unexpected
redemptions could cause fluctuations in our operating results and cause our
stock price to fluctuate.

   If the market for Internet-based promotion and direct marketing products
   and services does not evolve as we anticipate, our business will be harmed.

  The market for Internet-based promotion and direct marketing products and
services has only recently developed and is rapidly changing. As is typical
for a new and rapidly evolving industry, demand and market acceptance is
uncertain and few proven offerings exist. Moreover, since the market for our
promotion products and services is new and evolving, it is difficult to
predict the size of this market or its future growth rate, if any. We cannot
assure you that a sufficient volume of merchants will accept online loyalty
programs and promotions as a consumer attraction and retention device. If the
market for Internet-based promotion and direct marketing fails to develop,
develops more slowly than expected, or becomes saturated with competitors, or
if our products fail to achieve market acceptance, our business would be
harmed.

  If ClickMiles or frequent flyer miles become less valuable, we may lose
  merchants and members.

  We have based the ClickRewards Network, in part, on the assumption that
frequent flyer miles of major airlines and similar rewards from other partners
have a high perceived value for e-commerce shoppers. Furthermore, we have
established ClickMiles as being redeemable one-for-one for the frequent flyer
miles of several major airlines. To the extent that the airlines who provide
us with frequent flyer miles reduce the value of such miles by increasing the
number of miles required to achieve free travel, or by reducing the number of
seats available for free travel, the perceived value of ClickMiles to
consumers and consequently merchants would be correspondingly reduced, which
could harm our business. In addition, while we believe that e-commerce Web
sites and shoppers currently have a high perceived value for frequent flyer
miles and the other

                                       6
<PAGE>

awards that we offer, if our belief is false, or if the perceptions of
consumers shift over time, our business could be adversely affected. Finally,
to the extent that we change the terms on which we offer or redeem ClickMiles,
this may result in dissatisfaction with the ClickRewards Network or in
lawsuits, either of which would harm our business or result in management
distraction. For example, we have recently added an expiration provision to
our ClickMiles rewards currency, such that consumers must redeem ClickMiles
within 24 to 36 months of their award. We cannot assure you that this or other
changes to our ClickRewards policies will not result in member or merchant
dissatisfaction with, or reduced acceptance of, our products and services.

   We depend on the ClickRewards Network and Netcentives Professional Services
   for most of our revenue; if there are any unexpected changes in these
   revenues, our financial results will be harmed.

  Substantially all of our revenues to date have come from the ClickRewards
Network and Netcentives Professional Services. Until we are able to develop
diversified sources of revenue, any reduction in revenues from ClickRewards or
any material unanticipated change in professional service-related revenues
would harm our results of operations.

   If we do not successfully introduce new products and services, we may not
   be able to increase revenues or become profitable.

  Our future success depends in part on our ability to offer new products and
services in a timely and cost-effective manner. While we hope that our Custom
Loyalty Networks and Enterprise Incentive Solutions programs will account for
a significant portion of our future revenues, we have had only limited
experience with these programs. Therefore, we cannot assure you that we will
be successful in establishing these products as sources of revenue or
profitability, or that these are the appropriate programs on which we should
be focusing our efforts. The process of developing and launching new products
and services is inherently risky and costly. Moreover, we cannot assure you
that once launched, our products and services will be accepted by our
customers or potential members. If we are unable to develop additional
products and services, or if the products and services that we do develop are
not accepted by our customers or their consumers or are otherwise
unsuccessful, we may not be able to increase revenues or become profitable.

   If we do not successfully establish or maintain our brands, our results of
   operations will suffer.

  We believe that establishing and maintaining the Netcentives and
ClickRewards brands are critical aspects of our efforts to attract, retain and
expand our merchant and member base and traffic, and to increase ClickMiles
sales. We also believe that the importance of brand recognition will increase
as the number of Internet marketing and promotions companies increases. In
order to attract and retain merchants and members, we continue to increase our
financial commitment to creating and maintaining brand loyalty. We are doing
this using Internet-specific means, as well as more traditional means, such as
media advertising campaigns in print, radio, billboards and television. If we
do not generate a corresponding increase in revenues as a result of our
branding efforts or otherwise fail to promote our brand successfully, or if we
incur excessive expenses in an attempt to promote and maintain our brand, our
results of operations would suffer.

   If our merchants fail to effectively promote the ClickRewards Network, our
   revenues could suffer.

  Our business model is substantially dependent upon the promotional efforts
of our merchants. For example, if our merchants do not prominently display
ClickRewards offers or do not work with Netcentives to create promotional
offers that are attractive and understandable to consumers, their ClickRewards
promotions may not be successful, and as a result, we may not be successful.
We cannot assure you that our merchants will continue to allocate sufficient
technical resources and promotional budgets and efforts to make their
ClickRewards promotions successful. If our merchants' promotional programs are
not successful, our revenues could suffer.

                                       7
<PAGE>

   If we are not able to respond to market changes successfully, our financial
   and competitive position would be harmed.

  The Internet and e-commerce are characterized by rapid changes in standards,
technology and customer preferences and requirements. Furthermore, new
promotional and incentives programs emerge frequently that could render our
programs outdated or non-competitive. Our financial and business performance
will depend in part on our ability to respond to these technological and
market changes rapidly and cost-effectively. In addition, our performance will
depend on our ability to update our software to interoperate with the most
current and widely adopted standards and technologies. If we are unable to
respond as required by the market, our financial condition and competitive
position would be harmed.

Financial Risks

   We have a history of losses and expect increasing future losses.

  We incurred losses of $266,000 in 1996, $4.2 million in 1997, $14.1 million
in 1998 and $8.2 million in the first quarter of 1999. As of March 31, 1999 we
had an accumulated deficit of $26.8 million. We currently expect that we will
continue to incur losses for the foreseeable future and that the magnitude of
these losses will increase substantially. We cannot assure you of when or if
we will become profitable. We believe that our ability to become profitable
will be based on a number of factors, including:

  . the continued expansion of e-commerce;
  . the development of the market for Internet-based promotions and direct
    marketing;
  . our ability to sell ClickMiles in sufficient volumes to offset the fixed
    costs of operating the ClickRewards Network;
  . our ability to manage the financial liabilities associated with the
    ClickRewards Network and Custom Loyalty Networks;
  . our ability to attract sufficient numbers of members to the ClickRewards
    Network;
  . our ability to drive sufficient transactional volume and attract and
    retain merchants;
  . our ability to operate and enter into additional Custom Loyalty Network
    relationships on positive financial terms;
  . our ability to purchase frequent flyer miles and other awards merchandise
    on competitive terms and conditions, and consistent with our estimated
    costs; and
  . our ability to market additional products and services to existing
    customers effectively.

  To the extent that we do not meet any of the above conditions, we may not
become profitable on a timely basis, if at all.

   Any delays in our normally lengthy sales cycles could result in significant
   fluctuations in our operating results.

  The typical cycle to attract a new merchant to the ClickRewards Network is
between three to six months and the cycle for attracting Custom Loyalty
Network customers extends up to one year. Our sales are also unpredictable and
involve significant strategic marketing decisions by prospective customers.
Our sales process also often requires us to educate potential customers about
the uses and benefits of our products and services and promotion tools more
generally. In particular, our Custom Loyalty Networks require customers to
reconsider their business in fundamental ways and often involve large
financial commitments. Finally, our prospective customers typically do not
have personnel dedicated to the implementation of promotion products such as
ours either at a technical or operational level. As a result, our customers
typically spend substantial time before purchasing our programs in performing
internal reviews and obtaining corporate approvals. We cannot be certain that
this cycle will not lengthen in the future. Any delay in sales of our programs
could cause our operating results to be significantly impaired.


                                       8
<PAGE>

  Our future revenues are unpredictable, and our quarterly financial results
  may fluctuate significantly.

  We expect that our revenues will vary substantially from quarter to quarter
as a result of a variety of factors, not all of which are under our control.
For example, because the majority of our products and services are related to
e-commerce, we expect that ClickRewards merchants and Custom Loyalty Network
customers will award more ClickMiles and custom loyalty currencies during the
holiday shopping season. Similarly, at any given time, a limited number of
customers conducting particularly large issuance or redemption promotions may
account for a large fraction of our revenues. We will recognize the associated
product and service revenues from these transactions over a period of up to 36
months. To the extent a large promotion ends or begins, or to the extent we
begin or end recognizing revenue associated with the holiday season in a given
quarter, our results for that quarter could be disproportionately affected. In
addition we expect other factors to affect our quarterly results, such as:

  . competitive developments;
  . fluctuations in the growth rate of e-commerce;
  . changes in the effective prices of frequent flyer miles and other
    rewards;
  . currency redemption and expiration patterns; and
  . the concentration of our Custom Loyalty and Enterprise Incentive products
    and services among a limited number of customers.

  A substantial portion of our costs, such as salaries, wages, and facilities-
related expenses are fixed in the short term, and another portion of our
expenses, such as advertising and promotion, are made in advance of the
associated expected revenues. As a result, fluctuations in revenues may have a
disproportionate effect on our quarterly results of operations and consequently
our stock price.

  If we are unable to raise additional capital, our business and financial
  condition may suffer.

  Since our inception, we have experienced negative cash flow from operations
and we expect to continue to experience significant negative cash flow from
operations for the foreseeable future. We believe that our current capital
resources, including the amount we raise in this offering, will be sufficient
to meet our anticipated cash requirements for at least the next twelve months.
After that time, we may be required to raise additional capital, and there can
be no assurance that we will be able to raise these funds on reasonable terms,
or at all. If we are unable to raise additional capital on reasonable terms,
our current stockholders could suffer substantial dilution. In addition, we may
be unable to pursue our current strategy, respond to competitive pressures or
otherwise conduct our business in the manner in which we would like. Any of
these events would harm our business and financial condition.

  Our stock will likely be subject to substantial price and volume
  fluctuations due to a number of factors, many of which are beyond our
  control.

  Prior to this offering, there has been no public market for our common stock.
If you purchase shares of common stock in this offering, you will pay a price
that was not established in a competitive market. Rather, you will pay the
price that we will negotiate with the representatives of the underwriters. The
price of the common stock that will prevail in the market after this offering
may be higher or lower than the price you pay.

  Many factors could cause the market price of our common stock to rise or
fall. Some of these factors are:

  .variations in our quarterly results;
  .introduction of new products or services or new pricing policies by us or
     our competitors;
  .acquisitions or strategic alliances by us, our competitors, or our current
     or potential customers;
  .hiring or departure of key personnel;
  .the gain or loss of significant customers or promotions;
  .changes in the estimate of our performance or changes in recommendations
     by securities analysts; and
  .market conditions in the industry and the economy as a whole.


                                       9
<PAGE>

  In addition, the stock market in general, and the stocks of Internet-related
companies in particular, have experienced extreme price and volume fluctuations
that have been unrelated to these companies' operating performance. These broad
market fluctuations could adversely affect the market price of our common
stock.

  In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could harm our business, operating
results and financial condition.

  Future sales of common stock may depress our stock price.

  After this offering, we will have outstanding                  shares of
common stock. Sales of a substantial number of shares of common stock in the
public market following this offering could materially adversely affect the
market price of our common stock. All the shares sold in this offering will be
freely tradeable. Pursuant to certain lock-up arrangements between our
stockholders and Netcentives or the underwriters, 19,499,026 shares of common
stock that were outstanding at June 30, 1999 will be available for sale in the
public market 180 days following the effective date of this offering. Of these
shares, 16,298,641 shares will be subject to volume limitations under federal
securities laws. An additional 6,291,256 shares that were outstanding at June
30, 1999 will become eligible for sale at various times after that date upon
the expiration of applicable required holding and vesting periods. In addition,
180 days following the effective date of this offering, 1,992,091 shares
subject to options and warrants outstanding as of June 30, 1999 will be
exercisable and may be resold.

  If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options and
warrants, the market price of our common stock could fall.

  You will experience immediate and substantial dilution.

  If you purchase shares of common stock in this offering, you will experience
immediate and substantial dilution in that the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is largely because our earlier investors paid
substantially less than the public offering price when they purchased their
shares of common stock. You will experience additional dilution upon the
exercise of outstanding stock options or warrants to purchase common stock.

  We do not intend to pay dividends.

  We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and therefore
do not expect to pay any cash dividends in the foreseeable future.

Technical Risks

  Our network infrastructure may be compromised or damaged, which could harm
  our business and financial condition.

  We utilize the services of Exodus Communications to host our production
servers and provide us with telecommunications links. The successful delivery
of our services is substantially dependent on our ability and the ability of
Exodus to protect our server and network infrastructure against damage from:

  . human error;
  . fire;
  . flood;
  . power loss;
  . telecommunications failure;

                                       10
<PAGE>

  . on-line or physical sabotage; and
  . intentional acts of vandalism.

  In addition, our server and network infrastructure is located in Northern
California, an area susceptible to earthquakes, which could cause system
outages or failures if one should occur. Despite precautions taken by Exodus
and us, the occurrence of other natural disasters or other unanticipated
problems at our respective facilities could result in interruption in the
services we provide or significant damage to our server and network
infrastructure. Even though we have implemented network security measures, our
servers are vulnerable to computer viruses, break-ins and similar disruptions
from unauthorized tampering. If any of these events occur, interruptions,
delays, or the loss or corruption of critical data or cessations in service may
result, which could harm our business and financial condition. In addition, our
reputation and the Netcentives and ClickRewards brands could suffer.

  The failure of our computing systems could result in financial losses or
  impair our reputation.

  The performance of our hardware and software is critical to our business,
reputation and ability to attract members, merchants and rewards suppliers to
the ClickRewards Network and our Custom Loyalty Networks. Although we have
designed our system to be fault tolerant, 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 brands. We rely on Exodus for a significant portion of
our Internet connectivity as well as monitoring and managing of power and
operating environment for our server and networking equipment. Any interruption
in the service that Exodus receives from other providers, or any failure of
Exodus to handle higher volumes of Internet users to the Netcentives sites
could result in financial losses or impair our reputation.

  Delays in integrating our services with customer systems could result in
  fluctuations in financial results or the loss of potential customers.

  In order for ClickRewards merchants or Enterprise Incentive Solutions
customers to participate in the ClickRewards Network, they usually must install
our software on their computer systems and implement promotions on their Web
sites. For customers implementing Custom Loyalty Networks, substantially more
systems integration may be required. Our software is not designed for every
available platform and system. Many of our potential customers have legacy
computer systems and manual processes that were not designed with promotion
products in mind. Therefore, the integration process may become so complex as
to delay a customer's implementation of a program and potentially prevent the
sale of a promotion product altogether. In addition, many of our potential
customers have limited technical resources and promotion budgets. They may not
have the capacity to install and maintain our software in order to use our
products effectively or implement them at all. To the extent that the software
component of our products cannot be integrated with the computer platforms and
software currently used by our potential customers, or these customers do not
have the technical or financial resources to implement our software
effectively, our potential customer base and revenues would be reduced.

  System capacity constraints may result in a loss of revenues.

  An increase in the use of our products could strain the capacity of our
systems, which could lead to slower response time or system failures. System
failures or slowdowns adversely affect the speed and responsiveness of our
rewards transaction processing. These would diminish the experience for our
members and reduce the number of transactions, and, thus, could reduce our
revenue. The ability of our systems to manage substantially larger numbers of
transactions at higher transmission speed is as yet unknown, and, as a result,
we face risks related to our ability to scale up to our expected transaction
levels while maintaining satisfactory performance. If our usage of
telecommunications bandwidth increases, we will need to purchase additional
servers and networking equipment and rely more heavily on Exodus and its
services to maintain adequate data transmission speeds. The availability of
these products or services may be limited or their cost may be significant.

                                       11
<PAGE>

   Software defects or errors could damage our reputation or result in a loss
   of revenues.

  The software that we have developed to run the ClickRewards Network, Custom
Loyalty Networks and Enterprise Incentive Solutions is complex and may contain
undetected errors or defects, especially when newer versions are released. Any
errors or defects that are discovered after commercial release or that delay a
commercial release could result in lost revenues, errors in member account
information, delays in the introduction of new products or services, delays in
implementation of promotions, customer or member dissatisfaction and damage to
our reputation.

   We face Year 2000 risks that could harm our business and financial
   condition.

  Many computer systems currently in use are not capable of distinguishing
twenty-first century dates from twentieth century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries, including e-
commerce, will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Although we
believe that the current versions of our software are Year 2000 compliant, we
may face claims based on Year 2000 issues arising from the integration of our
software into the systems of third parties. In addition, we may experience
reduced sales of our products and services as a result of the unavailability
of technical and other personnel required to implement our products who are
otherwise focused on Year 2000 issues. Use of our software can be dependent on
the successful operation of the systems of our existing merchants and rewards
suppliers. Our customers or rewards suppliers could experience Year 2000
issues that cause their systems, and consequently our services, to fail. Any
such claims, or reduction in sales, could harm our business and financial
condition.

Legal Risks

  We could become involved in disputes regarding the validity of our patent
  which would result in unexpected expenses and management distraction.

  The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the past several months, including our own patent. We believe
that several additional, related patents are currently pending. We believe
that there will continue to be substantial activity in this area and that
litigation may arise due to our attempts or a third party's efforts to enforce
patent rights.

  We may incur substantial expenses and management attention may be diverted
if litigation occurs. In addition, whether or not any claims against us are
meritorious, we may be required to enter into license agreements or be subject
to injunctive or other equitable relief, any of which would result in
unexpected expenses and management distraction.

   We may be subject to claims as a result of our database marketing efforts
   which could result in a loss of members and revenues.

  A component of our strategy is leveraging our database marketing
technologies. We have designed our technology infrastructure and services to
allow us to aggregate data regarding specific member behavior throughout the
network. We have a strict privacy policy that governs how we use information
about our members, and all of our communications are sent to members who have
previously agreed to be contacted. However, we cannot assure you that certain
persons who receive promotional materials from us will not be dissatisfied
with being contacted. In addition, while we strictly protect the identity of
individual members on our networks, we do provide merchants and rewards
suppliers with aggregate information regarding network participation, and we
cannot ensure that such aggregated information will not be the cause of
dissatisfaction among our members. There has been substantial publicity
regarding privacy issues surrounding the Internet, and to the extent that our
database marketing efforts conflict with any privacy protection initiatives,
or if any

                                      12
<PAGE>

private information is inadvertently made public, we may be subject to legal
claims. If members of our networks become dissatisfied as a result of our
database marketing efforts, or if we become the subject of legal proceedings
in this regard, our business and results of operations would suffer.

   Federal, state and local governments may further regulate e-commerce and
   travel awards which could reduce our ability to become profitable.

  The frequent flyer miles and other travel awards that we currently award are
the subject of substantial government regulation, including excise taxes. In
addition, our rewards are frequently used as a prize in sweepstakes operated
by our customers, which are subject to substantial regulation. Finally, as a
result of the increasing popularity of the Internet and e-commerce, a number
of legislative and regulatory proposals that affect e-commerce are under
consideration by federal, state, local and foreign governmental organizations.
Thus it is possible that a number of laws or regulations may be adopted with
respect to the Internet, e-commerce and online database marketing. In the
event that our rewards, the promotions operated by our merchants or e-commerce
generally becomes the subject of further regulation or taxation, including the
taxation of frequent flyer miles received by consumers, this regulation or
taxation could have a negative effect on our financial results or our ability
to sell our products.

   If we are unable to protect our proprietary rights adequately, our
   competitive position would suffer.

  We currently rely on a mixture of patents, copyrights, trademarks, trade
secrets, agreements with third parties and employees, and clickwrap license
agreements to protect our proprietary rights. Despite our efforts to protect
our proprietary rights, unauthorized parties may use aspects of our business
model and products and obtain and use information we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts with us, and we may not be able to enforce our rights in
the event of such breaches. Our competitors may independently develop
technologies or business models that are substantially equivalent or superior
to ours. Furthermore, if we expand internationally, many countries do not
protect intellectual property rights to the same extent as the laws of the
United States. In the event that we are unable to protect our proprietary
rights, our business, financial condition and results of operations could be
materially adversely affected.

  Several existing stockholders own a large percentage of our voting stock
  and will be able to control matters requiring stockholder approval.

  After this offering, our executive officers and directors and their
respective affiliates will beneficially own approximately    % of our
outstanding common stock in the aggregate. As a result, these stockholders
will be able to exercise control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may delay, deter or
prevent transactions that would result in the change of control of
Netcentives, which in turn could reduce the market price of our common stock.

  Our Certificate of Incorporation and Bylaws and Delaware law contain
  provisions that could discourage a takeover.

  Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law may delay, deter or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:

  . authorizing the board to issue additional preferred stock;
  . prohibiting cumulative voting in the election of directors;
  . limiting the persons who may call special meetings of stockholders;
  . establishing a staggered board of directors;
  . prohibiting stockholder action by written consent; and

                                      13
<PAGE>

  . establishing advance notice requirements for nominations for election of
    the board of directors or for proposing matters that can be acted on by
    stockholders at stockholder meetings.

Management Risks

  Our inability to manage our future growth would adversely affect our
  business.

  We have experienced a period of rapid growth during the past two years. We
have grown from approximately 45 full-time employees at the end of the first
quarter of 1998 to 149 full-time employees at the end of the second quarter of
1999. This growth has placed a significant strain on our management systems and
resources and we expect any future growth to have a similar effect. To manage
the anticipated growth of our operations, we will be required to:

  . improve existing and implement new operational, financial and management
    information controls, reporting systems and procedures;
  . locate and transition to adequate facilities;
  . retain key existing employees;
  . hire, train and manage additional qualified personnel; and
  . manage our relationships with our customers, suppliers and distributors.

  We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel,
facilities, systems, procedures and controls may not be adequate to support our
future operations.

   We may not be able to recruit and retain the personnel we need to succeed.

  Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber personnel. Competition for qualified
personnel in our industry and geographic region is intense, and we may not be
successful in attracting and retaining personnel. There are only a limited
number of people with the skills that we require, and the area in which we
compete is characterized by rapidly increasing salaries and equity incentives.
These factors may increase our operating expenses and equity dilution or hinder
our ability to recruit and retain qualified personnel. To the extent we are not
able to attract, retain and motivate additional personnel effectively, our
business would suffer. In addition, our business is substantially dependent on
the efforts of certain key executives, including West Shell, III, our Chairman
and Chief Executive Officer, the loss of whom we believe could delay our
ability to achieve major corporate milestones. In addition, we believe that as
a result of the complexity of our financial model, the loss of members of our
financial management team could adversely affect us. We currently do not
maintain key person life insurance on any of our employees.

  We may not be successful in integrating any businesses or technologies we
  have acquired in the past or may acquire in the future, which could harm
  our financial position or result in management distraction.

  We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding acquiring or investing in their businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms.

  We acquired the Panttaja Consulting Group in December 1998. While a portion
of Panttaja's existing business was strategically consistent with our business
prior to the acquisition, the majority of their revenues were from engagements
unrelated to our core business. We may have difficulty in converting the
Panttaja consulting business into one that is consistent with our strategic
goals, or assimilating the products, services or technologies of other
companies we may acquire into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and harm our results of

                                       14
<PAGE>

operations due to accounting requirements such as goodwill. Furthermore, we may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to our existing stockholders.

   Expanding internationally will create management and financial difficulties.

  We intend to enter new international markets. This expansion will require
significant management attention and financial resources. International
operations are subject to a number of risks and uncertainties, including:

  . the difficulties and costs of staffing and managing international
    operations;
  . our ability to establish relationships with distribution partners and the
    performance of these partners in selling our products and services;
  . the difficulties and costs of localizing products for international
    markets;
  . unexpected changes in regulatory requirements;
  . legal uncertainties regarding liability, Internet commerce restrictions,
    tariffs, the offering of purchase incentives and trade barriers;
  . inadequate protection of intellectual property in some countries;
  . increased difficulty in collecting delinquent or unpaid accounts;
  . fluctuations in the value of the U.S. dollar relative to other
    currencies;
  . potentially adverse tax consequences; and
  . political and economic instability.

  Any of these factors could impair our ability to expand into international
markets. Similarly, we cannot accurately predict the impact that future
fluctuations in foreign currency exchange rates may have on our business,
operating results or financial condition.

   We have broad discretion to use the proceeds of this offering.

  We have not designated any specific use for the net proceeds of this
offering. We expect to use the proceeds primarily for working capital and
general corporate purposes. We may also use a portion of the net proceeds to
acquire or make investments in additional businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific agreements or commitments to do
so. As a result, our management and board of directors will have broad
discretion in spending the proceeds of this offering.

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

  Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Business and elsewhere in this prospectus are forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms. These statements involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under Risk Factors and elsewhere in this prospectus.

  Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.

                                       15
<PAGE>

                                USE OF PROCEEDS

  We estimate that we will receive approximately $    million in net proceeds
from the sale of the        shares of common stock in this offering. We base
this estimate on an assumed initial public offering price of $      per share
and after the deduction of estimated underwriting discounts and commissions and
estimated offering expenses totaling approximately $    million if the
underwriters' over-allotment option is exercised in full.

  We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes. These include increased
marketing and sales expenditures, increased research and development
expenditures and capital expenditures made in the ordinary course of business.
We may also use a portion of the net proceeds to acquire or make investments in
additional businesses, products or technologies or to establish joint ventures
that we believe will complement our current or future business. The amounts
that we actually spend for working capital purposes will vary significantly
depending on a number of factors, including future revenue growth, if any, and
the amount of cash we use in our operations. As a result, we will retain broad
discretion in allocating the net proceeds of this offering. Pending the use of
the net proceeds, we will invest them in short-term, interest-bearing,
investment-grade securities.

                                DIVIDEND POLICY

  We have never paid cash dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future.

                                       16
<PAGE>

                                 CAPITALIZATION

  The table below sets forth the following information:

  . our capitalization as of March 31, 1999 on an actual basis;

  . our pro forma capitalization which gives effect to the sale of 1,759,530
    shares of Series E preferred stock for net proceeds of $12.0 million on
    April 26, 1999, April 28, 1999 and June 4, 1999, the exercise of warrants
    to purchase 46,891 shares of Series B preferred stock which will expire
    if unexercised prior to the offering, and the conversion of
    20,569,126 shares of preferred stock into shares of common stock; and

  . our pro forma as adjusted capitalization which gives effect to the sale
    by us of the           shares of common stock being offered at an assumed
    offering price of $       per share less the estimated underwriting
    discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                        March 31, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                  (in thousands except share
                                                            data)
<S>                                             <C>       <C>        <C>
Long-term obligations.......................... $    887  $    887    $    887
                                                --------  --------    --------
Stockholders' equity:
Convertible preferred stock, $.001 par value;
 shares authorized: 19,569,221 actual; and
 5,000,000 pro forma and pro forma as adjusted;
 shares outstanding: 18,762,705 actual, none
 pro forma and
 pro forma as adjusted.........................       19       --
Common Stock, $.001 par value; 35,000,000
 shares authorized; shares outstanding:
 5,180,765 actual; 25,749,891 pro forma and
       pro forma as adjusted...................        5        26
Paid-in capital................................   64,925    76,970
Deferred stock compensation....................   (7,438)   (7,438)    (7,438)
Receivables from sales of stock................     (450)     (450)      (450)
Accumulated deficit............................  (26,765)  (26,765)   (26,765)
                                                --------  --------    --------
  Total stockholders' equity...................   30,296    42,343
                                                --------  --------    --------
  Total capitalization......................... $ 31,183  $ 43,230
                                                ========  ========    ========
</TABLE>

The information in the above table excludes:

  . 4,845,736 shares issuable upon exercise of outstanding options at a
    weighted average exercise price of $1.93 per share as of June 30, 1999;
  . 615,448 shares issuable upon exercise of outstanding warrants at a
    weighted average exercise price of $1.13 per share as of June 30, 1999;
    and
  . an aggregate of 2,261,888 shares available for future issuance under our
    employee benefit plans as of June 30, 1999.

                                       17
<PAGE>

                                    DILUTION

  As of March 31, 1999, our pro forma net tangible book value was approximately
$42.3 million, or $1.64 per share of common stock. Pro forma net tangible book
value represents the total amount of our pro forma stockholders' equity divided
by the pro forma number of shares of common stock outstanding. If we do not
take into account any changes in pro forma net tangible book value after March
31, 1999, except our receipt of the estimated net proceeds from this offering
based upon an assumed initial public offering price of $         per share
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma as adjusted net tangible book value at March
31, 1999 would have been approximately $       , or $    per share. This
represents an immediate increase in net tangible book value of $      per share
to existing stockholders and an immediate dilution of $       per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:

<TABLE>
<S>                                                                <C>   <C>
Assumed initial public offering price per share...................       $
  Pro forma net tangible book value per share as of March 31,
   1999........................................................... $1.64
  Increase per share attributable to new investors................
                                                                   -----
Pro forma, as adjusted, net tangible book value per share after
 this offering....................................................
                                                                         -----
Dilution per share to new investors...............................       $
                                                                         =====
</TABLE>

  The following table summarizes, as of March 31, 1999, the pro forma 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 new
investors:

<TABLE>
<CAPTION>
                                 Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent   Amount    Percent Per Share
                                ---------- ------- ----------- ------- ---------
<S>                             <C>        <C>     <C>         <C>     <C>
Existing stockholders.......... 25,749,891       % $65,375,000       %   $2.54
New investors..................
                                ----------  -----  -----------  -----
  Total........................             100.0% $            100.0%
                                ==========  =====  ===========  =====
</TABLE>

The information in the above tables excludes:

  . 4,845,736 shares issuable upon exercise of outstanding options at a
    weighted average exercise price of $1.93 per share as of June 30, 1999;
  . 615,448 shares issuable upon exercise of outstanding warrants at a
    weighted average exercise price of $1.13 per share as of June 30, 1999;
  . an aggregate of 2,261,888 shares available for future issuance under our
    employee benefit plans as of June 30, 1999; and
  . the estimated underwriting discounts and commissions and estimated
    offering expenses.

                                       18
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

  This section presents historical and pro forma financial data of Netcentives
Inc. You should read the following selected consolidated financial data in
conjunction with our Consolidated Financial Statements and the related Notes
and with Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this prospectus. The selected data
in this section is not intended to replace the financial statements.

  The consolidated statements of operations data for the period from June 21,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998 and consolidated balance sheet data as of December 31, 1997 and 1998
are derived from our Consolidated Financial Statements included elsewhere in
this prospectus, which have been audited by Deloitte & Touche LLP. The pro
forma consolidated statement of operations data for the year ended December 31,
1998 are derived from unaudited pro forma consolidated statements of operations
that give effect to our acquisition of the Panttaja Consulting Group, Inc. in
December 1998 and are included elsewhere in this prospectus. The consolidated
statements of operations data for the three months ended March 31, 1998 and
1999 and the consolidated balance sheet data as of March 31, 1999 are derived
from our unaudited consolidated financial statements which, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of our results of
operations and financial position. The historical results presented below are
not necessarily indicative of the results to be expected for any future fiscal
year.

<TABLE>
<CAPTION>
                                                                            Three Months
                               Inception                                        Ended
                            (June 21, 1996)   Years Ended December 31,        March 31,
                            to December 31, ------------------------------ ----------------
                                 1996        1997      1998       1998      1998     1999
                            --------------- -------  --------  ----------- -------  -------
                                                               (pro forma)
Consolidated Statements of
Operations Data:                      (in thousands, except per share amounts)
<S>                         <C>             <C>      <C>       <C>         <C>      <C>
Revenues:
 Product..................      $  --       $   --   $     64   $     64   $     2  $   103
 Program-related
  services................         --             9       583        583        13      117
 Technical consulting
  services................         --           --        --       3,432       --     1,436
                                ------      -------  --------   --------   -------  -------
  Total revenues..........         --             9       647      4,079        15    1,656
                                ------      -------  --------   --------   -------  -------
Costs and expenses:
 Cost of product
  revenues................         --           --         59         59         2       92
 Program-related services,
  marketing and support
  costs...................         102        1,496     7,293      7,293       684    4,519
 Cost of technical
  consulting services
  revenues................         --           --        --       2,153       --       817
 Research and
  development.............          63        1,505     3,383      3,135       685    1,032
 Selling, general and
  administrative..........         108        1,210     3,134      4,758       704    1,992
 Amortization of deferred
  stock compensation,
  supplier stock awards
  and intangibles.........         --            63     1,186      3,151        73    1,515
                                ------      -------  --------   --------   -------  -------
  Total costs and
   expenses...............         273        4,274    15,055     20,549     2,148    9,967
                                ------      -------  --------   --------   -------  -------
Loss from operations......        (273)      (4,265)  (14,408)   (16,470)   (2,133)  (8,311)
Interest income, net......           7           85       297        252        53      103
                                ------      -------  --------   --------   -------  -------
Net loss..................      $ (266)     $(4,180) $(14,111)  $(16,218)  $(2,080) $(8,208)
                                ======      =======  ========   ========   =======  =======
Net loss per share--basic
 and diluted..............      $(0.97)     $ (5.70) $  (8.58)  $  (7.12)  $ (1.63) $ (2.73)
                                ======      =======  ========   ========   =======  =======
Shares used in computing
 per share amounts--basic
 and diluted..............         273          734     1,644      2,278     1,276    3,004
                                ======      =======  ========   ========   =======  =======
Pro forma net loss per
 share--basic and
 diluted(1)...............                           $  (1.05)                      $ (0.44)
                                                     ========                       =======
Shares used in computing
 pro forma per share
 amounts(1)...............                             13,422                        18,746
                                                     ========                       =======
</TABLE>


<TABLE>
<CAPTION>
                                                 As of December 31,     As of
                                                --------------------- March 31,
                                                 1996   1997   1998     1999
                                                ------ ------ ------- ---------
Consolidated Balance Sheets Data:                       (in thousands)
<S>                                             <C>    <C>    <C>     <C>
Cash and equivalents........................... $1,118 $6,608 $13,651  $31,994
Working capital................................  1,027  6,348   9,923   25,277
Total assets...................................  1,255  8,549  21,935   40,606
Deferred revenues--product and services........     --     59   1,906    2,857
Long-term obligations..........................     --    196   1,233      887
Total stockholders' equity.....................  1,146  7,128  14,334   30,296
</TABLE>
--------
(1) Gives retroactive effect to the conversion of all outstanding shares of
    preferred stock into common stock which will occur upon completion of this
    offering.

                                       19
<PAGE>

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

  This prospectus section includes forward-looking statements that reflect our
current views with respect to future events and financial performance. In some
cases, you can identify forward-looking statements by terminology like "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or our predictions. For a description of these risks, see
"Risk Factors."

Overview

  Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. We have developed loyalty currency products and related services,
which we sell to Internet merchants, portals, community sites and other
business customers who typically use these products to attract and retain
consumers and members. As part of delivering these programs, we offer various
marketing and account management services to both our merchants and members. We
also offer technical consulting services to e-commerce merchants and other
businesses.

  We were incorporated in June 1996. From inception until March 1998, our
operations consisted primarily of various start-up activities, such as research
and development, personnel recruiting, capital raising and trial sales of our
products with initial customers. We launched the ClickRewards program in March
1998 and began recognizing revenue from non-trial program sales in April 1998.
In December 1998, we acquired the Panttaja Consulting Group, Inc., a provider
of technical consulting services to e-commerce merchants and other businesses.
We launched our first Enterprise Incentive Solution program in January 1999 and
our first Custom Loyalty Network in July 1999.

How our Programs Work

  We sell rewards currencies to electronic retailers and other Internet sites.
Our first reward currency is ClickMiles, which we sell to merchants who become
part of the ClickRewards Network. These merchants, in turn, award these
ClickMiles to consumers as purchase, loyalty and other incentives. ClickMiles
are redeemable for, among other things, frequent flyer miles on major airlines
at a ratio of one frequent flyer mile for each ClickMile. We have also
developed and continue to develop additional loyalty and rewards currencies for
large Internet merchants, portals, community sites and other business
customers. We sell these custom currencies to our customers, who then
distribute them under their own brands. The custom loyalty currencies are
redeemable for items specific to the customer for whom the currency has been
developed as well as, in certain cases, exchangeable for ClickMiles.

  Merchants who participate in the ClickRewards Network receive the benefit of
our promotion of the ClickRewards brand and network, which includes direct
links to the merchants' sites from our ClickRewards web page. We also provide
merchants who participate in the ClickRewards Network with a variety of related
marketing and promotional services. These services include promotional
consulting, direct marketing services to our member base and integration and
maintenance of our enabling software. Depending on the specific relationship we
have with the merchant, we may either include some of these services in our
ClickMiles pricing or we may price them separately. We also offer similar
marketing services to our Custom Loyalty and Enterprise Incentive customers on
both a bundled and separately priced basis.

  We provide services to members, such as allowing them to manage and track
balances as they earn currencies in their personal, online accounts at the
designated Web site for that program and redeem the currency for merchandise
and other awards. We purchase the relevant awards and either have the
merchandise delivered to the consumer through a third-party fulfillment house,
or in the case of frequent flyer miles,

                                       20
<PAGE>

electronically credit their chosen frequent flyer account. We also provide our
members with ongoing support to assist them in managing and redeeming their
currency.

How We Recognize Revenues

 Currency related revenues: product and program-related services

  The revenues we receive from the sale of currencies are made up of two
components: product revenues and program-related services revenues. Product
revenues reflect the value of the reward our members will ultimately receive
upon redemption of the promotion currency. Program-related services revenues
reflect the value of services that we perform for our merchants and members. As
a result, our revenues related to sale of currencies are recognized at various
times.

  A merchant typically purchases currencies from us before awarding them to
consumers. Upon the sale of our loyalty currencies, we allocate these revenues
between the product component, and the program-related services components. The
product component of revenues is deferred until the member redeems the currency
for his or her selected reward. At the time of redemption, we recognize the
product component of revenues and the associated cost of revenue based on the
actual cost of the redemption reward. The revenue related to the services
component of the currency sale is deferred until the sale of the currency
becomes non-refundable, which historically has been upon award of the currency
to a consumer by the merchant. Services revenues relating to separately-priced
services are recognized when these services are delivered. The remaining
portion of services revenues is recognized ratably over the period during which
these services are provided. For all ClickMiles sold through March 31, 1999,
this service period has been initially calculated for the maximum life of the
ClickMile based on its expiration date. To the extent ClickMiles are redeemed
prior to expiration, the remaining unamortized amount of deferred services
revenues is recognized at the time of redemption.

  If loyalty currency points expire or are forfeited, we recognize the
remaining amount of deferred product and program-related services revenues at
the time of expiration or forfeiture. Since we do not know when currency points
will be redeemed or forfeited, we cannot predict in which periods we will
recognize these revenues.

  Currently, ClickRewards merchants buy ClickMiles in advance based on their
anticipated needs, which allows them to participate in the ClickRewards Network
as long as they have a balance of unawarded ClickMiles. Beginning in the third
quarter of 1999, new merchants will be required to purchase a minimum amount of
ClickMiles on a non-refundable basis. These ClickMiles will expire if not
awarded by the merchant within a six-month period. To remain in the
ClickRewards Network at the end of the six months, the merchant will be
required to have purchased additional ClickMiles. The merchant services portion
of revenues of any ClickMiles sold under these arrangements will be amortized
over the maximum period during which the merchant may use the ClickMiles,
resulting in a shorter amortization period than has historically been used. The
member services component of revenues will continue to be amortized over the
expected life of the ClickMile.

  We typically sell our loyalty currency products and related services to
merchants or custom loyalty program customers for cash. However, from time to
time, in connection with promoting the ClickRewards Network, we also sell
ClickMiles to our merchants for non-cash consideration, such as advertising and
merchandise. The revenue from the sale of these ClickMiles is accounted for on
the same basis as cash sales and the value of the advertising or merchandise is
recorded as an expense or a prepaid asset as appropriate.

  We also derive program-related service revenues from advertising and other
direct marketing services provided to third parties.

 Technical consulting services revenues

  We provide systems integration and technical consulting services to a variety
of clients, including ClickRewards merchants and Custom Loyalty and Enterprise
Incentive customers, to help them deploy our programs. These revenues are
recognized as the services are provided.

                                       21
<PAGE>

Results of Operations

 Years Ended December 31, 1996, 1997 and 1998

  Revenues

  We had no revenues during 1996. We began test marketing the ClickRewards
Network during December 1997. Total revenues increased from $9,000 in 1997 to
$647,000 in 1998. Total 1998 revenues were composed of $64,000 of product
revenues, and $583,000 of program-related service revenues. Our 1998 revenues
increased principally because of our commercial launch of the ClickRewards
Network at the end of March 1998 and the associated purchase and issuance of
ClickMiles by merchants in the ClickRewards Network. Product revenues reflect
the exchange of ClickMiles for awards during the year. Program-related service
revenues in 1998 included $296,000 relating to the expiration of ClickMiles
owned by a merchant which were not distributed to consumers as well as $84,000
of consulting services revenues attributable to one consulting contract. Pro
forma 1998 revenues include the technical consulting service revenues of
Panttaja Consulting Group, which was acquired in late December 1998.


  Cost of Product Revenues

  Cost of product revenues represents the actual cost of awards selected by
members in exchange for ClickMiles. There were no redemptions during 1996 and
1997 and therefore no cost of product revenues during those years. Cost of
product revenues were $59,000 for 1998, which represented 92% of product
revenues.

  Program-Related Services, Marketing and Support Costs

  Program-related services, marketing and support costs represents the cost of
marketing services provided for the ClickRewards Network, as well as costs
incurred to support merchants and members in the Network. These costs consist
primarily of compensation and related costs for marketing and sales personnel,
advertising and marketing for the ClickRewards program, merchant account and
rewards supplier management, product management activities and ClickMiles
issued to acquire new members for the ClickRewards program. Program-related
marketing and support costs increased from $102,000 in 1996 to $1.5 million in
1997 and $7.3 million in 1998. The increase from period to period was primarily
the result of increased marketing personnel, member acquisition costs, and
advertising and promotions expenses associated with the launch of the
ClickRewards Network. We expect to increase substantially our marketing
expenditures, particularly those related to acquiring members for the
ClickRewards Network, advertising and promoting our brands and products,
recruiting additional marketing personnel and managing programs for our Custom
Loyalty Networks and Enterprise Incentive Solutions customers.

  Cost of Technical Consulting Services Revenues

  Cost of technical consulting services consists of the personnel and overhead
costs incurred in connection with providing technical consulting services.
There were no technical consulting services provided in 1996, 1997 and 1998 and
therefore no cost of technical consulting services revenues during those years.
The pro forma cost of technical consulting services consists of the personnel
and overhead costs incurred by the Panttaja Consulting Group.

  Research and Development

  Research and development expenses consist primarily of compensation and
related costs for research and development personnel, including independent
contractors and consultants, software licensing expenses and allocated
operating expenses such as site hosting, Web site production, facilities
expenses, and equipment costs. Research and development expenses increased from
$63,000 in 1996 to $1.5 million in 1997 and $3.4 million

                                       22
<PAGE>

in 1998. These increases from period to period were principally the result of
an increase in these expenses in preparation for the launch of and enhancements
to the ClickRewards Network, as well as initial development efforts relating to
our Custom Loyalty Networks. We expect to continue to increase substantially
research and development spending in absolute dollars as we develop new
products and expand our resources to maintain existing products.

  The American Institute of Certified Public Accountants issued Statement of
Position 98-1, Accounting for the Costs of Software Developed for Internal Use,
which will be effective for Netcentives beginning in 1999. The effects will be
to capitalize certain development costs that were previously expensed. The
amortization of these costs will be charged to research and development
expense.

  Selling, General and Administrative

  Selling, general and administrative expenses consist primarily of salaries
and related expenses, sales commissions, treasury expenses, accounting and
administrative expenses, professional fees, and other selling and corporate
expenses. Selling, general and administrative expenses increased from $108,000
in 1996 to $1.2 million in 1997 and $3.1 million in 1998. The increase from
period to period was primarily the result of increased sales efforts to enroll
merchants into the ClickRewards Network, increased business development efforts
for our Custom Loyalty Networks and increased general and administrative
personnel. We expect selling, general and administrative expenses to increase
in absolute dollars as we add personnel and incur additional costs related to
the anticipated growth of our ClickRewards and Custom Loyalty Networks, our
expansion into international markets and our operation as a public company.

  Amortization of Deferred Stock Compensation, Supplier Stock Awards and
 Intangibles

  Amortization of deferred stock compensation represents the difference between
the purchase or exercise price of certain restricted stock and stock option
grants, and the deemed fair market value of our common stock at the time of
these grants. This difference is amortized over the vesting period for such
grants, which is typically four years. Amortization of deferred stock
compensation was $296,000 for 1998 and is estimated to be a total of
$2.1 million in 1999, $2.1 million in 2000, $2.0 million in 2001 and $1.7
million in 2002 as a result of certain stock option grants and stock awards
during 1998.

  Amortization of supplier stock awards represents the cost of warrants granted
to certain airlines and other partners in return for exclusivity. Expenses
related to contingent stock warrants granted to certain airlines and other
partners was $63,000 in 1997 and $811,000 in 1998. Because the vesting of these
awards is subject to maintaining the exclusivity of the arrangement with these
partners, the valuation of the warrants is not finalized until the vesting
date. Accordingly, the amount of the expense recognized for these warrants
increased as the value of our stock increased. A substantial number of these
warrants had not yet vested as of December 31, 1998. As a result, we expect
that the charge relating to supplier stock awards to increase in 1999.

  In December 1998, we acquired Panttaja Consulting Group in a transaction that
was accounted for as a purchase. The resulting intangibles of $3.5 million
recorded in the acquisition will be amortized over two years.

  Interest Income, Net

  Interest income, net was $7,000 in 1996, $85,000 in 1997 and $297,000 in
1998. The year over year increases reflected primarily increases in interest
income from $7,000 in 1996 to $121,000 in 1997, and $441,000 in 1998, offset in
part by an increase in interest expense from $36,000 in 1997 to $144,000 in
1998, relating to capital leases and other financing arrangements.

                                       23
<PAGE>

  Income Taxes

  We have incurred losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes in
1996, 1997 or 1998. We have provided a full valuation allowance against our net
operating loss tax carryforwards and deferred income tax assets at December 31,
1998. As of December 31, 1998, our federal and state net operating loss tax
carryforwards were $14.2 million and $14.1 million, respectively.

 Three Months Ended March 31, 1999 and 1998

  Revenues

  Revenues increased from $15,000 in the three months ended March 31, 1998 to
$1.7 million for the three months ended March 31, 1999. The increase in
revenues was primarily a result of the acquisition of Panttaja Consulting Group
in December 1998 and the growth of our ClickRewards Network launched in March
1998. During the three months ended March 31, 1999, we began providing
technical consulting services through our Netcentives Professional Services
subsidiary.

  Cost of Product Revenues

  Cost of product revenues increased from $2,000 in the three months ended
March 31, 1998 to $92,000 for the three months ended March 31, 1999 primarily
as a result of the increased redemption of ClickMiles by members.

  Program-Related Services, Marketing and Support Costs

  Program-related services, marketing and support costs increased from $684,000
in the three months ended March 31, 1998 to $4.5 million for the three months
ended March 31, 1999. The increase from period to period was primarily the
result of increased marketing personnel, member acquisition costs, and
advertising and promotions expenses associated with the launch of the
ClickRewards Network.

  Cost of Technical Consulting Services Revenues

  Costs of technical consulting services revenues totaling $817,000 were
incurred in the three months ended March 31, 1999 from the associated revenues
recognized during the same period, as a result of the acquisition of Panttaja
Consulting Group in December 1998.

  Research and Development

  Research and development expenses increased from $685,000 in the three months
ended March 31, 1998 to $1.0 million for the three months ended March 31, 1999.
The increase was primarily the result of an increase in these expenses for
enhancements to the ClickRewards Network, as well as initial development
efforts relating to our Custom Loyalty Networks.

  Selling General and Administrative

  Selling, general and administrative expenses increased from $704,000 in the
three months ended March 31, 1998 to $2.0 million for the three months ended
March 31, 1999. The increase from period to period was primarily the result of
increased sales efforts to enroll merchants into the ClickRewards Network,
increased business development efforts for our Custom Loyalty Networks and
increased general and administrative personnel.

                                       24
<PAGE>

  Amortization of Deferred Stock Compensation, Supplier Stock Awards and
 Intangibles

  Amortization of deferred stock compensation, supplier stock awards and
intangibles increased from $73,000 in the three months ended March 31, 1998 to
$1.5 million for the three months ended March 31, 1999. The increase in
amortization resulted from amortization of deferred stock compensation related
to stock options and common stock granted in 1998, the cost of warrants granted
to certain airlines and other partners and intangibles recorded at the time of
the acquisition of Panttaja Consulting Group in December 1998.

  Interest Income, Net

  Interest income, net increased from $53,000 for the three months ended March
31, 1998 to $103,000 for the three months ended March 31, 1999. The increase
was a result of increased interest income from $74,000 for the three months
ended March 31, 1998 to $146,000 for the three months ended March 31, 1999,
offset in part by an increase in interest expense from $21,000 to $43,000 for
the comparable periods.

  Income Taxes

  We have recorded losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes
for the three months ended March 31, 1998 and 1999.

                                       25
<PAGE>

Quarterly Results of Operations

  The following table sets forth certain unaudited consolidated statements of
operations data for the five quarters ended March 31, 1999. This data has been
derived from unaudited consolidated financial statements that, in the opinion
of our management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with our annual audited consolidated financial statements and notes
to those statements. Our operating results for any quarter are not necessarily
indicative of results for any future period.

<TABLE>
<CAPTION>
                                            Quarters Ended
                             -------------------------------------------------
                             Mar. 31,  June 30,  Sept. 30,  Dec. 31,  Mar. 31,
                               1998      1998      1998       1998      1999
                             --------  --------  ---------  --------  --------
Consolidated Statements of
Operations Data:               (in thousands, except per share amounts)
<S>                          <C>       <C>       <C>        <C>       <C>       <C>
Revenues:
  Product.................   $      2  $      8  $     15   $     39  $    103
  Program-related
   services...............         13       104       349        117       117
  Technical consulting
   services...............        --        --        --         --      1,436
                             --------  --------  --------   --------  --------
    Total revenues........         15       112       364        156     1,656
                             --------  --------  --------   --------  --------
Costs and expenses:
  Costs of product
   revenues...............          2         7        14         36        92
  Program-related
   services, marketing and
   support costs..........        684     1,755     1,640      3,214     4,519
  Cost of technical
   consulting services
   revenues...............        --        --        --         --        817
  Research and
   development............        685       716       804      1,178     1,032
  Selling, general and
   administrative.........        704       615       715      1,100     1,992
  Amortization of deferred
   stock compensation,
   supplier stock awards,
   and intangibles........         73        91       290        732     1,515
                             --------  --------  --------   --------  --------
    Total costs and
     expenses.............      2,148     3,184     3,463      6,260     9,967
                             --------  --------  --------   --------  --------
Loss from operations......     (2,133)   (3,072)   (3,099)    (6,104)   (8,311)
Interest income, net......         53        21        82        141       103
                             --------  --------  --------   --------  --------
Net loss..................   $ (2,080) $ (3,051) $ (3,017)  $ (5,963) $ (8,208)
                             ========  ========  ========   ========  ========
Net loss per share--basic
 and diluted..............   $  (1.63) $  (2.01) $  (1.71)  $  (2.85) $  (2.73)
                             ========  ========  ========   ========  ========
Shares used in computing
 per share amounts--basic
 and diluted..............      1,276     1,516     1,760      2,095     3,004
                             ========  ========  ========   ========  ========
</TABLE>


  Total revenues increased during the first three quarters of 1998. In the
third quarter, $296,000 of ClickMiles owned by a customer expired without being
distributed to consumers, and the associated deferred revenue was recognized as
revenue. While total revenues for the fourth quarter declined relative to the
third quarter, fourth quarter total revenues would have been higher than third
quarter total revenues if revenue recognized as a result of the expiration of
ClickMiles was excluded. Total revenues increased substantially in the first
quarter of 1999 as a result of the acquisition of Panttaja Consulting Group in
December 1998.

  The program-related services, marketing and support costs increased from
$684,000 to $4.5 million from the first quarter of 1998 to the first quarter of
1999. The increases over the five quarters were primarily the result of
increased marketing personnel, member acquisition costs and advertising and
promotions expenses associated with the launch of the ClickRewards Network.
These costs were particularly high in the second quarter of 1998 as a result of
increased advertising and promotions costs in the periods immediately preceding
and following the commercial launch of the ClickRewards Network.


                                       26
<PAGE>

  Cost of technical consulting services revenues totaling $817,000 were
incurred in the first quarter of 1999 as a result of the associated revenues
recognized during the same quarter following the acquisition of Panttaja
Consulting Group in December 1998.

  Research and development, marketing and sales and general and administrative
costs have generally increased on a quarterly basis as we have expanded our
operations in connection with the introduction and expansion of the
ClickRewards Network. We expect this trend to continue.

  Amortization of deferred stock compensation, supplier stock awards, and
intangibles has increased on a quarterly basis. This reflects the impact of
additional stock option grants made during the year, which will continue to be
amortized over the vesting life of the options, typically four years, as well
as the accounting for our contingent stock warrants with certain suppliers,
whose value and related expense must be adjusted each period as our stock value
changes prior to their vesting.

  Shares used in computing per share amounts increased significantly in the
first quarter of 1999 relative to the preceding quarters of 1998 as a result of
the shares issued in connection with the acquisition of Panttaja Consulting
Group in December 1998.

  We intend to increase our marketing, sales, research, development and
administrative activities and to increase other operating expenses as required
to expand our operations and launch Custom Loyalty Networks. We have
experienced significant losses to date and we anticipate that our expenses will
continue to exceed significantly the revenues generated by this increased
spending such that we will continue to incur losses for the foreseeable future.
In addition, we expect the magnitude of these losses to increase substantially
from current levels. If we do not experience significantly increased revenues
from these efforts, our results of operations would be impaired. In addition,
our operating expense levels are based in part on our expectations concerning
future revenues, and are relatively fixed in the short term. Consequently, if
our revenues are below expectations in any period, we may not be able to adjust
our spending levels in a timely manner.

Liquidity and Capital Resources

  We have funded our operations since inception primarily through the private
placement of preferred equity securities, through which we had raised net
proceeds of $52.7 million through March 31, 1999. In addition, we sold $12.0
million of additional Series E preferred stock to private investors during the
quarter ended June 30, 1999. We have also financed our operations through
equipment lease financing and bank borrowings. As of March 31, 1999, we had
outstanding equipment lease financing and bank borrowings totaling $1.2
million.

  Cash used in operations was $170,000 in 1996, $4.1 million in 1997, $9.5
million in 1998 and $4.0 million for the three months ended March 31, 1999. The
cash used in 1996 and 1997 was primarily the result of our operating losses in
those years. Subsequent to 1997, cash used in operations primarily reflects
cash received from customers of $1.3 million in 1998 and $2.3 million in the
three months ended March 31, 1999, offset by cash paid to suppliers and
employees of $11.2 million and $6.4 million in the same periods.

  We initially defer recording revenue at the time we sell our loyalty
currencies, even though we have received cash from our customers for these
sales. A significant portion of revenue is not recognized until the currency is
redeemed by the consumer. The remaining revenue is recognized on a ratable
basis over the periods in which marketing and support services are provided to
merchants and members. As a result of this accounting method, the cash received
from customers is substantially greater than the amount of revenues reported
for these periods. The difference in these amounts is reflected primarily as an
increase in the amount of deferred revenues for products and services shown on
our consolidated balance sheet. Total deferred revenues increased on a net
basis from cash transactions by $848,000 during 1998 and $601,000 during the
three months ended March 31, 1999. The growth in deferred revenues in 1998 was
offset in part by an increase in accounts receivable of $201,000.


                                       27
<PAGE>

  Cash paid to suppliers and employees was significantly less than costs and
expenses reported for these same periods. This resulted from non-cash charges
relating to depreciation, the amortization of deferred stock compensation,
supplier stock awards and intangible assets arising from the Panttaja
Consulting Group acquisition, and the use of ClickMiles in lieu of cash to pay
for certain expenses. Non-cash amortization charges totaled $1.8 million in
1998 and $2.3 million in the three months ended March 31, 1999. The use of
ClickMiles in lieu of cash to pay for certain expenses resulted in the deferral
of cash payments of $1.5 million during 1998 and $1.5 million during the three
months ended March 31, 1999.

  Investments in property and equipment were $124,000 in 1996, $1.0 million in
1997, $1.2 million in 1998 and $1.5 million in the three months ended March 31,
1999.

  Cash provided from financing activities was $1.4 million in 1996, $10.5
million in 1997, $17.9 million in 1998 and $23.8 million in the three months
ended March 31, 1999. Cash was provided primarily from sales of preferred stock
of $1.4 million in 1996, $10.1 million in 1997, $17.2 million in 1998 and $24.1
million in the three months ended March 31, 1999.

  At March 31, 1999, we had cash and equivalents totaling $32.0 million. In
addition, we raised $12.0 million through the sale of additional Series E
preferred stock during the quarter ended June 30, 1999. We anticipate that the
proceeds of this offering, together with our available cash resources, will be
sufficient to meet our presently anticipated working capital and capital
expenditure needs for at least the next twelve months.

  Our future liquidity and capital requirements will depend on numerous
factors. For example, our pace of expansion will affect our future capital
requirements, as may our decision to acquire or invest in complementary
businesses and technologies. Therefore, we may be required to raise additional
funds in the future through the issuance of debt or equity securities. If
additional funds are raised through the issuance of equity securities, our
existing stockholders may experience significant dilution. Furthermore,
additional financing may not be available when needed or, if available, such
financing may not be on terms favorable to us or our stockholders. If financing
is not available when required or is not available on acceptable terms, we may
be unable to develop or enhance our programs or other services. In addition, we
may be unable to take advantage of business opportunities or to respond to
competitive pressures. Any of these events could harm our business and
financial condition.

Year 2000 Compliance

  Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.

  We have defined Year 2000 Compliant as the ability to:

  . handle correctly date information needed for the December 31, 1999 to
    January 1, 2000 date change;
  . function according to the product documentation provided for this date
    change, without changes in operation resulting from the advent of a new
    century, assuming correct configuration;
  . respond to two-digit date input where appropriate in a way that resolves
    the ambiguity as to century in a disclosed, defined, and predetermined
    manner;
  . store and provide output of date information if the date elements in
    interfaces and data storage specify the century in ways that are
    unambiguous as to century; and
  . recognize Year 2000 as a leap year.


                                       28
<PAGE>

  All software developed by Netcentives utilizes the JavaSoft implementation of
date object and calendar classes for expression and manipulation of dates. When
dates are saved in persistent storage, the values are either serialized objects
or date fields in a relational database; in both cases, the full 4-digit year
is maintained. Our products do not perform any kind of truncation of century
values or any string operations that jeopardize the integrity of the date
values. We have also tested all of the third-party software incorporated in our
products to ensure their proper processing of twenty-first century dates. As a
result, we believe that all versions of our products including the production
systems that manage our promotional networks, are Year 2000 Compliant, provided
that the underlying operating system of the host machine and any other software
use with or on the host machine or our products are also Year 2000 Compliant.

  We have evaluated the data feeds from each of our rewards suppliers to
determine if they are Year 2000 Compliant. Certain of our rewards suppliers'
systems currently would not accurately process twenty-first century dates and
we have informed these suppliers of the deficiencies we have identified. These
suppliers have assured us that any such problems will be corrected prior to
October 1999. We do not have any information regarding the Year 2000 Compliance
of rewards suppliers systems with which we do not directly interface. To the
extent that our rewards suppliers are unable to transmit data to or receive
data from Netcentives as a result of their failure to be Year 2000 Compliant,
or they inaccurately maintain balances of frequent flyer miles for member
accounts, general member dissatisfaction with frequent flyer programs may
result and have an adverse effect on our business.

  We do not currently have any information concerning the Year 2000 Compliance
status of our merchant customers. We plan to notify merchants to remind them of
the Year 2000 problem and its potential effects on their systems. However, to
the extent that our merchants are no longer able to process e-commerce
transactions, process them incorrectly, or transmit incorrect data to our
systems, our business could be adversely affected. If our current or future
merchants fail to achieve Year 2000 compliance or if they divert technology
expenditures, especially technology expenditures that were reserved for
promotional products, to address Year 2000 compliance problems, our business,
results of operations, or financial condition could be materially adversely
affected.

  We have initiated an assessment of our material internal information
technology systems and our non-information technology systems. We expect to
complete testing of our information technology systems in September 1999. To
the extent that we are not able to test the technology provided by third-party
vendors, we are seeking assurances from vendors that their systems are Year
2000 Compliant. We are not currently aware of any material operational issues
or costs associated with preparing our internal systems for the Year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal systems.

  We have funded our Year 2000 plan from available cash and have not separately
accounted for these costs in the past. To date, these costs have not been
material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer and member
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could adversely affect our business, results of
operations, and financial condition.

  We have not yet fully developed a contingency plan to address situations that
may result if our products are not Year 2000 Compliant, or if our suppliers or
customers suffer major Year 2000 related problems or our internal systems fail
as a result of Year 2000 issues. We expect to develop such a plan, along with
an analysis of the worst-case scenario that might result from Year 2000 issues,
by the fourth quarter of 1999. Finally, we are also subject to external forces
that might generally affect e-commerce, such as retailing and distribution
company Year 2000 compliance failures and related service interruptions.

                                       29
<PAGE>

                                    BUSINESS

Overview

  Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. Netcentives' flagship program, ClickRewards Network, is a powerful
online promotion and loyalty program that allows e-commerce sites to reward
consumers with ClickMiles, a digital promotion currency, for making online
purchases. Launched in March 1998, ClickRewards Network, as of July 21, 1999,
included over 1.4 million members who have earned, in the aggregate, over 250
million ClickMiles. Top e-commerce companies, including barnesandnoble.com,
E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview Travel, purchase
ClickMiles from us and award them to consumers in order to convert browsers to
buyers, increase average purchase size, drive repeat purchases, and build
loyalty to their site. We also offer online advertising and sponsorship,
partnership marketing programs sponsored e-mail offers, and technical and
marketing consulting services. Our robust, secure, scalable transaction
processing technology allows consumers to earn rewards currency at the point of
purchase on sites throughout the Web and to track and manage them in their own
personal account at a central Web site.

  Utilizing the technology platform we have developed for the ClickRewards
Network and our expertise with promotional products and services, we have
expanded our product offering to provide Custom Loyalty Networks to portals,
companies with major brands and other Web sites with substantial membership. We
enable these sites to launch their own branded loyalty programs featuring their
own promotion currency. We launched our first Custom Loyalty Network for
Looksmart in July 1999 and are developing additional Custom Loyalty Networks,
including one for the GO Network that we expect to launch in the fourth quarter
of 1999. We have also launched Enterprise Incentive Solutions programs, such as
ClickRewards@Work, that enable corporations to utilize the power of the
ClickMile currency to motivate and reward employees, partners and stakeholders
across their intranets and extranets. We also offer a broad array of
complementary services to our ClickRewards merchants and Custom Loyalty and
Enterprise Incentive customers, including technical consulting and development,
marketing consulting, on-line advertising and sponsorship, partnership
marketing programs and sponsored e-mail offers.

  We have exclusive agreements with eight major airlines for the use of their
frequent flyer miles in points-based Internet promotions networks. These
relationships allow consumers, for example, to exchange ClickMiles one-for-one
for frequent flyer miles from American Airlines, British Airways (USA),
Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines
and US Airways. These exclusive agreements give our ClickRewards merchants the
ability to attract and retain online shoppers using a compelling, relevant, and
differentiated rewards currency. They also give our merchants access to
frequent flyer program members, a set of consumers that we believe has a
demographic profile closely aligned with that of online shoppers. In addition
to frequent flyer miles, ClickRewards and our other programs offer redemption
options such as merchandise and other travel awards.

  In order to drive purchases at the merchant Web sites participating in the
ClickRewards Network and to make our products more valuable to them, we
actively recruit a consumer membership base for ClickRewards. Consumers
participating in the ClickRewards and our Custom Loyalty Networks can learn
about offers and track and redeem their loyalty currencies at a centralized Web
site for each network. In addition, for ClickRewards merchants and our Custom
Loyalty Network customers we offer a variety of direct marketing services.
These services include building a rich database of consumer profiles based on
transaction behavior across each network, offering targeted e-mail marketing
using this information and providing promotion management services.

Industry Background

 Growth of the Internet and Online Advertising

  The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically.
International Data Corporation, or IDC, estimates that there were

                                       30
<PAGE>

approximately 97 million Internet users at the end of 1998, and that this
number will grow to 320 million by the end of 2002. IDC further estimates that
the total value of commerce over the Internet will increase from approximately
$32 billion in 1998 to $425 billion in 2002. Similarly, Forrester Research
estimates that U.S. business e-commerce revenue will grow from $109 billion in
1999 to $1.3 trillion in 2003. Internet commerce transactions are often faster,
less expensive and more convenient for both buyers and sellers, and the
opportunity to take advantage of these business efficiencies has attracted a
broad group of participants.

  During the early stages of development of e-commerce, merchants were focused
on building general brand awareness and acquiring customers. Consequently, the
rapidly growing market for Internet marketing was heavily dominated by banner
advertising. However, the low barriers to entry for new competitors, the
emergence of below-cost online retailers and the ease with which consumers can
switch between Internet retailers have intensified online commerce competition.
As a result, Internet retailers seeking to differentiate themselves from
competitors and build a substantial, loyal consumer base are finding that
banner advertising alone is either insufficient or ineffective.

 The Market for Loyalty, Direct Marketing and Promotion Products

  According to the Direct Marketing Association, offline expenditures on direct
marketing, including promotions, reached $163 billion in 1998. Jupiter
Communications estimates that online spending for Internet-based advertising
alone will total $7.7 billion in the U.S. by 2002. As e-commerce Web sites
increasingly focus on customer retention and loyalty, we believe that spending
for online marketing will shift toward promotions and direct marketing. For
example, Forrester Research predicts that by 2003, 50 to 70% of all Internet
marketing budgets will be spent on promotional marketing as opposed to
advertising, with the largest growth coming from membership, rewards and
loyalty programs. As part of this trend, we believe consumers are interested in
maximizing the effectiveness of their Internet spending by participating in
Internet-based promotion programs. We further believe that offline rewards
providers, such as frequent flyer program operators, are increasingly looking
to extend their promotional activities to the Internet.

  As Internet retailers, portals and offline rewards providers increase their
online promotional activities, we believe they face a number of challenges that
require additional capabilities and skills outside of their traditional
competencies. Specifically, any of the following operational requirements could
pose problems for these entities:

  . integration of point of purchase promotional capabilities;
  . attraction and retention of consumers with an attractive demographic
    profile, such as frequent flyer program members;
  . establishment of a network of earning and award opportunities that is
    significant enough to make promotions appealing to consumers;
  . creation of a robust transaction processing system designed for use on
    the Internet;
  . development of Web site enhancements necessary to track consumer
    participation in and satisfaction with online promotional programs;
  . investment necessary to develop online promotions capabilities;
  . possession of the expertise required to develop and administer promotion
    programs and the associated financial liabilities; and
  . integration of new online promotions with existing offline promotion
    programs.

  We believe that Internet retailers, portals and offline rewards providers
recognize the benefits of deploying online promotion programs, but have not
been able to justify the resources required to build and maintain their own
programs independently.

The Netcentives Solution

  Netcentives is a leading provider of powerful Internet loyalty, direct
marketing and promotion products and services used by top Web sites to drive
consumer behavior. Leveraging our advanced technology

                                       31
<PAGE>

infrastructure, experience and knowledge of promotions, we have developed three
products to serve the online promotions market: the ClickRewards Network,
Custom Loyalty Networks and Enterprise Incentive Solutions.

  ClickRewards Network. The ClickRewards Network is a loyalty program that
gives online merchants the capability to reward consumers for making purchases
at their Web sites. Top Web merchants that are a part of the network include
barnesandnoble.com, E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview
Travel. By shopping at participating Web sites, consumers can earn ClickMiles,
a digital currency that is exchangeable one-for-one for frequent flyer miles on
eight major airlines and for other valuable rewards. Our customers reward
consumers with ClickMiles as an incentive to convert browsers to buyers, drive
repeat purchases, increase transaction size and build loyalty within their
online communities.

  ClickRewards addresses the needs of the three major constituencies in
promotional programs: e-commerce merchants, rewards suppliers and members.

  Merchants that participate in the ClickRewards Network benefit by:

    . attracting and retaining a targeted and loyal customer base including
      frequent flyer program members and online shoppers;
    . participating in a growing network of high-quality merchants with
      well known brands, the value of which increases with each additional
      merchant;
    . increasing the attractiveness of their online community with a
      loyalty program;
    . increasing the effectiveness of their marketing expenditures through
      e-mails to a targeted member base, Web site placements and cross-
      promotions;
    . enhancing customer loyalty and retention with ClickMiles, which are
      redeemable one-for-one for the frequent flyer miles of eight major
      airlines and a wide range of valuable merchandise rewards, which may
      include a merchant's own products; and
    . having the ability to create and maintain ClickRewards promotions on
      the merchant's Web site.

  Rewards suppliers that provide us with frequent flyer miles and merchandise
benefit by:

    . selling additional products through a growing online channel;
    . broadening their online presence to reach more consumers with an
      attractive demographic profile; and
    . increasing the value of frequent flyer miles by expanding the markets
      in which they are available.

  Our members benefit by:

    . increasing the value of their online purchases, by receiving a
      valuable currency with their purchases;
    . aggregating currency across a large network of high quality, well
      known merchants to realize meaningful value more quickly;
    . centralizing their earning and tracking of this currency in an online
      personal account; and
    . accumulating and holding a valuable currency that can be converted
      into frequent flyer miles or other rewards at a later date.

  Launched in March 1998, the ClickRewards Network has attracted 56 merchants
from many of the top e-commerce categories. We have also entered into exclusive
relationships to provide frequent flyer miles in points-based Internet
promotion networks with American Airlines, British Airways (USA),
Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines
and US Airways. Based on our strong reward supplier relationships and network
of merchants, as of July 21, 1999, membership in the ClickRewards Network has
grown to over 1.4 million members who have earned, in the aggregate, over 250
million ClickMiles.

  Custom Loyalty Networks. Our Custom Loyalty Network products enable portals,
companies with major brands and other Web sites with substantial membership and
scale to launch branded loyalty programs. We

                                       32
<PAGE>

launched our first Custom Loyalty Network for Looksmart in July 1999 and are
developing additional Custom Loyalty Networks, including one for the GO Network
that we expect to launch in the fourth quarter of 1999. Using their own branded
promotional currency, our clients are able to deploy programs that are designed
to build community and drive customer acquisition and retention. Custom Loyalty
Network clients receive all the benefits of operating a loyalty program like
ClickRewards, such as increasing purchases, acquiring consumers and members and
establishing a direct marketing channel. In addition, these clients are able to
utilize our expertise and the power of our technology platform to outsource
functions such as consumer account management, reward catalog development,
transaction processing, reward exchange, customer service, database marketing
and financial management of currency and liabilities.

  Enterprise Incentive Solutions. We sell Enterprise Incentive Solutions
programs to corporations who use them to motivate and reward employees,
partners and stakeholders across their intranets and extranets. Corporations
can benefit from using our Enterprise Incentive Solutions by reducing the cost
of implementing and administering employee incentive programs and increasing
the effectiveness of these programs. Additionally, through the
ClickRewards@Work program, companies can launch an effective incentive program
that is linked to the broader consumer network of the ClickRewards Network. We
launched our first Enterprise Incentive Solutions program in late 1998 and have
operated programs for four companies including Cisco Systems and Microsoft.

  Netcentives Professional Services. All of our products are complemented by
Netcentives Professional Services, our team of consulting professionals who
offer significant expertise in relationship marketing, developing e-commerce
applications and implementing our promotion solutions. Since our acquisition of
Panttaja Consulting Group in December 1998, we have provided professional
services to 16 clients in a variety of areas, including those related to e-
commerce.

The Netcentives Strategy

  Our objective is to be the leading provider of Internet loyalty, direct
marketing and promotion products used by top Web sites to drive consumer
behavior. We intend to achieve this objective by establishing ClickRewards as
the leading Internet loyalty program and utilizing our technology and marketing
expertise to provide products and services to retailers, portals and employers
who are establishing their own loyalty networks. The key elements of our
strategy are to:

   Expand the ClickRewards Network of Merchants, Rewards Suppliers and Members

  The ClickRewards Network has grown rapidly and includes 56 merchants, 1.4
million members, and 13 awards suppliers. We plan to continue to provide value-
added products and services to our merchants in order to drive acceptance and
growth of our incentive and rewards products. We use our capabilities to
provide targeted offers from merchants to our member base. We use e-mails to
our member base and inserts in frequent flyer newsletters and statements to
increase the value of the ClickRewards currency to our members and to drive
revenue to our merchants. Furthermore, we believe that we can increase the
value of the ClickRewards Network to participating merchants by increasing the
number of consumers who are members. As the ClickRewards Network grows, we
believe that it will create the opportunity for additional revenue streams from
existing merchants, including enhanced direct marketing and other professional
services.

   Establish ClickRewards as the Primary Loyalty Program for Leading Online
   Merchants

  We believe that our customers will increasingly use the ClickRewards Network
to address their particular business objectives, such as revenue growth and
consumer loyalty. The key features that allow us to address the needs of our
merchants include:

  . enabling them to create and maintain their own ClickRewards promotions;
  . featuring their own products in the ClickRewards rewards catalog;

                                       33
<PAGE>

  . promoting their brand on the ClickRewards Web site;
  . integrating ClickRewards functionality on their e-commerce Web site;
  . launching co-branded marketing programs; and
  . customizing ClickRewards e-mail communications for their consumers.

   Maximize Lifetime Value of ClickRewards Members

  We seek to maximize the frequency, size and number of purchases made by
ClickRewards members throughout the network. Capitalizing on the attractive
demographics and purchase behavior of our membership base, we intend to enhance
the lifetime value of our members to our merchants through database marketing,
a tiered loyalty program for top purchasers, additional site functionality and
other community features.

   Extend Network Loyalty Platform to Support Additional Products

  We have developed a scalable technology infrastructure and a set of products,
services and management expertise that effectively support Internet-based
promotion and loyalty networks. We intend to use this platform to drive revenue
opportunities beyond ClickRewards, including:

  . Custom Loyalty Networks. As portals, companies with major brands and
    other web sites transition from a media or advertising revenue model to
    an e-commerce revenue model, they are starting to seek ways of
    influencing consumers to shop at their site or network of sites. We are
    leveraging our experience in building and operating the ClickRewards
    Network to offer these major online companies the ability to implement
    custom loyalty programs. Not only do our Custom Loyalty Network products
    and services offer many of the same features as our ClickRewards Network,
    but they are also designed around the customer's brand, existing consumer
    base and partners. Our Custom Loyalty Network products and services
    enable these companies to award their members with private currency
    points and customized redemption options. We launched our first Custom
    Loyalty Network for Looksmart in July 1999 and are developing additional
    Custom Loyalty Networks, including one for the GO Network that we expect
    to launch in the fourth quarter of 1999.

  . Enterprise Incentive Solutions. To address the large and growing market
    for employee and channel partner incentives, we intend to deploy
    additional incentive programs for enterprises based on both the
    ClickRewards Network and custom implementations. These incentive programs
    allow enterprises to motivate, retain and reward employees, channel
    partners, and stakeholders. We launched our first Enterprise Incentive
    Solutions program in late 1998 and have operated programs for four
    companies including Cisco Systems and Microsoft.

  . Online and Offline Rewards Programs. Many merchants have both an online
    and offline presence. For such merchants, we intend to offer integrated
    rewards programs that increase consumer loyalty across multiple channels.
    We intend to pursue strategic partnerships that will enable merchants in
    the ClickRewards and Custom Loyalty Networks to award their members and
    consumers for offline activity.

   Build the Netcentives and ClickRewards Brands

  We believe that building greater awareness of the Netcentives and
ClickRewards brands is critical to expanding our merchant, rewards supplier,
and member base and our roster of Enterprise Incentive Solutions and Custom
Loyalty Networks customers. In order to accelerate the acceptance and
penetration of the ClickRewards Network, we have developed and are continuing
to pursue strategic relationships with merchants, rewards suppliers and
technology partners whose brands are well known and widely respected. We
believe that increasing the number of ClickRewards members makes the
ClickRewards Network more attractive and valuable to merchants. Therefore, we
actively promote the ClickRewards brand among consumers through a variety of
marketing programs, including promotions, direct e-mail marketing, and targeted
advertising. We also promote the Netcentives brand to potential Enterprise
Incentive Solutions customers and Custom Loyalty

                                       34
<PAGE>

Networks customers in trade journals and other industry forums. As we increase
our collective base of merchants rewards suppliers and members, we believe that
the value of the Netcentives and ClickRewards brands will be reinforced.

   Offer a Broad Range of Loyalty and Direct Marketing Services

  We seek to provide a broad range of marketing solutions to our ClickRewards
merchants and our Custom Loyalty Network clients. Separate from providing these
customers with a promotional currency, we also offer a wide range of
promotional and marketing services including database marketing, promotion
development and management, email direct marketing, and creative services. We
believe that these services offer a complete loyalty marketing solution to our
customers and allow them to maximize the return from their loyalty program.

  For example, our advanced technology infrastructure, substantial membership
bases, and merchant and rewards supplier relationships allow us to aggregate
significant data regarding specific consumer behavior throughout each network.
We maintain data warehouses of consumer profiles, transactional activity,
exchange activity, Web traffic activity, click-through response data,
communications history and survey data. We also capture transactional activity
across multiple merchant product categories, allowing us to aggregate and view
consumer patterns throughout each network.

  We enforce strict privacy policies that govern how information about members
is used, and communications are sent only to members who have previously agreed
to be contacted. This form of permission-based marketing removes the issue of
unsolicited offers and increases responsiveness to promotional offers. While
adhering to our privacy policies, we intend to use the accumulated
transactional and demographic data to provide advanced marketing services to
merchants and Custom Loyalty Network clients.

  Through the use of our tools, information and processes, we have the
capability to assist merchants in targeting members for specific marketing
promotions. Examples include tailored e-mail messages based on past
interactions, preferences and interests and the monitoring of members'
responses to these promotions. We believe that a robust marketing
infrastructure will make Netcentives' direct marketing capabilities attractive
to merchants who prefer to outsource this function rather than make the
necessary investment themselves.

   Extend Technology and Business Process Leadership

  We believe that our ability to scale our technology and infrastructure in a
secure manner with the growth in the number of merchants, members, and
transactions has been a competitive advantage. We hold a patent that
encompasses a unique set of systems, procedures and methods for providing
Internet-based incentive and reward programs which we license on a non-
exclusive basis. With our recent acquisition of the Panttaja Consulting Group,
Inc., we have added further capacity to develop enhancements to our technology
base and to bring them to market. We expect to continue to invest heavily in
research and development. We also expect to pursue technology partnerships to
enhance the performance, security and functionality of our core technology
infrastructure.

   Expand Internationally

  To date, we have focused on pursuing opportunities in the United States and
Canada. However, we believe that international markets present an attractive
marketplace for our network loyalty infrastructure. We expect to begin our
international efforts by expanding the ClickRewards Network into Europe. We
intend to expand our Custom Loyalty Networks products to portals and online
merchants based in other countries and our Enterprise Incentive Solutions
products to large multinational corporations.

                                       35
<PAGE>

Products and Services

  We provide a suite of products and services to address our customers' various
needs for online promotions and loyalty programs. Our programs are positioned
as follows:


<TABLE>
<CAPTION>
   Netcentives           Target             Program          Program
     Solution           Customers           Members          Branding            Rewards
-----------------------------------------------------------------------------------------------

  <S>             <C>                   <C>              <C>              <C>
  ClickRewards    Internet commerce     Current shoppers ClickRewards     Frequent flyer miles,
  Network         merchants             and ClickRewards branded          merchandise and
                                        members                           travel-related awards
-----------------------------------------------------------------------------------------------

  Custom Loyalty  Portals, companies    Customer's user  Customer branded ClickMiles and
  Networks        with major brands     base                              customer-specific
                  and other large scale                                   merchandise
                  Web sites
-----------------------------------------------------------------------------------------------


  Enterprise      Businesses            Employees and    Customer and     ClickMiles and
  Incentive                             channel partners ClickRewards     customer-specific
  Solutions                                              co-branded       merchandise
</TABLE>


   ClickRewards Network

  The ClickRewards Network brings together e-commerce merchants, ClickRewards
members and awards suppliers into a networked loyalty program. Netcentives
sells merchants ClickMiles, a digital promotions currency. Merchants then award
the ClickMiles to consumers for activities such as making purchases, winning
sweepstakes and completing surveys. Members can earn ClickMiles from merchants
across the ClickRewards Network and can track their award balances online.
Members can redeem their ClickMiles for frequent flyer miles from eight leading
airlines on a one-for-one basis and for other travel awards and merchandise
using our online catalog.

  . ClickRewards Membership. Consumers become ClickRewards members by either
    signing up on the ClickRewards Web site at www.clickrewards.com, or
    qualifying automatically when they make a purchase at a ClickRewards
    shopping site. Membership in ClickRewards is free and protected by a
    strict privacy policy. Launched in March 1998, as of July 21, 1999, there
    were over 1.4 million ClickRewards members who have earned, in the
    aggregate, over 250 million ClickMiles. Members learn about earning
    opportunities by visiting www.clickrewards.com, receiving member e-mails,
    or by electronically visiting a merchant that features ClickRewards. In
    addition, the shopping sites that participate in the ClickRewards Network
    promote their ClickRewards offers via e-mails to their customers, banner
    ads, placement on their Web site and offline advertising. The consumer's
    ClickMiles earning activity is integrated with the purchase process so
    that the consumer is not required to take any additional actions unless
    required by the merchant. Once the qualifying transaction is complete,
    information about the member and the ClickMiles that have been earned is
    sent to Netcentives securely over the Internet, automatically triggering
    an e-mail receipt to the member confirming the deposit of ClickMiles. The
    member can then track his or her account balance on the ClickRewards Web
    site in a password-protected area.

  . ClickMiles Redemption. To redeem ClickMiles, members simply visit the
    ClickRewards Web site, log into their personal account, and select the
    redemption option of their choice. Members can choose to redeem their
    ClickMiles one-for-one and add them into their existing frequent flyer
    account with American Airlines, British Airways (USA), Continental
    Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines, or
    US Airways. ClickMiles can also be redeemed for other travel awards such
    as car rental and hotel certificates, and for a wide range of
    merchandise.

  . Merchant Participation. We have targeted premier brand name sites in each
    major shopping category as customers. Currently we have 56 e-commerce
    shopping sites in the ClickRewards Network. A

                                       36
<PAGE>

   representative sample of merchants who have offered ClickRewards
   promotions during the past twelve months or are currently developing
   ClickRewards promotions include:


                           Representative Merchants
-------------------------------------------------------------------------------

<TABLE>
    <S>                  <C>              <C>                  <C>
    areyougame.com       CyberBills.com   KBKids.com           ShopSports

    ArtSelect            DealDeal.com     TheKnot.com          Someone Special

    Azazz                eBags            macys.com            Visa

    @Backup              eNutrition       MSN Shopping         Visto

    barnesandnoble.com   E*TRADE(TM)      Music Boulevard      WebFlyer

    beyond.com           First Auction    OfficeMax.com        Wells Fargo

    ClubComputer         garden.com       PlanetRx             XOOM.com

    Cooking.com          iOwn.com         Preview Travel       1-800-FLOWERS

                         iPrint.com       Red Herring Online
</TABLE>


   Custom Loyalty Networks

  We believe that most individual merchant sites are best served by
participating in a network loyalty program, such as ClickRewards. However,
portals and other large community sites have their own network of merchants
and consumers, and possess their own considerable scale, traffic and brand.
Therefore, we are leveraging our experience in building and operating the
ClickRewards Network to offer these major online companies the ability to
implement custom loyalty programs. Not only do our Custom Loyalty Network
products and services offer many of the same features as our ClickRewards
Network, but they are also designed around the customer's brand, existing
consumer base and partners. Our Custom Loyalty Network products and services
enable these companies to award their members with custom branded currency
points and customized redemption options. To build large-scale loyalty
programs, we believe that we can provide the necessary tools and expertise,
such as:

  . Overall Program Management. We offer overall management services for
    custom loyalty products from the definition phase, to design,
    implementation and maintenance.

  . Loyalty Program Design Services. We offer program design services that
    take advantage of the advertising, promotions, and loyalty program
    experience of our management team, including the conceptualization and
    development of the awards catalog.

  . Technology and Process Licensing. We offer customers access to our base
    of proprietary technology and business processes that enable certain
    types of promotions.

  . Currency Creation. We work with customers to create unique promotional
    currencies that specifically target the customer's consumer base and
    utilize the customer's brand identity.

  . Currency and Liability Management. We have experience with the complex
    financial management of rewards programs. We offer these services to
    Custom Loyalty customers to allow them to focus on their core business.

  . Awards Transaction Processing and Data Center Services. We offer
    reliable, secure, and fault-tolerant transaction processing services to
    support the issuance of currencies and the exchange of awards. We also
    offer reliable data center services for the storage of account
    information for a particular customer's program.

  . Consumer Services. We offer customers software that enables their
    consumer service representatives to have access to real-time consumer
    information. In addition, we offer complete outsourcing of the loyalty
    program consumer service function.

                                      37
<PAGE>

  . Risk Management/Fraud Control. Through technical and operational
    processes, we offer comprehensive risk management and fraud control
    services to address and prevent potential fraudulent activity.

  . Database Marketing Consulting. We offer data analysis based on our
    understanding of consumer behavior. Database marketing consulting can
    provide our customers with the opportunity to design and modify their
    program based on demonstrated consumer behavior.

   Enterprise Incentive Solutions

  The market for enterprise incentive solutions is estimated to be greater than
$20 billion per year by the Incentive Federation, an independent trade
organization. We believe that this market, traditionally managed offline, can
be more efficiently automated using Internet technology that leverages the
enterprise's investment in intranets and extranets. For example, incentives can
be offered to sales forces as additional compensation for the adoption of sales
force automation systems, for performance-based programs and for other
motivational programs. Incentives can also be offered to other employees to
increase loyalty, improve job performance, increase information sharing,
encourage self-improvement training and refer employees.

  We believe that the ClickRewards Network has many attributes that make it an
effective platform for enterprise solutions. Our use of the current Netcentives
rewards management technology allows us to reduce the cost of developing and
operating incentive programs for these markets. We launched our first
Enterprise Incentive Solutions program in late 1998 and have operated programs
for four companies including Cisco Systems and Microsoft.

   Netcentives Professional Services

  Technical and marketing consulting services are an integral part of our
ClickRewards, Custom Loyalty Networks, and Enterprise Incentives Solutions
offerings to customers. Through the Netcentives Professional Services group, we
have provided systems integration and technical consulting services to clients
to help them deploy the ClickRewards program as well to other businesses. We
also offer educational services in the Internet and client/server market
sectors through this group. Additionally, we expect customers of our Custom
Loyalty Networks and Enterprise Incentives Solutions to use our e-commerce
systems development skills to integrate Netcentives technology with their
existing systems, or to build customized applications that support their
e-commerce, loyalty or other initiatives.

Rewards Suppliers

  We believe that a critical element of developing successful direct marketing
and promotion products for merchants is to offer compelling awards to consumers
with a high perceived value. Frequent flyer miles are among the most popular,
proven and effective offline consumer incentives. We have cultivated exclusive
relationships with eight major airlines for the use of frequent flyer miles in
points-based Internet-based promotion networks. A significant advantage we
offer with ClickRewards is the ability for consumers to add ClickMiles to their
existing frequent flyer accounts. We have also entered into a variety of
relationships with other suppliers of incentive awards in order to provide
broad yet compelling appeal to our awards catalog offerings. Current awards
suppliers include:


                               Rewards Suppliers
--------------------------------------------------------------------------------

<TABLE>
     <S>                                    <C>
     American Airlines AAdvantage           TWA Aviators Club
     British Airways Executive Club         US Airways Dividend Miles
     (USA)
     Continental Airlines OnePass           United Airlines Mileage Plus
     Delta Air Lines SkyMiles               Azazz.com
     Northwest Airlines WorldPerks          Marriott Hotels Marriott Rewards
</TABLE>


                                       38
<PAGE>

Marketing and Sales

  We have a comprehensive approach to marketing and sales. To our ClickRewards
Network merchants and rewards suppliers, we position ourselves as the leader in
providing powerful relationship marketing products and services to drive
consumer behavior. To the consumer, we position the ClickRewards Network as the
most rewarding way to shop online. Finally, for our Custom Loyalty and
Enterprise Incentive Solutions customers, we market Netcentives as the premier
outsourcing partner for relationship marketing and incentive products and
services. As such, our marketing and sales efforts are distinct to each
audience.

   ClickRewards Merchants

  We have a direct sales force that sells our entire portfolio of products and
services and includes individuals focused on distinct markets and specific
products and services. Our sales force is based out of our San Francisco
headquarters with sales offices in Chicago and New York. An internal telesales
team responds to inbound inquiries and provides additional support to our
direct sales force. We plan to increase our direct sales force and open
additional sales offices in the United States and internationally. We will also
increasingly pursue partnerships with advertising agencies, systems
integrators, consulting firms and others to provide broad indirect distribution
channels. Our marketing department also supports our sales efforts and
coordinates attendance at industry events and pursues trade advertising and
media relations. We also have agreements with several major online sites such
as Yahoo!, MSN Shopping, TAXI and CoolSavings to feature ClickRewards on their
Web sites.

   ClickRewards Consumers

  We believe that increasing our membership base is a critical element to
making our products and services more valuable to merchants. Therefore, our
consumer marketing strategy and programs are designed to build the ClickRewards
brand, drive new member acquisition, convert members to buyers, encourage
repeat purchases, drive purchases across the network and create loyalty to the
ClickRewards Network and its shopping sites.

  We intend to continue building the relationship with our members through
targeted, relevant communications and offers based on their past buying
behavior and preferences. In addition, we offer bonuses to our members to
encourage seasonal purchases and purchases throughout the network. We believe
that if we can build a loyal member base, we can offer greater value to our
merchants.

  In order to achieve our brand, acquisition, retention and loyalty goals, we
employ a wide range of promotional, direct marketing, media and public
relations activities.

  . Advertising and Public Relations. We advertise in a variety of online and
    offline media including newspaper, magazines, radio and Internet banner
    advertisements. We intend to begin outdoor and potentially television
    advertising in the future. Our advertising efforts are augmented by
    extensive consumer public relations to generate coverage in radio and
    print, and on television.

  . Airline Supplier Co-Marketing. As a benefit of our relationships with our
    airline suppliers, we have access to multiple direct marketing channels
    targeting the members of the airlines' frequent flyer programs. We have
    utilized statement inserts, newsletter articles, statement messaging, e-
    mails, in-flight video and Web site placement to reach these frequent
    flyer program members.

  . Merchant Co-Marketing. The majority of our participating e-commerce
    shopping sites feature the ClickRewards logo and promotional offers on
    their home page. In addition, the ClickRewards message is often threaded
    throughout the purchase process. The ClickRewards offers are often
    included in e-mails to the shopping sites' customers and included in
    their advertising campaigns both online and offline.


                                       39
<PAGE>

  . Ongoing E-mail Communications. We have a variety of ongoing e-mail
    communications which feature new shopping sites, new offers and special
    offers. We will continue to enhance this channel of communication to
    become more personalized and customized.

  . Network Promotions. We develop and launch network-wide promotions on a
    seasonal basis to provide added incentives for members to shop frequently
    and throughout the ClickRewards Network. Examples include volume, multi-
    purchase and refer-a-friend bonuses.

   Custom Loyalty, Enterprise Incentive Solutions and Netcentives Professional
   Services Customers

  The launch of a custom loyalty program represents a significant and strategic
decision for a company. Consequently, we are primarily using a direct sales
force for Custom Loyalty Networks. These sales efforts are complemented by our
general trade marketing efforts, that aim to establish our position as the
leader in our field. Enterprise Incentive Solutions products and services are
also sold by a direct sales force. In the future, we expect this solution to be
sold and delivered through resellers and other partners, such as enterprise
software companies, existing incentive product providers and promotion
agencies. Marketing and sales of our professional services and technical
consulting are integrated into the sales and marketing of each of our products.
Additionally, our existing client base and client referrals generate inquiries
and leads for more general e-commerce consulting projects not directly related
to the implementation of a rewards or loyalty product.

Member Service

  We believe that to sell high volumes of ClickMiles to merchants we need to
offer them a large attractive base of potential consumers. We believe that our
ability to create a loyal and valuable membership base for ClickRewards depends
on high quality member service. Furthermore, direct member feedback on our
service is an important way in which we can continually improve the
ClickRewards shopping experience. The member service team is responsible for
providing phone support during business hours and e-mail support with a 24-hour
response time. Representatives are responsible for resolving general inquiries
about ClickRewards, and inquiries relating to the status of orders and
redemption requests. Many of these requests require coordination with the
member service teams of participating merchants and reward suppliers. E-mail
support utilizes customized automatic response systems and a staff of trained
member support agents to generate personalized responses to inquiries. To
customers of our Custom Loyalty Networks and Enterprise Incentive Solutions
products, we offer the option of outsourcing member service support for
inquiries related to their program, or utilizing the member service module of
our software platform for their internal member service representatives.

                                       40
<PAGE>

Technology

  We have built a robust, scalable, and secure system for the exchange and
management of an online promotional currency. Our SecureRewards Architecture
consists of a set of modular applications and protocols that interact across
the Internet to create a network among merchants, rewards suppliers and
consumers. We designed this system for security and high volume transaction
processing, with the ability to handle hundreds of thousands of transactions
per day. Our system uses a high performance database design and distributed
value transfer architecture.

[A diagram using a grid to represent the Internet and boxes representing the
Netcentives Website and a typical merchant Website. The elements of the
Netcentives software residing on the Netcentives Web site and the merchant
Website are represented by boxes within the boxes representing the Web sites.
The software element within the merchant site is the Reward Broker and the
software elements within the Netcentives site are the Payment System,
Netcentives Central, the Redemption System and the Member Relationship Systems.
Arrows representing the interactions between Netcentives, the merchant, rewards
suppliers and a consumer. The merchant site and the Netcentives site are
connected by the Secure Value Transfer Protocol.]

  The modular design of our SecureRewards Architecture allows merchants to
distribute promotional currency safely at their own site. The following is a
description of the modules within the SecureRewards Architecture:

  . RewardBroker resides at the merchant or aggregator site and initiates
    promotional currency transfers in real time. We provide merchants with a
    range of integration options with RewardBroker, including application
    programming interfaces, database table integration and integration
    services to enable rapid customization and integration with the
    merchant's own unique e-commerce environment.

  . Payment System resides at our data center and receives and processes all
    promotional currency transfer requests from RewardBroker. It first
    determines if the requestor is legitimate and that the request has not
    been modified. It then passes the request through the Fraud Detection
    System, and finally fulfills the request.

  . Secure Value Transfer Protocol ensures the privacy and origin of all
    messages in the network. RewardBroker and Payment System communicate
    through the protocol, which is transport-independent and supports a wide
    variety of message types. It employs commercial, financial transaction-
    grade cryptography to sign and encrypt messages.

  . Fraud Detection System provides both per-transaction and aggregate fraud
    detection and prevention. The system applies a combination of business
    rules about each promotion and velocity controls based on past behavior
    to determine if activity is fraudulent.

  . Account Management Systems provides consumer, merchant and reward
    supplier lifecycle services, such as account creation and reactivation,
    promotion funding and transaction inquiries, as well as a consumer
    support knowledge base to facilitate timely response to inquiries.

                                       41
<PAGE>

  . Member Relationship Systems presents the current promotions, rewards and
    account balance information to individual consumers through an HTML
    interface. Each request to manipulate an individual consumer's account
    requires authentication to prevent fraudulent activity. Member
    Relationship Systems also include the Customer Contact Module and the
    Targeting and Segregation Database.

  . Consumer Contact Module provides consumers with instant receipts of
    account activity and periodic account statements. We are developing the
    capability to use the Consumer Contact Module to provide consumers with
    relevant promotions and award opportunities based on self-identified
    interests and past behavior in the network.

  . Targeting and Segmentation Database is being developed to provide
    relevant promotions and rewards opportunities by tracking consumer
    preferences, both explicit and implicit. It will be used in conjunction
    with the Consumer Contact Module to personalize each consumer's
    experience.

  . Redemption Systems reside at our data center and processes all requests
    by consumers to redeem promotional currency for goods or services. The
    requests pass through the Fraud Detection System and are then formatted
    for transmission as fulfillment requests to the various rewards partners.
    Responses to fulfillment requests are also processed by the Redemption
    Systems.

  . Netcentives Central provides merchants and their account managers with
    up-to-date information via the Web on current promotions, including
    promotion balances and transactional history.

  All elements of the SecureRewards Architecture are designed to be operating
system and hardware independent facilitating deployment on a wide range of
merchant systems. This modularity also helps us to deploy new technologies
without needing to re-write the entire system. Much of the SecureRewards
Architecture is written in Java. The SecureRewards Architecture is the
technological foundation for the ClickRewards Network, Enterprise Incentive
Solutions, and Custom Loyalty Networks.

  We designed all elements of the SecureRewards Architecture from the ground up
with security in mind. RewardBroker and Payment System, in particular, utilize
private key cryptography with highly secure financial transaction grade ciphers
to authenticate merchants and encrypt transactions. Each request to manipulate
an individual consumer's account requires authentication to prevent fraudulent
activity and encryption to enhance consumer security. We have implemented
additional fraud prevention mechanisms such as velocity controls and user login
tracking to track unusual behavior.

Competition

  As a provider of loyalty, direct marketing, and promotion products, we
generally compete with advertising and other promotion programs for a portion
of a customer's total marketing budget against other marketing solutions such
as advertising. In addition, within the promotions market, we compete with a
variety of businesses in connection with each of our three programs. For the
ClickRewards Network our primary competition can be categorized as follows:

  . loyalty programs operated by and/or for portals and other large e-
    commerce sites, such as AOL Rewards;
  . Custom Loyalty Networks that we intend to operate on behalf of third
    parties; and
  . standalone loyalty programs and promotion tools developed by and/or for
    standalone e-commerce sites, such as Autobytel.com Mobalist Rewards,
    CDnow Fast Forward Rewards, CBS Sportsline Rewards, Cybergold and
    MyPoints.

  We believe that we face substantial obstacles competing against internally
developed products created by our existing and potential customers. Our
Enterprise Incentive Solutions products compete with existing, offline
incentive products provided by parties such as Maritz Marketing Research,
Carlson Marketing Group, Loyalty

                                       42
<PAGE>

Group, a division of Alliance Data Systems and BI Performance Services. Our
Custom Loyalty and Enterprise Incentive Solution products and services also
compete with products offered by third parties, such as MyPoints.com.

  For each of our programs, we expect competition to intensify as more
competitors enter our markets. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. In addition,
while we currently operate as a partner with many rewards suppliers, such as
airline frequent flyer programs, any of these suppliers could themselves enter
into our markets and provide us with substantial competition.

  Many of our current and potential competitors, and in particular offline
promotions companies and offline rewards programs, have longer operating
histories, stronger brand names and significantly greater financial, technical,
marketing and other resources than we do. In addition, these companies may have
existing relationships with our potential customers and may be able to respond
to changes in market dynamics and technology faster than we can. We cannot
assure you that we will be able to compete successfully against our current or
future competitors. If we are unable to compete successfully against current or
future competitors, our business, financial condition and results of operations
would be materially adversely affected.

Proprietary Rights

  We currently rely on a mixture of patents, copyrights, trademarks, trade
secrets, agreements with third parties and employees, and clickwrap license
agreements to protect our proprietary rights. Despite our efforts to protect
our proprietary rights, unauthorized parties may utilize aspects of our
business model and products and obtain and use information we regard as
proprietary. In addition, other parties may breach confidentiality agreements
or other protective contracts, and we may not be able to enforce our rights in
the event of such breaches. Our competitors may independently develop
technologies or business models that are substantially equivalent or superior
to ours. Furthermore, if we expand internationally, many countries do not
protect our intellectual property rights to the same extent as the laws of the
United States. In the event that we are unable to protect our proprietary
rights, our business, financial condition and results of operations could be
harmed.

  The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the past several months, including our business process patent.
We believe that several additional, related patents are currently pending. We
believe that there will continue to be substantial activity in this area and
that litigation may arise due to our attempts or a third party's efforts to
enforce patent rights.

  We may incur substantial expenses, and the attention of our management may be
diverted if such litigation occurs. In addition, whether or not any claims
against us are meritorious, we may be required to enter into license agreements
or be subject to injunctive or other equitable relief, any of which would
materially adversely affect our business, results of operations and financial
condition.

  We have obtained a patent on our principal business process, which we believe
would be useful to third parties. We have entered into a non-exclusive,
royalty-bearing license agreement with MyPoints.com, an Internet advertising
company, permitting them to use this patent. We expect to negotiate with other
online promotions companies in this regard, although there can be no assurance
that we will enter into any such license agreements or that any agreements we
do enter into will result in material royalties to us.

Employees

  As of June 30, 1999, Netcentives had 149 full time employees, including 78 in
marketing and sales, 35 in research and development, 19 in professional
services, and 17 in finance and administration. Our employees are not
represented by any collective bargaining unit or labor union and we have never
experienced a work stoppage. We believe our relations with our employees are
good.

                                       43
<PAGE>

  Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber personnel. Competition for qualified
personnel in our industry and geographic region is intense, and we may not be
successful in attracting and retaining such personnel. There are only a limited
number of people with the skills that we require, and the market in which we
compete is characterized by rapidly increasing salaries and equity incentives.
These factors may increase our operating expenses and equity dilution or hinder
our ability to recruit and retain qualified personnel. To the extent we are not
able to attract, retain and motivate additional personnel effectively, our
business, financial condition and results of operations would be adversely
affected. In addition, our business is substantially dependent on the efforts
of certain key executives, including West Shell, III, our Chairman and Chief
Executive Officer, the loss of whom we believe could delay our ability to
achieve major corporate milestones. In addition, we believe that as a result of
the complexity of our financial model, the loss of members of our financial
management team could adversely affect us. We currently do not maintain key
person life insurance on any of our employees.

Facilities

  Our current headquarters are located in San Francisco, California, where we
lease five locations aggregating approximately 40,000 square feet under leases
expiring between 2000 and 2001. In May 1997, we entered into a lease that
expires in 2007 for approximately 70,000 square feet in which we will
consolidate our San Francisco headquarters in early 2000. We also lease
approximately 1,000 square feet in Chicago, Illinois, approximately 500 square
feet in New York, New York and approximately 4,000 square feet in Healdsburg,
California under leases that are month-to-month.

Legal Proceedings

  We are currently involved in no material legal proceedings.

                                       44
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

  Our executive officers and directors and their ages as of June 30, 1999 are
as follows:

<TABLE>
<CAPTION>
 Name                        Age Position
 ----                        --- --------
 <C>                         <C> <S>
 West Shell, III............ 44  Chairman of the Board of Directors and Chief
                                  Executive Officer

 Murray Brozinsky........... 34  Executive Vice President and Managing
                                  Director, North America

 John F. Longinotti......... 54  Executive Vice President, Operations and Chief
                                  Financial Officer

 Elizabeth S. Ames.......... 42  Senior Vice President and General Manager,
                                  Custom Loyalty Networks

 Timothy J. O. Catlin....... 35  Senior Vice President, Research & Development

 Edward Fong Soo Hoo........ 47  Senior Vice President, Corporate Development

 George Loyer............... 50  Vice President and General Manager,
                                  Netcentives Professional Services

 Elliott S. Ng.............. 30  Vice President and General Manager,
                                  ClickRewards

 William B. Rusitzky........ 35  Vice President and General Manager, Enterprise
                                  Incentive Solutions

 Paul F. Danielsen.......... 44  Vice President, Sales

 Perryman K. Maynard........ 43  Vice President, Relationship Marketing and
                                  Strategic Alliances
 William McGee.............. 42  Vice President, Corporate Marketing

 Stewart Alsop(2)........... 47  Director

 Tom Byers, Ph.D.(2)........ 46  Director

 Eric W. Tilenius........... 31  Director

 Virginia M. Turezyn(1)(2).. 41  Director

 Wendell G. Van Auken(1).... 54  Director

 Sergio Zyman(1)(2)......... 53  Director
</TABLE>
---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

  Mr. Shell was elected to our Board of Directors in January 1997 and as
Chairman of the Board of Directors in July 1999. He has served as our President
and Chief Executive Officer since June 1997. In 1986, Mr. Shell founded Pacific
Marketing Group (subsequently Highway One Communications), a marketing firm
whose clients included Coca Cola, Inc., Compaq Computer Corp., Disney
Enterprises, Inc., and Visa, and acted as its Managing Partner until November
1996. Prior to founding Pacific Marketing Group, Mr. Shell held marketing
positions at Atari Corp., Johnson & Johnson and Grey Advertising Inc. Mr. Shell
holds a B.S. in Business Administration from the University of Vermont.

  Mr. Brozinsky joined Netcentives in April 1998 and has served us in a variety
of capacities since that time, including currently as Executive Vice President
and Managing Director, North America, a position he has held since July 1999.
From September 1994 to April 1998, Mr. Brozinsky was a consultant with the
Boston Consulting Group, a management consulting firm, where he specialized in
developing e-commerce strategies for high technology and financial services
clients. Prior to September 1994, Mr. Brozinsky served as the Director of
Finance at McCaw Cellular Communications Inc., a cellular telecommunications
company, General Manager of Monitor Marine, a subsidiary of Monitor Aerospace
Corporation, a high technology manufacturing company, and as an investment
banker with Morgan Stanley and Company, Inc., an investment bank. Mr. Brozinsky
holds a B.S. in Finance and a B.A. in Philosophy from the University of
Pennsylvania and an M.B.A. in management and manufacturing from Northwestern
University's Kellogg and McCormick schools.


                                       45
<PAGE>

  Mr. Longinotti joined Netcentives in January 1998 and has served as our
Executive Vice President, Operations since July 1999 and as Chief Financial
Officer since January 1998. Mr. Longinotti served as a consultant to
Netcentives from October 1997 to January 1998. From April 1995 to January 1998
he was an independent consultant in an operational and financial consulting
practice. From July 1993 to March 1995 Mr. Longinotti was Chief Executive
Officer of Digital Collections, Inc., a graphics software and multimedia firm.
Mr. Longinotti started his career at U.S. Leasing International where he spent
sixteen years in a variety of executive positions, followed by two years at
AT&T Capital. Mr. Longinotti holds a B.S. in Engineering from Stanford
University and an M.B.A. from the University of California at Berkeley's Haas
School of Business.

  Ms. Ames joined Netcentives in November 1998 and has served us in a variety
of capacities since that time, including currently as Senior Vice President and
General Manager, Custom Loyalty Networks, a position she has held since July
1999. From May 1998 to November 1998, Ms. Ames was General Manager, Internet
Merchant Group at VeriFone, Inc., an electronic payment system company, where
she had profit and loss responsibility for sales, marketing and product
development for the Internet merchant market. While at VeriFone, Ms. Ames also
served as Director, Product Marketing, Internet Commerce Division from June
1997 to May 1998. From October 1996 to June 1997, Ms. Ames was an independent
consultant with a focus on internet commerce and marketing technology. From
November 1995 to October 1996, Ms. Ames was Vice President, Product Development
at Eagle River Interactive, an interactive advertising agency. From January
1994 to November 1995, Ms. Ames was a Principal at Opus Consulting, a strategic
marketing and Internet consulting group. Prior to 1994, Ms. Ames held a variety
of positions with Apple Computer, Inc., a computer manufacturer. Ms. Ames holds
a B.F.A. from the Hartford Art School at the University of Hartford and an
M.B.A. from Southern Methodist University.

  Mr. Catlin joined Netcentives in November 1996 as our Vice President,
Research & Development and became our Senior Vice President, Research &
Development in July 1999. From July 1996 to October 1996, Mr. Catlin was Senior
Director of Engineering at Eagle River Interactive. From March 1995 to July
1996, Mr. Catlin was an Engineering Manager at Intuit, Inc., a financial
software company. From September 1993 to January 1995, Mr. Catlin was President
and Chief Executive Officer of Streetlight Software, Inc., a software services
company. Mr. Catlin holds a B.A. in Computer Science from Brown University.

  Mr. Soo Hoo has served as our Senior Vice President, Corporate Development
since March 1998. From September 1997 to March 1998, Mr. Soo Hoo was Executive
Vice President of Sales at Quote.com, Inc., a Web-based financial services
information company. From February 1996 to September 1997, Mr. Soo Hoo was
Director of Business Development at CyberCash, Inc., an Internet commerce
payment solutions company. From January 1994 to February 1996, Mr. Soo Hoo was
Business Development Manager, OEM at Novell, Inc., a network operating systems
manufacturer. Mr. Soo Hoo studied business administration at both the
University of San Francisco and California State University, Hayward.

  Mr. Loyer has served as our Vice President and General Manager, Netcentives
Professional Services since July 1999. From December 1998 to July 1999, Mr.
Loyer served as our Director, Netcentives Professional Services. From March
1993 to December 1998, Mr. Loyer served in a variety of capacities at Panttaja
Consulting Group, Inc., a technology consulting firm which was acquired by
Netcentives, including most recently as Panttaja's Vice President and General
Manager from June 1996 to December 1998. Mr. Loyer studied Chemical Engineering
at Rensselaer Polytechnic Institute.

  Mr. Ng was a co-founder of Netcentives in June of 1996 and has served
Netcentives in a variety of capacities since that time, including currently as
our Vice President and General Manager, ClickRewards a position he has held
since July 1999. Mr. Ng also served as a Director of Netcentives from June 1996
to September 1997 and as our Chief Financial Officer from June 1996 to January
1998. From December 1995 to June 1996, Mr. Ng was a Partner in Tilenius & Ng
Ventures, a predecessor entity to Netcentives. From July 1991 to August 1994,
Mr. Ng was a Product Manager at Microsoft Corp., a software developer. Mr. Ng
holds a B.A. in Social Studies from Harvard University and an M.B.A. from the
Harvard University Graduate School of Business.

                                       46
<PAGE>

  Mr. Rusitzky joined Netcentives in February 1997, and has served us in a
variety of capacities, including currently as our Vice President and General
Manager, Enterprise Incentive Solutions, a position he has held since July
1999. From February 1994 to February 1997, Mr. Rusitzky was Manager, Business
Development and International Marketing/Sales at Silicon Graphics, Inc., a
computer workstation manufacturer. Prior to 1994, Mr. Rusitzky served in a
variety of positions with Silicon Graphics. Mr. Rusitzky holds a B.M.E. from
the Georgia Institute of Technology and an M.E. in Operations Research and
Industrial Engineering and an M.B.A. from Cornell University.

  Mr. Danielsen has served as our Vice President, Sales since May 1997. From
October 1995 to May 1997, Mr. Danielsen was Director of Business Development at
Sportsline USA, Inc., an internet-based sports media company, where he was
responsible for developing strategic relationships with national governing
bodies, athletes, and new channel partnerships. From 1990 to October 1995, Mr.
Danielsen was a Managing Partner of P&P West, a sports marketing company
specializing in event packaging, production and television. Mr. Danielsen holds
a B.A. in Economics from the University of Colorado.

  Mr. Maynard has served as our Vice President, Relationship Marketing and
Strategic Alliances since August 1998. From July 1997 to August 1998, Mr.
Maynard was a Principal at Maynard & Associates, a marketing consulting firm.
From February 1996 to June 1997, Mr. Maynard was a Senior Vice President at
Brierley & Partners, a direct marketing agency. From October 1994 to January
1996, Mr. Maynard was Executive Director, Marketing at Hilton Grand Vacations
Corporation, a developer and marketer of timeshare resorts. Prior to October
1994, Mr. Maynard was Vice President, Marketing Programs with Hilton Hotels
Corporation, a hotel management company and owner. Mr. Maynard holds a B.A. in
History from Bates College.

  Mr. McGee joined Netcentives in March 1999, and has served us in a variety of
capacities, including, currently, as our Vice President, Corporate Marketing, a
position he has held since July 1999. From March 1999 to July 1999, Mr. McGee
served as our Director of Marketing Services. From September 1990 to March
1999, Mr. McGee was Partner and General Manager of Creative Media, Inc., a
media placement and advertising firm. Prior to September 1990, Mr. McGee served
as a Management Supervisor and Vice President at Ketchum Advertising, an
advertising firm, a Product Manager at Microsoft, an Advertising Manager at
Atari, and as a Media Buyer for Foote, Cone & Belding, an advertising firm. Mr.
McGee holds a B.A. in Economics from the University of California, Santa
Barbara.

  Mr. Alsop has served as a director of Netcentives since September 1997. Mr.
Alsop has been a General Partner at New Enterprise Associates, a venture
capital investment firm, since November 1998. Mr. Alsop was a Venture Partner
at New Enterprise Associates from June 1996 to November 1998. From June 1991 to
June 1996, Mr. Alsop served as Senior Vice President and Editor in Chief of
InfoWorld Publishing Company, Inc., which publishes InfoWorld, a weekly
newspaper for information-technology professionals. Prior to 1991, Mr. Alsop
founded Industry Publishing Company, a publisher of computer industry
newsletters. Mr. Alsop also serves on the board of directors of Macromedia,
Inc., a developer of multimedia and digital arts software tools. Mr. Alsop
holds a B.A. in English from Occidental College.

  Dr. Byers has served as a director of Netcentives since December 1998. Dr.
Byers has been an Associate Professor at Stanford University and the founding
Director of the Stanford Technology Ventures Program since July 1995. He also
currently serves as the Director of the AEA/Stanford Executive Institute, a
professional development program for high technology executives. From January
1994 to June 1995, Dr. Byers was a Lecturer at the University of California at
Berkeley's Haas School of Business. Dr. Byers also serves on the board of
directors of Visio Corporation, a graphics software company. Dr. Byers holds a
B.S. in Industrial Engineering and Operations Research, and an M.B.A. and Ph.D.
in Business Administration from the University of California, Berkeley.

                                       47
<PAGE>

  Mr. Tilenius has served as a member of the Board of Directors since our
founding in June 1996. Mr. Tilenius has served as an Entrepreneur-in-Residence
at Mayfield Fund, a venture capital investment firm, since July 1999. Prior to
joining Mayfield Fund, Mr. Tilenius co-founded Netcentives in June 1996, and
served us in a variety of capacities, including as Chairman of the Board of
Directors and Vice President, Business Development, from June 1997 and to July
1999 and President and Chief Executive Officer from June 1996 to June 1997.
From September 1995 to June 1996, Mr. Tilenius was a Partner in Tilenius & Ng
Ventures. From April 1992 to September 1994, Mr. Tilenius was Product Manager
of the Quicken for Macintosh business at Intuit, Inc. From September 1990 to
April 1992 Mr. Tilenius held product management positions at Oracle
Corporation, a database software company. Mr.  Tilenius holds a B.A. in
Economics from Princeton, a Certificate in Space Studies from International
Space University and an M.B.A. from Stanford University.

  Ms. Turezyn has served as a director of Netcentives since November 1996. Ms.
Turezyn co-founded Information Technology Ventures, a venture capital firm, in
September 1994 and has served as a General Partner from that time to the
present. From April 1982 to September 1994 she served in a variety of
capacities at Morgan Stanley & Company, Inc., including most recently as a Vice
President in the Venture Capital Group. Ms. Turezyn holds a B.A. in Accounting
from Queens College and is a Certified Public Accountant.

  Mr. Van Auken has served as a director of Netcentives since September 1997.
Mr. Van Auken has been a General Partner of the Mayfield Fund since October
1986. Prior to joining Mayfield, Mr. Van Auken was an officer, founder or chief
executive officer of three successful start-ups in three different technology-
oriented fields. Mr. Van Auken serves as a director of Advent Software, Inc., a
portfolio management software company and Montgomery Street Income Securities
Inc., a closed-end bond fund. Mr. Van Auken holds a B.E.E. from Rensselaer
Polytechnic Institute and an M.B.A. from Stanford University.

  Mr. Zyman has served as a director of Netcentives since December 1998. Mr.
Zyman has been an independent consultant since June 1998. For more than five
years prior to June 1998, Mr. Zyman served in a variety of positions at Coca-
Cola, Inc., including most recently as the Chief Marketing Officer. Mr. Zyman
serves as a director of Gap, Inc., an apparel retailer, and UC Television
Network Corp., a college television network.

  Each executive officer serves at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of Netcentives.

Board Composition

  We currently have authorized seven directors. In accordance with the terms of
our Certificate of Incorporation, effective upon the closing of this offering,
the terms of office of the directors will be divided into two classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in 2000
or special meeting held in lieu thereof, and Class II, whose term will expire
at the annual meeting of stockholders to be held in 2001 or special meeting
held in lieu thereof. The Class I directors are Ms. Turezyn, Messrs. Alsop and
Tilenius and Dr. Byers and the Class II directors are Messrs. Shell, Van Auken,
and Zyman. At each annual meeting of stockholders after the initial
classification or special meeting in lieu thereof, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the second annual meeting following election or special
meeting held in lieu thereof. In addition, our Certificate of Incorporation
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the two
classes so that, as nearly as possible, each class will consist of one-half of
the directors. This classification of the Board of Directors may have the
effect of delaying or preventing changes in control or management of
Netcentives.


                                       48
<PAGE>

Board Compensation

  We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors or its committees. Our directors are generally eligible
to participate in our 1996 Stock Option Plan and, if a director is an employee
of Netcentives, to participate in our 1999 Employee Stock Purchase Plan.
Directors who are not employees will also receive periodic stock option grants
under our 1999 Directors' Stock Option Plan.

Board Committees

  The Compensation Committee currently consists of Ms. Turezyn, Messrs. Alsop
and Zyman and Dr. Byers. The Compensation Committee:

  . reviews and approves the compensation and benefits for our executive
    officers and grants stock options under our stock option plans; and
  . makes recommendations to the Board of Directors regarding these matters.

  The Audit Committee currently consists of Ms. Turezyn and Messrs. Van Auken
and Zyman. The Audit Committee:

  . makes recommendations to the Board of Directors regarding the selection
    of independent auditors;
  . reviews the results and scope of the audit and other services provided by
    our independent auditors; and
  . reviews and evaluates our audit and control functions.

Compensation Committee Interlocks and Insider Participation

  The members of the Compensation Committee are currently Ms. Turezyn, Messrs.
Alsop and Zyman and Dr. Byers. Neither Ms. Turezyn, Messrs. Alsop and Zyman nor
Dr. Byers has at any time been an officer or employee of Netcentives. No
executive officer of Netcentives serves as a member of the board of directors
or compensation committee of an entity that has one or more executive officers
serving on Netcentives' Board of Directors or Compensation Committee.

                                       49
<PAGE>

Executive Compensation

  The following table sets forth certain compensation earned by our Chief
Executive Officer and the four other most highly compensated executive officers
whose total compensation exceeded $100,000 during the year ended December 31,
1998.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                    Long-Term
                                         Annual                    Compensation
                                      Compensation                    Awards
                                    -----------------              ------------
                                                         Other      Securities
                                                         Annual     Underlying
Name and Principal Position          Salary  Bonus(1) Compensation  Options(#)
---------------------------         -------- -------- ------------ ------------
<S>                                 <C>      <C>      <C>          <C>
West Shell, III.................... $200,000 $66,936    $7,836(2)         --
 Chairman and Chief Executive
  Officer

Timothy J.O. Catlin................  130,000  44,667          --      50,000
 Senior Vice President, Research &
  Development

Paul F. Danielsen..................  110,000  72,624          --      40,000
 Vice President, Sales

John F. Longinotti.................  137,427  32,163          --      50,000
 Executive Vice President,
 Operations and Chief Financial
  Officer

Edward Fong Soo Hoo ...............  106,329  56,163          --     182,000
 Senior Vice President, Corporate
 Development
</TABLE>
---------------------
(1)Includes the fair market value of ClickMiles awarded in the past fiscal
year.
(2)Represents term life insurance payments.

                       Option Grants in Last Fiscal Year

  The following table shows certain information regarding stock options granted
to each of the executive officers named in the Summary Compensation Table
during the year ended December 31, 1998. No stock appreciation rights were
granted to the executive officers named in the Summary Compensation Table
during the year.

<TABLE>
<CAPTION>
                                                                       Potential Realizable
                                                                         Value at Assumed
                         Number of                                     Annual Rates Of Stock
                           Shares   Percentage of                       Price Appreciation
                         Underlying Total Options Exercise              For Option Term(3)
                          Options    Granted to     Price   Expiration ---------------------
Name                     Granted(1) Employees(2)  per Share    Date        5%        10%
----                     ---------- ------------- --------- ---------- ---------- ----------
<S>                      <C>        <C>           <C>       <C>        <C>        <C>
West Shell, III.........       --         --           --          --          --         --
Timothy J.O. Catlin.....   50,000        1.6%       $1.05    12/28/08  $   33,017 $   83,671
Paul F. Danielsen.......   40,000        1.3         1.05    12/28/08      26,414     66,937
John F. Longinotti......   50,000        1.6         1.05    12/28/08      33,017     83,671
Edward Fong Soo Hoo.....  155,000        4.9         0.15    03/15/08      14,622     37,055
                           27,000        0.9         1.05    12/28/08      17,829     45,183
</TABLE>
---------------------
(1) These stock options, which were granted under the 1996 Stock Option Plan,
    become exercisable at a rate of 1/8th of the total number of shares of
    common stock subject to the option on the six month anniversary of the date
    of grant, and 1/48th of the total number of shares monthly thereafter, as
    long as the optionee remains an employee of, consultant to, or director of
    Netcentives.
(2) Based on an aggregate of 3,132,293 options to purchase common stock of
    Netcentives granted by Netcentives under the 1996 Stock Option Plan in
    fiscal year 1998.

                                       50
<PAGE>

(3) Potential realizable values are net of exercise price, but before taxes
    associated with exercise. The 5% and 10% assumed annual rates of compounded
    stock price appreciation are mandated by the Securities and Exchange
    Commission. There is no assurance provided to any executive officer or any
    other holder of our securities that the actual stock price appreciation
    over the 10-year option term will be at the assumed 5% and 10% levels or at
    any other defined level. Unless the market price of the common stock
    appreciates over the option term, no value will be realized from the option
    grants made to the executive officers.

Option Exercises and Holdings

  The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by each of the executive officers named in
the Summary Compensation Table during our last fiscal year, and the number and
value of securities underlying unexercised options held by the these executive
officers as of December 31, 1998:

                         Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                Number of Securities
                          Number of            Underlying Unexercised     Value of Unexercised
                           Shares                    Options at           In-the-Money Options
                         Acquired on  Value     December 31, 1998 (#)   At December 31, 1998 (2)
                          Exercise   Realized ------------------------- -------------------------
Name                         (#)       (1)    Exercisable Unexercisable Exercisable Unexercisable
----                     ----------- -------- ----------- ------------- ----------- -------------
<S>                      <C>         <C>      <C>         <C>           <C>         <C>
West Shell, III.........       --         --    40,833         9,167      $38,191      $ 8,709
Timothy J.O. Catlin.....       --         --    25,000       125,000       22,500       67,500
Paul F. Danielsen.......       --         --    30,833       109,167       28,224       62,975
John F. Longinotti......   41,979    $20,990        --       163,021           --      101,719
Edward Fong Soo Hoo.....       --         --    29,062       152,938       26,156      113,344
</TABLE>
---------------------
(1) The amount set forth represents the difference between the fair market
    value of the shares on the date of exercise as determined by the Board of
    Directors and the exercise price of the option.
(2) Based on the fair market value as of December 31, 1998 ($1.05 per share),
    as determined by the Board of Directors, minus the exercise price,
    multiplied by the number of shares underlying the option.

Employment Agreements

  In June 1997, we entered into an Employment Agreement with West Shell, III,
our Chairman and Chief Executive Officer in which we agreed to pay Mr. Shell an
annualized salary of $200,000. In the event of Mr. Shell's involuntary
termination, we agreed to pay Mr. Shell his regular salary for a period of six
months; agreed to provide medical, dental and other like benefits for a period
of six months; agreed to release our repurchase option as to 1/4th of the
common stock then held by him that is then subject to repurchase; and agreed to
preserve Mr. Shell's eligibility to receive a discretionary bonus on the
involuntary termination date.

  In October 1998, we entered into an amendment to Mr. Shell's Employment
Agreement. In this amendment, we agreed to extend the term of the Employment
Agreement until October 29, 2000; agreed to increase Mr. Shell's annualized
salary to $250,000; and agreed to loan Mr. Shell $100,000 upon his request. We
subsequently loaned him $100,000 in January 1999.

  In January 1998, we entered into a Change of Control Agreement with John F.
Longinotti, our Executive Vice President, Operations and Chief Financial
Officer in which we agreed that, subject to certain limitations, if Mr.
Longinotti's employment relationship is involuntarily terminated within twelve
months following a change of control transaction, all of Mr. Longinotti's stock
options shall immediately vest.

Stock Plans

  1996 Stock Option Plan. Our 1996 Stock Option Plan (the "Option Plan")
provides for the grant of incentive stock options to employees and nonstatutory
stock options and stock purchase rights to employees, directors and
consultants. The purposes of the Option Plan are to attract and retain the best
available personnel,

                                       51
<PAGE>

to provide additional incentives to our employees and consultants and to
promote the success of our business. The Option Plan was originally adopted by
our Board of Directors in November 1996 and approved by our stockholders in
August 1997. Unless terminated earlier by the Board of Directors, the Option
Plan shall terminate in November 2006. A total of 7,671,400 shares of common
stock have been reserved for issuance under the Option Plan, plus an automatic
annual increase on the first day of our fiscal years beginning in 2000, 2001,
2002, 2003 and 2004 equal to 1,250,000 shares or such lesser number of shares
as the Board of Directors determines. As of June 30, 1999, options to purchase
4,815,736 shares of common stock were outstanding at a weighted average
exercise price of $1.93, 563,776 shares had been issued upon exercise of
outstanding options, and 2,291,888 shares remained available for future grant.
In addition, options to purchase 30,000 shares of our common stock were
outstanding outside of the Option Plan.

  The Option Plan may be administered by the Board of Directors or a committee
of the Board. The Option Plan administrator determines the terms of options or
purchase rights granted under the Option Plan, including the number of shares
subject to an option or award, the exercise or purchase price, and the term and
exercisability of options. In no event, however, may an individual employee
receive option grants or purchase rights under the Option Plan during any one
fiscal year which would allow him or her to purchase more than 2,000,000
shares. Incentive stock options granted under the Option Plan must have an
exercise price of at least 100% of the fair market value of the common stock on
the date of grant and at least 110% of such fair market value in the case of an
optionee who holds more than 10% of the total voting power of all classes of
our stock. The exercise or purchase price of nonstatutory stock options and
stock purchase rights granted under the Option Plan shall be determined by the
Option Plan administrator; provided however that the exercise price of any
nonstatutory stock option granted to our Chief Executive Officer or our four
other most highly compensated officers will generally equal at least 100% of
the fair market value of the common stock on the date of grant. Payment of the
option exercise or purchase price may be made in cash or other consideration,
as determined by the Administrator.

  With respect to options granted under the Option Plan, the Option Plan
administrator determines the term of options, which may not exceed 10 years (or
5 years in the case of an option granted to a holder of more than 10% of the
total voting power of all classes of our stock). No option may be transferred
by the optionee other than by will or the laws of descent or distribution;
provided that the Option Plan administrator may grant nonstatutory stock
options with limited transferability rights in certain circumstances.
Generally, each option may be exercised during the lifetime of the optionee
only by the optionee. The Option Plan administrator determines when options
vest and become exercisable.

  In the event of a sale of substantially all of the assets of Netcentives, or
its merger or consolidation with or into another corporation, each option may
be assumed or an equivalent option substituted by the successor corporation.
However, if the successor corporation does not agree to such assumption or
substitution of an option, the option will terminate. The Administrator has the
authority to amend or terminate the Option Plan provided that no action that
impairs the rights of any holder of an outstanding option may be taken without
the holder's consent, and provided that stockholder approval for any amendments
to the Option Plan shall be obtained to the extent required by applicable law.

  1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 300,000 shares of common stock have been reserved for
issuance under the Purchase Plan, none of which have been issued as of the date
of this offering. The number of shares reserved for issuance under the Purchase
Plan will be subject to an annual increase on the first day of each of our
fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser
of 75,000 shares, 1% of our outstanding common stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the Board
of Directors determines. The Purchase Plan becomes effective upon the date of
this prospectus. Unless terminated earlier by the Board of Directors, the
Purchase Plan shall terminate in March 2019.

                                       52
<PAGE>

  The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods (other than
the first offering period) commencing on May 1 and November 1 of each year.
Each offering period will consist of 4 consecutive purchase periods of 6
months' duration. At the end of each such 6 month period an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on October 31, 2001; the initial
purchase period is expected to commence on the date of this offering and end on
April 30, 2000. The Board of Directors may, however, amend or terminate an
offering period or a purchase period, if prevailing accounting rules change so
as to have a harmful effect on our financial statements. The Purchase Plan will
be administered by the Board of Directors or by a committee appointed by the
Board. Employees (including officers and employee directors) of Netcentives, or
of any majority-owned subsidiary designated by the Board, are eligible to
participate in the Purchase Plan if they are employed by Netcentives, or any
such subsidiary, for at least 20 hours per week and more than 5 months per
year. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions of up to 20% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of the common stock at
the beginning of each offering period or at the end of each purchase period.
The Board of Directors shall have the discretion to increase, prior to the
beginning of an offering period, the percentage of participants' compensation
that may be withheld through the Purchase Plan. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment.

  No employee shall be granted an option under the Purchase Plan if immediately
after the grant such employee would own stock and/or hold outstanding options
to purchase stock equaling 5% or more of the total voting power or value of all
classes of Netcentives' stock or its subsidiaries, or if the option would
permit an employee to purchase stock, under all of our, or our subsidiaries',
employee stock purchase plans, to accrue at a rate that exceeds $25,000 of fair
market value of such stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 2,500
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan shall automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new 24 month offering
period beginning on the first business day following the purchase date.

  The Purchase Plan provides that in the event of a merger or consolidation of
Netcentives with or into another corporation or a sale of all or substantially
all of its assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens any ongoing offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to the
transaction. The Board of Directors has the power to amend or terminate the
Purchase Plan and to change or terminate offering periods as long as such
action does not adversely affect any outstanding rights to purchase stock under
the Purchase Plan, provided however that the Board may amend or terminate the
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.

  1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 400,000 shares of common stock have been reserved for
issuance under the Directors' Plan. The number of shares reserved for issuance
under the Directors' Plan will be subject to an annual increase on the first
day of each of our fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lesser of 50,000 shares or 1% of our outstanding common stock on
the last day of the immediately preceding fiscal year. The Directors' Plan
becomes effective upon the effective date of this prospectus. The Directors'
Plan provides for the grant of nonstatutory stock options to nonemployee
directors of Netcentives and is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors without participation by a director with
respect to matters in which the director has a personal interest. Unless
terminated earlier, the Directors' Plan will terminate in March 2009.

                                       53
<PAGE>

  The Directors' Plan provides for an initial grant of an option to purchase
40,000 shares of common stock to each nonemployee director who has not received
a grant under the Option Plan during the twelve months preceding the effective
date of the Directors' Plan, and to each person who first becomes a nonemployee
director thereafter. These options shall become exercisable in four equal
installments on the first, second, third, and fourth anniversaries of the
grant. On the first day of each fiscal year, each nonemployee director who has
served on our Board of Directors for at least 6 months shall be granted an
additional option to purchase 10,000 shares of common stock, which shall become
exercisable in full on the fourth anniversary of the date of grant. The
exercise price of all stock options granted under the Directors' Plan shall be
equal to the fair market value of a share of Netcentives' common stock on the
date of grant of the option.

  The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to a qualified domestic relations order. Each option is exercisable, during the
lifetime of the optionee, only by the optionee. If a nonemployee director
ceases to serve as a director for any reason other than death or disability, he
or she may, within 90 days after the date he or she ceases to be a director,
exercise options granted under the Directors' Plan to the extent that he or she
was entitled to exercise it at the date of termination. To the extent that he
or she was not entitled to exercise any such option at the date of termination,
or if he or she does not exercise an option (which he or she was entitled to
exercise) within the 90 day period, the option shall terminate. If a director's
service on our Board terminates as a result of his or her death, the director's
estate will have the right to exercise any option granted under the Directors'
Plan as if the deceased director had continued in his or her position on the
Board of Directors for an additional six months following the date of death.
Options granted under the Directors' Plan have a term of ten years.

  In the event of a dissolution or liquidation of Netcentives, a sale of all or
substantially all of its assets, or a merger, consolidation or other capital
reorganization of Netcentives with or into another corporation, each option
outstanding under the Directors' Plan shall be assumed or equivalent options
substituted by the successor corporation, unless such successor corporation
does not agree to such assumption or substitution, in which case the options
shall terminate upon consummation of the transaction; provided however that
upon a sale of all or substantially all of our assets or a merger or
consolidation of Netcentives with or into another corporation in which more
than 50% of the shares entitled to vote are exchanged, each director holding
options under the Directors' Plan shall have the right to exercise his or her
options immediately prior to the consummation of such transaction as to all of
the shares of stock underlying such options, including shares as to which the
director would not otherwise be entitled to exercise.

  The Board of Directors may amend or terminate the Directors' Plan at any
time; provided however that no such action may adversely affect any outstanding
option and provided that stockholder approval for any amendments to the
Directors' Plan shall be obtained to the extent required by applicable law.

Limitation of Liability and Indemnification Matters

  Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability:

  . for any breach of such director's duty of loyalty to Netcentives or to its
    stockholders;

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

  . for unlawful payments of dividends or unlawful stock repurchases or
    redemptions as provided in Section 174 of the Delaware General
    Corporation Law; or

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

                                       54
<PAGE>

  Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the
fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of an
indemnified party. Our bylaws also permit us to advance expenses incurred by an
indemnified party in connection with the defense of any action or proceeding
arising out of the party's status or service as a director, officer, employee
or other agent of Netcentives upon an undertaking by the party to repay such
advances if it is ultimately determined that the party is not entitled to
indemnification.

  We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to, among other things,
indemnify each director or officer against expenses (including attorney's
fees), judgments, fines and settlements paid by such individual in connection
with any action, suit or proceeding arising out of an individual's status or
service as a director or officer of Netcentives (other than liabilities arising
from willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest) and to advance expenses incurred by an individual in connection with
any proceeding against an individual with respect to which an individual may be
entitled to indemnification by us. We believe that our Certificate of
Incorporation and bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers. We also
expect to obtain directors' and officers' liability insurance.

  At present we are not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of Netcentives where indemnification
will be required or permitted. Furthermore, we are not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.

                                       55
<PAGE>

                           RELATED PARTY TRANSACTIONS

  Certain stock option grants to directors and executive officers of
Netcentives are described in this prospectus under the caption "Management--
Executive Compensation."

Private Placement Transactions

  Since our inception, we have issued, in private placement transactions,
shares of preferred stock, warrants for the purchase of shares of preferred
stock, and notes convertible into shares of preferred stock as follows:

  . an aggregate of 1,452,613 shares of Series A Preferred Stock at $0.65 per
    share in September 1996;
  . an aggregate of 485,000 shares of Series B Preferred Stock at $1.00 per
    share in November 1996;
  . warrants to purchase an aggregate of 175,000 shares of Series B Preferred
    Stock, and promissory notes with an aggregate principal amount of
    $1,312,601.60 convertible into an aggregate of 2,281,770 shares of Series
    C Preferred Stock during January, June, August, and September 1997;
  . an aggregate of 7,754,847 shares of Series C Preferred Stock at $1.30 per
    share in September 1997;
  . warrants to purchase an aggregate of 530,000 shares of Series N Preferred
    Stock in July, August, September and October 1997;
  . an aggregate of 5,476,192 shares of Series D Preferred Stock at $3.15 per
    share in August 1998; and
  . an aggregate of 5,278,583 shares of Series E Preferred Stock at $6.82 per
    share in March, April and June 1999.

  The following table summarizes the shares of preferred stock purchased by the
executive officers named in the Summary Compensation Table, directors and 5%
stockholders of Netcentives, and persons and entities associated with them, in
private placement transactions:

<TABLE>
<CAPTION>
                                Series A  Series B  Series C  Series D  Series E
                                Preferred Preferred Preferred Preferred Preferred
  Investor                        Stock     Stock     Stock     Stock     Stock
  --------                      --------- --------- --------- --------- ---------
    <S>                         <C>       <C>       <C>       <C>       <C>
    Information Technology
     Ventures and
     Virginia M. Turezyn.....      --      437,243  1,538,461   539,683   73,314
    Integral Capital
     Partners................      --           --         -- 1,269,841  168,621
    Mayfield Fund and Wendell
     G. Van Auken............      --           --  2,769,231 1,317,460  549,857
    New Enterprise Associates
     and Stewart Alsop.......      --           --  1,923,077   634,921  366,568
</TABLE>
---------------------
Each of the above holders is a 5% stockholder.

Loans to Officers

  We have loaned West Shell, III, our Chairman and CEO, funds according to the
terms set forth in the table below. In each case such note is secured by the
common stock of Netcentives owned by Mr. Shell and partnerships affiliated with
Mr. Shell.

<TABLE>
<CAPTION>
                                                                Note    Interest
    Issue Date                                    Due Date     Amount     Rate
    ----------                                    --------    --------- --------
   <S>                                          <C>           <C>       <C>
   August 1997................................. August 2001   $  60,000   6.29%
   November 1997............................... November 2001 $ 157,290   6.01%
   December 1998............................... December 2002 $ 130,000   4.47%
   January 1999................................ January 2003  $ 100,000   4.47%
</TABLE>

Indemnification Agreements

  We have entered into indemnification agreements with certain of our officers
and directors containing provisions which may require us to, among other
things, indemnify our officers and directors against certain

                                       56
<PAGE>

liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature) and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.

Registration Rights Agreements

  Certain holders of common stock and preferred stock have certain registration
rights with respect to their shares of common stock (including common stock
issuable upon conversion of their preferred stock) as described in "Description
of Capital Stock--Registration Rights of Certain Holders."

Other Related Party Transactions

  In April 1999, we entered into a computer software licensing agreement with
Connectify which provides for payments by Netcentives of approximately $300,000
in fees during fiscal 1999. Mr. Alsop is a director of both Netcentives and
Connectify. We believe that this agreement was entered into on terms and
conditions no less favorable to Netcentives than those that could have been
obtained from an unaffiliated third party.

                                       57
<PAGE>

                             PRINCIPAL STOCKHOLDERS

  The following table sets forth certain information with respect to beneficial
ownership of our common stock as of June 30, 1999, and as adjusted to reflect
the sale of common stock offered hereby, as to (i) each person (or group of
affiliated persons) known by us to own beneficially more than 5% of our
outstanding common stock, (ii) each of our directors, (iii) each of the
executive officers named in the Summary Compensation Table, and (iv) all
directors and executive officers of Netcentives as a group.
<TABLE>
<CAPTION>
                                                         Percent
                                                  Beneficially Owned(2)
                                                  ---------------------------
Name and Address of Beneficial         Number of   Before           After
Owner(1)                               Shares(2)  Offering       Offering(3)
------------------------------         ---------- -----------    ------------
<S>                                    <C>        <C>            <C>
Wendell G. Van Auken(4)..............   4,636,548        17.98%               %
 2800 Sand Hill Road
 Menlo Park, CA 94025
Stewart Alsop(5).....................   2,873,461        11.14
 2490 Sand Hill Road
 Menlo Park, CA 94025
Virginia M. Turezyn(6)...............   2,588,701        10.04
 3000 Sand Hill Road, Building I
 Suite 280
 Menlo Park, CA 94025
West Shell, III(7)(8)................   1,792,766         6.94
Eric W. Tilenius(7)..................   1,004,166         3.89
Timothy J.O. Catlin(7)...............     149,999            *               *
Tom Byers............................     125,000            *               *
 373 Terman Engineering Center
 Stanford University
 Stanford, CA 94305-4024
John F. Longinotti(7)................      76,145            *               *
Edward Fong Soo Hoo(7)...............      59,395            *               *
Paul F. Danielsen(7).................      54,166            *               *
Sergio Zyman(7)......................      50,000            *               *
 PO Box 724705
 Atlanta, GA 31139
Mayfield Fund(9).....................   4,576,741        17.75
 2800 Sand Hill Road
 Menlo Park, CA 94025
New Enterprise Associates(10)........   2,924,566        11.34
 2490 Sand Hill Road
 Menlo Park, CA 94025
Information Technology Ventures(11)..   2,588,701        10.04
 3000 Sand Hill Road, Building I
 Suite 280
 Menlo Park, CA 94025
Integral Capital Partners(12)........   1,438,462         5.58
 2750 Sand Hill Road
 Menlo Park, CA 94025
All directors and officers as a group
 (18 persons)(4)(5)(6)(7)(8).........  14,777,353        56.08
</TABLE>
---------------------
   *Less than 1%.

                                       58
<PAGE>

 (1) Except as otherwise noted, the address of each person listed in the table
     is c/o Netcentives Inc., 690 Fifth Street San Francisco, California 94107,
     and the persons named in the table have sole voting and investment power
     with respect to all shares of common stock shown as beneficially owned by
     them, subject to community property laws where applicable.
 (2) Applicable percentage of beneficial ownership is based on 25,790,282
     shares of common stock outstanding as of June 30, 1999, together with
     applicable options exercisable within 60 days of June 30, 1999 and
     warrants for such stockholder. Shares issuable pursuant to such options
     are deemed outstanding for computing the percentage ownership of the
     person holding such options but are not deemed outstanding for the
     purposes of computing the percentage ownership of each other person.
     Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission.
 (3) Assumes that the underwriters do not exercise their over-allotment option.
 (4) Includes 59,807 shares held by the Wendell G. Van Auken & Ethel S. Van
     Auken Trust. Additionally, Mr. Van Auken is a general partner of Mayfield
     VIII Management, which is the General Partner of Mayfield VIII which holds
     4,033,692 shares and Mayfield Associates Fund III which holds 212,300
     shares. Affinity Trust, an investment entity affiliated with the Mayfield
     Fund, holds an additional 330,749 shares. Mr. Van Auken disclaims
     beneficial ownership of the shares held by Mayfield VIII, Mayfield
     Associates Fund III, and Affinity Trust except to the extent of his
     pecuniary interest in such entities. See Note 8.
 (5) Mr. Alsop is a limited partner of New Enterprise Associates VII, L.P.
     which holds 2,873,461 shares. Mr. Alsop disclaims beneficial ownership of
     the shares held by this entity except to the extent of his pecuniary
     interests in such entities. See Note 10. Shares attributable to Mr. Alsop
     do not include any shares owned by NEA President's Fund or NEA Ventures
     1997.
 (6) Ms. Turezyn is a general partner of Information Technology Ventures, L.P.
     which holds 2,521,988 shares and ITV Affiliates Fund, L.P. which holds
     66,713 shares. Ms. Turezyn disclaims beneficial ownership of the shares
     held by these entities except to the extent of her pecuniary interests in
     such entities. See Note 11.
 (7) Includes the following shares issuable upon exercise of outstanding
     options exercisable within 60 days of June 30, 1999: Mr. Shell, 44,166;
     Mr. Tilenius, 4,166; Mr. Catlin, 20,833; Mr. Danielsen, 54,166;
     Mr. Longinotti, 34,166; Mr. Soo Hoo, 59,395; Mr. Zyman, 50,000; and
     others, 293,594.
 (8) Includes 677,512 shares held by Shell Associates, L.P. a family limited
     partnership of which Mr. Shell is a general partner.
 (9) Includes 4,033,692 shares held by Mayfield VIII, 212,300 shares held by
     Mayfield Associates Fund III, and 330,749 shares held by Affinity Trust.
(10) Includes 2,873,461 shares held by New Enterprise Associates VII, L.P.,
     47,259 shares held by NEA President's Fund and 3,846 shares held by NEA
     Ventures 1997.
(11) Includes 2,521,988 shares held by Information Technology Ventures, L.P.
     and 66,713 shares held by ITV Affiliates Fund, L.P.
(12) Includes 1,431,313 shares held by Integral Capital Partners IV, L.P. and
     7,149 shares held by Integral Capital Partners IV MS Side Fund, L.P.

                                       59
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

  Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001
par value.

Common Stock

  As of June 30, 1999, there were 25,790,282 shares of common stock outstanding
that were held of record by approximately 129 stockholders after giving effect
to the conversion of our preferred stock into common stock at a one-to-one
ratio and the exercise of 46,891 warrants terminable upon the closing of this
offering, and assuming no exercise or conversion of outstanding convertible
securities after June 30, 1999. There will be           shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option
and no exercise or conversion of outstanding convertible securities after June
30, 1999) after giving effect to the sale of the shares of common stock offered
hereby.

  The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Netcentives, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of preferred stock, if
any, then outstanding. Our common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund
provisions available to the common stockholders. All outstanding shares of
common stock are fully paid and non-assessable.

Preferred Stock

  Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. The Board of Directors will
have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Netcentives without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. At present, we have
no plans to issue any shares of preferred stock.

Registration Rights of Certain Holders

  The holders of 20,569,126 shares of common stock, and the holders of 62,948
shares issuable upon exercise of warrants, or their transferees, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement among
Netcentives and the holders of these securities dated March 19, 1999. Subject
to certain limitations in this agreement, the holders of the these securities
may require, on two occasions at any time after six months from the effective
date of this offering, that we use our best efforts to register the Registrable
Securities for public resale, provided that the proposed aggregate offering
price is at least $10,000,000. If we register any of our common stock either
for our own account or for the account of other security holders, the holders
of these securities are entitled to include their shares of common stock in the
registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in that offering.

  Additionally, holders of these securities may require on no more than two
separate occasions in a twelve-month period, that we register their shares for
public resale on Form S-3 or similar short-form registration, once we are
eligible to use Form S-3 or similar short-form registration and provided
further that the value of the securities to be registered is at least $500,000.

                                       60
<PAGE>

  All fees, costs and expenses of such registrations must be borne by
Netcentives and all selling expenses (including underwriting discounts, selling
commissions and stock transfer taxes) relating to these securities must be
borne by the holders of the securities being registered.

Anti-Takeover Provisions of Delaware Law

  We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of Netcentives without further action by the
stockholders. In addition, upon completion of this offering, certain provisions
of our charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of
delaying or preventing changes in control or management of Netcentives, which
could have a negative effect on the market price of our common stock. Our
Option Plan, Purchase Plan and Directors' Plan generally provide for assumption
of such plans or substitution of an equivalent option of a successor
corporation or, alternatively, at the discretion of the Board of Directors,
exercise of some or all of the options stock, including non-vested shares, or
acceleration of vesting of shares issued pursuant to stock grants, upon a
change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of
the holders of the common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be
issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control of Netcentives.
Furthermore, such preferred stock may have other rights, including economic
rights senior to the common stock, and, as a result, the issuance of such
preferred stock could have a negative effect on the market value of the common
stock. We have no present plans to issue shares of preferred stock.

Warrants

  As of June 30, 1999, warrants were outstanding to purchase an aggregate of
615,448 shares of common stock at a weighted average exercise price of $1.13
per share. Warrants to purchase 22,500 shares at $2.00 per share will expire in
January 2000. Warrants to purchase 190,000 shares at $1.00 per share will
expire in August 2001. Warrants to purchase 10,000 shares at $1.00 per share
will expire in October 2001. Warrants to purchase 120,000 shares at $1.30 per
share will expire in October 2001. Warrants to purchase 110,000 shares at
$1.00 per share will expire in July 2001. Warrants to purchase 50,000 shares at
$1.00 per share will expire in September 2001. Warrants to purchase 21,000
shares at $1.30 per share will expire in May 2002. Warrants to purchase 10,000
shares at $1.30 per share will expire in September 2002. Warrants to purchase
50,000 shares at $1.00 per share will expire in October 2002. Warrants to
purchase 31,948 shares at $1.30 per share will expire in May 2003.

Transfer Agent and Registrar

  The Transfer Agent and Registrar for our common stock is American Stock
Transfer and Trust. Their phone number is (212) 936-5100.

Listing

  We expect to apply to list our common stock on the Nasdaq National Market of
the Nasdaq Stock Market, Inc. under the trading symbol "NCNT."

                                       61
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

  Prior to this offering, there has been no public market for our common stock.
We cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for our
common stock or our future ability to raise capital through an offering of
equity securities.

  After this offering, we will have outstanding          shares of common
stock. Of these shares, the         shares to be sold in this offering (
shares if the underwriters' over-allotment option is exercised in full) will be
freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by "Affiliates" of Netcentives, as that term
is defined in Rule 144 under the Securities Act of 1933.

  The remaining 25,790,282 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). We issued and sold the Restricted Shares in private
transactions in reliance on exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, as summarized below.

  Pursuant to certain lock-up agreements, all the executive officers, directors
and certain stockholders of Netcentives, who collectively hold the Restricted
Shares, have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any such shares for a period of 180 days from
the date of this prospectus. We also have entered into an agreement with the
underwriters that we will not offer, sell or otherwise dispose of common stock
for a period of 180 days from the date of this prospectus.

  Assuming that this offering is effective on September 15, 1999, on the date
of the expiration of the lock-up agreements, 19,499,026 Restricted Shares that
will not then be subject to any repurchase option will be eligible for
immediate sale (of which 16,298,641 shares will be subject to certain volume,
manner of sale and other limitations under Rule 144). The remaining 6,291,256
Restricted Shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following
the expiration of the lock-up period and the expiration of certain repurchase
options over the four years following the original purchase date of such
shares. Following the completion of this offering, warrants to purchase 615,448
shares will be outstanding, which if exercised pursuant to net-exercise
provisions would be immediately saleable without restriction upon the
expiration of the 180 day lock-up period. If such warrants were to be otherwise
exercised, they would be saleable upon the expiration of various one-year
holding periods, subject to certain volume, manner of sale, and other
limitations under Rule 144. In general, under Rule 144 as in effect at the
closing of this offering, beginning 90 days after the date of this prospectus,
a person (or persons whose shares of Netcentives are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not an Affiliate of Netcentives) would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of (1) 1% of the then-outstanding shares of common
stock 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 such
sale. Sales under Rule 144 are also subject to certain manner of sale and
notice requirements and to the availability of current public information about
Netcentives. Under Rule 144(k), a person who is not deemed to have been an
Affiliate of Netcentives at any time during the 90 days 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 who is not an Affiliate
of Netcentives) is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.

  Of the 4,845,736 options to purchase shares of common stock outstanding as of
June 30, 1999, on the date 180 days following the assumed effective date of
this offering, options to purchase 1,992,091 shares of common stock will be
fully exercisable and saleable.


                                       62
<PAGE>

  We intend to file, no later than the effective date of this offering, a
Registration Statement on Form S-8 to register approximately 7,807,624 shares
of common stock reserved for issuance under the Option Plan, the Purchase Plan
and the Directors' Plan. The Registration Statement will become effective
automatically upon filing. Shares issued under the foregoing plans, after the
filing of a Registration Statement on Form S-8, may be sold in the open market,
subject, in the case of certain holders, to the Rule 144 limitations applicable
to Affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by us.

  In addition, following this offering, the holders of 20,569,126 shares of
outstanding common stock and the holders of warrants to purchase 62,948 shares,
or their transferees, will, under certain circumstances, have rights to require
us to register their shares for future sale.

                                       63
<PAGE>

                                  UNDERWRITING

  Under the terms and subject to the conditions contained in an underwriting
agreement dated       , 1999 we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist LLC
and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:

<TABLE>
<CAPTION>
                                                                         Number
                                                                           of
          Underwriter                                                    Shares
          -----------                                                    -------
     <S>                                                                 <C>
     Credit Suisse First Boston Corporation.............................
     Hambrecht & Quist LLC..............................................
     Thomas Weisel Partners LLC.........................................
                                                                         -------
       Total............................................................
                                                                         =======
</TABLE>

  The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

  We have granted to the underwriters a 30-day option to purchase on a pro rata
basis up to          additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

  The underwriters propose to offer the shares of common stock initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $       per share. The underwriters
and selling group members may allow a discount of $         per share on sales
to other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.

  The following table summarizes the compensation and estimated expenses we
will pay.

<TABLE>
<CAPTION>
                                        Per Share               Total
                                   ------------------- -----------------------
                                    Without    With      Without      With
                                     Over-     Over-      Over-       Over-
                                   allotment allotment  allotment   allotment
                                   --------- --------- ----------- -----------
<S>                                <C>       <C>       <C>         <C>
Underwriting discounts and
 commissions paid by us...........  $         $        $           $
Expenses payable by us............  $         $        $           $
</TABLE>

  The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock being offered.

  We, our officers and directors, and some of our stockholders have agreed that
we and they will not offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except, in our case,
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.

                                       64
<PAGE>

  The underwriters have reserved for sale, at the initial public offering
price, up to          shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.

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

  We will apply to list the shares of common stock on The Nasdaq Stock Market's
National Market under the symbol NCNT.

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between us
and the representatives. The principal factors to be considered in determining
the public offering price include: the information set forth in this prospectus
and otherwise available to the representatives; the history and the prospects
for the industry in which we will compete; the ability of our management; our
prospects for future earnings; the present state of our development and our
current financial condition; the general condition of the securities markets at
the time of this offering; and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.

  The representatives on behalf of the underwriters may engage in over-
allotment, stabilizing transactions, syndicate covering transactions, penalty
bids and "passive" market making in accordance with Regulation M under the
Securities Exchange Act of 1934.

  . Over-allotment involves syndicate sales in excess of the offering size,
    which creates a syndicate short position.

  . Stabilizing transactions permit bids to purchase the underlying security
    so long as the stabilizing bids do not exceed a specified maximum.

  . Syndicate covering transactions involve purchases of the common stock in
    the open market after the distribution has been completed in order to
    cover syndicate short positions.

  . Penalty bids permit the representatives to reclaim a selling concession
    from a syndicate member when the common stock originally sold by such
    syndicate member are purchased in a syndicate covering transaction to
    cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

  Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
44 filed public offerings of equity securities, of which 26 have been
completed, and has acted as a syndicate member in an additional 19 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except as provided below and with respect to its
contractual relationship with us pursuant to the underwriting agreement entered
into in connection with this offering.

                                       65
<PAGE>

  In March, April and June 1999, Hambrecht & Quist LLC acted as private
placement agent for the sale of an aggregate of 5,278,583 shares of our Series
E preferred stock for which it received a customary fee for its services.
Hambrecht & Quist did not purchase any of the shares in this sale, and they
were selected as the private placement agent through arms-length negotiations
on terms substantially similar to the terms obtained by other underwriters.
Thomas Weisel Partners LLC purchased 73,313 shares of our Series E preferred
stock on the same terms as other purchasers in this sale.

                                       66
<PAGE>

                          NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

  The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

  Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to us and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such common stock without the benefit of
a prospectus qualified under these securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."

Rights of Action (Ontario Purchasers)

  The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

  All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.

Notice to British Columbia Residents

  A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

  Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

                                       67
<PAGE>

                                 LEGAL MATTERS

  The validity of the common stock offered hereby will be passed upon for
Netcentives by Venture Law Group, A Professional Corporation, Menlo Park,
California. Craig W. Johnson and Elias J. Blawie, each a director of Venture
Law Group, are the Secretary and Assistant Secretary of Netcentives,
respectively. VLG Investments 1996, an entity affiliated with Venture Law
Group, holds an aggregate of 69,538 shares of our common stock. Mr. Johnson and
Mr. Blawie, hold an aggregate of 20,385 shares and 12,692 shares, respectively,
of our common stock and each has a pecuniary interest in the shares owned by
VLG Investments 1996. The underwriters have been represented by Wilson Sonsini
Goodrich & Rosati, Palo Alto, California.

                                    EXPERTS

  The (1) consolidated balance sheets of Netcentives Inc. and its subsidiary as
of December 31, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period June 21, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998, and (2) Statements of Operations and Cash Flows of Panttaja Consulting
Group, Inc. for the years ended November 30, 1997 and 1998 included herein and
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing in this
prospectus, and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

  We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act with respect to the common stock
offered. This prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the SEC. For further information with
respect to Netcentives and the common stock being offered, reference is made to
the Registration Statement, including its exhibits, and the financial
statements and notes filed as a part of the Registration Statement. Statements
made in this prospectus concerning the contents of any other document herein
are not necessarily complete. With respect to each such document filed with the
SEC as an exhibit to the Registration Statement, you should see the exhibit
itself for a more complete description of the matter involved. The Registration
Statement, including exhibits and the financial statements and notes filed as a
part of the Registration Statement, as well as such reports and other
information filed with the SEC, may be inspected without charge at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any part of these documents may be obtained from the SEC upon payment of
certain fees prescribed by the SEC. These reports and other information may
also be inspected without charge at a Web site maintained by the SEC. The
address of this Web site is http://www.sec.gov.

                                       68
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Netcentives Inc.:
Independent Auditors' Report...............................................  F-2

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

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

Consolidated Statements of Stockholders' Equity............................  F-5

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

Notes to Consolidated Financial Statements.................................  F-7
Panttaja Consulting Group, Inc.:
Independent Auditors' Report............................................... F-20

Statements of Operations................................................... F-21

Statements of Cash Flows................................................... F-22

                                                                            F-23
Notes to Financial Statements..............................................

Pro Forma Consolidated Financial Information:
Pro Forma Consolidated Statement of Operations............................. F-26

Notes to Pro Forma Consolidated Statement of Operations.................... F-27
</TABLE>

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Netcentives Inc.:

  We have audited the accompanying consolidated balance sheets of Netcentives
Inc. and its subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period June 21, 1996 (inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

  In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Netcentives Inc. and its
subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the periods stated above in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
July 14, 1999

                                      F-2
<PAGE>

                                NETCENTIVES INC.

                          CONSOLIDATED BALANCE SHEETS
           (Dollars in thousands except share and par value amounts)

<TABLE>
<CAPTION>
                                                     December 31,
                                                   -----------------   March 31,
                                                    1997      1998       1999
                                                   -------  --------  -----------
                                                                      (unaudited)
<S>                                                <C>      <C>       <C>
ASSETS
Current assets:
  Cash and equivalents............................ $ 6,608  $ 13,651   $ 31,994
  Accounts receivable.............................      23       893        862
  Prepaid incentive awards........................     703     1,600      1,575
  Prepaid expenses................................     239       147        269
                                                   -------  --------   --------
    Total current assets..........................   7,573    16,291     34,700
Property and equipment--net.......................     933     1,858      2,545
Intangible assets--net............................      36     3,611      3,192
Other assets......................................       7       175        169
                                                   -------  --------   --------
    Total assets.................................. $ 8,549  $ 21,935   $ 40,606
                                                   =======  ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Bank loan payable............................... $   200  $    100   $     --
  Accounts payable................................     583     1,324      1,440
  Accrued compensation and benefits...............      51       667        455
  Accrued redemption costs........................     --        509      1,509
  Other accrued liabilities.......................     266     1,198      2,303
  Deferred revenue--product.......................      43     1,250      1,912
  Deferred revenue--services......................      16       656        945
  Current portion of long-term obligations........      66       664        859
                                                   -------  --------   --------
    Total current liabilities.....................   1,225     6,368      9,423
Long-term obligations.............................     196     1,233        887
Commitments and contingencies (Notes 3, 5, 7, 12
 and 13)
Stockholders' equity:
  Convertible preferred stock, $.001 par value--
   16,050,000 shares authorized;
   shares outstanding: 1997, 9,692,460; 1998,
   15,168,652; March 31, 1999, 18,762,705
   (aggregate liquidation preference of $28,760 at
   1998)..........................................      10        15         19
  Common stock, $.001 par value--30,000,000 shares
   authorized;
   shares outstanding: 1997, 3,735,683; 1998,
   4,894,069;
   March 31, 1999, 5,180,765......................       4         5          5
  Paid-in capital.................................  11,780    41,126     64,925
  Deferred stock compensation.....................      --    (7,905)    (7,438)
  Receivables from sales of stock.................    (220)     (350)      (450)
  Accumulated deficit.............................  (4,446)  (18,557)   (26,765)
                                                   -------  --------   --------
    Total stockholders' equity....................   7,128    14,334     30,296
                                                   -------  --------   --------
    Total liabilities and stockholders' equity.... $ 8,549  $ 21,935   $ 40,606
                                                   =======  ========   ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>

                                NETCENTIVES INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                           June 21, 1996    Years Ended       Three Months
                           (Inception) to   December 31,     Ended March 31,
                            December 31,  -----------------  ----------------
                                1996       1997      1998     1998     1999
                           -------------- -------  --------  -------  -------
                                                               (unaudited)
<S>                        <C>            <C>      <C>       <C>      <C>
Revenues:
  Product.................     $   --     $    --  $     64  $     2  $   103
  Program-related
   services...............         --           9       583       13      117
  Technical consulting
   services...............         --          --        --       --    1,436
                               ------     -------  --------  -------  -------
    Total revenues........         --           9       647       15    1,656
                               ------     -------  --------  -------  -------
Costs and expenses:
  Cost of product
   revenues...............         --          --        59        2       92
  Program-related
   services, marketing and
   support costs..........        102       1,496     7,293      684    4,519
  Cost of technical
   consulting services
   revenues...............         --          --        --       --      817
  Research and
   development............         63       1,505     3,383      685    1,032
  Selling, general and
   administrative.........        108       1,210     3,134      704    1,992
  Amortization of deferred
   stock compensation.....         --          --       296        7      467
  Amortization of supplier
   stock awards...........         --          63       811       65      604
  Amortization of
   intangibles............         --          --        79        1      444
                               ------     -------  --------  -------  -------
    Total costs and
     expenses.............        273       4,274    15,055    2,148    9,967
                               ------     -------  --------  -------  -------
Loss from operations......       (273)     (4,265)  (14,408)  (2,133)  (8,311)
Interest income...........          7         121       441       74      146
Interest expense..........         --         (36)     (144)     (21)     (43)
                               ------     -------  --------  -------  -------
Net loss..................     $ (266)    $(4,180) $(14,111) $(2,080) $(8,208)
                               ======     =======  ========  =======  =======
Net loss per share--basic
 and diluted..............     $(0.97)    $ (5.70) $  (8.58) $ (1.63) $ (2.73)
                               ======     =======  ========  =======  =======
Shares used in computing
 per share amounts--basic
 and diluted..............        273         734     1,644    1,276    3,004
                               ======     =======  ========  =======  =======
Pro forma net loss per
 share--basic and
 diluted..................                         $  (1.05)          $ (0.44)
                                                   ========           =======
Shares used in computing
 pro forma per share
 amounts..................                           13,422            18,746
                                                   ========           =======
</TABLE>

                See notes to consolidated financial statements.

                                      F-4
<PAGE>

                                NETCENTIVES INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
  Years ended December 31, 1996, 1997 and 1998 and for the three months ended
                                 March 31, 1999
                                  (unaudited)
                    (In thousands except per share amounts)

<TABLE>
<CAPTION>
                           Preferred
                             Stock     Common Stock            Deferred   Receivables
                         ------------- ------------- Paid-In    Stock     from Sales  Accumulated
                         Shares Amount Shares Amount Capital Compensation  of Stock     Deficit    Total
                         ------ ------ ------ ------ ------- ------------ ----------- ----------- --------
<S>                      <C>    <C>    <C>    <C>    <C>     <C>          <C>         <C>         <C>
 Issuance of common
  stock.................               2,050   $ 2   $     1                                      $      3
 Sale of Series A
  preferred stock, at
  $0.65 per share, net
  of expenses of $7.....  1,453  $ 1                     936                                           937
 Sale of Series B
  preferred stock, at
  $1.00 per share, net
  of expenses of $13....    485    1                     471                                           472
 Net loss ..............                                                               $   (266)      (266)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, December 31,
 1996...................  1,938    2   2,050     2     1,408                               (266)     1,146
 Sale of Series C
  preferred stock, at
  $1.30 per share, net
  of expenses of $17....  7,755    8                  10,057                                        10,065
 Sale of common stock...               1,564     2       216                 $(207)                     11
 Exercise of common
  stock options.........                 122              13                   (13)
 Stock warrants.........                                  86                                            86
 Net loss...............                                                                 (4,180)    (4,180)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, December 31,
 1997...................  9,693   10   3,736     4    11,780                  (220)      (4,446)     7,128
 Sale of Series D
  preferred stock, at
  $3.15 per share, net
  of expenses of $18....  5,476    5                  17,226                                        17,231
 Sale of common stock...                 200             630   $  (500)       (130)                    --
 Common stock issued for
  patent................                  35              76                                            76
 Exercise of common
  stock options.........                 115              19                                            19
 Stock warrants.........                                 841                                           841
 Deferred stock
  compensation related
  to option grants......                               7,071    (7,071)                                --
 Shares issued in
  Panttaja acquisition..                 808     1     2,547      (630)                              1,918
 Vested options issued
  in Panttaja
  acquisition...........                                 936                                           936
 Amortization of
  deferred stock
  compensation..........                                           296                                 296
 Net loss...............                                                                (14,111)   (14,111)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, December 31,
 1998................... 15,169   15   4,894     5    41,126    (7,905)       (350)     (18,557)    14,334
 Sale of Series E
  preferred stock, at
  $6.82 per share, net
  of
  expenses of $1,010*...  3,519    4                  22,986                                        22,990
 Issuance of receivable
  related to previously
  issued common stock*..                                                      (100)                   (100)
 Exercise of common
  stock options*........                 287             110                                           110
 Stock warrants*........                                 628                                           628
 Exercise of Series B
  warrants*.............     75                           75                                            75
 Amortization of
  deferred stock
  compensation*.........                                           467                                 467
 Net loss*..............                                                                 (8,208)    (8,208)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, March 31,
 1999* ................. 18,763  $19   5,181   $ 5   $64,925   $(7,438)      $(450)    $(26,765)  $ 30,296
                         ======  ===   =====   ===   =======   =======       =====     ========   ========
</TABLE>
--------
*unaudited

                See notes to consolidated financial statements.

                                      F-5
<PAGE>

                                NETCENTIVES INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               Three Months
                            June 21, 1996    Years Ended      Ended March 31,
                            (Inception) to   December 31,     ----------------
                             December 31,  -----------------
                                 1996       1997      1998     1998      1999
                            -------------- -------  --------  -------  -------
                                                                (unaudited)
<S>                         <C>            <C>      <C>       <C>      <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Cash received from
  customers...............      $   --     $    45  $  1,294  $    81  $ 2,288
 Cash paid to suppliers
  and employees...........        (177)     (4,222)  (11,156)  (2,144)  (6,398)
 Cash paid for interest...          --         (23)     (114)     (21)     (43)
 Cash paid for income
  taxes...................          --          (2)       --       --       --
 Interest received........           7         121       441       74      146
                                ------     -------  --------  -------  -------
      Net cash used in
       operating
       activities.........        (170)     (4,081)   (9,535)  (2,010)  (4,007)
                                ------     -------  --------  -------  -------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Purchases of property and
  equipment...............        (124)       (967)   (1,157)    (250)  (1,474)
 Cash paid in Panttaja
  acquisition, net of cash
  acquired................          --          --      (150)      --       --
 Other long-term assets...          --          --       (58)      --       --
                                ------     -------  --------  -------  -------
      Net cash used in
       investing
       activities.........        (124)       (967)   (1,365)    (250)  (1,474)
                                ------     -------  --------  -------  -------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
 Sales of common stock....           3          11        19       --      110
 Issuance of receivable
  related to previous
  issuances of common
  stock...................          --          --        --       --     (100)
 Sales of preferred
  stock...................       1,409      10,065    17,231       --   24,065
 Borrowings on long-term
  debt....................          --         279     1,141      125       --
 Principal payments on
  long-term debt..........          --         (17)     (248)      --     (151)
 Borrowings on bank loan
  payable, net............          --         200      (200)      --     (100)
                                ------     -------  --------  -------  -------
      Net cash provided by
       financing
       activities.........       1,412      10,538    17,943      125   23,824
                                ------     -------  --------  -------  -------
NET INCREASE IN CASH AND
 EQUIVALENTS..............       1,118       5,490     7,043   (2,135)  18,343
CASH AND EQUIVALENTS,
 Beginning of period......          --       1,118     6,608    6,608   13,651
                                ------     -------  --------  -------  -------
CASH AND EQUIVALENTS, End
 of period................      $1,118     $ 6,608  $ 13,651  $ 4,473  $31,994
                                ======     =======  ========  =======  =======
NONCASH INVESTING AND
 FINANCING ACTIVITIES:
 Stock and warrants issued
  in exchange for patent..      $   --     $    10  $     76  $    --  $    --
                                ======     =======  ========  =======  =======
 Sales of stock for notes
  and accounts
  receivable..............      $   --     $   217  $    130  $    --  $    --
                                ======     =======  ========  =======  =======
 Acquisition of Panttaja:
   Value of stock and
    options issued, net of
    deferred stock
    compensation..........                          $  2,854
   Cash paid..............                               194
   Liabilities assumed....                             1,090
                                                    --------
      Assets acquired
       (including
       intangibles of
       $3,526)............                          $  4,138
                                                    ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-6
<PAGE>

                                NETCENTIVES INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended December 31, 1996, 1997 and 1998 and three months ended March 31,
                                 1999 and 1998.
                 (Information as of March 31, 1999 and for the
            three months ended March 31, 1999 and 1998 is unaudited)

1. Business and Operations

  Netcentives Inc. (the "Company") provides Internet-based merchants, portals
and community sites with promotion tools to drive consumer behavior, loyalty,
and sales on the Internet. The Company was incorporated in June 1996.

  The Company has developed an Internet-based network (the "ClickRewards
Network") of merchants ("Merchants"), consumers ("Members") and redemption
award suppliers ("Suppliers"). The Company has developed a promotional currency
("ClickMiles") which is used throughout the network. The Company sells
ClickMiles to Merchants who use them as promotional incentives to drive their
consumers' behavior in areas such as brand loyalty and increased transaction
size. As consumers are awarded ClickMiles, they establish accounts and become
Members of the Company's ClickRewards program. Consumers can accumulate and
manage ClickMiles on their personal online account and redeem these for
frequent flyer airline miles or other merchandise. ClickMiles expire if not
redeemed within specified periods. Members who do not record any activity for a
twelve-month period forfeit their accumulated ClickMiles. The Company also
offers its Merchants consulting, promotional, and direct marketing services for
a variety of fee arrangements.

  In December 1998 the Company acquired Panttaja Consulting Group, Inc. (see
Note 3). the Company now provides technical consulting services to its
Merchants as well as other customers through this wholly-owned subsidiary.

2. Summary of Significant Accounting Policies

  Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Netcentives Inc. and its wholly-owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated.

  Cash equivalents consist of highly-liquid debt instruments with a maturity at
time of purchase of three months or less.

  Prepaid Incentive Awards--The Company has purchased frequent flyer airline
miles ("airmiles") under frequent flyer programs from several airlines. Such
airmiles are stated at cost determined on a weighted-average basis.

  Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated useful
lives of three years.

  Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities result from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. Valuation allowances are provided when
necessary to reduce deferred tax assets to the amount expected to be realized.

  Revenue Recognition--The Company allocates the sales price of ClickMiles
based on relative fair values between the redemption component of the award
ultimately provided to the Member (the "product component") and the service
components related to the marketing and support services provided to Merchants

                                      F-7
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and members (the "services component"). The product component of revenues is
deferred until the Member redeems the ClickMiles for frequent flyer miles or
other awards, or until the ClickMile expires. The service components of the
ClickMile sale are initially deferred until the sale of the ClickMile becomes
non-refundable, which typically is upon award of the currency by the Merchant
to the Member. Upon award of the ClickMile by the Merchant to a Member,
revenues attributable to the service component generally are amortized over the
period from award through expected redemption or expiration (the life of the
ClickMile). Service revenues relating to separately-priced services,
principally software integration services performed at the inception of the
Merchant relationship, are recognized at the time the services are delivered.
Upon termination of a Merchant relationship, unamortized deferred service
revenue attributable to the Merchant is recognized as revenue.

  For all ClickMiles sold through March 31, 1999, the service periods for the
member and merchant elements have been initially calculated for the maximum
life of the ClickMile based on its expiration date. To the extent ClickMiles
are redeemed prior to expiration or Merchants leave the ClickRewards Network,
the remaining amount of deferred service revenues associated with the member or
merchant services, as appropriate, is recognized at that time. Deferred
revenues arising from non-refundable ClickMiles which have not been awarded by
a Merchant are recognized as program-related service revenues at the time the
ClickMiles are forfeited by the Merchant.

  The Company exchanges ClickMiles with certain of its Merchants in return for
advertising and merchandise. Such advertising services are recorded as an
expense or prepaid asset, as appropriate, based on the lower of the estimated
fair value of the services received or the cash value of the ClickMiles issued.
Revenues from such barter transactions are accounted for on the same basis as
cash transactions; i.e., the product component of revenues is deferred until
redemption and the marketing services component is recognized over the service
period. In 1998, approximately $956,000 of advertising expense was recognized
under these arrangements, of which 74% was transacted with two Merchants.
ClickMiles exchanged for advertising are non-returnable and must be awarded by
the Merchant within a specified time frame. Program-related service revenues
for 1998 include $296,000 from an Internet portal which provided the
advertising services but permitted the ClickMiles it purchased to expire
unissued.

  Program-related revenues are comprised of the service component of ClickMiles
described above, as well as advertising and other direct marketing services
provided to Merchants, which are recognized as these services are performed.
Technical consulting service revenues are recognized as the services are
performed.

  Accrued redemption Costs--The Company issues ClickMiles to certain Merchants
in exchange for Member referrals and other cross-promotional activities, as
well as awards ClickMiles directly to Members in connection with promotional
and other activities. These ClickMiles are accounted for as expenses and an
accrual is recorded at the time they are exchanged for these services for the
expected costs to be incurred at redemption.

  Advertising Costs--Advertising costs are expensed as incurred. The Company
does not incur any direct-response advertising costs. Advertising expense was
approximately $12,000 in 1996, $534,000 in 1997 and $3,652,000 in 1998.

  Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

  The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of Statement at Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, and Emerging Issues
Task Force ("EITF") Issue No. 96-18, Accounting for Equity Instruments That Are

                                      F-8
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, which requires that the fair value of such instruments be
recognized as an expense over the period in which the related services are
received.

  Segment Reporting--Effective January 1, 1998, the Company adopted SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. In
1998, the Company operated in a single reportable segment and will evaluate
additional segment disclosure requirements as it expands its operations.

  Comprehensive Income--For the periods presented, the Company's comprehensive
loss, as defined by SFAS 130, Reporting Compensation Income, is equal to its
net loss.

  Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses. The Company
anticipates it will be able to better estimate this expense after it has
obtained additional exchange experience. Actual results will differ from these
estimates.

  Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash and equivalents,
short-term investments, and accounts receivable. Risks associated with cash are
mitigated by banking and creditworthy institutions. Cash equivalents and short-
term investments consist primarily of governmental obligations and bank
certificates of deposit and are regularly monitored by management. Credit risk
with respect to the trade receivables is spread over diverse customers who make
up the Company's customer base. At December 31, 1997, three customers accounted
for 43%, 26% and 26% of total accounts receivable. At December 31, 1998, one
customer accounted for 17% of total accounts receivable.

  Recently Issued Accounting Standards--In March 1998, the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires the capitalization of direct costs after
management commits to funding a project it believes will be completed and used
to perform the functions intended. The Company adopted SOP 98-1 in 1999 as it
is applicable to certain software systems internally developed by the Company.
Through December 31, 1998, no development costs had been capitalized and
capitalized development costs for the three months ended March 31, 1999 were
not significant.

  In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was released. The statement requires the recognition of all
derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the planned use of the derivative and
the resulting designation. The Company is required to implement the statement
in the first quarter of fiscal 2000. The Company has not used derivative
instruments and is still evaluating the statement's impact.

  Fair Value of Financial Instruments--The carrying amount of cash and cash
equivalents, accounts receivable, capital leases and long-term debt approximate
fair value, based on management's estimate.

  Unaudited Interim Financial Statements--Unaudited interim financial
statements as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 are unaudited but have been prepared in accordance with generally
accepted accounting principles for interim financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the full year.

                                      F-9
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Reclassifications--Certain prior year amounts have been reclassified for
consistency with the current year presentation. Such reclassifications had no
impact to net loss or total stockholders' equity.

3. Acquisition of Panttaja

  On December 18, 1998, the Company acquired all of the outstanding shares and
assumed the outstanding options of Panttaja Consulting Group, Inc.
("Panttaja"), a software consulting firm, in exchange for 808,780 shares of
common stock valued at $2,548,000, cash of $194,000 and options to purchase
455,648 shares of Company stock at $0.254 per share, of which 306,755 were
vested at the date of the acquisition and have been included as part of the
acquisition price at their fair value of $936,000. The common stock includes
200,000 shares subject to vesting over a four-year period, which has initially
been recorded as deferred stock compensation and will be expensed over the
vesting period. The Company also agreed to pay the stockholders additional cash
of up to $450,000 within 13 months following closing based on meeting certain
employment retention milestones, which was considered probable at the time of
the acquisition and has been accrued as part of the purchase price of Panttaja.

  The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's consolidated financial statements. The total consideration
exceeded the fair value of the net assets acquired by $3,526,000, which
represents the value of the existing consulting relationships and is being
amortized on a straight-line basis over two years.

  The following unaudited pro forma information shows the results of operations
for the two years ended December 31, 1997 and 1998 as if the Panttaja
acquisition had occurred at the beginning of the year. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of the respective periods presented or of future
operations of the combined companies (in thousands, except per share
information).
<TABLE>
<CAPTION>
                                                              1997      1998
                                                             -------  --------
   <S>                                                       <C>      <C>
   Total revenues........................................... $ 3,005  $  4,079
   Net loss................................................. $(6,004) $(16,218)
   Net loss per share, basic and diluted.................... $ (4.39) $  (7.12)
</TABLE>

4. Property and Equipment

  Property and equipment consists of (in thousands):

<TABLE>
<CAPTION>
                                                      December 31,
                                                      -------------   March 31,
                                                      1997    1998      1999
                                                      -----  ------  -----------
                                                                     (unaudited)
<S>                                                   <C>    <C>     <C>
Computer equipment................................... $ 557  $2,131    $ 3,171
Office and furniture equipment.......................   340     192        446
Leasehold improvements...............................   194     237        417
                                                      -----  ------    -------
Total................................................ 1,091   2,560      4,034
Accumulated depreciation.............................  (158)   (702)    (1,489)
                                                      -----  ------    -------
Total property and equipment--net.................... $ 933  $1,858    $ 2,545
                                                      =====  ======    =======
</TABLE>

  At December 31, 1998 the Company had assets under capital lease with a net
book value of $236,000.

                                      F-10
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5. Bank Loan Payable and Line of Credit

  The Company had a bank loan with principal outstanding at December 31, 1997
of $200,000. During the year ended December 31, 1998, this loan was paid in
full.

  In connection with the Panttaja acquisition, the Company assumed a $100,000
bank loan which was repaid in January 1999. The Company pays interest based on
a variable rate determined by the bank (10.5% at December 31, 1998). At
December 31, 1998, the amount due on the credit line is $100,000. Accounts
receivable are pledged as collateral on this line of credit. The borrowing
agreement includes various covenants, including restrictions on payments of a
note payable to an officer.

6. Long-term Obligations

  Long-term obligations consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                          December
                                                             31,
                                                         -----------  March 31,
                                                         1997  1998     1999
                                                         ---- ------ -----------
                                                                     (unaudited)
<S>                                                      <C>  <C>    <C>
Notes payable........................................... $262 $1,155   $1,068
Capital lease obligations...............................   --    193      180
Note payable to officer.................................   --     48       48
Panttaja acquisition payable (note 3)...................   --    450      450
Other...................................................   --     51       --
                                                         ---- ------   ------
Total...................................................  262  1,897    1,746
Less current portion....................................   66    664      859
                                                         ---- ------   ------
Long-term obligations................................... $196 $1,233   $  887
                                                         ==== ======   ======
</TABLE>

  The notes payable are collateralized by the assets purchased with the
proceeds of these borrowings and are payable in monthly installments through
November 2001. The borrowings bear interest ranging from 9.15% to 14%.

  The note payable to officer bears interest at 8%, is subordinated to other
debt of the Company and may not be repaid until other long-term debt is repaid.

  Maturities of long-term debt and capital leases as of December 31, 1998 are
as follows (in thousands):

<TABLE>
<CAPTION>
   Year Ending                                                           Capital
   December 31,                                                    Debt  Leases
   ------------                                                   ------ -------
   <S>                                                            <C>    <C>
   1999.......................................................... $  577  $103
   2000..........................................................    600    82
   2001..........................................................    527    32
                                                                  ------  ----
   Total payments................................................ $1,704   217
                                                                  ======
   Less amount representing interest.............................          (24)
                                                                          ----
   Present value of capital leases...............................         $193
                                                                          ====
</TABLE>

                                      F-11
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7. Stockholders' Equity

 Convertible Preferred Stock

  At December 31, 1998, the amounts, terms and liquidation values of the
Company's preferred stock are as follows:
<TABLE>
<CAPTION>
                                                             Amount,
                                                   Shares    Net of   Aggregate
                                        Shares   Issued and   Issue  Liquidation
   Series                             Designated Outstanding  Costs  Preference
   ------                             ---------- ----------- ------- -----------
                                                               (In thousands)
   <S>                                <C>        <C>         <C>     <C>
   A................................   1,452,613  1,452,613  $   937   $   944
   B................................     660,391    485,000      472       485
   C................................   7,787,155  7,754,847   10,065    10,081
   D................................   5,500,000  5,476,192   17,231    17,250
   N................................     650,000         --       --        --
                                      ---------- ----------  -------   -------
   Total............................  16,050,159 15,168,652  $28,705   $28,760
                                      ========== ==========  =======   =======
</TABLE>

  Significant terms of the outstanding preferred stock are as follows:

  . Each share of preferred stock is convertible into shares of common stock
    on a one-for-one basis, subject to adjustment in certain instances, at
    the option of the stockholder. Such shares will be converted
    automatically following the effectiveness of a registration statement
    under the Securities Act of 1933 meeting certain criteria or the
    affirmative vote of the holders of a majority of the shares of preferred
    stock outstanding at the time of such vote.

  . Except for Series N, each share of preferred stock has voting rights
    equivalent to the number of shares of common stock into which it is
    convertible. In addition, holders of each series of preferred stock are
    entitled as a group to elect two members of the Board of Directors.
    Series N has no voting rights.

  . Stockholders are entitled to receive noncumulative dividends as declared
    by the Board of Directors out of any assets legally available, prior to
    and in preference to any declaration or payment of any dividend on the
    common stock. The dividend rate for Series A, Series B, Series C, Series
    D and Series N preferred stock per share per annum is $0.052, $0.08,
    $0.104, $0.252 and $.08 respectively. No dividends have been declared as
    of December 31, 1997 and 1998.

  . In the event of liquidation, dissolution or winding up of the Company,
    stockholders of Series A, Series B, Series C, Series D and Series N
    preferred stock are entitled to receive $0.65, $1.00, $1.30, $3.15 and
    $1.00 per share, respectively, plus any declared and unpaid dividends
    with respect to such shares prior to any distributions to common
    stockholders or non-voting convertible stockholders. If the assets and
    funds to be distributed are insufficient to permit full payment, then the
    funds shall be distributed on a pro rata basis. Upon completion of the
    distribution, the holders of the common stock will receive all remaining
    assets of the corporation.

 Warrants

  During 1997, the Company issued warrants to purchase 410,000 shares of Series
N preferred stock at $1.00 per share to various airlines in connection with
their airmile purchase agreements (see Note 12). The warrants vest over three
years, subject to continuation of exclusivity arrangements with such airlines,
and expire in four or five years. Also during 1997, the Company issued warrants
to purchase 120,000 shares of Series N preferred stock at $1.30 per share to
one of its Merchants. The warrants vest over two years, subject to certain
exclusivity provisions, and expire in four years. All of the warrants permit
the holder to "net exercise" and receive shares of stock with a value equal to
the net appreciation at the time of exercise. Because

                                      F-12
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the vesting of these warrants is subject to maintaining the exclusivity of the
arrangement with these partners, the valuation of the warrants is not finalized
until their vesting date. The value of these warrants has been estimated using
the Black-Scholes option pricing model with the following assumptions: expected
life, the term of the option; risk-free interest rate of 5.8% in 1997 and 4.6%
in 1998; volatility of 70% in 1997 and 95% in 1998; and no dividend during the
expected term. The estimated value of such warrants is being expensed over the
related exclusivity periods. At December 31, 1997 and 1998, 90,000 and 204,000
warrants, respectively, were vested. Operating expenses include $63,000,
$811,000 and $628,000 in 1997 and 1998 and the three months ended March 31,
1999, respectively, relating to these warrants.

  During 1997, the Company issued warrants to purchase 175,391 shares of Series
B preferred stock at an average price of $1.16 per share in connection with the
Company's financing transactions. During 1998, the Company issued warrants to
purchase 31,948 shares of Series C preferred stock at an average price of $1.30
per share in connection with the Company's financing transactions. The
estimated fair value of these warrants on their grant date was $105,000 in 1997
and $31,000 in 1998, which is being expensed over the term of the related
financings. The Company has included in interest expense $13,000 and $30,000
for the portion relating to 1997 and 1998, respectively.

  All warrants issued were outstanding at December 31, 1998; warrants to
purchase 75,000 shares of Series B were exercised in the three months ended
March 31, 1999.

 Receivables from Sales of Stock

  At December 31, 1997 and 1998 and March 31, 1999, receivables from sales of
stock included notes receivable from an officer of the Company totaling
$217,000, $347,000 and $447,000, respectively. These notes are secured by
common stock and bear simple interest from 4.5% to 6.3% per annum. At December
31, 1998, the notes are due $217,000 in 2001 and $130,000 in 2002. The stock
sold in connection with these notes is subject to repurchase at the original
sale price; this right lapses ratably over a four-year period subject to the
officer's continued employment. At December 31, 1998, 1,167,875 shares of
common stock were subject to this repurchase right.

 Stock Option Plan

  The Company has a stock option plan (the 1996 Stock Option Plan), under which
incentive and non-qualified options to purchased 5,671,400 shares of common
stock may be granted to employees and independent contractors. Options
generally vest in installments over four years from the grant date and expire
ten years from the grant date.

                                      F-13
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  A summary of activity under the option plan is set forth below:

<TABLE>
<CAPTION>
                                                   Outstanding Stock Options
                                                   ---------------------------
                                                              Weighted Average
                                                   Number of   Exercise Price
                                                    Shares       per Share
                                                   ---------  ----------------
   <S>                                             <C>        <C>
   1996 Grants (weighted average fair value of
    $0.02 per share)..............................   205,500       $0.10
                                                   ---------       -----
   Outstanding, December 31, 1996.................   205,500        0.10
   Granted (weighted average fair value of $0.03
    per share).................................... 1,221,550        0.12
   Exercised......................................  (122,083)       0.10
   Canceled.......................................   (16,000)       0.10
                                                   ---------       -----
   Outstanding, December 31, 1997 (284,749
    exercisable at a weighted average price of
    $.10)......................................... 1,288,967        0.12
   Granted (weighted average fair value of
    $0.70 per share).............................. 2,676,645        0.64
   Issued in connection with Panttaja
    acquisition...................................   455,648        0.25
   Exercised......................................  (114,606)       0.17
   Canceled.......................................  (218,137)       0.15
                                                   ---------       -----
   Outstanding, December 31, 1998 (914,132
    exercisable at a weighted average price of
    $0.26)........................................ 4,088,517       $0.51
                                                   =========       =====
</TABLE>

  At December 31, 1998, options to purchase 1,346,194 shares of common stock
were available for grant.

  During the three months ended March 31, 1999, the Company issued options to
purchase 561,790 shares of common stock at a weighted average exercise price of
$6.27 per share.

  Additional information regarding options outstanding as of December 31, 1998
is as follows:

<TABLE>
<CAPTION>
                             Stock Options Outstanding     Options Exercisable
                          -------------------------------- --------------------
                                       Weighted
                                        Average
                                       Remaining  Weighted             Weighted
                                      Contractual Average              Average
      Range of              Number       Life     Exercise   Number    Exercise
   Exercise Prices        Outstanding   (years)    Price   Exercisable  Price
   ---------------        ----------- ----------- -------- ----------- --------
   <S>                    <C>         <C>         <C>      <C>         <C>
   $0.10-$0.15...........  1,447,559     8.83      $0.14     459,428    $0.13
   $0.20-$0.25...........    681,938     9.83       0.25     280,240     0.25
   $0.35-$0.65...........    699,588     9.75       0.64     149,000     0.60
   $1.05.................  1,259,432     9.92       1.05      25,464     1.05
                           ---------     ----      -----     -------    -----
                           4,088,517     9.51      $0.51     914,132    $0.26
                           =========     ====      =====     =======    =====
</TABLE>

  Shares of common stock sold to employees, directors and consultants under
stock purchase agreements are subject to repurchase at the Company's option
upon termination of their employment or services at the original purchase
price. This right to repurchase expires ratably over the vesting period. At
December 31, 1997 and 1998, respectively, 2,578,985 and 2,105,585 shares were
subject to such repurchase right.

 Deferred Stock Compensation

  In connection with certain equity transactions during the year ended December
31, 1998, the Company recorded deferred stock compensation of $7,571,000 for
the difference between the exercise or sale price of the stock and deemed fair
value of the stock at that time. This total consists of $7,071,000 related to
stock option

                                      F-14
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

grants (including $432,000 arising from the Panttaja acquisition) and $500,000
related to common stock sold to an officer of the Company. An additional
$630,000 arose from shares of common stock issued in connection with the
Panttaja acquisition which are subject to vesting. Deferred compensation
related to stock option grants is being amortized over the four-year vesting
periods of the related options. Amortization of such expense during  1998 and
the three months ended March 31, 1999 totaled approximately $296,000 and
$467,000, respectively.

 Additional Stock Plan Information

  As discussed in Note 1, the Company accounts for its stock-based award using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.

  Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, requires the disclosure of pro forma net loss and net loss
per share had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the minimum value
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1996 and 1997 and 4.6% in 1998; and no
dividends during the expected term. The Company's calculations are based on a
single option valuation approach, and forfeitures are recognized as they occur.
If the computed fair values of the Company's awards had been amortized to
expense over their related vesting periods, the effect would have been to
increase net loss to $271,000 ($0.99 per share) in 1996, $4,313,000 ($5.88 per
share) in 1997 and $14,427,000 ($8.78 per share) in 1998.

8. Net Loss Per Share

  The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands).

<TABLE>
<CAPTION>
                                         Year Ended       Three Months
                                        December 31,     Ended March 31,
                                      -----------------  ----------------
                         Period from
                        June 21, 1996
                         (inception)
                           through
                        December 31,
                            1996       1997      1998     1998     1999
                        ------------- -------  --------  -------  -------
                                                           (Unaudited)
<S>                     <C>           <C>      <C>       <C>      <C>      <C>
  Net loss (numerator),
   basic and diluted...    $ (266)    $(4,180) $(14,111) $(2,080) $(8,208)
                           ------     -------  --------  -------  -------
  Shares (denominator):
    Weighted average
     common shares
     outstanding.......     1,074       2,372     3,818    3,746    5,068
    Weighted average
     common shares
     outstanding
     subject to
     repurchase........      (801)     (1,638)   (2,174)  (2,470)  (2,064)
                           ------     -------  --------  -------  -------
  Shares used in
   computation, basic
   and diluted.........       273         734     1,644    1,276    3,004
                           ======     =======  ========  =======  =======
  Net loss per share,
   basic and diluted...    $(0.97)    $ (5.70) $  (8.58) $ (1.63) $ (2.73)
                           ======     =======  ========  =======  =======
</TABLE>

                                      F-15
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  For the above mentioned periods, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following (in thousands):
<TABLE>
<CAPTION>
                                         Period from
                                        June 21, 1996              Three Months
                                         (inception)   Year Ended     Ended
                                           through    December 31,  March 31,
                                        December 31,  ------------ ------------
                                            1996      1997   1998  1998   1999
                                        ------------- ----- ------ ----- ------
                                                                   (Unaudited)
<S>                                     <C>           <C>   <C>    <C>   <C>
  Convertible preferred stock..........     1,938     9,693 15,169 9,693 18,763
  Shares of common stock subject to
   repurchase..........................     1,614     2,579  2,106 2,361  1,745
  Outstanding options..................       206     1,289  4,089 1,689  4,280
  Warrants.............................        --       705    737   705    662
</TABLE>

  Pro forma net loss per share assumes that the conversion of all shares of
convertible preferred stock into common stock, which occurs upon the
consummation of the initial public offering contemplated by this Prospectus,
had occurred as of the beginning of 1998.

9. Income Taxes

  Deferred income taxes result from temporary differences in the recognition of
certain assets and liabilities for financial statement and tax return purposes
and from net operating loss carryforwards. Net deferred tax assets at December
31, 1997 and 1998 of approximately $1,420,000 and $7,757,000, respectively,
consist principally of net operating loss carryforwards, which have been offset
by a valuation allowance.

  At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $14,200,000 which expires through
2018. In addition, the Company had, at December 31, 1998, a net operating loss
carryforward for California state income tax purposes of approximately
$14,100,000 which expires through 2004.

  Current Federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and tax credit carryforwards may be limited as a
result of such "ownership change" as defined. Such a limitation could result in
the expiration of carryforwards before they are utilized.

10. Employee Benefit Plan
  The Company has a 401(k) plan for its employees who meet certain service and
age requirements. Participants may contribute up to 15% of their salaries up to
amounts specified under the Internal Revenue Code. The Company does not
contribute to this plan.

11. Significant Customers and Merchant Relationships

  In 1996, no sales were recorded by the Company. In 1997, one Merchant
accounted for 85% of net revenues and 82% of the ClickMiles awarded by all
Merchants during the year. In 1998, two customers accounted individually for
46% and 13% of revenues. Additionally, two Merchants accounted individually for
34% and 21% of the ClickMiles awarded by Merchants during 1998.

                                      F-16
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


12. Airline Arrangements

  The Company has entered into certain long-term arrangements to purchase
airmiles from its airline suppliers. At December 31, 1998, the Company had
prepaid for airmiles with a cost of $1,600,000 which are available for
redemption by Members. Certain of these airmiles expire if not exchanged by
Members for Click Miles within specified time periods, including $237,000 which
are subject to expiration in 1999.

  The contracts require certain minimum annual airmile purchases in order for
the Company to maintain its exclusivity agreement. These future minimum
payments, including excise tax, are as follows (in thousands):

<TABLE>
       <S>                                                                <C>
       Year ending December 31:
         1999............................................................ $1,142
         2000............................................................  1,432
         2001............................................................    860
                                                                          ------
           Total......................................................... $3,434
                                                                          ======
</TABLE>

13. Leases

  The following is a schedule of future lease payments required under
noncancelable operating leases, as of December 31, 1998 (in thousands):

<TABLE>
       <S>                                                               <C>
       Year Ending December 31,
         1999........................................................... $  552
         2000...........................................................    459
         2001...........................................................    119
                                                                         ------
           Total minimum payments....................................... $1,130
                                                                         ======
</TABLE>

  Rent expense under all rental agreements was $8,000 in 1996, $158,000 in 1997
and $334,000 in 1998.

                                      F-17
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


14. Consolidated Statement of Cash Flows Information

  A reconciliation of net loss to net cash used in operating activities follows
(in thousands):

<TABLE>
<CAPTION>
                         June 21, 1996    Years Ended      Three months ended
                         (Inception) to   December 31,          March 31,
                          December 31,  -----------------  --------------------
                              1996       1997      1998      1998       1999
                         -------------- -------  --------  ---------  ---------
<S>                      <C>            <C>      <C>       <C>        <C>
CASH FLOWS FROM
 OPERATING ACTIVITIES:
  Net loss..............     $(266)     $(4,180) $(14,111) $  (2,080) $  (8,208)
  Reconciliation to net
   cash used in
   operating activities
    Depreciation and
     amortization.......         8          150       629        106      1,181
    Deferred stock
     compensation
     expense............        --           --       296          7        467
    Expenses relating to
     stock warrants.....        --           76       841         72        628
    Advertising expense
     arising from barter
     transactions.......        --           --       956         --        350
    ClickMiles issued
     for services.......        --           --       587         29      1,114
    Changes in operating
     assets and
     liabilities:
      Accounts
       receivable.......        --          (23)     (201)       (66)        31
      Prepaid incentive
       awards...........        --         (703)     (897)       (40)        25
      Prepaid expenses..       (19)        (220)      115       (164)      (122)
      Other assets......        (2)         (31)     (155)        10         31
      Accounts payable..        71          512       281       (217)       116
      Accrued
       compensation and
       benefits.........        --           13       877        193       (212)
      Accrued redemption
       costs............        --           --       (78)        (3)      (114)
      Other accrued
       liabilities......        38          266       477         11        105
      Deferred revenue -
       product and
       services.........        --           59       848        132        601
                             -----      -------  --------  ---------  ---------
        Net cash used in
         operating
         activities.....     $(170)     $(4,081) $ (9,535) $  (2,010) $  (4,007)
                             =====      =======  ========  =========  =========
</TABLE>

15. Subsequent Events

  In March and April 1999, the stockholders of the Company approved the
increase of the number of authorized shares of its common stock to 33,240,000
and its preferred stock to 21,329,221 and designated 5,279,062 shares as Series
E. The Series E preferred stock has similar rights and preferences to the other
series of preferred stock (see Note 7), other than its liquidation preference
of $6.82 per share and its annual dividends which, if declared, would be $0.546
per share.

  In March 1999, the Company sold 3,519,053 shares of Series E to investors for
aggregate proceeds of approximately $23,000,000, net of expenses. In April and
June 1999, the Company sold an additional 1,759,530 shares of Series E to
investors for aggregate proceeds of approximately $12,000,000, net of expenses.

                                      F-18
<PAGE>

                                NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In May 1999, the stockholders of the Company approved the following:

  . Adoption of the 1999 Employee Stock Purchase Plan, and reserved 300,000
    shares of common stock (increasing by 75,000 shares in each of the
    following five years) for sale to employees at a price no less than 85%
    of the lower of fair market value at the beginning of the two-year
    offering period or the end of each of the six-month purchase periods.

  . Adoption of the 1999 Outside Directors Stock Option Plan, and reserved
    400,000 shares of common stock (increasing by 50,000 shares in each of
    the following five years) for grants of options to each outside director
    to purchase 40,000 shares of common stock at fair market value as of the
    grant date, as well as additional option grants for 10,000 shares to be
    issued in each subsequent year.

  . The reincorporation of the Company into Delaware by exchanging one share
    of common stock of the successor Delaware corporation for each share of
    common stock of the predecessor California corporation. Such
    reincorporation and stock exchange will be effective prior to the
    effective date of the initial public offering contemplated by this
    Prospectus.

  . The number of shares of authorized but unissued preferred stock was
    designated at 5,000,000. Such authorization is contingent upon the
    reincorporation of the Company into Delaware and the closing of the
    initial public offering contemplated by this Prospectus.

  In June 1999, the stockholders of the Company approved an increase in the
number of authorized shares available under the Employee Stock Option Plan by
2,000,000 shares and provided for annual increases of 1,250,000 shares in each
of the following five years.

  In May 1999, the Company entered into a seven-year operating lease for a new
headquarters facility. The lease, which is expected to commence in January
2000, requires annual rental payments ranging from approximately $2,600,000 to
$2,900,000 over the term of the lease. The Company is required to obtain a
letter of credit of approximately $2,400,000 as a security deposit prior to
lease commencement (of which $500,000 was obtained in May 1999), a portion of
which may be released over the term of the lease.

  On July 12, 1999, the Company issued to a customer a warrant to purchase
150,000 shares of common stock at an exercise price of $8.00 per share in
exchange for advertising to be provided on the customer's web sites. The
warrant expires in July 2001. The estimated fair value of the warrant of
approximately $630,000 will be expensed at the time the advertising services
are provided.

                                   * * * * *

                                      F-19
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Panttaja Consulting Group, Inc.:

  We have audited the accompanying statements of operations and cash flows of
Panttaja Consulting Group, Inc. (the "Company") for the years ended November
30, 1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. These 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, such financial statements refer to above present fairly, in
all material respects, the result of the Company's operations and its cash
flows for the years ended November 30, 1997 and 1998 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
March 12, 1999

                                      F-20
<PAGE>

                        PANTTAJA CONSULTING GROUP, INC.

                            STATEMENTS OF OPERATIONS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Years Ended
                                                               November 30,
                                                              ----------------
                                                               1997     1998
                                                              -------  -------
<S>                                                           <C>      <C>
Net revenues................................................. $ 3,361  $ 4,048
Cost of revenues.............................................  (1,777)  (2,521)
                                                              -------  -------
    Gross profit.............................................   1,584    1,527
Selling, general and administrative expenses.................  (1,416)  (1,624)
                                                              -------  -------
Income (loss) from operations................................     168      (97)
Interest income..............................................       1        1
Interest expense.............................................     (39)     (42)
Other income (expense), net..................................       1       (4)
                                                              -------  -------
Income (loss) before taxes on income.........................     131     (142)
Income tax (expense) benefit.................................     (39)      24
                                                              -------  -------
Net income (loss)............................................ $    92  $  (118)
                                                              =======  =======
</TABLE>



                       See notes to financial statements.

                                      F-21
<PAGE>

                        PANTTAJA CONSULTING GROUP, INC.

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                                    November
                                                                       30,
                                                                   ------------
                                                                   1997   1998
                                                                   -----  -----
<S>                                                                <C>    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)............................................... $  92  $(118)
  Reconciliation to net cash used in operating activities:
    Depreciation..................................................    90     87
    (Gain) loss from disposition of fixed assets..................    (1)     4
    Deferred income tax provision.................................    36    (25)
    Changes in operating assets and liabilities:
      Accounts receivable.........................................    62   (382)
      Other receivable............................................     2      1
      Prepaid expenses............................................     4     (5)
      Accounts payable............................................  (116)   332
      Accrued liabilities.........................................   (11)    61
      Deferred revenues...........................................   (14)     7
                                                                   -----  -----
        Net cash provided (used) in operating activities..........   144    (38)
                                                                   -----  -----
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.............................    (5)   (31)
  Sale of property and equipment..................................     7      9
                                                                   -----  -----
        Net cash provided (used) in investing activities..........     2    (22)
                                                                   -----  -----
CASH FLOWS FROM FINANCING ACTIVITIES:
  Receipts from short-term borrowing..............................    55    141
  Repayments of capital leases....................................   (58)   (80)
  Repayments of debt..............................................  (115)   (44)
  Proceeds from issuing common stock..............................    --      4
                                                                   -----  -----
        Net cash provided (used) in financing activities..........  (118)    21
                                                                   -----  -----
NET INCREASE (DECREASE) IN CASH...................................    28    (39)
CASH, Beginning of year...........................................    16     44
                                                                   -----  -----
CASH, End of year................................................. $  44  $   5
                                                                   =====  =====
SUPPLEMENTAL DISCLOSURES--
Noncash investing and financing transactions--
  Capital lease obligation incurred for equipment................. $  82  $ 105
                                                                   =====  =====
</TABLE>

                       See notes to financial statements.

                                      F-22
<PAGE>

                        PANTTAJA CONSULTING GROUP, INC.

                         NOTES TO FINANCIAL STATEMENTS
                     Years ended November 30, 1997 and 1998

1. Business and Significant Accounting Policies

  Line of Business--Panttaja Consulting Group, Inc.'s (the "Company") provides
software consulting, development, and educational services in the internet and
client/server market sectors. The Company was incorporated in January 1990.

  Revenue--The Company's revenues consist primarily of fees for services,
including consulting and education. Consulting services are primarily provided
on a time and materials basis. Educational services are generally priced on a
per student basis. Consulting and education revenues are recognized as the
services are performed.

  Cost of Revenues--The cost of services consists primarily of compensation and
travel costs associated with providing consulting and education.

  Cash and Cash Equivalents--The Company considers all highly liquid
investments with original maturities of ninety days or less to be cash
equivalents.

  Depreciation--Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets which range from five to ten
years. Amortization of leasehold improvements is computed over the shorter of
the lease term or the estimated useful lives of the improvements.

  Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income taxes and liabilities result from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. Valuation allowances are provided when necessary to
reduce deferred tax assets to the amount expected to be realized.

  Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

  Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.

2. Major Customers

  Three customers accounted for 10%, 11%, and 18% of total revenues for the
year ended November 30, 1997. Two customers accounted for 15% and 18% of total
revenues for the year ended November 30, 1998.

3. Leases

  Rent expense was $171,000 and $181,000 for the years ended November 30, 1997
and 1998 respectively.

                                      F-23
<PAGE>

                        PANTTAJA CONSULTING GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


4. Income Taxes

  The provision (benefit) from income taxes consists of (in thousands):

<TABLE>
<CAPTION>
                                                                      1997 1998
                                                                      ---- ----
       <S>                                                            <C>  <C>
       Current:
         Federal..................................................... $ 2  $ --
         State.......................................................   1     1
                                                                      ---  ----
                                                                        3     1
       Deferred--federal.............................................  36   (25)
                                                                      ---  ----
                                                                      $39  $(24)
                                                                      ===  ====
</TABLE>

5. Employee Benefit Plans

Deferred Compensation Plan

  The Company maintains a qualified deferred compensation plan under Section
401(k) of the Internal Revenue Code. Under the plan, employees may elect to
defer up to 10% of their salary, subject to Internal Revenue Service limits.
The plan allows the Company to make discretionary contributions. During 1997
and 1998, all contributions were made by the employees.

Stock Option Plan

  The Company has adopted a stock option plan for employees. Under the terms of
the plan, options generally vest over a period of one to four years after date
of grant. Common stock issued upon exercise of these options is subject to the
Company's right of first refusal upon future sale or transfer. This right of
first refusal terminates at such time as a established market exists for the
Company's common stock.

  A summary of activity under the option plan follows:

<TABLE>
<CAPTION>
                                                    Number of  Weighted Average
                                                     Shares    Price per Share
                                                    ---------  ----------------
       <S>                                          <C>        <C>
       Outstanding, November 30, 1996.............. 1,790,000       $0.05
       Granted (fair value of $0.01 per share).....   375,000        0.05
       Exercised...................................    (5,000)       0.05
       Canceled....................................  (309,000)       0.05
                                                    ---------       -----
       Outstanding, November 30, 1997.............. 1,851,000        0.05
       Granted (fair value of $0.01 per share)..... 1,187,000        0.05
       Exercised...................................   (86,000)       0.05
       Canceled....................................  (510,000)       0.05
                                                    ---------       -----
       Outstanding, November 30, 1998.............. 2,442,000       $0.05
                                                    =========       =====
</TABLE>

Additional Stock Plan Information

  As discussed in Note 1, the Company accounts for its stock-based award using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. Accordingly, no compensation expense has been recognized in
the financial statements for employee stock arrangements.

                                      F-24
<PAGE>

                        PANTTAJA CONSULTING GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


  Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, ("SFAS 123"), requires the disclosure of pro forma net
income (loss) had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the minimum value
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1997 and 4.6% in 1998; and no dividends
during the expected term. The Company's calculations are based on a single
option valuation approach, and forfeitures are recognized as they occur. If the
computed fair values of awards made in 1997 and 1998 had been amortized to
expense over the vesting period of the awards, the effect on reported net
income (loss) would not have been significant.

6. SUBSEQUENT EVENTS

  On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
Company's outstanding shares of common stock and assumed all of its outstanding
options, at which time the Company became a wholly owned subsidiary of
Netcentives.

                                   * * * * *

                                      F-25
<PAGE>

                                NETCENTIVES INC.

                 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                          Year ended December 31, 1998
              (Unaudited, in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                      Pro Forma     Pro Forma
                             Netcentives Panttaja(1) Adjustments   Consolidated
                             ----------- ----------- -----------   ------------
<S>                          <C>         <C>         <C>           <C>
Revenues:
  Product...................  $     64     $   --      $    --       $     64
  Program-related services..       583         --           --            583
  Technical consulting
   services.................        --      4,048         (616)(2)      3,432
                              --------     ------      -------       --------
    Total revenues..........       647      4,048         (616)         4,079
                              --------     ------      -------       --------
Costs and expenses:
  Cost of product revenues..        59         --           --             59
  Program-related services,
   marketing and support
   costs....................     7,293         --           --          7,293
  Cost of technical
   consulting services
   revenues.................        --      2,521         (368)(2)      2,153
  Research and development..     3,383         --         (248)(2)      3,135
  Selling, general and
   administrative...........     3,134      1,624           --          4,758
  Amortization of deferred
   stock compensation.......       296         --          266 (3)        562
  Amortization of supplier
   stock awards.............       811         --        1,699 (4)      2,510
  Amortization of
   intangibles..............        79         --           --             79
                              --------     ------      -------       --------
    Total Costs and
     expenses...............    15,055      4,145        1,349         20,549
                              --------     ------      -------       --------
Loss from operations........   (14,408)       (97)      (1,965)       (16,470)
Other income (expense)......       297        (45)          --            252
                              --------     ------      -------       --------
Loss before income tax
 provision..................   (14,111)      (142)      (1,965)       (16,218)
Income tax benefit..........                   24          (24)(5)         --
                              --------     ------      -------       --------
Net loss....................  $(14,111)    $ (118)     $(1,989)      $(16,218)
                              ========     ======      =======       ========
Net loss per share--basic
 and diluted................  $  (8.58)                              $  (7.12)
                              ========                               ========
Shares used in per share
 calculations...............     1,644                     634 (6)      2,278
                              ========                 =======       ========
</TABLE>


          See notes to pro forma consolidated statement of operations.

                                      F-26
<PAGE>

                                NETCENTIVES INC.

      NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
                          Year ended December 31, 1998

  On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
outstanding shares and assumed the outstanding options of Panttaja Consulting
Group, Inc. ("Panttaja"), a software consulting firm in exchange for 808,780
shares of common stock valued at $2,548,000, cash of $194,000 and options to
purchase 455,648 shares of Netcentives stock at $0.254 per share, of which
306,755 were vested at the date of acquisition and have been included as part
of the acquisition price at their fair value of $936,000. The common stock
includes 200,000 shares subject to vesting over a four-year period, will be
accounted for as deferred compensation over the vesting period. Netcentives
also agreed to pay the stockholders additional cash up to $450,000 within 13
months following closing based on certain employment levels, which was
considered probable at the time of the acquisition and has been accrued as part
of the purchase price of Panttaja.

  The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's financial statements. The total consideration exceeded the fair
value of the net assets acquired by $3,526,000, which has been recorded as the
value of the existing consulting relationships and is being amortized on a
straight-line basis over two years.

  The accompanying pro forma statement of operations is presented in accordance
with Article 11 of Regulation S-X.

  The pro forma statement of operations for the year ended December 31, 1998
includes the following adjustments to reflect consummation of the transaction
as if it had occurred at the beginning of 1998:

    1. Represents Panttaja's historical results of operations for its fiscal
  year ended November 30, 1998. The results of operations of Panttaja for the
  period December 18 through December 31, 1998 included in Netcentive's
  consolidated results of operations were not significant.

    2. To eliminate intercompany consulting revenues.

    3. To record one year of compensation expense ($158,000) related to the
  200,000 share restricted stock arrangement and one year of expense
  ($108,000) relating to the options granted to Panttaja employees.

    4. To record one year of amortization of the intangible assets recorded
  in the acquisition.

    5. To reverse income tax benefits recorded by Panttaja. Netcentives has
  incurred losses since inception and records a full valuation on all
  operating loss carryforwards and deferred tax assets.

    6. To reflect the assumed issuance of 608,780 unrestricted shares of
  common stock issued in connection with the acquisition and the vesting of
  50,000 shares of restricted stock during the year.

  The adjustments do not give effect to any potential benefits that might have
been realized through the combination of operations and are not necessarily
indicative of the consolidated results which would have been reported if the
Panttaja acquisition had actually occurred at the beginning of the period
presented.

                                      F-27
<PAGE>

                              [INSIDE BACK COVER]
                         Inside Back Cover Description

                          [Netcentives name and logo]

Text: The philosophy behind Netcentives is simple: help businesses build
lasting relationships with their customers and employees. Our four promotion
and direct marketing solutions revolve around this basic tenet.

Text: ClickRewards
   An Internet-based network loyalty program based on frequent flyer miles,
ClickRewards can help Internet merchants, portals, and community sites attract
and retain valuable consumers. ClickRewards has demonstrated success in
attracting 56 e-commerce merchants and over 1,400,00 members.

Text: Enterprise Incentive Solutions
   Our incentive programs also extend to the workplace, helping businesses
motivate and reward employees, partners and stakeholders across intranets and
extranets. Result? Employees stay loyal, and HR departments are able to offer
a new incentive. First companies to offer Enterprise Incentive Solutions:
Cisco Systems and Microsoft.

Text: Netcentive Professional Services
   A ready team of experts that can help online and off-line companies develop
cost effective e-commerce and other electronic business applications. NPS
specializes in the integration of online technologies with key infrastructure
systems, helping transform e-commerce into mainstream commerce.

Text: Custom Loyalty Networks
   Portals and other Web sites with substantial membership use our proprietary
technology to launch their own branded network loyalty programs, thereby
creating loyal customers and fostering online business growth. Current clients
include Looksmart's Reward Mall and Infoseek's GO Network.

Text: "Most commerce players will achieve a greater return on investment over
two years by participating in a network loyalty program rather than by
operating their own loyalty program."

                                                -Jupiter Communications Loyalty
                                                 Programs Report, November 1998
<PAGE>







                             [LOGO OF NETCENTIVES]
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution

  The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Netcentives in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq Stock
Market listing fee.

<TABLE>
<CAPTION>
                                                                     Amount to
                                                                      be Paid
                                                                     ----------
     <S>                                                             <C>
     SEC registration fee........................................... $   19,182
     NASD filing fee................................................      7,400
     Nasdaq Stock Market listing fee................................     95,000
     Printing and engraving expenses................................    120,000
     Legal fees and expenses........................................    375,000
     Accounting fees and expenses...................................    350,000
     Transfer Agent and Registrar fees..............................      4,000
     Miscellaneous fees and expenses................................     29,418
                                                                     ----------
       Total........................................................ $1,000,000
                                                                     ==========
</TABLE>

ITEM 14. Indemnification of Directors and Officers

  Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Article XIV of our Amended and Restated Certificate of Incorporation (Exhibit
3.3) provides for indemnification of our directors and officers to the maximum
extent permitted by the Delaware General Corporation Law and Section 6.1 of
Article VI of our bylaws (Exhibit 3.4) provides for indemnification of our
directors, officers, employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. In addition, we have entered into
Indemnification Agreements (Exhibit 10.1) with our directors and officers
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require us, among other things, to indemnify
our directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities arising from willful
misconduct of culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' insurance if available on reasonable terms. Reference is also
made to Section 7 of the Underwriting Agreement contained in Exhibit 1.1,
indemnifying our officers and directors against certain liabilities.

ITEM 15. Recent Sales of Unregistered Securities

  (a) From our inception in June 1996 through June 30, 1999, we have issued and
sold (without payment of any selling commission to any person) the following
unregistered securities:

  .  An aggregate of 2,000,000 shares of common stock at $0.001 per share in
     June 1996 to our founders.

  .  An aggregate of 50,000 shares of common stock at $0.02 per share in
     September 1996 to 3 consultants to Netcentives.

  .  An aggregate of 1,452,613 shares of Series A Preferred Stock at $0.65
     per share in September 1996 to 11 investors.

                                      II-1
<PAGE>

  .  An aggregate of 485,000 shares of Series B Preferred Stock at $1.00 per
     share in November 1996 to 7 investors.

  .  An aggregate of 500,000 shares of common stock at $0.12 per share in
     August 1997 to one of our executives.

  .  Warrants to purchase an aggregate of 175,000 shares of Series B
     Preferred Stock, and promissory notes with an aggregate principal amount
     of $1,312,601.60 convertible into shares of Series C Preferred Stock
     during January, June, August, and September 1997 to 12 investors.

  .  An aggregate of 7,754,847 shares of Series C Preferred Stock at $1.30
     per share in September 1997 to 17 investors.

  .  Warrants to purchase an aggregate of 530,000 shares of Series N
     Preferred Stock in July, August, September and October 1997 to 5
     suppliers.

  .  An aggregate of 30,000 shares of common stock in connection with the
     purchase of the United States patent application having SC/Serial Number
     08/572,017 in September 1997 and November 1998.

  .  An aggregate of 1,048,600 shares of common stock at $0.15 per share in
     December 1997 to one of our executives.

  .  Warrants to purchase an aggregate of 31,948 warrants convertible into
     shares of Series C Preferred Stock in May 1998 to an equipment lessor.

  .  An aggregate of 5,476,192 shares of Series D Preferred Stock at $3.15
     per share in August 1998 to 18 investors.

  .  An aggregate of 808,780 shares of common stock with an aggregate value
     of approximately $525,707 in connection with the acquisition of Panttaja
     Consulting Group Inc. in December 1998.

  .  An aggregate of 200,000 shares of common stock at $0.65 per share in
     December 1998 to one of our executives.

  .  An aggregate of 5,278,283 shares of Series E Preferred Stock at $6.82
     per share in March, April and June 1999 to 27 investors.

  .  An aggregate of 5,786,808 options to purchase shares of common stock at
     an average exercise price of $1.74 per share to our employees and
     consultants.

  (b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).

  The issuances described in Items 15(a) were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
transactions by an issuer not involving any public offering and in the case of
the issuances to our founders, executives, employees and consultants are also
exempt from registration pursuant to Rule 701 promulgated under the Securities
Act. The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
where affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.

ITEM 16. Exhibits and Financial Statement Schedules

  (a) Exhibits

<TABLE>
 <C>  <S>
 1.1* Form of Underwriting Agreement.

 3.1  Articles of Incorporation of the Registrant.

 3.2  Amended and Restated Bylaws of the Registrant.

 3.3  Form of Amended and Restated Certificate of Incorporation, to be filed
       and effective upon completion of this offering.
</TABLE>

                                      II-2
<PAGE>



<TABLE>
 <C>    <S>
  3.4   Form of Amended and Restated Bylaws of the Netcentives, to be effective
         upon completion of this offering.

  4.1*  Form of the Netcentives common stock certificate.

  5.1*  Opinion of Venture Law Group, a Professional Corporation.

 10.1   Form of Indemnification Agreement for directors and officers of
         Netcentives.

 10.2   1996 Stock Option Plan, as amended, and form of stock option agreement
         and restricted stock purchase agreement.

 10.3   1999 Employee Stock Purchase Plan and form of subscription agreement.

 10.4   1999 Directors' Stock Option Plan and form of stock option agreement.

 10.5   Lease between Panttaja Consulting Group and Britphil & Co. Ltd. dated
         November 13, 1995.

 10.6   Lease between Netcentives and Townsend Associates, L.L.C. dated August
         14, 1997.

 10.7   Lease between Netcentives and Townsend Associates, L.L.C. dated August
         11, 1998.

 10.8+  Confidential Advantage Participation Agreement between American
         Airlines, Inc. and Netcentives Inc. dated August 19, 1997.

 10.9+  Supply Agreement between Northwest Airlines, Inc. and Netcentives Inc.
         dated September 5, 1997.

 10.10+ Supply Agreement between Continental Airlines, Inc. and Netcentives
         Inc. dated September 5, 1997.

 10.11+ Supply Agreement between US Airways, Inc. and Netcentives Inc, dated
         September 20, 1997.

 10.12+ Supply Agreement between Mileage Plus Marketing, Inc. and Netcentives
         Inc. dated March 20, 1998.

 10.13+ Marketing Services Agreement between British Airways PLC and
         Netcentives Inc. Agreement Number MKTG 002 dated April 4, 1997.

 10.14+ Supply Agreement between Trans World Airlines, Inc. and Netcentives
         Inc. dated February 25, 1999.

 10.15+ Sky Rewards Delta Air Lines Agreement between Delta Air Lines, Inc. and
         Netcentives Inc. dated July 24, 1997.

 10.16  Office Lease between Netcentives and SKS Brannan Associates, LC dated
         May 5, 1999.

 10.17  Employment Agreement between Netcentives and West Shell, III dated June
         26, 1997 and Amendment to Employment Agreement dated October 29, 1998.

 10.18  Change of Control Agreement between Netcentives and John F. Longinotti
         dated January 15, 1998.

 10.19  Amended and Restated Rights Agreement between Netcentives and certain
         stockholders dated March 19, 1999.

 21.1   Subsidiaries of the Registrant.

 23.1   Independent Auditors' Consent.

 23.2*  Consent of Counsel (included in Exhibit 5.1).

 24.1   Power of Attorney (see page II-5).

 27.1   Financial Data Schedule.
</TABLE>
--------
*  To be supplied by amendment.

+Confidential Treatment Requested

                                      II-3
<PAGE>

ITEM 17. Undertakings

  Netcentives hereby undertakes to provide to the underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

  Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Netcentives
pursuant to the foregoing provisions, or otherwise, Netcentives 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 Netcentives of expenses
incurred or paid by a director, officer or controlling person of Netcentives 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, Netcentives will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

  Netcentives 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 a 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 this offering of such securities at that time shall be
  deemed to be the initial bona fide offering thereof.

                                      II-4
<PAGE>

                                   SIGNATURES

  Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on July 22, 1999.

                                          NETCENTIVES INC.

                                                   /s/ West Shell, III
                                          By: _________________________________
                                                    West Shell, III,
                                          Chairman and Chief Executive Officer

                               POWER OF ATTORNEY

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints West Shell, III and John F. Longinotti, and each
one of them, his or her attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and any
Registration Statement relating to this Registration Statement under Rule 462,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.

  Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-1 has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
              Signature                         Title                 Date
              ---------                         -----                 ----

 <C>                                  <S>                         <C>
         /s/ West Shell, III          Chairman of the Board of    July 22, 1999
 ____________________________________  Directors and Chief
          (West Shell, III)            Executive Officer
                                       (Principal Executive
                                       Officer)

        /s/ John F. Longinotti        Executive Vice President,   July 22, 1999
 ____________________________________  Operations and Chief
         (John F. Longinotti)          Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)

          /s/ Stewart Alsop           Director                    July 22, 1999
 ____________________________________
           (Stewart Alsop)

            /s/ Tom Byers             Director                    July 22, 1999
 ____________________________________
             (Tom Byers)

         /s/ Eric W. Tilenius         Director                    July 22, 1999
 ____________________________________
          (Eric W. Tilenius)

       /s/ Virginia M. Turezyn        Director                    July 22, 1999
 ____________________________________
        (Virginia M. Turezyn)

       /s/ Wendell G. Van Auken       Director                    July 22, 1999
 ____________________________________
        (Wendell G. Van Auken)

           /s/ Sergio Zyman           Director                    July 22, 1999
 ____________________________________
            (Sergio Zyman)
</TABLE>

                                      II-5
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
    1.1*     Form of Underwriting Agreement.

    3.1      Articles of Incorporation of the Registrant.

    3.2      Amended and Restated Bylaws of the Registrant.

    3.3      Form of Amended and Restated Certificate of Incorporation, to be
              filed and effective upon completion of this offering.

    3.4      Form of Amended and Restated Bylaws of the Netcentives, to be
              effective upon completion of this offering.

    4.1*     Form of the Netcentives common stock certificate.

    5.1*     Opinion of Venture Law Group, a Professional Corporation.

   10.1      Form of Indemnification Agreement for directors and officers of
              Netcentives.

   10.2      1996 Stock Option Plan, as amended, and form of stock option
              agreement and restricted stock purchase agreement.

   10.3      1999 Employee Stock Purchase Plan and form of subscription
              agreement.

   10.4      1999 Directors' Stock Option Plan and form of stock option
              agreement.

   10.5      Lease between Panttaja Consulting Group and Britphil & Co. Ltd.
              dated November 13, 1995.

   10.6      Lease between Netcentives and Townsend Associates, L.L.C. dated
              August 14, 1997.

   10.7      Lease between Netcentives and Townsend Associates, L.L.C. dated
              August 11, 1998.

   10.8+     Confidential Advantage Participation Agreement between American
              Airlines, Inc. and Netcentives Inc. dated August 19, 1997.

   10.9+     Supply Agreement between Northwest Airlines, Inc. and Netcentives
              Inc. dated September 5, 1997.

   10.10+    Supply Agreement between Continental Airlines, Inc. and
              Netcentives Inc. dated September 5, 1997.

   10.11+    Supply Agreement between US Airways, Inc. and Netcentives Inc,
              dated September 20, 1997.

   10.12+    Supply Agreement between Mileage Plus Marketing, Inc. and
              Netcentives Inc. dated March 20, 1998.

   10.13+    Marketing Services Agreement between British Airways PLC and
              Netcentives Inc. Agreement Number MKTG 002 dated April 4, 1997.

   10.14+    Supply Agreement between Trans World Airlines, Inc. and
              Netcentives Inc. dated February 25, 1999.

   10.15+    Sky Rewards Delta Air Lines Agreement between Delta Air Lines,
              Inc. and Netcentives Inc. dated July 24, 1997.

   10.16     Office Lease between Netcentives and SKS Brannan Associates, LLC
              dated May 5, 1999.

   10.17     Employment Agreement between Netcentives and West Shell, III dated
              June 26, 1997 and Amendment to Employment Agreement dated October
              29, 1998.

   10.18     Change of Control Agreement between Netcentives and John F.
              Longinotti dated January 15, 1998.

   10.19     Amended and Restated Rights Agreement between Netcentives and
              certain stockholders dated March 19, 1999.

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit No.                  Description
 -----------                  -----------
 <C>         <S>
    21.1     Subsidiaries of the Registrant.

    23.1     Independent Auditors' Consent.

    23.2*    Consent of Counsel (included in Exhibit 5.1).

    24.1     Power of Attorney (see page II-5).

    27.1     Financial Data Schedule.
</TABLE>
--------
*  To be supplied by amendment.

+Confidential Treatment Requested
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 387982}]
{"company-data": {"conformed-name": "NETCENTIVES INC", "cik": "0001081404", "assigned-sic": "", "irs-number": "931213291"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-83443", "film-number": "99668408"}, "business-address": {"street1": "690 FIFTH STREET", "city": "SAN FRANCISCO", "state": "CA", "zip": "94107", "phone": "4155381888"}, "mail-address": {"street1": "690 FIFTH STREET", "city": "SAN FRANCISCO", "state": "CA", "zip": "94107"}}
As filed with the Securities and Exchange Commission on July 22, 1999
                                                   Registration No. 333-[     ]
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

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

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

                               NETCENTIVES INC.
            (Exact Name of Registrant as Specified in Its Charter)
                                ---------------
Delaware                             7389                            93-1213291
 (State or Other Jurisdiction of     (Primary Standard Industrial             (I.R.S. Employer
 Incorporation or Organization)       Classification Code Number)           Identification Number)
690 Fifth Street
                            San Francisco, CA 94107
                                (415) 538-1888
  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)
                                ---------------
                                West Shell, III
                     Chairman and Chief Executive Officer
                               Netcentives Inc.
                               690 Fifth Street
                            San Francisco, CA 94107
                                (415) 538-1888
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
                             of Agent for Service)
                                ---------------
                                  Copies to:
Craig W. Johnson                                  Mark A. Bertelsen
                 Elias J. Blawie                                     Jose F. Macias
                 Sanjay K. Khare                                       Betsey Sue
                 Matthew Oshinsky                                  Melissa V. Hollatz
                VENTURE LAW GROUP                           WILSON SONSINI GOODRICH & ROSATI
            A Professional Corporation                          Professional Corporation
               2800 Sand Hill Road                                 650 Page Mill Road
               Menlo Park, CA 94025                               Palo Alto, CA 94304
                  (650) 854-4488                                     (650) 493-9300
---------------
  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
                                ---------------
  If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
  If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
  If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                        CALCULATION OF REGISTRATION FEE

------------------------------------------------------------------------------
------------------------------------------------------------------------------
Proposed
 Title Of Each Class Of Securities To Be   Maximum Aggregate     Amount Of
                Registered                 Offering Price (1) Registration Fee
------------------------------------------------------------------------------
Common Stock, par value $0.001...........     $69,000,000         $19,182
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act.

  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 this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED JULY 22, 1999

                                       Shares

                                  Common Stock

                                   ---------

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$      and $      per share. We will apply to list the common stock on The
Nasdaq Stock Market's National Market under the symbol "NCNT."

  The underwriters have an option to purchase a maximum of         additional
shares to cover over-allotments of shares.

  Investing in the common stock involves risks. See "Risk Factors" on page 4.
Underwriting
                                               Price to    Discounts and   Proceeds to
                                                Public      Commissions    Netcentives
                                            -------------- -------------- --------------
Per Share..................................     $              $              $
Total......................................  $              $              $
Delivery of the shares of common stock will be made on or about       , 1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

                               Hambrecht & Quist

                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is       , 1999
[INSIDE FRONT COVER]

                       [Netcentives Symbol with stylized
                      logo containing descriptions of the
                       four major Netcentives products]
 [Netcentives name and logo w/ the Netcentives logo enlarged in the middle of
     the page with stylized text around the logo in the shape of the logo]

Text: ClickRewards is an Internet-based rewards transaction system and
promotional network that enables Internet marketers to increase sales and win
customer loyalty. ClickRewards is a secure, scalable processing system that
lets a company reward ClickMiles (i.e., frequent flyer miles) into a
customer's account in real time. ClickRewards is the exclusive points-based
Internet network program that rewards consumers with frequent flyer miles on
eight major airlines as well as other valuable merchandise. Online customers
can earn ClickMiles when they make purchases and other qualifying transactions
at ClickRewards Merchant Partner sites. Consequently, ClickRewards is
effective at driving Web traffic and building lasting relationships.

Text: Netcentives is able to extend its own proprietary technology through
Enterprise Incentive Solutions. Using ClickMiles, the program can be used to
achieve a wide set of on-the-job goals- from encouraging recruitment drives to
completing sales objectives or for any performance goal a company chooses. A
company can motivate an entire workforce, individual departments, even its
business partners. Deployed to the workplace via the Internet, an intranet, or
an extranet, Netcentives' Enterprise Incentive Solutions are automated online,
where employees can check their ClickMiles balance on a statement designed
with the look and feel of the Company.

Text: A team of experts is ready to help online and off-line companies develop
cost-effective e-commerce and other electronic business applications.
Netcentives Professional Services (NPS) offers a full range of IT services,
including e-commerce systems design, Web assessment and development, and
database management. NPS specializes in the integration of online technologies
with key infrastructure systems, helping transform e-commerce into mainstream
commerce for our client's businesses. Key NPS benefits include security,
scalability, and reliability. In summary, NPS is a client's e-commerce
partner. Centered around client relationships, dedicated to success, trusted
by customers, and focused on delivering a project into production.

Text: Any large organization with ample transaction volume and customer
earning opportunities can create their own branded rewards network using a
Custom Loyalty Network from Netcentives. Using Netcentives' proven scalable
technology, patented processes, and trusted expertise, a business can work to
increase their Return on Loyalty (not just ROI) in the e-commerce marketplace.
Netcentives evaluates a company's needs and economics, designs a customized
program with the proper rewards program and functionality, then provides the
software, planning, online and off-line advertising - plus Web site design and
network support - to launch and maintain an ongoing, successful customer
loyalty program.
[GATEFOLD ONE]
                             GATE FOLD DESCRIPTION

                         [ClickRewards Name and Logo]

Text: The ClickRewards Network is a powerful online promotion and loyalty
program that allows e-commerce sites to reward consumers with ClickMiles, a
digital promotion currency. Top e-commerce companies, including
BarnesandNoble.com, E*Trade, Mags.com, OfficeMax.com and Preview Travel, use
ClickMiles as an incentive to convert browsers to buyers and reward loyalty.
The program is free for consumers to join, and it's easy for them to earn
ClickMiles for doing things like purchasing products, downloading software, or
filling out surveys. Currently, over 1,400,000 members have joined.

Text: ClickMiles, the promotion currency of the ClickRewards Network, can be
redeemed one-for-one for frequent flyer miles or for valuable goods and
services. ClickRewards is the only points-based Internet promotions network to
have exclusive agreement with eight major airlines.

Text: JOIN. Membership is free and easy. Members can sign up at the
ClickRewards Web site or simply take advantage of a qualifying offer at one of
the merchants in the ClickRewards Network.

Text: SHOP. Members shop at a variety of online merchants in the ClickRewards
Network. Each merchant can customize the number of ClickMiles awarded for
purchases made at their Web site.

Text: EARN: Members can earn ClickMiles for doing things like purchasing
products, downloading software or filling out surveys.

Text: TRACK. Members can easily access their password-protected account
statement by visiting the ClickRewards Web site.

Text: REDEEM. Members can redeem their ClickMiles by submitting a redemption
request at the ClickRewards Web site. ClickMiles are redeemable one-for-one
for frequent flyer miles on eight major airlines, as well as for other
valuable rewards. ClickMiles can be combined with the member's already
existing frequent flyer miles in order to earn award travel faster on the
airline of their choice.

Text: ClickRewards is a flexible promotional tool that is designed to enable
merchants to convert browsers to buyers, increase average purchase size, drive
repeat purchases and build consumer loyalty.

[Screen Shot of the ClickRewards.com Internet home page]

CLICKREWARDS MERCHANT NETWORK:

[Logos: barnesandnoble.com, macy's.com, theknot.com, Preview Travel, CDNOW,
enutrition, msn Shopping, OfficeMax.com, REDHERRING, First Auction, eBags,
E*TRADE, brain Play.com, garden.com, www.WEBFLYER.com, Sports Superstore
Online, 1-800-flowers, xoom.com, Cooking.com.]

Text: ClickRewards members can redeem their ClickMiles for valuable rewards
including the frequent flyer miles of major airlines. REDEEM MILES AT PARTNER
COMPANIES SUCH AS: Logos: AAdvantage, EXECUTIVE CLUB British Airways,
Continental Airlines One Pass, Delta Air Lines, NORTHWEST AIRLINES WORLD
PERKS, Marriott, USAIRWAYS DIVIDEND MILES, AVIATORS TWA, MILEAGE PLUS United
Airlines.
[GATEFOLD TWO]
------------

                               TABLE OF CONTENTS
Page
                                                                          ----
Prospectus Summary.......................................................   2
Risk Factors.............................................................   4
Special Note Regarding Forward-Looking Statements........................  15
Use of Proceeds..........................................................  16
Dividend Policy..........................................................  16
Capitalization...........................................................  17
Dilution.................................................................  18
Selected Consolidated Financial Data.....................................  19
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  20
Business.................................................................  30
Page
                                                                            ----
Management.................................................................  45
Related Party Transactions.................................................  56
Principal Stockholders.....................................................  58
Description of Capital Stock...............................................  60
Shares Eligible for Future Sale............................................  62
Underwriting...............................................................  64
Notice to Canadian Residents...............................................  67
Legal Matters..............................................................  68
Experts....................................................................  68
Where You Can Find More Information........................................  68
Index to Consolidated Financial Statements................................. F-1
------------

  You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

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

  All information in this prospectus assumes:

  . no exercise of the underwriters' over-allotment option;
  . our reincorporation in Delaware prior to completion of this offering;
  . the exercise of outstanding warrants to purchase 46,891 shares of stock
    which expire upon the closing of this offering;
  . the conversion of all outstanding shares of our convertible preferred
    stock into an aggregate of 20,522,235 shares of common stock upon
    completion of this offering; and
  . the filing of our Amended and Restated Certificate of Incorporation,
    authorizing a class of 5,000,000 shares of undesignated preferred stock
    upon completion of this offering.

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

  Netcentives, ClickRewards, ClickMiles, Custom Loyalty Networks, Enterprise
Incentive Solutions, RewardBroker, Secure Value Transfer Protocol,
SecureRewards Architecture, the Netcentives logo and the ClickRewards logo are
trademarks of Netcentives. This prospectus also contains brand names,
trademarks, or service marks of companies other than Netcentives, which are the
property of their respective holders.

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

                     Dealer Prospectus Delivery Obligation

  Until       , 1999 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.

                                       1
PROSPECTUS SUMMARY

  This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.

                                Netcentives Inc.

  Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. Netcentives' flagship program, the ClickRewards Network, is a
powerful online promotion and loyalty program that allows e-commerce sites to
reward consumers with ClickMiles, a digital promotion currency, for making
online purchases. Launched in March 1998, the ClickRewards Network, as of July
21, 1999, included over 1.4 million members who have earned, in the aggregate,
over 250 million ClickMiles. Top e-commerce companies, including
barnesandnoble.com, E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview
Travel, purchase ClickMiles from us and award them to consumers in order to
convert browsers to buyers, increase average purchase size, drive repeat
purchases and build loyalty to their site. Our robust, secure, scalable
transaction processing technology allows consumers to earn rewards currency at
the point of purchase on sites throughout the Web and to track and manage them
in their own personal account at a central Web site.

  Utilizing the technology platform we have developed for the ClickRewards
Network and our expertise with promotional products and services, we have
expanded our product offerings to provide Custom Loyalty Networks to portals,
companies with major brands and other Web sites with substantial membership. We
enable these sites to launch self-branded loyalty programs featuring their own
promotion currency. We launched our first Custom Loyalty Network for Looksmart
in July 1999 and are developing additional Custom Loyalty Networks, including
one for the GO Network that we expect to launch in the fourth quarter of 1999.
We have also launched Enterprise Incentive Solutions programs, such as
ClickRewards@Work, that enable corporations to utilize the power of the
ClickMile currency to motivate and reward employees, partners and stakeholders
across their intranets and extranets. We also offer a broad array of
complementary services to our ClickRewards merchants and Custom Loyalty and
Enterprise Incentive customers, including technical consulting and development,
marketing consulting, on-line advertising and sponsorship, partnership
marketing programs and sponsored e-mail offers.

  We have exclusive agreements with eight major airlines for the use of their
frequent flyer miles in points-based Internet promotions networks. These
relationships allow consumers to redeem ClickMiles one-for-one for frequent
flyer miles from American Airlines, British Airways (USA), Continental
Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines and US
Airways. These exclusive agreements give our ClickRewards merchants the ability
to attract and retain online shoppers using a compelling, relevant, and
differentiated rewards currency. They also give our merchants access to
frequent flyer program members, a set of consumers that we believe has a
demographic profile closely aligned with that of online shoppers. In addition
to frequent flyer miles, ClickRewards and our other programs offer redemption
options such as merchandise and other travel awards.

  In order to drive purchases at the merchant Web sites participating in the
ClickRewards Network and to make our products more valuable to them, we
actively recruit a consumer membership base for ClickRewards. Consumers
participating in the ClickRewards and our Custom Loyalty Networks can learn
about offers and track and redeem their loyalty currencies at a centralized Web
site for each network. In addition, for ClickRewards merchants and our Custom
Loyalty Network customers we offer a variety of direct marketing services.
These services include building a rich database of consumer profiles based on
transaction behavior across each network, offering targeted e-mail marketing
using this information and providing promotion management services.

                                       2
This Offering
Common Stock offered........................            shares
 Common Stock to be outstanding after this
  offering...................................            shares
 Use of proceeds............................. For general corporate purposes,
                                              including working capital
 Proposed Nasdaq National Market symbol...... NCNT
The information in the above table excludes:

  . 4,845,736 shares issuable upon exercise of outstanding options at a
    weighted average exercise price of $1.93 per share as of June 30, 1999;
  . 615,448 shares issuable upon exercise of outstanding warrants at a
    weighted average exercise price of $1.13 per share as of June 30, 1999;
    and
  . an aggregate of 2,261,888 shares available for future issuance under our
    employee benefit plans as of June 30, 1999.

                      Summary Consolidated Financial Data
                     (in thousands, except per share data)
Inception      Years Ended       Three Months
                            (June 21, 1996)   December 31,     Ended March 31,
                            to December 31, -----------------  ----------------
                                 1996        1997      1998     1998     1999
                            --------------- -------  --------  -------  -------
Consolidated Statements of
 Operations Data:
  Total revenues..........         --       $     9  $    647  $    15  $ 1,656
  Loss from operations....      $ (273)      (4,265)  (14,408)  (2,133)  (8,311)
  Net loss................        (266)      (4,180)  (14,111)  (2,080)  (8,208)
  Basic and diluted net
   loss per share.........      $(0.97)     $ (5.70) $  (8.58) $ (1.63) $ (2.73)
  Shares used to compute
   basic and diluted
   net loss per share.....         273          734     1,644    1,276    3,004
March 31, 1999
                                                             -------------------
                                                             Actual  As Adjusted
                                                             ------- -----------
Consolidated Balance Sheets Data:
  Cash and equivalents...................................... $31,994
  Working capital...........................................  25,277
  Deferred revenues--product and services...................   2,857    2,857
  Long-term obligations.....................................     887      887
  Total stockholders' equity................................  30,296
See Note 8 to our Consolidated Financial Statements for an explanation of the
method used to determine the number of shares used to compute the loss per
share amounts.

  The as adjusted information in the above table is adjusted to reflect the
sale of           shares of common stock offered by Netcentives at an assumed
public offering price of $         per share after deduction of the estimated
underwriting discounts and commissions and estimated offering expenses.

  Netcentives was incorporated in California in June 1996, and we expect to
reincorporate into Delaware prior to completing this offering. Our principal
executive offices are located at 690 Fifth Street, San Francisco, California
94107, and our telephone number is (415) 538-1888. Our corporate Web site
address is www.netcentives.com. The ClickRewards consumer web site is found at
www.clickrewards.com. Information contained on our Web sites shall not be
deemed to be a part of this prospectus.

                                       3
RISK FACTORS

  You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks not presently known to us or that we currently deem
immaterial also may impair our business operations. Our business, operating
results or financial condition could be harmed by any of these risks or other
risks. In addition, the trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
consolidated financial statements and the related notes.

Business Risks

  Because we have a limited operating history, it is difficult to evaluate our
business and prospects.

  We were incorporated in June 1996 and launched our first product in March
1998. Therefore, we have a limited operating history on which you can base an
investment decision. Furthermore, the Internet promotion and direct marketing
industry is a new industry. As such, our business is subject to certain
challenges that a more mature company or a company operating in a more mature
industry may not face, such as:

  . we have an unproven business model;
  . members may redeem ClickMiles or our custom loyalty currencies in
    unexpected patterns, which may exceed our available cash resources and
    cause fluctuations in our operating results;
  . we are dependent upon the expansion of the Internet and the growth of e-
    commerce;
  . we expect competition to intensify as new competitors emerge and existing
    competitors offer new products and services;
  . we may be unsuccessful in establishing or maintaining our brand;
  . we depend on the promotional efforts of our merchants and other third
    parties; and
  . our sales cycles are unpredictable and may result in quarterly
    fluctuations in our operating results which could lower our stock price.

  If the market for e-commerce fails to grow, our revenues will not grow.

  Our success will depend in large part on the continued growth in the use of
the Internet for commerce. We do not have direct control over the expansion of
e-commerce, and to the extent that the market for e-commerce does not
increase, our customer base and revenues will not grow.

  In addition, critical and unresolved issues concerning the commercial use of
the Internet may affect the development of the market for our products and
services, including:

  . the ability of consumers, sellers and other intermediaries to conduct e-
    commerce on a secure basis;
  . the reliability of the Internet for e-commerce, including the regular
    availability of e-commerce sites;
  . the availability of low-cost access to the Internet for consumers; and
  . availability of sufficient telecommunications bandwidth to consumers to
    enhance their ability to interact in the e-commerce shopping process.

   If our supplier relationships become non-exclusive or are terminated, our
   competitive position will be harmed.

  We believe that our relationships with major airlines and their frequent
flyer programs are a source of competitive advantage, particularly to the
extent that they remain exclusive in the area of points-based Internet
promotions networks. While we believe that we have established a broad scope
of exclusivity within our agreements with airlines, our competitors could
circumvent the terms of these agreements. Furthermore, in

                                       4
some cases, airlines may terminate the exclusivity contained in these
agreements following specified notice periods. If the ClickRewards Network
ceases to be the sole points-based Internet promotions network provider of
frequent flyer miles for multiple airlines, our business would be harmed.

  Additionally, while most of our agreements for the purchase of frequent
flyer miles and other rewards have extended terms, each of these agreements
may, in some cases, following certain notice periods, be terminated. To the
extent that the ClickRewards program can no longer offer frequent flyer miles
from one or more of our current airline partners or other valuable rewards,
our business would be harmed.

   If our merchants terminate their relationships with us, our competitive
   position and financial results may suffer.

  Our merchants may generally terminate their relationships with us on not
longer than 90 days prior notice. These terminations could occur as a result
of changes in our product or service offerings, competitive developments,
changes affecting the particular merchant's business or otherwise. Any
termination of merchant relationships could harm our business and financial
results either directly through the loss of revenues we generate through these
merchants or more generally through a perception of decreased value by our
members or other merchants participating in the ClickRewards Network.

   We are subject to intense competition, and we expect to face increased
   competition in the future.

  As a provider of loyalty, direct marketing and promotion products and
services, we generally compete with advertising and other promotional programs
for a portion of a customer's total marketing budget. In addition, within the
promotions market, we compete with a variety of businesses in connection with
each of our three programs. For the ClickRewards Network our primary
competition can be categorized as follows:

  . loyalty programs operated by and/or for portals and other large e-
    commerce sites, such as AOL Rewards;
  . Custom Loyalty Networks we operate on behalf of third parties; and
  . standalone loyalty programs and promotional tools developed by and/or for
    e-commerce sites, such as Autobytel.com Mobalist Rewards, CDnow Fast
    Forward Rewards, CBS SportsLine Rewards, Cybergold and MyPoints.

  We believe that we face substantial obstacles competing against internally
developed products created by our existing and potential customers. Our
Enterprise Incentive Solutions products and services compete with existing,
offline incentive products provided by parties such as Maritz Marketing
Research, Carlson Marketing Group, Loyalty Group, a division of Alliance Data
Systems and BI Performance Services. Our Custom Loyalty Network and Enterprise
Incentive Solution products and services also compete with products offered by
third parties, such as MyPoints.com.

  For each of our programs, we expect competition to intensify as more
competitors enter our market. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. While we
currently operate as a partner with many rewards suppliers, such as airline
frequent flyer programs, any of these suppliers could themselves enter into
our markets and provide us with substantial competition.

   Many of our competitors have greater resources than we do, which may impair
   our ability to compete.

  Many of our current and potential competitors, and in particular offline
promotions companies and offline rewards programs, have longer operating
histories, stronger brand names and significantly greater financial,
technical, marketing and other resources than we do. In addition, these
companies may have existing relationships with our potential customers and may
be able to respond to changes in market dynamics and technology faster than we
can. We cannot assure you that we will be able to compete successfully against
our current or future competitors. If we are unable to compete successfully
against current or future competitors, our business would suffer.

                                       5
Because our business model is unproven, we cannot assure you that our
   revenue will grow or that we will become profitable.

  Our business model depends upon our ability to leverage and to expand our
network of ClickRewards Network merchants, Custom Loyalty Network customers,
Enterprise Incentive Solutions customers, rewards partners and members to
generate multiple revenue streams. The potential profitability of this
business model is unproven, and to be successful we must, among other things,
develop and market additional products and services to existing customers
effectively. Finally, we may be forced by competitive pressures, industry
consolidation or otherwise, to change our business model for certain or all of
our customers, in which case our financial results could be harmed. Our
business model may not be successful and we may not sustain revenue growth or
achieve or sustain profitability.

   Recent changes to our ClickMiles terms and conditions may cause revenues to
   decline.

  We recently changed the terms and conditions on which our merchants can
purchase ClickMiles. We cannot provide any assurances that our current
participating customers will accept these policies and remain in our programs
or that we will be able to attract new customers to our programs. Moreover, we
cannot provide any assurances that we will not have to change our pricing
policies again in the future to retain and attract new customers.

   If consumers redeem loyalty currencies in unexpected patterns, our
   available cash resources could be depleted and our operating results could
   fluctuate.

  A significant element of our business model is based on the effective
management of the potential financial liabilities associated with our points-
based loyalty products. For example, over time, if the number of ClickMiles or
custom currency points in circulation increases, we will have increasing
liabilities for the potential eventual redemption of these points, and
consequently we will need to maintain adequate cash balances for any such
future redemptions. Because we have very limited historical data with respect
to our members' redemption behavior, we cannot assure you that members will
not redeem their points in unexpected patterns. If redemption requests are
inconsistent with our expectations or exceed our available cash resources, our
financial condition could be harmed. In addition, because we recognize a
portion of our revenues upon redemption by the consumer, unexpected
redemptions could cause fluctuations in our operating results and cause our
stock price to fluctuate.

   If the market for Internet-based promotion and direct marketing products
   and services does not evolve as we anticipate, our business will be harmed.

  The market for Internet-based promotion and direct marketing products and
services has only recently developed and is rapidly changing. As is typical
for a new and rapidly evolving industry, demand and market acceptance is
uncertain and few proven offerings exist. Moreover, since the market for our
promotion products and services is new and evolving, it is difficult to
predict the size of this market or its future growth rate, if any. We cannot
assure you that a sufficient volume of merchants will accept online loyalty
programs and promotions as a consumer attraction and retention device. If the
market for Internet-based promotion and direct marketing fails to develop,
develops more slowly than expected, or becomes saturated with competitors, or
if our products fail to achieve market acceptance, our business would be
harmed.

  If ClickMiles or frequent flyer miles become less valuable, we may lose
  merchants and members.

  We have based the ClickRewards Network, in part, on the assumption that
frequent flyer miles of major airlines and similar rewards from other partners
have a high perceived value for e-commerce shoppers. Furthermore, we have
established ClickMiles as being redeemable one-for-one for the frequent flyer
miles of several major airlines. To the extent that the airlines who provide
us with frequent flyer miles reduce the value of such miles by increasing the
number of miles required to achieve free travel, or by reducing the number of
seats available for free travel, the perceived value of ClickMiles to
consumers and consequently merchants would be correspondingly reduced, which
could harm our business. In addition, while we believe that e-commerce Web
sites and shoppers currently have a high perceived value for frequent flyer
miles and the other

                                       6
awards that we offer, if our belief is false, or if the perceptions of
consumers shift over time, our business could be adversely affected. Finally,
to the extent that we change the terms on which we offer or redeem ClickMiles,
this may result in dissatisfaction with the ClickRewards Network or in
lawsuits, either of which would harm our business or result in management
distraction. For example, we have recently added an expiration provision to
our ClickMiles rewards currency, such that consumers must redeem ClickMiles
within 24 to 36 months of their award. We cannot assure you that this or other
changes to our ClickRewards policies will not result in member or merchant
dissatisfaction with, or reduced acceptance of, our products and services.

   We depend on the ClickRewards Network and Netcentives Professional Services
   for most of our revenue; if there are any unexpected changes in these
   revenues, our financial results will be harmed.

  Substantially all of our revenues to date have come from the ClickRewards
Network and Netcentives Professional Services. Until we are able to develop
diversified sources of revenue, any reduction in revenues from ClickRewards or
any material unanticipated change in professional service-related revenues
would harm our results of operations.

   If we do not successfully introduce new products and services, we may not
   be able to increase revenues or become profitable.

  Our future success depends in part on our ability to offer new products and
services in a timely and cost-effective manner. While we hope that our Custom
Loyalty Networks and Enterprise Incentive Solutions programs will account for
a significant portion of our future revenues, we have had only limited
experience with these programs. Therefore, we cannot assure you that we will
be successful in establishing these products as sources of revenue or
profitability, or that these are the appropriate programs on which we should
be focusing our efforts. The process of developing and launching new products
and services is inherently risky and costly. Moreover, we cannot assure you
that once launched, our products and services will be accepted by our
customers or potential members. If we are unable to develop additional
products and services, or if the products and services that we do develop are
not accepted by our customers or their consumers or are otherwise
unsuccessful, we may not be able to increase revenues or become profitable.

   If we do not successfully establish or maintain our brands, our results of
   operations will suffer.

  We believe that establishing and maintaining the Netcentives and
ClickRewards brands are critical aspects of our efforts to attract, retain and
expand our merchant and member base and traffic, and to increase ClickMiles
sales. We also believe that the importance of brand recognition will increase
as the number of Internet marketing and promotions companies increases. In
order to attract and retain merchants and members, we continue to increase our
financial commitment to creating and maintaining brand loyalty. We are doing
this using Internet-specific means, as well as more traditional means, such as
media advertising campaigns in print, radio, billboards and television. If we
do not generate a corresponding increase in revenues as a result of our
branding efforts or otherwise fail to promote our brand successfully, or if we
incur excessive expenses in an attempt to promote and maintain our brand, our
results of operations would suffer.

   If our merchants fail to effectively promote the ClickRewards Network, our
   revenues could suffer.

  Our business model is substantially dependent upon the promotional efforts
of our merchants. For example, if our merchants do not prominently display
ClickRewards offers or do not work with Netcentives to create promotional
offers that are attractive and understandable to consumers, their ClickRewards
promotions may not be successful, and as a result, we may not be successful.
We cannot assure you that our merchants will continue to allocate sufficient
technical resources and promotional budgets and efforts to make their
ClickRewards promotions successful. If our merchants' promotional programs are
not successful, our revenues could suffer.

                                       7
If we are not able to respond to market changes successfully, our financial
   and competitive position would be harmed.

  The Internet and e-commerce are characterized by rapid changes in standards,
technology and customer preferences and requirements. Furthermore, new
promotional and incentives programs emerge frequently that could render our
programs outdated or non-competitive. Our financial and business performance
will depend in part on our ability to respond to these technological and
market changes rapidly and cost-effectively. In addition, our performance will
depend on our ability to update our software to interoperate with the most
current and widely adopted standards and technologies. If we are unable to
respond as required by the market, our financial condition and competitive
position would be harmed.

Financial Risks

   We have a history of losses and expect increasing future losses.

  We incurred losses of $266,000 in 1996, $4.2 million in 1997, $14.1 million
in 1998 and $8.2 million in the first quarter of 1999. As of March 31, 1999 we
had an accumulated deficit of $26.8 million. We currently expect that we will
continue to incur losses for the foreseeable future and that the magnitude of
these losses will increase substantially. We cannot assure you of when or if
we will become profitable. We believe that our ability to become profitable
will be based on a number of factors, including:

  . the continued expansion of e-commerce;
  . the development of the market for Internet-based promotions and direct
    marketing;
  . our ability to sell ClickMiles in sufficient volumes to offset the fixed
    costs of operating the ClickRewards Network;
  . our ability to manage the financial liabilities associated with the
    ClickRewards Network and Custom Loyalty Networks;
  . our ability to attract sufficient numbers of members to the ClickRewards
    Network;
  . our ability to drive sufficient transactional volume and attract and
    retain merchants;
  . our ability to operate and enter into additional Custom Loyalty Network
    relationships on positive financial terms;
  . our ability to purchase frequent flyer miles and other awards merchandise
    on competitive terms and conditions, and consistent with our estimated
    costs; and
  . our ability to market additional products and services to existing
    customers effectively.

  To the extent that we do not meet any of the above conditions, we may not
become profitable on a timely basis, if at all.

   Any delays in our normally lengthy sales cycles could result in significant
   fluctuations in our operating results.

  The typical cycle to attract a new merchant to the ClickRewards Network is
between three to six months and the cycle for attracting Custom Loyalty
Network customers extends up to one year. Our sales are also unpredictable and
involve significant strategic marketing decisions by prospective customers.
Our sales process also often requires us to educate potential customers about
the uses and benefits of our products and services and promotion tools more
generally. In particular, our Custom Loyalty Networks require customers to
reconsider their business in fundamental ways and often involve large
financial commitments. Finally, our prospective customers typically do not
have personnel dedicated to the implementation of promotion products such as
ours either at a technical or operational level. As a result, our customers
typically spend substantial time before purchasing our programs in performing
internal reviews and obtaining corporate approvals. We cannot be certain that
this cycle will not lengthen in the future. Any delay in sales of our programs
could cause our operating results to be significantly impaired.

                                       8
Our future revenues are unpredictable, and our quarterly financial results
  may fluctuate significantly.

  We expect that our revenues will vary substantially from quarter to quarter
as a result of a variety of factors, not all of which are under our control.
For example, because the majority of our products and services are related to
e-commerce, we expect that ClickRewards merchants and Custom Loyalty Network
customers will award more ClickMiles and custom loyalty currencies during the
holiday shopping season. Similarly, at any given time, a limited number of
customers conducting particularly large issuance or redemption promotions may
account for a large fraction of our revenues. We will recognize the associated
product and service revenues from these transactions over a period of up to 36
months. To the extent a large promotion ends or begins, or to the extent we
begin or end recognizing revenue associated with the holiday season in a given
quarter, our results for that quarter could be disproportionately affected. In
addition we expect other factors to affect our quarterly results, such as:

  . competitive developments;
  . fluctuations in the growth rate of e-commerce;
  . changes in the effective prices of frequent flyer miles and other
    rewards;
  . currency redemption and expiration patterns; and
  . the concentration of our Custom Loyalty and Enterprise Incentive products
    and services among a limited number of customers.

  A substantial portion of our costs, such as salaries, wages, and facilities-
related expenses are fixed in the short term, and another portion of our
expenses, such as advertising and promotion, are made in advance of the
associated expected revenues. As a result, fluctuations in revenues may have a
disproportionate effect on our quarterly results of operations and consequently
our stock price.

  If we are unable to raise additional capital, our business and financial
  condition may suffer.

  Since our inception, we have experienced negative cash flow from operations
and we expect to continue to experience significant negative cash flow from
operations for the foreseeable future. We believe that our current capital
resources, including the amount we raise in this offering, will be sufficient
to meet our anticipated cash requirements for at least the next twelve months.
After that time, we may be required to raise additional capital, and there can
be no assurance that we will be able to raise these funds on reasonable terms,
or at all. If we are unable to raise additional capital on reasonable terms,
our current stockholders could suffer substantial dilution. In addition, we may
be unable to pursue our current strategy, respond to competitive pressures or
otherwise conduct our business in the manner in which we would like. Any of
these events would harm our business and financial condition.

  Our stock will likely be subject to substantial price and volume
  fluctuations due to a number of factors, many of which are beyond our
  control.

  Prior to this offering, there has been no public market for our common stock.
If you purchase shares of common stock in this offering, you will pay a price
that was not established in a competitive market. Rather, you will pay the
price that we will negotiate with the representatives of the underwriters. The
price of the common stock that will prevail in the market after this offering
may be higher or lower than the price you pay.

  Many factors could cause the market price of our common stock to rise or
fall. Some of these factors are:

  .variations in our quarterly results;
  .introduction of new products or services or new pricing policies by us or
     our competitors;
  .acquisitions or strategic alliances by us, our competitors, or our current
     or potential customers;
  .hiring or departure of key personnel;
  .the gain or loss of significant customers or promotions;
  .changes in the estimate of our performance or changes in recommendations
     by securities analysts; and
  .market conditions in the industry and the economy as a whole.

                                       9
In addition, the stock market in general, and the stocks of Internet-related
companies in particular, have experienced extreme price and volume fluctuations
that have been unrelated to these companies' operating performance. These broad
market fluctuations could adversely affect the market price of our common
stock.

  In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could harm our business, operating
results and financial condition.

  Future sales of common stock may depress our stock price.

  After this offering, we will have outstanding                  shares of
common stock. Sales of a substantial number of shares of common stock in the
public market following this offering could materially adversely affect the
market price of our common stock. All the shares sold in this offering will be
freely tradeable. Pursuant to certain lock-up arrangements between our
stockholders and Netcentives or the underwriters, 19,499,026 shares of common
stock that were outstanding at June 30, 1999 will be available for sale in the
public market 180 days following the effective date of this offering. Of these
shares, 16,298,641 shares will be subject to volume limitations under federal
securities laws. An additional 6,291,256 shares that were outstanding at June
30, 1999 will become eligible for sale at various times after that date upon
the expiration of applicable required holding and vesting periods. In addition,
180 days following the effective date of this offering, 1,992,091 shares
subject to options and warrants outstanding as of June 30, 1999 will be
exercisable and may be resold.

  If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options and
warrants, the market price of our common stock could fall.

  You will experience immediate and substantial dilution.

  If you purchase shares of common stock in this offering, you will experience
immediate and substantial dilution in that the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is largely because our earlier investors paid
substantially less than the public offering price when they purchased their
shares of common stock. You will experience additional dilution upon the
exercise of outstanding stock options or warrants to purchase common stock.

  We do not intend to pay dividends.

  We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and therefore
do not expect to pay any cash dividends in the foreseeable future.

Technical Risks

  Our network infrastructure may be compromised or damaged, which could harm
  our business and financial condition.

  We utilize the services of Exodus Communications to host our production
servers and provide us with telecommunications links. The successful delivery
of our services is substantially dependent on our ability and the ability of
Exodus to protect our server and network infrastructure against damage from:

  . human error;
  . fire;
  . flood;
  . power loss;
  . telecommunications failure;

                                       10
. on-line or physical sabotage; and
  . intentional acts of vandalism.

  In addition, our server and network infrastructure is located in Northern
California, an area susceptible to earthquakes, which could cause system
outages or failures if one should occur. Despite precautions taken by Exodus
and us, the occurrence of other natural disasters or other unanticipated
problems at our respective facilities could result in interruption in the
services we provide or significant damage to our server and network
infrastructure. Even though we have implemented network security measures, our
servers are vulnerable to computer viruses, break-ins and similar disruptions
from unauthorized tampering. If any of these events occur, interruptions,
delays, or the loss or corruption of critical data or cessations in service may
result, which could harm our business and financial condition. In addition, our
reputation and the Netcentives and ClickRewards brands could suffer.

  The failure of our computing systems could result in financial losses or
  impair our reputation.

  The performance of our hardware and software is critical to our business,
reputation and ability to attract members, merchants and rewards suppliers to
the ClickRewards Network and our Custom Loyalty Networks. Although we have
designed our system to be fault tolerant, 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 brands. We rely on Exodus for a significant portion of
our Internet connectivity as well as monitoring and managing of power and
operating environment for our server and networking equipment. Any interruption
in the service that Exodus receives from other providers, or any failure of
Exodus to handle higher volumes of Internet users to the Netcentives sites
could result in financial losses or impair our reputation.

  Delays in integrating our services with customer systems could result in
  fluctuations in financial results or the loss of potential customers.

  In order for ClickRewards merchants or Enterprise Incentive Solutions
customers to participate in the ClickRewards Network, they usually must install
our software on their computer systems and implement promotions on their Web
sites. For customers implementing Custom Loyalty Networks, substantially more
systems integration may be required. Our software is not designed for every
available platform and system. Many of our potential customers have legacy
computer systems and manual processes that were not designed with promotion
products in mind. Therefore, the integration process may become so complex as
to delay a customer's implementation of a program and potentially prevent the
sale of a promotion product altogether. In addition, many of our potential
customers have limited technical resources and promotion budgets. They may not
have the capacity to install and maintain our software in order to use our
products effectively or implement them at all. To the extent that the software
component of our products cannot be integrated with the computer platforms and
software currently used by our potential customers, or these customers do not
have the technical or financial resources to implement our software
effectively, our potential customer base and revenues would be reduced.

  System capacity constraints may result in a loss of revenues.

  An increase in the use of our products could strain the capacity of our
systems, which could lead to slower response time or system failures. System
failures or slowdowns adversely affect the speed and responsiveness of our
rewards transaction processing. These would diminish the experience for our
members and reduce the number of transactions, and, thus, could reduce our
revenue. The ability of our systems to manage substantially larger numbers of
transactions at higher transmission speed is as yet unknown, and, as a result,
we face risks related to our ability to scale up to our expected transaction
levels while maintaining satisfactory performance. If our usage of
telecommunications bandwidth increases, we will need to purchase additional
servers and networking equipment and rely more heavily on Exodus and its
services to maintain adequate data transmission speeds. The availability of
these products or services may be limited or their cost may be significant.

                                       11
Software defects or errors could damage our reputation or result in a loss
   of revenues.

  The software that we have developed to run the ClickRewards Network, Custom
Loyalty Networks and Enterprise Incentive Solutions is complex and may contain
undetected errors or defects, especially when newer versions are released. Any
errors or defects that are discovered after commercial release or that delay a
commercial release could result in lost revenues, errors in member account
information, delays in the introduction of new products or services, delays in
implementation of promotions, customer or member dissatisfaction and damage to
our reputation.

   We face Year 2000 risks that could harm our business and financial
   condition.

  Many computer systems currently in use are not capable of distinguishing
twenty-first century dates from twentieth century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries, including e-
commerce, will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Although we
believe that the current versions of our software are Year 2000 compliant, we
may face claims based on Year 2000 issues arising from the integration of our
software into the systems of third parties. In addition, we may experience
reduced sales of our products and services as a result of the unavailability
of technical and other personnel required to implement our products who are
otherwise focused on Year 2000 issues. Use of our software can be dependent on
the successful operation of the systems of our existing merchants and rewards
suppliers. Our customers or rewards suppliers could experience Year 2000
issues that cause their systems, and consequently our services, to fail. Any
such claims, or reduction in sales, could harm our business and financial
condition.

Legal Risks

  We could become involved in disputes regarding the validity of our patent
  which would result in unexpected expenses and management distraction.

  The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the past several months, including our own patent. We believe
that several additional, related patents are currently pending. We believe
that there will continue to be substantial activity in this area and that
litigation may arise due to our attempts or a third party's efforts to enforce
patent rights.

  We may incur substantial expenses and management attention may be diverted
if litigation occurs. In addition, whether or not any claims against us are
meritorious, we may be required to enter into license agreements or be subject
to injunctive or other equitable relief, any of which would result in
unexpected expenses and management distraction.

   We may be subject to claims as a result of our database marketing efforts
   which could result in a loss of members and revenues.

  A component of our strategy is leveraging our database marketing
technologies. We have designed our technology infrastructure and services to
allow us to aggregate data regarding specific member behavior throughout the
network. We have a strict privacy policy that governs how we use information
about our members, and all of our communications are sent to members who have
previously agreed to be contacted. However, we cannot assure you that certain
persons who receive promotional materials from us will not be dissatisfied
with being contacted. In addition, while we strictly protect the identity of
individual members on our networks, we do provide merchants and rewards
suppliers with aggregate information regarding network participation, and we
cannot ensure that such aggregated information will not be the cause of
dissatisfaction among our members. There has been substantial publicity
regarding privacy issues surrounding the Internet, and to the extent that our
database marketing efforts conflict with any privacy protection initiatives,
or if any

                                      12
private information is inadvertently made public, we may be subject to legal
claims. If members of our networks become dissatisfied as a result of our
database marketing efforts, or if we become the subject of legal proceedings
in this regard, our business and results of operations would suffer.

   Federal, state and local governments may further regulate e-commerce and
   travel awards which could reduce our ability to become profitable.

  The frequent flyer miles and other travel awards that we currently award are
the subject of substantial government regulation, including excise taxes. In
addition, our rewards are frequently used as a prize in sweepstakes operated
by our customers, which are subject to substantial regulation. Finally, as a
result of the increasing popularity of the Internet and e-commerce, a number
of legislative and regulatory proposals that affect e-commerce are under
consideration by federal, state, local and foreign governmental organizations.
Thus it is possible that a number of laws or regulations may be adopted with
respect to the Internet, e-commerce and online database marketing. In the
event that our rewards, the promotions operated by our merchants or e-commerce
generally becomes the subject of further regulation or taxation, including the
taxation of frequent flyer miles received by consumers, this regulation or
taxation could have a negative effect on our financial results or our ability
to sell our products.

   If we are unable to protect our proprietary rights adequately, our
   competitive position would suffer.

  We currently rely on a mixture of patents, copyrights, trademarks, trade
secrets, agreements with third parties and employees, and clickwrap license
agreements to protect our proprietary rights. Despite our efforts to protect
our proprietary rights, unauthorized parties may use aspects of our business
model and products and obtain and use information we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts with us, and we may not be able to enforce our rights in
the event of such breaches. Our competitors may independently develop
technologies or business models that are substantially equivalent or superior
to ours. Furthermore, if we expand internationally, many countries do not
protect intellectual property rights to the same extent as the laws of the
United States. In the event that we are unable to protect our proprietary
rights, our business, financial condition and results of operations could be
materially adversely affected.

  Several existing stockholders own a large percentage of our voting stock
  and will be able to control matters requiring stockholder approval.

  After this offering, our executive officers and directors and their
respective affiliates will beneficially own approximately    % of our
outstanding common stock in the aggregate. As a result, these stockholders
will be able to exercise control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may delay, deter or
prevent transactions that would result in the change of control of
Netcentives, which in turn could reduce the market price of our common stock.

  Our Certificate of Incorporation and Bylaws and Delaware law contain
  provisions that could discourage a takeover.

  Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law may delay, deter or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:

  . authorizing the board to issue additional preferred stock;
  . prohibiting cumulative voting in the election of directors;
  . limiting the persons who may call special meetings of stockholders;
  . establishing a staggered board of directors;
  . prohibiting stockholder action by written consent; and

                                      13
. establishing advance notice requirements for nominations for election of
    the board of directors or for proposing matters that can be acted on by
    stockholders at stockholder meetings.

Management Risks

  Our inability to manage our future growth would adversely affect our
  business.

  We have experienced a period of rapid growth during the past two years. We
have grown from approximately 45 full-time employees at the end of the first
quarter of 1998 to 149 full-time employees at the end of the second quarter of
1999. This growth has placed a significant strain on our management systems and
resources and we expect any future growth to have a similar effect. To manage
the anticipated growth of our operations, we will be required to:

  . improve existing and implement new operational, financial and management
    information controls, reporting systems and procedures;
  . locate and transition to adequate facilities;
  . retain key existing employees;
  . hire, train and manage additional qualified personnel; and
  . manage our relationships with our customers, suppliers and distributors.

  We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel,
facilities, systems, procedures and controls may not be adequate to support our
future operations.

   We may not be able to recruit and retain the personnel we need to succeed.

  Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber personnel. Competition for qualified
personnel in our industry and geographic region is intense, and we may not be
successful in attracting and retaining personnel. There are only a limited
number of people with the skills that we require, and the area in which we
compete is characterized by rapidly increasing salaries and equity incentives.
These factors may increase our operating expenses and equity dilution or hinder
our ability to recruit and retain qualified personnel. To the extent we are not
able to attract, retain and motivate additional personnel effectively, our
business would suffer. In addition, our business is substantially dependent on
the efforts of certain key executives, including West Shell, III, our Chairman
and Chief Executive Officer, the loss of whom we believe could delay our
ability to achieve major corporate milestones. In addition, we believe that as
a result of the complexity of our financial model, the loss of members of our
financial management team could adversely affect us. We currently do not
maintain key person life insurance on any of our employees.

  We may not be successful in integrating any businesses or technologies we
  have acquired in the past or may acquire in the future, which could harm
  our financial position or result in management distraction.

  We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding acquiring or investing in their businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms.

  We acquired the Panttaja Consulting Group in December 1998. While a portion
of Panttaja's existing business was strategically consistent with our business
prior to the acquisition, the majority of their revenues were from engagements
unrelated to our core business. We may have difficulty in converting the
Panttaja consulting business into one that is consistent with our strategic
goals, or assimilating the products, services or technologies of other
companies we may acquire into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and harm our results of

                                       14
operations due to accounting requirements such as goodwill. Furthermore, we may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to our existing stockholders.

   Expanding internationally will create management and financial difficulties.

  We intend to enter new international markets. This expansion will require
significant management attention and financial resources. International
operations are subject to a number of risks and uncertainties, including:

  . the difficulties and costs of staffing and managing international
    operations;
  . our ability to establish relationships with distribution partners and the
    performance of these partners in selling our products and services;
  . the difficulties and costs of localizing products for international
    markets;
  . unexpected changes in regulatory requirements;
  . legal uncertainties regarding liability, Internet commerce restrictions,
    tariffs, the offering of purchase incentives and trade barriers;
  . inadequate protection of intellectual property in some countries;
  . increased difficulty in collecting delinquent or unpaid accounts;
  . fluctuations in the value of the U.S. dollar relative to other
    currencies;
  . potentially adverse tax consequences; and
  . political and economic instability.

  Any of these factors could impair our ability to expand into international
markets. Similarly, we cannot accurately predict the impact that future
fluctuations in foreign currency exchange rates may have on our business,
operating results or financial condition.

   We have broad discretion to use the proceeds of this offering.

  We have not designated any specific use for the net proceeds of this
offering. We expect to use the proceeds primarily for working capital and
general corporate purposes. We may also use a portion of the net proceeds to
acquire or make investments in additional businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific agreements or commitments to do
so. As a result, our management and board of directors will have broad
discretion in spending the proceeds of this offering.

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

  Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Business and elsewhere in this prospectus are forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms. These statements involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under Risk Factors and elsewhere in this prospectus.

  Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.

                                       15
USE OF PROCEEDS

  We estimate that we will receive approximately $    million in net proceeds
from the sale of the        shares of common stock in this offering. We base
this estimate on an assumed initial public offering price of $      per share
and after the deduction of estimated underwriting discounts and commissions and
estimated offering expenses totaling approximately $    million if the
underwriters' over-allotment option is exercised in full.

  We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes. These include increased
marketing and sales expenditures, increased research and development
expenditures and capital expenditures made in the ordinary course of business.
We may also use a portion of the net proceeds to acquire or make investments in
additional businesses, products or technologies or to establish joint ventures
that we believe will complement our current or future business. The amounts
that we actually spend for working capital purposes will vary significantly
depending on a number of factors, including future revenue growth, if any, and
the amount of cash we use in our operations. As a result, we will retain broad
discretion in allocating the net proceeds of this offering. Pending the use of
the net proceeds, we will invest them in short-term, interest-bearing,
investment-grade securities.

                                DIVIDEND POLICY

  We have never paid cash dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future.

                                       16
CAPITALIZATION

  The table below sets forth the following information:

  . our capitalization as of March 31, 1999 on an actual basis;

  . our pro forma capitalization which gives effect to the sale of 1,759,530
    shares of Series E preferred stock for net proceeds of $12.0 million on
    April 26, 1999, April 28, 1999 and June 4, 1999, the exercise of warrants
    to purchase 46,891 shares of Series B preferred stock which will expire
    if unexercised prior to the offering, and the conversion of
    20,569,126 shares of preferred stock into shares of common stock; and

  . our pro forma as adjusted capitalization which gives effect to the sale
    by us of the           shares of common stock being offered at an assumed
    offering price of $       per share less the estimated underwriting
    discounts and commissions and estimated offering expenses.
March 31, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                  (in thousands except share
                                                            data)
Long-term obligations.......................... $    887  $    887    $    887
                                                --------  --------    --------
Stockholders' equity:
Convertible preferred stock, $.001 par value;
 shares authorized: 19,569,221 actual; and
 5,000,000 pro forma and pro forma as adjusted;
 shares outstanding: 18,762,705 actual, none
 pro forma and
 pro forma as adjusted.........................       19       --
Common Stock, $.001 par value; 35,000,000
 shares authorized; shares outstanding:
 5,180,765 actual; 25,749,891 pro forma and
       pro forma as adjusted...................        5        26
Paid-in capital................................   64,925    76,970
Deferred stock compensation....................   (7,438)   (7,438)    (7,438)
Receivables from sales of stock................     (450)     (450)      (450)
Accumulated deficit............................  (26,765)  (26,765)   (26,765)
                                                --------  --------    --------
  Total stockholders' equity...................   30,296    42,343
                                                --------  --------    --------
  Total capitalization......................... $ 31,183  $ 43,230
                                                ========  ========    ========
The information in the above table excludes:

  . 4,845,736 shares issuable upon exercise of outstanding options at a
    weighted average exercise price of $1.93 per share as of June 30, 1999;
  . 615,448 shares issuable upon exercise of outstanding warrants at a
    weighted average exercise price of $1.13 per share as of June 30, 1999;
    and
  . an aggregate of 2,261,888 shares available for future issuance under our
    employee benefit plans as of June 30, 1999.

                                       17
DILUTION

  As of March 31, 1999, our pro forma net tangible book value was approximately
$42.3 million, or $1.64 per share of common stock. Pro forma net tangible book
value represents the total amount of our pro forma stockholders' equity divided
by the pro forma number of shares of common stock outstanding. If we do not
take into account any changes in pro forma net tangible book value after March
31, 1999, except our receipt of the estimated net proceeds from this offering
based upon an assumed initial public offering price of $         per share
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma as adjusted net tangible book value at March
31, 1999 would have been approximately $       , or $    per share. This
represents an immediate increase in net tangible book value of $      per share
to existing stockholders and an immediate dilution of $       per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:
Assumed initial public offering price per share...................       $
  Pro forma net tangible book value per share as of March 31,
   1999........................................................... $1.64
  Increase per share attributable to new investors................
                                                                   -----
Pro forma, as adjusted, net tangible book value per share after
 this offering....................................................
                                                                         -----
Dilution per share to new investors...............................       $
                                                                         =====
The following table summarizes, as of March 31, 1999, the pro forma 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 new
investors:
Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent   Amount    Percent Per Share
                                ---------- ------- ----------- ------- ---------
Existing stockholders.......... 25,749,891       % $65,375,000       %   $2.54
New investors..................
                                ----------  -----  -----------  -----
  Total........................             100.0% $            100.0%
                                ==========  =====  ===========  =====
The information in the above tables excludes:

  . 4,845,736 shares issuable upon exercise of outstanding options at a
    weighted average exercise price of $1.93 per share as of June 30, 1999;
  . 615,448 shares issuable upon exercise of outstanding warrants at a
    weighted average exercise price of $1.13 per share as of June 30, 1999;
  . an aggregate of 2,261,888 shares available for future issuance under our
    employee benefit plans as of June 30, 1999; and
  . the estimated underwriting discounts and commissions and estimated
    offering expenses.

                                       18
SELECTED CONSOLIDATED FINANCIAL DATA

  This section presents historical and pro forma financial data of Netcentives
Inc. You should read the following selected consolidated financial data in
conjunction with our Consolidated Financial Statements and the related Notes
and with Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this prospectus. The selected data
in this section is not intended to replace the financial statements.

  The consolidated statements of operations data for the period from June 21,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998 and consolidated balance sheet data as of December 31, 1997 and 1998
are derived from our Consolidated Financial Statements included elsewhere in
this prospectus, which have been audited by Deloitte & Touche LLP. The pro
forma consolidated statement of operations data for the year ended December 31,
1998 are derived from unaudited pro forma consolidated statements of operations
that give effect to our acquisition of the Panttaja Consulting Group, Inc. in
December 1998 and are included elsewhere in this prospectus. The consolidated
statements of operations data for the three months ended March 31, 1998 and
1999 and the consolidated balance sheet data as of March 31, 1999 are derived
from our unaudited consolidated financial statements which, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of our results of
operations and financial position. The historical results presented below are
not necessarily indicative of the results to be expected for any future fiscal
year.
Three Months
                               Inception                                        Ended
                            (June 21, 1996)   Years Ended December 31,        March 31,
                            to December 31, ------------------------------ ----------------
                                 1996        1997      1998       1998      1998     1999
                            --------------- -------  --------  ----------- -------  -------
                                                               (pro forma)
Consolidated Statements of
Operations Data:                      (in thousands, except per share amounts)
Revenues:
 Product..................      $  --       $   --   $     64   $     64   $     2  $   103
 Program-related
  services................         --             9       583        583        13      117
 Technical consulting
  services................         --           --        --       3,432       --     1,436
                                ------      -------  --------   --------   -------  -------
  Total revenues..........         --             9       647      4,079        15    1,656
                                ------      -------  --------   --------   -------  -------
Costs and expenses:
 Cost of product
  revenues................         --           --         59         59         2       92
 Program-related services,
  marketing and support
  costs...................         102        1,496     7,293      7,293       684    4,519
 Cost of technical
  consulting services
  revenues................         --           --        --       2,153       --       817
 Research and
  development.............          63        1,505     3,383      3,135       685    1,032
 Selling, general and
  administrative..........         108        1,210     3,134      4,758       704    1,992
 Amortization of deferred
  stock compensation,
  supplier stock awards
  and intangibles.........         --            63     1,186      3,151        73    1,515
                                ------      -------  --------   --------   -------  -------
  Total costs and
   expenses...............         273        4,274    15,055     20,549     2,148    9,967
                                ------      -------  --------   --------   -------  -------
Loss from operations......        (273)      (4,265)  (14,408)   (16,470)   (2,133)  (8,311)
Interest income, net......           7           85       297        252        53      103
                                ------      -------  --------   --------   -------  -------
Net loss..................      $ (266)     $(4,180) $(14,111)  $(16,218)  $(2,080) $(8,208)
                                ======      =======  ========   ========   =======  =======
Net loss per share--basic
 and diluted..............      $(0.97)     $ (5.70) $  (8.58)  $  (7.12)  $ (1.63) $ (2.73)
                                ======      =======  ========   ========   =======  =======
Shares used in computing
 per share amounts--basic
 and diluted..............         273          734     1,644      2,278     1,276    3,004
                                ======      =======  ========   ========   =======  =======
Pro forma net loss per
 share--basic and
 diluted(1)...............                           $  (1.05)                      $ (0.44)
                                                     ========                       =======
Shares used in computing
 pro forma per share
 amounts(1)...............                             13,422                        18,746
                                                     ========                       =======
As of December 31,     As of
                                                --------------------- March 31,
                                                 1996   1997   1998     1999
                                                ------ ------ ------- ---------
Consolidated Balance Sheets Data:                       (in thousands)
Cash and equivalents........................... $1,118 $6,608 $13,651  $31,994
Working capital................................  1,027  6,348   9,923   25,277
Total assets...................................  1,255  8,549  21,935   40,606
Deferred revenues--product and services........     --     59   1,906    2,857
Long-term obligations..........................     --    196   1,233      887
Total stockholders' equity.....................  1,146  7,128  14,334   30,296
--------
(1) Gives retroactive effect to the conversion of all outstanding shares of
    preferred stock into common stock which will occur upon completion of this
    offering.

                                       19
MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  This prospectus section includes forward-looking statements that reflect our
current views with respect to future events and financial performance. In some
cases, you can identify forward-looking statements by terminology like "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or our predictions. For a description of these risks, see
"Risk Factors."

Overview

  Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. We have developed loyalty currency products and related services,
which we sell to Internet merchants, portals, community sites and other
business customers who typically use these products to attract and retain
consumers and members. As part of delivering these programs, we offer various
marketing and account management services to both our merchants and members. We
also offer technical consulting services to e-commerce merchants and other
businesses.

  We were incorporated in June 1996. From inception until March 1998, our
operations consisted primarily of various start-up activities, such as research
and development, personnel recruiting, capital raising and trial sales of our
products with initial customers. We launched the ClickRewards program in March
1998 and began recognizing revenue from non-trial program sales in April 1998.
In December 1998, we acquired the Panttaja Consulting Group, Inc., a provider
of technical consulting services to e-commerce merchants and other businesses.
We launched our first Enterprise Incentive Solution program in January 1999 and
our first Custom Loyalty Network in July 1999.

How our Programs Work

  We sell rewards currencies to electronic retailers and other Internet sites.
Our first reward currency is ClickMiles, which we sell to merchants who become
part of the ClickRewards Network. These merchants, in turn, award these
ClickMiles to consumers as purchase, loyalty and other incentives. ClickMiles
are redeemable for, among other things, frequent flyer miles on major airlines
at a ratio of one frequent flyer mile for each ClickMile. We have also
developed and continue to develop additional loyalty and rewards currencies for
large Internet merchants, portals, community sites and other business
customers. We sell these custom currencies to our customers, who then
distribute them under their own brands. The custom loyalty currencies are
redeemable for items specific to the customer for whom the currency has been
developed as well as, in certain cases, exchangeable for ClickMiles.

  Merchants who participate in the ClickRewards Network receive the benefit of
our promotion of the ClickRewards brand and network, which includes direct
links to the merchants' sites from our ClickRewards web page. We also provide
merchants who participate in the ClickRewards Network with a variety of related
marketing and promotional services. These services include promotional
consulting, direct marketing services to our member base and integration and
maintenance of our enabling software. Depending on the specific relationship we
have with the merchant, we may either include some of these services in our
ClickMiles pricing or we may price them separately. We also offer similar
marketing services to our Custom Loyalty and Enterprise Incentive customers on
both a bundled and separately priced basis.

  We provide services to members, such as allowing them to manage and track
balances as they earn currencies in their personal, online accounts at the
designated Web site for that program and redeem the currency for merchandise
and other awards. We purchase the relevant awards and either have the
merchandise delivered to the consumer through a third-party fulfillment house,
or in the case of frequent flyer miles,

                                       20
electronically credit their chosen frequent flyer account. We also provide our
members with ongoing support to assist them in managing and redeeming their
currency.

How We Recognize Revenues

 Currency related revenues: product and program-related services

  The revenues we receive from the sale of currencies are made up of two
components: product revenues and program-related services revenues. Product
revenues reflect the value of the reward our members will ultimately receive
upon redemption of the promotion currency. Program-related services revenues
reflect the value of services that we perform for our merchants and members. As
a result, our revenues related to sale of currencies are recognized at various
times.

  A merchant typically purchases currencies from us before awarding them to
consumers. Upon the sale of our loyalty currencies, we allocate these revenues
between the product component, and the program-related services components. The
product component of revenues is deferred until the member redeems the currency
for his or her selected reward. At the time of redemption, we recognize the
product component of revenues and the associated cost of revenue based on the
actual cost of the redemption reward. The revenue related to the services
component of the currency sale is deferred until the sale of the currency
becomes non-refundable, which historically has been upon award of the currency
to a consumer by the merchant. Services revenues relating to separately-priced
services are recognized when these services are delivered. The remaining
portion of services revenues is recognized ratably over the period during which
these services are provided. For all ClickMiles sold through March 31, 1999,
this service period has been initially calculated for the maximum life of the
ClickMile based on its expiration date. To the extent ClickMiles are redeemed
prior to expiration, the remaining unamortized amount of deferred services
revenues is recognized at the time of redemption.

  If loyalty currency points expire or are forfeited, we recognize the
remaining amount of deferred product and program-related services revenues at
the time of expiration or forfeiture. Since we do not know when currency points
will be redeemed or forfeited, we cannot predict in which periods we will
recognize these revenues.

  Currently, ClickRewards merchants buy ClickMiles in advance based on their
anticipated needs, which allows them to participate in the ClickRewards Network
as long as they have a balance of unawarded ClickMiles. Beginning in the third
quarter of 1999, new merchants will be required to purchase a minimum amount of
ClickMiles on a non-refundable basis. These ClickMiles will expire if not
awarded by the merchant within a six-month period. To remain in the
ClickRewards Network at the end of the six months, the merchant will be
required to have purchased additional ClickMiles. The merchant services portion
of revenues of any ClickMiles sold under these arrangements will be amortized
over the maximum period during which the merchant may use the ClickMiles,
resulting in a shorter amortization period than has historically been used. The
member services component of revenues will continue to be amortized over the
expected life of the ClickMile.

  We typically sell our loyalty currency products and related services to
merchants or custom loyalty program customers for cash. However, from time to
time, in connection with promoting the ClickRewards Network, we also sell
ClickMiles to our merchants for non-cash consideration, such as advertising and
merchandise. The revenue from the sale of these ClickMiles is accounted for on
the same basis as cash sales and the value of the advertising or merchandise is
recorded as an expense or a prepaid asset as appropriate.

  We also derive program-related service revenues from advertising and other
direct marketing services provided to third parties.

 Technical consulting services revenues

  We provide systems integration and technical consulting services to a variety
of clients, including ClickRewards merchants and Custom Loyalty and Enterprise
Incentive customers, to help them deploy our programs. These revenues are
recognized as the services are provided.

                                       21
Results of Operations

 Years Ended December 31, 1996, 1997 and 1998

  Revenues

  We had no revenues during 1996. We began test marketing the ClickRewards
Network during December 1997. Total revenues increased from $9,000 in 1997 to
$647,000 in 1998. Total 1998 revenues were composed of $64,000 of product
revenues, and $583,000 of program-related service revenues. Our 1998 revenues
increased principally because of our commercial launch of the ClickRewards
Network at the end of March 1998 and the associated purchase and issuance of
ClickMiles by merchants in the ClickRewards Network. Product revenues reflect
the exchange of ClickMiles for awards during the year. Program-related service
revenues in 1998 included $296,000 relating to the expiration of ClickMiles
owned by a merchant which were not distributed to consumers as well as $84,000
of consulting services revenues attributable to one consulting contract. Pro
forma 1998 revenues include the technical consulting service revenues of
Panttaja Consulting Group, which was acquired in late December 1998.

  Cost of Product Revenues

  Cost of product revenues represents the actual cost of awards selected by
members in exchange for ClickMiles. There were no redemptions during 1996 and
1997 and therefore no cost of product revenues during those years. Cost of
product revenues were $59,000 for 1998, which represented 92% of product
revenues.

  Program-Related Services, Marketing and Support Costs

  Program-related services, marketing and support costs represents the cost of
marketing services provided for the ClickRewards Network, as well as costs
incurred to support merchants and members in the Network. These costs consist
primarily of compensation and related costs for marketing and sales personnel,
advertising and marketing for the ClickRewards program, merchant account and
rewards supplier management, product management activities and ClickMiles
issued to acquire new members for the ClickRewards program. Program-related
marketing and support costs increased from $102,000 in 1996 to $1.5 million in
1997 and $7.3 million in 1998. The increase from period to period was primarily
the result of increased marketing personnel, member acquisition costs, and
advertising and promotions expenses associated with the launch of the
ClickRewards Network. We expect to increase substantially our marketing
expenditures, particularly those related to acquiring members for the
ClickRewards Network, advertising and promoting our brands and products,
recruiting additional marketing personnel and managing programs for our Custom
Loyalty Networks and Enterprise Incentive Solutions customers.

  Cost of Technical Consulting Services Revenues

  Cost of technical consulting services consists of the personnel and overhead
costs incurred in connection with providing technical consulting services.
There were no technical consulting services provided in 1996, 1997 and 1998 and
therefore no cost of technical consulting services revenues during those years.
The pro forma cost of technical consulting services consists of the personnel
and overhead costs incurred by the Panttaja Consulting Group.

  Research and Development

  Research and development expenses consist primarily of compensation and
related costs for research and development personnel, including independent
contractors and consultants, software licensing expenses and allocated
operating expenses such as site hosting, Web site production, facilities
expenses, and equipment costs. Research and development expenses increased from
$63,000 in 1996 to $1.5 million in 1997 and $3.4 million

                                       22
in 1998. These increases from period to period were principally the result of
an increase in these expenses in preparation for the launch of and enhancements
to the ClickRewards Network, as well as initial development efforts relating to
our Custom Loyalty Networks. We expect to continue to increase substantially
research and development spending in absolute dollars as we develop new
products and expand our resources to maintain existing products.

  The American Institute of Certified Public Accountants issued Statement of
Position 98-1, Accounting for the Costs of Software Developed for Internal Use,
which will be effective for Netcentives beginning in 1999. The effects will be
to capitalize certain development costs that were previously expensed. The
amortization of these costs will be charged to research and development
expense.

  Selling, General and Administrative

  Selling, general and administrative expenses consist primarily of salaries
and related expenses, sales commissions, treasury expenses, accounting and
administrative expenses, professional fees, and other selling and corporate
expenses. Selling, general and administrative expenses increased from $108,000
in 1996 to $1.2 million in 1997 and $3.1 million in 1998. The increase from
period to period was primarily the result of increased sales efforts to enroll
merchants into the ClickRewards Network, increased business development efforts
for our Custom Loyalty Networks and increased general and administrative
personnel. We expect selling, general and administrative expenses to increase
in absolute dollars as we add personnel and incur additional costs related to
the anticipated growth of our ClickRewards and Custom Loyalty Networks, our
expansion into international markets and our operation as a public company.

  Amortization of Deferred Stock Compensation, Supplier Stock Awards and
 Intangibles

  Amortization of deferred stock compensation represents the difference between
the purchase or exercise price of certain restricted stock and stock option
grants, and the deemed fair market value of our common stock at the time of
these grants. This difference is amortized over the vesting period for such
grants, which is typically four years. Amortization of deferred stock
compensation was $296,000 for 1998 and is estimated to be a total of
$2.1 million in 1999, $2.1 million in 2000, $2.0 million in 2001 and $1.7
million in 2002 as a result of certain stock option grants and stock awards
during 1998.

  Amortization of supplier stock awards represents the cost of warrants granted
to certain airlines and other partners in return for exclusivity. Expenses
related to contingent stock warrants granted to certain airlines and other
partners was $63,000 in 1997 and $811,000 in 1998. Because the vesting of these
awards is subject to maintaining the exclusivity of the arrangement with these
partners, the valuation of the warrants is not finalized until the vesting
date. Accordingly, the amount of the expense recognized for these warrants
increased as the value of our stock increased. A substantial number of these
warrants had not yet vested as of December 31, 1998. As a result, we expect
that the charge relating to supplier stock awards to increase in 1999.

  In December 1998, we acquired Panttaja Consulting Group in a transaction that
was accounted for as a purchase. The resulting intangibles of $3.5 million
recorded in the acquisition will be amortized over two years.

  Interest Income, Net

  Interest income, net was $7,000 in 1996, $85,000 in 1997 and $297,000 in
1998. The year over year increases reflected primarily increases in interest
income from $7,000 in 1996 to $121,000 in 1997, and $441,000 in 1998, offset in
part by an increase in interest expense from $36,000 in 1997 to $144,000 in
1998, relating to capital leases and other financing arrangements.

                                       23
Income Taxes

  We have incurred losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes in
1996, 1997 or 1998. We have provided a full valuation allowance against our net
operating loss tax carryforwards and deferred income tax assets at December 31,
1998. As of December 31, 1998, our federal and state net operating loss tax
carryforwards were $14.2 million and $14.1 million, respectively.

 Three Months Ended March 31, 1999 and 1998

  Revenues

  Revenues increased from $15,000 in the three months ended March 31, 1998 to
$1.7 million for the three months ended March 31, 1999. The increase in
revenues was primarily a result of the acquisition of Panttaja Consulting Group
in December 1998 and the growth of our ClickRewards Network launched in March
1998. During the three months ended March 31, 1999, we began providing
technical consulting services through our Netcentives Professional Services
subsidiary.

  Cost of Product Revenues

  Cost of product revenues increased from $2,000 in the three months ended
March 31, 1998 to $92,000 for the three months ended March 31, 1999 primarily
as a result of the increased redemption of ClickMiles by members.

  Program-Related Services, Marketing and Support Costs

  Program-related services, marketing and support costs increased from $684,000
in the three months ended March 31, 1998 to $4.5 million for the three months
ended March 31, 1999. The increase from period to period was primarily the
result of increased marketing personnel, member acquisition costs, and
advertising and promotions expenses associated with the launch of the
ClickRewards Network.

  Cost of Technical Consulting Services Revenues

  Costs of technical consulting services revenues totaling $817,000 were
incurred in the three months ended March 31, 1999 from the associated revenues
recognized during the same period, as a result of the acquisition of Panttaja
Consulting Group in December 1998.

  Research and Development

  Research and development expenses increased from $685,000 in the three months
ended March 31, 1998 to $1.0 million for the three months ended March 31, 1999.
The increase was primarily the result of an increase in these expenses for
enhancements to the ClickRewards Network, as well as initial development
efforts relating to our Custom Loyalty Networks.

  Selling General and Administrative

  Selling, general and administrative expenses increased from $704,000 in the
three months ended March 31, 1998 to $2.0 million for the three months ended
March 31, 1999. The increase from period to period was primarily the result of
increased sales efforts to enroll merchants into the ClickRewards Network,
increased business development efforts for our Custom Loyalty Networks and
increased general and administrative personnel.

                                       24
Amortization of Deferred Stock Compensation, Supplier Stock Awards and
 Intangibles

  Amortization of deferred stock compensation, supplier stock awards and
intangibles increased from $73,000 in the three months ended March 31, 1998 to
$1.5 million for the three months ended March 31, 1999. The increase in
amortization resulted from amortization of deferred stock compensation related
to stock options and common stock granted in 1998, the cost of warrants granted
to certain airlines and other partners and intangibles recorded at the time of
the acquisition of Panttaja Consulting Group in December 1998.

  Interest Income, Net

  Interest income, net increased from $53,000 for the three months ended March
31, 1998 to $103,000 for the three months ended March 31, 1999. The increase
was a result of increased interest income from $74,000 for the three months
ended March 31, 1998 to $146,000 for the three months ended March 31, 1999,
offset in part by an increase in interest expense from $21,000 to $43,000 for
the comparable periods.

  Income Taxes

  We have recorded losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes
for the three months ended March 31, 1998 and 1999.

                                       25
Quarterly Results of Operations

  The following table sets forth certain unaudited consolidated statements of
operations data for the five quarters ended March 31, 1999. This data has been
derived from unaudited consolidated financial statements that, in the opinion
of our management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with our annual audited consolidated financial statements and notes
to those statements. Our operating results for any quarter are not necessarily
indicative of results for any future period.
Quarters Ended
                             -------------------------------------------------
                             Mar. 31,  June 30,  Sept. 30,  Dec. 31,  Mar. 31,
                               1998      1998      1998       1998      1999
                             --------  --------  ---------  --------  --------
Consolidated Statements of
Operations Data:               (in thousands, except per share amounts)
Revenues:
  Product.................   $      2  $      8  $     15   $     39  $    103
  Program-related
   services...............         13       104       349        117       117
  Technical consulting
   services...............        --        --        --         --      1,436
                             --------  --------  --------   --------  --------
    Total revenues........         15       112       364        156     1,656
                             --------  --------  --------   --------  --------
Costs and expenses:
  Costs of product
   revenues...............          2         7        14         36        92
  Program-related
   services, marketing and
   support costs..........        684     1,755     1,640      3,214     4,519
  Cost of technical
   consulting services
   revenues...............        --        --        --         --        817
  Research and
   development............        685       716       804      1,178     1,032
  Selling, general and
   administrative.........        704       615       715      1,100     1,992
  Amortization of deferred
   stock compensation,
   supplier stock awards,
   and intangibles........         73        91       290        732     1,515
                             --------  --------  --------   --------  --------
    Total costs and
     expenses.............      2,148     3,184     3,463      6,260     9,967
                             --------  --------  --------   --------  --------
Loss from operations......     (2,133)   (3,072)   (3,099)    (6,104)   (8,311)
Interest income, net......         53        21        82        141       103
                             --------  --------  --------   --------  --------
Net loss..................   $ (2,080) $ (3,051) $ (3,017)  $ (5,963) $ (8,208)
                             ========  ========  ========   ========  ========
Net loss per share--basic
 and diluted..............   $  (1.63) $  (2.01) $  (1.71)  $  (2.85) $  (2.73)
                             ========  ========  ========   ========  ========
Shares used in computing
 per share amounts--basic
 and diluted..............      1,276     1,516     1,760      2,095     3,004
                             ========  ========  ========   ========  ========
Total revenues increased during the first three quarters of 1998. In the
third quarter, $296,000 of ClickMiles owned by a customer expired without being
distributed to consumers, and the associated deferred revenue was recognized as
revenue. While total revenues for the fourth quarter declined relative to the
third quarter, fourth quarter total revenues would have been higher than third
quarter total revenues if revenue recognized as a result of the expiration of
ClickMiles was excluded. Total revenues increased substantially in the first
quarter of 1999 as a result of the acquisition of Panttaja Consulting Group in
December 1998.

  The program-related services, marketing and support costs increased from
$684,000 to $4.5 million from the first quarter of 1998 to the first quarter of
1999. The increases over the five quarters were primarily the result of
increased marketing personnel, member acquisition costs and advertising and
promotions expenses associated with the launch of the ClickRewards Network.
These costs were particularly high in the second quarter of 1998 as a result of
increased advertising and promotions costs in the periods immediately preceding
and following the commercial launch of the ClickRewards Network.

                                       26
Cost of technical consulting services revenues totaling $817,000 were
incurred in the first quarter of 1999 as a result of the associated revenues
recognized during the same quarter following the acquisition of Panttaja
Consulting Group in December 1998.

  Research and development, marketing and sales and general and administrative
costs have generally increased on a quarterly basis as we have expanded our
operations in connection with the introduction and expansion of the
ClickRewards Network. We expect this trend to continue.

  Amortization of deferred stock compensation, supplier stock awards, and
intangibles has increased on a quarterly basis. This reflects the impact of
additional stock option grants made during the year, which will continue to be
amortized over the vesting life of the options, typically four years, as well
as the accounting for our contingent stock warrants with certain suppliers,
whose value and related expense must be adjusted each period as our stock value
changes prior to their vesting.

  Shares used in computing per share amounts increased significantly in the
first quarter of 1999 relative to the preceding quarters of 1998 as a result of
the shares issued in connection with the acquisition of Panttaja Consulting
Group in December 1998.

  We intend to increase our marketing, sales, research, development and
administrative activities and to increase other operating expenses as required
to expand our operations and launch Custom Loyalty Networks. We have
experienced significant losses to date and we anticipate that our expenses will
continue to exceed significantly the revenues generated by this increased
spending such that we will continue to incur losses for the foreseeable future.
In addition, we expect the magnitude of these losses to increase substantially
from current levels. If we do not experience significantly increased revenues
from these efforts, our results of operations would be impaired. In addition,
our operating expense levels are based in part on our expectations concerning
future revenues, and are relatively fixed in the short term. Consequently, if
our revenues are below expectations in any period, we may not be able to adjust
our spending levels in a timely manner.

Liquidity and Capital Resources

  We have funded our operations since inception primarily through the private
placement of preferred equity securities, through which we had raised net
proceeds of $52.7 million through March 31, 1999. In addition, we sold $12.0
million of additional Series E preferred stock to private investors during the
quarter ended June 30, 1999. We have also financed our operations through
equipment lease financing and bank borrowings. As of March 31, 1999, we had
outstanding equipment lease financing and bank borrowings totaling $1.2
million.

  Cash used in operations was $170,000 in 1996, $4.1 million in 1997, $9.5
million in 1998 and $4.0 million for the three months ended March 31, 1999. The
cash used in 1996 and 1997 was primarily the result of our operating losses in
those years. Subsequent to 1997, cash used in operations primarily reflects
cash received from customers of $1.3 million in 1998 and $2.3 million in the
three months ended March 31, 1999, offset by cash paid to suppliers and
employees of $11.2 million and $6.4 million in the same periods.

  We initially defer recording revenue at the time we sell our loyalty
currencies, even though we have received cash from our customers for these
sales. A significant portion of revenue is not recognized until the currency is
redeemed by the consumer. The remaining revenue is recognized on a ratable
basis over the periods in which marketing and support services are provided to
merchants and members. As a result of this accounting method, the cash received
from customers is substantially greater than the amount of revenues reported
for these periods. The difference in these amounts is reflected primarily as an
increase in the amount of deferred revenues for products and services shown on
our consolidated balance sheet. Total deferred revenues increased on a net
basis from cash transactions by $848,000 during 1998 and $601,000 during the
three months ended March 31, 1999. The growth in deferred revenues in 1998 was
offset in part by an increase in accounts receivable of $201,000.

                                       27
Cash paid to suppliers and employees was significantly less than costs and
expenses reported for these same periods. This resulted from non-cash charges
relating to depreciation, the amortization of deferred stock compensation,
supplier stock awards and intangible assets arising from the Panttaja
Consulting Group acquisition, and the use of ClickMiles in lieu of cash to pay
for certain expenses. Non-cash amortization charges totaled $1.8 million in
1998 and $2.3 million in the three months ended March 31, 1999. The use of
ClickMiles in lieu of cash to pay for certain expenses resulted in the deferral
of cash payments of $1.5 million during 1998 and $1.5 million during the three
months ended March 31, 1999.

  Investments in property and equipment were $124,000 in 1996, $1.0 million in
1997, $1.2 million in 1998 and $1.5 million in the three months ended March 31,
1999.

  Cash provided from financing activities was $1.4 million in 1996, $10.5
million in 1997, $17.9 million in 1998 and $23.8 million in the three months
ended March 31, 1999. Cash was provided primarily from sales of preferred stock
of $1.4 million in 1996, $10.1 million in 1997, $17.2 million in 1998 and $24.1
million in the three months ended March 31, 1999.

  At March 31, 1999, we had cash and equivalents totaling $32.0 million. In
addition, we raised $12.0 million through the sale of additional Series E
preferred stock during the quarter ended June 30, 1999. We anticipate that the
proceeds of this offering, together with our available cash resources, will be
sufficient to meet our presently anticipated working capital and capital
expenditure needs for at least the next twelve months.

  Our future liquidity and capital requirements will depend on numerous
factors. For example, our pace of expansion will affect our future capital
requirements, as may our decision to acquire or invest in complementary
businesses and technologies. Therefore, we may be required to raise additional
funds in the future through the issuance of debt or equity securities. If
additional funds are raised through the issuance of equity securities, our
existing stockholders may experience significant dilution. Furthermore,
additional financing may not be available when needed or, if available, such
financing may not be on terms favorable to us or our stockholders. If financing
is not available when required or is not available on acceptable terms, we may
be unable to develop or enhance our programs or other services. In addition, we
may be unable to take advantage of business opportunities or to respond to
competitive pressures. Any of these events could harm our business and
financial condition.

Year 2000 Compliance

  Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.

  We have defined Year 2000 Compliant as the ability to:

  . handle correctly date information needed for the December 31, 1999 to
    January 1, 2000 date change;
  . function according to the product documentation provided for this date
    change, without changes in operation resulting from the advent of a new
    century, assuming correct configuration;
  . respond to two-digit date input where appropriate in a way that resolves
    the ambiguity as to century in a disclosed, defined, and predetermined
    manner;
  . store and provide output of date information if the date elements in
    interfaces and data storage specify the century in ways that are
    unambiguous as to century; and
  . recognize Year 2000 as a leap year.

                                       28
All software developed by Netcentives utilizes the JavaSoft implementation of
date object and calendar classes for expression and manipulation of dates. When
dates are saved in persistent storage, the values are either serialized objects
or date fields in a relational database; in both cases, the full 4-digit year
is maintained. Our products do not perform any kind of truncation of century
values or any string operations that jeopardize the integrity of the date
values. We have also tested all of the third-party software incorporated in our
products to ensure their proper processing of twenty-first century dates. As a
result, we believe that all versions of our products including the production
systems that manage our promotional networks, are Year 2000 Compliant, provided
that the underlying operating system of the host machine and any other software
use with or on the host machine or our products are also Year 2000 Compliant.

  We have evaluated the data feeds from each of our rewards suppliers to
determine if they are Year 2000 Compliant. Certain of our rewards suppliers'
systems currently would not accurately process twenty-first century dates and
we have informed these suppliers of the deficiencies we have identified. These
suppliers have assured us that any such problems will be corrected prior to
October 1999. We do not have any information regarding the Year 2000 Compliance
of rewards suppliers systems with which we do not directly interface. To the
extent that our rewards suppliers are unable to transmit data to or receive
data from Netcentives as a result of their failure to be Year 2000 Compliant,
or they inaccurately maintain balances of frequent flyer miles for member
accounts, general member dissatisfaction with frequent flyer programs may
result and have an adverse effect on our business.

  We do not currently have any information concerning the Year 2000 Compliance
status of our merchant customers. We plan to notify merchants to remind them of
the Year 2000 problem and its potential effects on their systems. However, to
the extent that our merchants are no longer able to process e-commerce
transactions, process them incorrectly, or transmit incorrect data to our
systems, our business could be adversely affected. If our current or future
merchants fail to achieve Year 2000 compliance or if they divert technology
expenditures, especially technology expenditures that were reserved for
promotional products, to address Year 2000 compliance problems, our business,
results of operations, or financial condition could be materially adversely
affected.

  We have initiated an assessment of our material internal information
technology systems and our non-information technology systems. We expect to
complete testing of our information technology systems in September 1999. To
the extent that we are not able to test the technology provided by third-party
vendors, we are seeking assurances from vendors that their systems are Year
2000 Compliant. We are not currently aware of any material operational issues
or costs associated with preparing our internal systems for the Year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal systems.

  We have funded our Year 2000 plan from available cash and have not separately
accounted for these costs in the past. To date, these costs have not been
material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer and member
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could adversely affect our business, results of
operations, and financial condition.

  We have not yet fully developed a contingency plan to address situations that
may result if our products are not Year 2000 Compliant, or if our suppliers or
customers suffer major Year 2000 related problems or our internal systems fail
as a result of Year 2000 issues. We expect to develop such a plan, along with
an analysis of the worst-case scenario that might result from Year 2000 issues,
by the fourth quarter of 1999. Finally, we are also subject to external forces
that might generally affect e-commerce, such as retailing and distribution
company Year 2000 compliance failures and related service interruptions.

                                       29
BUSINESS

Overview

  Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. Netcentives' flagship program, ClickRewards Network, is a powerful
online promotion and loyalty program that allows e-commerce sites to reward
consumers with ClickMiles, a digital promotion currency, for making online
purchases. Launched in March 1998, ClickRewards Network, as of July 21, 1999,
included over 1.4 million members who have earned, in the aggregate, over 250
million ClickMiles. Top e-commerce companies, including barnesandnoble.com,
E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview Travel, purchase
ClickMiles from us and award them to consumers in order to convert browsers to
buyers, increase average purchase size, drive repeat purchases, and build
loyalty to their site. We also offer online advertising and sponsorship,
partnership marketing programs sponsored e-mail offers, and technical and
marketing consulting services. Our robust, secure, scalable transaction
processing technology allows consumers to earn rewards currency at the point of
purchase on sites throughout the Web and to track and manage them in their own
personal account at a central Web site.

  Utilizing the technology platform we have developed for the ClickRewards
Network and our expertise with promotional products and services, we have
expanded our product offering to provide Custom Loyalty Networks to portals,
companies with major brands and other Web sites with substantial membership. We
enable these sites to launch their own branded loyalty programs featuring their
own promotion currency. We launched our first Custom Loyalty Network for
Looksmart in July 1999 and are developing additional Custom Loyalty Networks,
including one for the GO Network that we expect to launch in the fourth quarter
of 1999. We have also launched Enterprise Incentive Solutions programs, such as
ClickRewards@Work, that enable corporations to utilize the power of the
ClickMile currency to motivate and reward employees, partners and stakeholders
across their intranets and extranets. We also offer a broad array of
complementary services to our ClickRewards merchants and Custom Loyalty and
Enterprise Incentive customers, including technical consulting and development,
marketing consulting, on-line advertising and sponsorship, partnership
marketing programs and sponsored e-mail offers.

  We have exclusive agreements with eight major airlines for the use of their
frequent flyer miles in points-based Internet promotions networks. These
relationships allow consumers, for example, to exchange ClickMiles one-for-one
for frequent flyer miles from American Airlines, British Airways (USA),
Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines
and US Airways. These exclusive agreements give our ClickRewards merchants the
ability to attract and retain online shoppers using a compelling, relevant, and
differentiated rewards currency. They also give our merchants access to
frequent flyer program members, a set of consumers that we believe has a
demographic profile closely aligned with that of online shoppers. In addition
to frequent flyer miles, ClickRewards and our other programs offer redemption
options such as merchandise and other travel awards.

  In order to drive purchases at the merchant Web sites participating in the
ClickRewards Network and to make our products more valuable to them, we
actively recruit a consumer membership base for ClickRewards. Consumers
participating in the ClickRewards and our Custom Loyalty Networks can learn
about offers and track and redeem their loyalty currencies at a centralized Web
site for each network. In addition, for ClickRewards merchants and our Custom
Loyalty Network customers we offer a variety of direct marketing services.
These services include building a rich database of consumer profiles based on
transaction behavior across each network, offering targeted e-mail marketing
using this information and providing promotion management services.

Industry Background

 Growth of the Internet and Online Advertising

  The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically.
International Data Corporation, or IDC, estimates that there were

                                       30
approximately 97 million Internet users at the end of 1998, and that this
number will grow to 320 million by the end of 2002. IDC further estimates that
the total value of commerce over the Internet will increase from approximately
$32 billion in 1998 to $425 billion in 2002. Similarly, Forrester Research
estimates that U.S. business e-commerce revenue will grow from $109 billion in
1999 to $1.3 trillion in 2003. Internet commerce transactions are often faster,
less expensive and more convenient for both buyers and sellers, and the
opportunity to take advantage of these business efficiencies has attracted a
broad group of participants.

  During the early stages of development of e-commerce, merchants were focused
on building general brand awareness and acquiring customers. Consequently, the
rapidly growing market for Internet marketing was heavily dominated by banner
advertising. However, the low barriers to entry for new competitors, the
emergence of below-cost online retailers and the ease with which consumers can
switch between Internet retailers have intensified online commerce competition.
As a result, Internet retailers seeking to differentiate themselves from
competitors and build a substantial, loyal consumer base are finding that
banner advertising alone is either insufficient or ineffective.

 The Market for Loyalty, Direct Marketing and Promotion Products

  According to the Direct Marketing Association, offline expenditures on direct
marketing, including promotions, reached $163 billion in 1998. Jupiter
Communications estimates that online spending for Internet-based advertising
alone will total $7.7 billion in the U.S. by 2002. As e-commerce Web sites
increasingly focus on customer retention and loyalty, we believe that spending
for online marketing will shift toward promotions and direct marketing. For
example, Forrester Research predicts that by 2003, 50 to 70% of all Internet
marketing budgets will be spent on promotional marketing as opposed to
advertising, with the largest growth coming from membership, rewards and
loyalty programs. As part of this trend, we believe consumers are interested in
maximizing the effectiveness of their Internet spending by participating in
Internet-based promotion programs. We further believe that offline rewards
providers, such as frequent flyer program operators, are increasingly looking
to extend their promotional activities to the Internet.

  As Internet retailers, portals and offline rewards providers increase their
online promotional activities, we believe they face a number of challenges that
require additional capabilities and skills outside of their traditional
competencies. Specifically, any of the following operational requirements could
pose problems for these entities:

  . integration of point of purchase promotional capabilities;
  . attraction and retention of consumers with an attractive demographic
    profile, such as frequent flyer program members;
  . establishment of a network of earning and award opportunities that is
    significant enough to make promotions appealing to consumers;
  . creation of a robust transaction processing system designed for use on
    the Internet;
  . development of Web site enhancements necessary to track consumer
    participation in and satisfaction with online promotional programs;
  . investment necessary to develop online promotions capabilities;
  . possession of the expertise required to develop and administer promotion
    programs and the associated financial liabilities; and
  . integration of new online promotions with existing offline promotion
    programs.

  We believe that Internet retailers, portals and offline rewards providers
recognize the benefits of deploying online promotion programs, but have not
been able to justify the resources required to build and maintain their own
programs independently.

The Netcentives Solution

  Netcentives is a leading provider of powerful Internet loyalty, direct
marketing and promotion products and services used by top Web sites to drive
consumer behavior. Leveraging our advanced technology

                                       31
infrastructure, experience and knowledge of promotions, we have developed three
products to serve the online promotions market: the ClickRewards Network,
Custom Loyalty Networks and Enterprise Incentive Solutions.

  ClickRewards Network. The ClickRewards Network is a loyalty program that
gives online merchants the capability to reward consumers for making purchases
at their Web sites. Top Web merchants that are a part of the network include
barnesandnoble.com, E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview
Travel. By shopping at participating Web sites, consumers can earn ClickMiles,
a digital currency that is exchangeable one-for-one for frequent flyer miles on
eight major airlines and for other valuable rewards. Our customers reward
consumers with ClickMiles as an incentive to convert browsers to buyers, drive
repeat purchases, increase transaction size and build loyalty within their
online communities.

  ClickRewards addresses the needs of the three major constituencies in
promotional programs: e-commerce merchants, rewards suppliers and members.

  Merchants that participate in the ClickRewards Network benefit by:

    . attracting and retaining a targeted and loyal customer base including
      frequent flyer program members and online shoppers;
    . participating in a growing network of high-quality merchants with
      well known brands, the value of which increases with each additional
      merchant;
    . increasing the attractiveness of their online community with a
      loyalty program;
    . increasing the effectiveness of their marketing expenditures through
      e-mails to a targeted member base, Web site placements and cross-
      promotions;
    . enhancing customer loyalty and retention with ClickMiles, which are
      redeemable one-for-one for the frequent flyer miles of eight major
      airlines and a wide range of valuable merchandise rewards, which may
      include a merchant's own products; and
    . having the ability to create and maintain ClickRewards promotions on
      the merchant's Web site.

  Rewards suppliers that provide us with frequent flyer miles and merchandise
benefit by:

    . selling additional products through a growing online channel;
    . broadening their online presence to reach more consumers with an
      attractive demographic profile; and
    . increasing the value of frequent flyer miles by expanding the markets
      in which they are available.

  Our members benefit by:

    . increasing the value of their online purchases, by receiving a
      valuable currency with their purchases;
    . aggregating currency across a large network of high quality, well
      known merchants to realize meaningful value more quickly;
    . centralizing their earning and tracking of this currency in an online
      personal account; and
    . accumulating and holding a valuable currency that can be converted
      into frequent flyer miles or other rewards at a later date.

  Launched in March 1998, the ClickRewards Network has attracted 56 merchants
from many of the top e-commerce categories. We have also entered into exclusive
relationships to provide frequent flyer miles in points-based Internet
promotion networks with American Airlines, British Airways (USA),
Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines
and US Airways. Based on our strong reward supplier relationships and network
of merchants, as of July 21, 1999, membership in the ClickRewards Network has
grown to over 1.4 million members who have earned, in the aggregate, over 250
million ClickMiles.

  Custom Loyalty Networks. Our Custom Loyalty Network products enable portals,
companies with major brands and other Web sites with substantial membership and
scale to launch branded loyalty programs. We

                                       32
launched our first Custom Loyalty Network for Looksmart in July 1999 and are
developing additional Custom Loyalty Networks, including one for the GO Network
that we expect to launch in the fourth quarter of 1999. Using their own branded
promotional currency, our clients are able to deploy programs that are designed
to build community and drive customer acquisition and retention. Custom Loyalty
Network clients receive all the benefits of operating a loyalty program like
ClickRewards, such as increasing purchases, acquiring consumers and members and
establishing a direct marketing channel. In addition, these clients are able to
utilize our expertise and the power of our technology platform to outsource
functions such as consumer account management, reward catalog development,
transaction processing, reward exchange, customer service, database marketing
and financial management of currency and liabilities.

  Enterprise Incentive Solutions. We sell Enterprise Incentive Solutions
programs to corporations who use them to motivate and reward employees,
partners and stakeholders across their intranets and extranets. Corporations
can benefit from using our Enterprise Incentive Solutions by reducing the cost
of implementing and administering employee incentive programs and increasing
the effectiveness of these programs. Additionally, through the
ClickRewards@Work program, companies can launch an effective incentive program
that is linked to the broader consumer network of the ClickRewards Network. We
launched our first Enterprise Incentive Solutions program in late 1998 and have
operated programs for four companies including Cisco Systems and Microsoft.

  Netcentives Professional Services. All of our products are complemented by
Netcentives Professional Services, our team of consulting professionals who
offer significant expertise in relationship marketing, developing e-commerce
applications and implementing our promotion solutions. Since our acquisition of
Panttaja Consulting Group in December 1998, we have provided professional
services to 16 clients in a variety of areas, including those related to e-
commerce.

The Netcentives Strategy

  Our objective is to be the leading provider of Internet loyalty, direct
marketing and promotion products used by top Web sites to drive consumer
behavior. We intend to achieve this objective by establishing ClickRewards as
the leading Internet loyalty program and utilizing our technology and marketing
expertise to provide products and services to retailers, portals and employers
who are establishing their own loyalty networks. The key elements of our
strategy are to:

   Expand the ClickRewards Network of Merchants, Rewards Suppliers and Members

  The ClickRewards Network has grown rapidly and includes 56 merchants, 1.4
million members, and 13 awards suppliers. We plan to continue to provide value-
added products and services to our merchants in order to drive acceptance and
growth of our incentive and rewards products. We use our capabilities to
provide targeted offers from merchants to our member base. We use e-mails to
our member base and inserts in frequent flyer newsletters and statements to
increase the value of the ClickRewards currency to our members and to drive
revenue to our merchants. Furthermore, we believe that we can increase the
value of the ClickRewards Network to participating merchants by increasing the
number of consumers who are members. As the ClickRewards Network grows, we
believe that it will create the opportunity for additional revenue streams from
existing merchants, including enhanced direct marketing and other professional
services.

   Establish ClickRewards as the Primary Loyalty Program for Leading Online
   Merchants

  We believe that our customers will increasingly use the ClickRewards Network
to address their particular business objectives, such as revenue growth and
consumer loyalty. The key features that allow us to address the needs of our
merchants include:

  . enabling them to create and maintain their own ClickRewards promotions;
  . featuring their own products in the ClickRewards rewards catalog;

                                       33
. promoting their brand on the ClickRewards Web site;
  . integrating ClickRewards functionality on their e-commerce Web site;
  . launching co-branded marketing programs; and
  . customizing ClickRewards e-mail communications for their consumers.

   Maximize Lifetime Value of ClickRewards Members

  We seek to maximize the frequency, size and number of purchases made by
ClickRewards members throughout the network. Capitalizing on the attractive
demographics and purchase behavior of our membership base, we intend to enhance
the lifetime value of our members to our merchants through database marketing,
a tiered loyalty program for top purchasers, additional site functionality and
other community features.

   Extend Network Loyalty Platform to Support Additional Products

  We have developed a scalable technology infrastructure and a set of products,
services and management expertise that effectively support Internet-based
promotion and loyalty networks. We intend to use this platform to drive revenue
opportunities beyond ClickRewards, including:

  . Custom Loyalty Networks. As portals, companies with major brands and
    other web sites transition from a media or advertising revenue model to
    an e-commerce revenue model, they are starting to seek ways of
    influencing consumers to shop at their site or network of sites. We are
    leveraging our experience in building and operating the ClickRewards
    Network to offer these major online companies the ability to implement
    custom loyalty programs. Not only do our Custom Loyalty Network products
    and services offer many of the same features as our ClickRewards Network,
    but they are also designed around the customer's brand, existing consumer
    base and partners. Our Custom Loyalty Network products and services
    enable these companies to award their members with private currency
    points and customized redemption options. We launched our first Custom
    Loyalty Network for Looksmart in July 1999 and are developing additional
    Custom Loyalty Networks, including one for the GO Network that we expect
    to launch in the fourth quarter of 1999.

  . Enterprise Incentive Solutions. To address the large and growing market
    for employee and channel partner incentives, we intend to deploy
    additional incentive programs for enterprises based on both the
    ClickRewards Network and custom implementations. These incentive programs
    allow enterprises to motivate, retain and reward employees, channel
    partners, and stakeholders. We launched our first Enterprise Incentive
    Solutions program in late 1998 and have operated programs for four
    companies including Cisco Systems and Microsoft.

  . Online and Offline Rewards Programs. Many merchants have both an online
    and offline presence. For such merchants, we intend to offer integrated
    rewards programs that increase consumer loyalty across multiple channels.
    We intend to pursue strategic partnerships that will enable merchants in
    the ClickRewards and Custom Loyalty Networks to award their members and
    consumers for offline activity.

   Build the Netcentives and ClickRewards Brands

  We believe that building greater awareness of the Netcentives and
ClickRewards brands is critical to expanding our merchant, rewards supplier,
and member base and our roster of Enterprise Incentive Solutions and Custom
Loyalty Networks customers. In order to accelerate the acceptance and
penetration of the ClickRewards Network, we have developed and are continuing
to pursue strategic relationships with merchants, rewards suppliers and
technology partners whose brands are well known and widely respected. We
believe that increasing the number of ClickRewards members makes the
ClickRewards Network more attractive and valuable to merchants. Therefore, we
actively promote the ClickRewards brand among consumers through a variety of
marketing programs, including promotions, direct e-mail marketing, and targeted
advertising. We also promote the Netcentives brand to potential Enterprise
Incentive Solutions customers and Custom Loyalty

                                       34
Networks customers in trade journals and other industry forums. As we increase
our collective base of merchants rewards suppliers and members, we believe that
the value of the Netcentives and ClickRewards brands will be reinforced.

   Offer a Broad Range of Loyalty and Direct Marketing Services

  We seek to provide a broad range of marketing solutions to our ClickRewards
merchants and our Custom Loyalty Network clients. Separate from providing these
customers with a promotional currency, we also offer a wide range of
promotional and marketing services including database marketing, promotion
development and management, email direct marketing, and creative services. We
believe that these services offer a complete loyalty marketing solution to our
customers and allow them to maximize the return from their loyalty program.

  For example, our advanced technology infrastructure, substantial membership
bases, and merchant and rewards supplier relationships allow us to aggregate
significant data regarding specific consumer behavior throughout each network.
We maintain data warehouses of consumer profiles, transactional activity,
exchange activity, Web traffic activity, click-through response data,
communications history and survey data. We also capture transactional activity
across multiple merchant product categories, allowing us to aggregate and view
consumer patterns throughout each network.

  We enforce strict privacy policies that govern how information about members
is used, and communications are sent only to members who have previously agreed
to be contacted. This form of permission-based marketing removes the issue of
unsolicited offers and increases responsiveness to promotional offers. While
adhering to our privacy policies, we intend to use the accumulated
transactional and demographic data to provide advanced marketing services to
merchants and Custom Loyalty Network clients.

  Through the use of our tools, information and processes, we have the
capability to assist merchants in targeting members for specific marketing
promotions. Examples include tailored e-mail messages based on past
interactions, preferences and interests and the monitoring of members'
responses to these promotions. We believe that a robust marketing
infrastructure will make Netcentives' direct marketing capabilities attractive
to merchants who prefer to outsource this function rather than make the
necessary investment themselves.

   Extend Technology and Business Process Leadership

  We believe that our ability to scale our technology and infrastructure in a
secure manner with the growth in the number of merchants, members, and
transactions has been a competitive advantage. We hold a patent that
encompasses a unique set of systems, procedures and methods for providing
Internet-based incentive and reward programs which we license on a non-
exclusive basis. With our recent acquisition of the Panttaja Consulting Group,
Inc., we have added further capacity to develop enhancements to our technology
base and to bring them to market. We expect to continue to invest heavily in
research and development. We also expect to pursue technology partnerships to
enhance the performance, security and functionality of our core technology
infrastructure.

   Expand Internationally

  To date, we have focused on pursuing opportunities in the United States and
Canada. However, we believe that international markets present an attractive
marketplace for our network loyalty infrastructure. We expect to begin our
international efforts by expanding the ClickRewards Network into Europe. We
intend to expand our Custom Loyalty Networks products to portals and online
merchants based in other countries and our Enterprise Incentive Solutions
products to large multinational corporations.

                                       35
Products and Services

  We provide a suite of products and services to address our customers' various
needs for online promotions and loyalty programs. Our programs are positioned
as follows:
Netcentives           Target             Program          Program
     Solution           Customers           Members          Branding            Rewards
-----------------------------------------------------------------------------------------------
ClickRewards    Internet commerce     Current shoppers ClickRewards     Frequent flyer miles,
  Network         merchants             and ClickRewards branded          merchandise and
                                        members                           travel-related awards
-----------------------------------------------------------------------------------------------

  Custom Loyalty  Portals, companies    Customer's user  Customer branded ClickMiles and
  Networks        with major brands     base                              customer-specific
                  and other large scale                                   merchandise
                  Web sites
-----------------------------------------------------------------------------------------------

  Enterprise      Businesses            Employees and    Customer and     ClickMiles and
  Incentive                             channel partners ClickRewards     customer-specific
  Solutions                                              co-branded       merchandise
ClickRewards Network

  The ClickRewards Network brings together e-commerce merchants, ClickRewards
members and awards suppliers into a networked loyalty program. Netcentives
sells merchants ClickMiles, a digital promotions currency. Merchants then award
the ClickMiles to consumers for activities such as making purchases, winning
sweepstakes and completing surveys. Members can earn ClickMiles from merchants
across the ClickRewards Network and can track their award balances online.
Members can redeem their ClickMiles for frequent flyer miles from eight leading
airlines on a one-for-one basis and for other travel awards and merchandise
using our online catalog.

  . ClickRewards Membership. Consumers become ClickRewards members by either
    signing up on the ClickRewards Web site at www.clickrewards.com, or
    qualifying automatically when they make a purchase at a ClickRewards
    shopping site. Membership in ClickRewards is free and protected by a
    strict privacy policy. Launched in March 1998, as of July 21, 1999, there
    were over 1.4 million ClickRewards members who have earned, in the
    aggregate, over 250 million ClickMiles. Members learn about earning
    opportunities by visiting www.clickrewards.com, receiving member e-mails,
    or by electronically visiting a merchant that features ClickRewards. In
    addition, the shopping sites that participate in the ClickRewards Network
    promote their ClickRewards offers via e-mails to their customers, banner
    ads, placement on their Web site and offline advertising. The consumer's
    ClickMiles earning activity is integrated with the purchase process so
    that the consumer is not required to take any additional actions unless
    required by the merchant. Once the qualifying transaction is complete,
    information about the member and the ClickMiles that have been earned is
    sent to Netcentives securely over the Internet, automatically triggering
    an e-mail receipt to the member confirming the deposit of ClickMiles. The
    member can then track his or her account balance on the ClickRewards Web
    site in a password-protected area.

  . ClickMiles Redemption. To redeem ClickMiles, members simply visit the
    ClickRewards Web site, log into their personal account, and select the
    redemption option of their choice. Members can choose to redeem their
    ClickMiles one-for-one and add them into their existing frequent flyer
    account with American Airlines, British Airways (USA), Continental
    Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines, or
    US Airways. ClickMiles can also be redeemed for other travel awards such
    as car rental and hotel certificates, and for a wide range of
    merchandise.

  . Merchant Participation. We have targeted premier brand name sites in each
    major shopping category as customers. Currently we have 56 e-commerce
    shopping sites in the ClickRewards Network. A

                                       36
representative sample of merchants who have offered ClickRewards
   promotions during the past twelve months or are currently developing
   ClickRewards promotions include:

                           Representative Merchants
-------------------------------------------------------------------------------
areyougame.com       CyberBills.com   KBKids.com           ShopSports

    ArtSelect            DealDeal.com     TheKnot.com          Someone Special

    Azazz                eBags            macys.com            Visa

    @Backup              eNutrition       MSN Shopping         Visto

    barnesandnoble.com   E*TRADE(TM)      Music Boulevard      WebFlyer

    beyond.com           First Auction    OfficeMax.com        Wells Fargo

    ClubComputer         garden.com       PlanetRx             XOOM.com

    Cooking.com          iOwn.com         Preview Travel       1-800-FLOWERS

                         iPrint.com       Red Herring Online
Custom Loyalty Networks

  We believe that most individual merchant sites are best served by
participating in a network loyalty program, such as ClickRewards. However,
portals and other large community sites have their own network of merchants
and consumers, and possess their own considerable scale, traffic and brand.
Therefore, we are leveraging our experience in building and operating the
ClickRewards Network to offer these major online companies the ability to
implement custom loyalty programs. Not only do our Custom Loyalty Network
products and services offer many of the same features as our ClickRewards
Network, but they are also designed around the customer's brand, existing
consumer base and partners. Our Custom Loyalty Network products and services
enable these companies to award their members with custom branded currency
points and customized redemption options. To build large-scale loyalty
programs, we believe that we can provide the necessary tools and expertise,
such as:

  . Overall Program Management. We offer overall management services for
    custom loyalty products from the definition phase, to design,
    implementation and maintenance.

  . Loyalty Program Design Services. We offer program design services that
    take advantage of the advertising, promotions, and loyalty program
    experience of our management team, including the conceptualization and
    development of the awards catalog.

  . Technology and Process Licensing. We offer customers access to our base
    of proprietary technology and business processes that enable certain
    types of promotions.

  . Currency Creation. We work with customers to create unique promotional
    currencies that specifically target the customer's consumer base and
    utilize the customer's brand identity.

  . Currency and Liability Management. We have experience with the complex
    financial management of rewards programs. We offer these services to
    Custom Loyalty customers to allow them to focus on their core business.

  . Awards Transaction Processing and Data Center Services. We offer
    reliable, secure, and fault-tolerant transaction processing services to
    support the issuance of currencies and the exchange of awards. We also
    offer reliable data center services for the storage of account
    information for a particular customer's program.

  . Consumer Services. We offer customers software that enables their
    consumer service representatives to have access to real-time consumer
    information. In addition, we offer complete outsourcing of the loyalty
    program consumer service function.

                                      37
. Risk Management/Fraud Control. Through technical and operational
    processes, we offer comprehensive risk management and fraud control
    services to address and prevent potential fraudulent activity.

  . Database Marketing Consulting. We offer data analysis based on our
    understanding of consumer behavior. Database marketing consulting can
    provide our customers with the opportunity to design and modify their
    program based on demonstrated consumer behavior.

   Enterprise Incentive Solutions

  The market for enterprise incentive solutions is estimated to be greater than
$20 billion per year by the Incentive Federation, an independent trade
organization. We believe that this market, traditionally managed offline, can
be more efficiently automated using Internet technology that leverages the
enterprise's investment in intranets and extranets. For example, incentives can
be offered to sales forces as additional compensation for the adoption of sales
force automation systems, for performance-based programs and for other
motivational programs. Incentives can also be offered to other employees to
increase loyalty, improve job performance, increase information sharing,
encourage self-improvement training and refer employees.

  We believe that the ClickRewards Network has many attributes that make it an
effective platform for enterprise solutions. Our use of the current Netcentives
rewards management technology allows us to reduce the cost of developing and
operating incentive programs for these markets. We launched our first
Enterprise Incentive Solutions program in late 1998 and have operated programs
for four companies including Cisco Systems and Microsoft.

   Netcentives Professional Services

  Technical and marketing consulting services are an integral part of our
ClickRewards, Custom Loyalty Networks, and Enterprise Incentives Solutions
offerings to customers. Through the Netcentives Professional Services group, we
have provided systems integration and technical consulting services to clients
to help them deploy the ClickRewards program as well to other businesses. We
also offer educational services in the Internet and client/server market
sectors through this group. Additionally, we expect customers of our Custom
Loyalty Networks and Enterprise Incentives Solutions to use our e-commerce
systems development skills to integrate Netcentives technology with their
existing systems, or to build customized applications that support their
e-commerce, loyalty or other initiatives.

Rewards Suppliers

  We believe that a critical element of developing successful direct marketing
and promotion products for merchants is to offer compelling awards to consumers
with a high perceived value. Frequent flyer miles are among the most popular,
proven and effective offline consumer incentives. We have cultivated exclusive
relationships with eight major airlines for the use of frequent flyer miles in
points-based Internet-based promotion networks. A significant advantage we
offer with ClickRewards is the ability for consumers to add ClickMiles to their
existing frequent flyer accounts. We have also entered into a variety of
relationships with other suppliers of incentive awards in order to provide
broad yet compelling appeal to our awards catalog offerings. Current awards
suppliers include:

                               Rewards Suppliers
--------------------------------------------------------------------------------
American Airlines AAdvantage           TWA Aviators Club
     British Airways Executive Club         US Airways Dividend Miles
     (USA)
     Continental Airlines OnePass           United Airlines Mileage Plus
     Delta Air Lines SkyMiles               Azazz.com
     Northwest Airlines WorldPerks          Marriott Hotels Marriott Rewards
38
Marketing and Sales

  We have a comprehensive approach to marketing and sales. To our ClickRewards
Network merchants and rewards suppliers, we position ourselves as the leader in
providing powerful relationship marketing products and services to drive
consumer behavior. To the consumer, we position the ClickRewards Network as the
most rewarding way to shop online. Finally, for our Custom Loyalty and
Enterprise Incentive Solutions customers, we market Netcentives as the premier
outsourcing partner for relationship marketing and incentive products and
services. As such, our marketing and sales efforts are distinct to each
audience.

   ClickRewards Merchants

  We have a direct sales force that sells our entire portfolio of products and
services and includes individuals focused on distinct markets and specific
products and services. Our sales force is based out of our San Francisco
headquarters with sales offices in Chicago and New York. An internal telesales
team responds to inbound inquiries and provides additional support to our
direct sales force. We plan to increase our direct sales force and open
additional sales offices in the United States and internationally. We will also
increasingly pursue partnerships with advertising agencies, systems
integrators, consulting firms and others to provide broad indirect distribution
channels. Our marketing department also supports our sales efforts and
coordinates attendance at industry events and pursues trade advertising and
media relations. We also have agreements with several major online sites such
as Yahoo!, MSN Shopping, TAXI and CoolSavings to feature ClickRewards on their
Web sites.

   ClickRewards Consumers

  We believe that increasing our membership base is a critical element to
making our products and services more valuable to merchants. Therefore, our
consumer marketing strategy and programs are designed to build the ClickRewards
brand, drive new member acquisition, convert members to buyers, encourage
repeat purchases, drive purchases across the network and create loyalty to the
ClickRewards Network and its shopping sites.

  We intend to continue building the relationship with our members through
targeted, relevant communications and offers based on their past buying
behavior and preferences. In addition, we offer bonuses to our members to
encourage seasonal purchases and purchases throughout the network. We believe
that if we can build a loyal member base, we can offer greater value to our
merchants.

  In order to achieve our brand, acquisition, retention and loyalty goals, we
employ a wide range of promotional, direct marketing, media and public
relations activities.

  . Advertising and Public Relations. We advertise in a variety of online and
    offline media including newspaper, magazines, radio and Internet banner
    advertisements. We intend to begin outdoor and potentially television
    advertising in the future. Our advertising efforts are augmented by
    extensive consumer public relations to generate coverage in radio and
    print, and on television.

  . Airline Supplier Co-Marketing. As a benefit of our relationships with our
    airline suppliers, we have access to multiple direct marketing channels
    targeting the members of the airlines' frequent flyer programs. We have
    utilized statement inserts, newsletter articles, statement messaging, e-
    mails, in-flight video and Web site placement to reach these frequent
    flyer program members.

  . Merchant Co-Marketing. The majority of our participating e-commerce
    shopping sites feature the ClickRewards logo and promotional offers on
    their home page. In addition, the ClickRewards message is often threaded
    throughout the purchase process. The ClickRewards offers are often
    included in e-mails to the shopping sites' customers and included in
    their advertising campaigns both online and offline.

                                       39
. Ongoing E-mail Communications. We have a variety of ongoing e-mail
    communications which feature new shopping sites, new offers and special
    offers. We will continue to enhance this channel of communication to
    become more personalized and customized.

  . Network Promotions. We develop and launch network-wide promotions on a
    seasonal basis to provide added incentives for members to shop frequently
    and throughout the ClickRewards Network. Examples include volume, multi-
    purchase and refer-a-friend bonuses.

   Custom Loyalty, Enterprise Incentive Solutions and Netcentives Professional
   Services Customers

  The launch of a custom loyalty program represents a significant and strategic
decision for a company. Consequently, we are primarily using a direct sales
force for Custom Loyalty Networks. These sales efforts are complemented by our
general trade marketing efforts, that aim to establish our position as the
leader in our field. Enterprise Incentive Solutions products and services are
also sold by a direct sales force. In the future, we expect this solution to be
sold and delivered through resellers and other partners, such as enterprise
software companies, existing incentive product providers and promotion
agencies. Marketing and sales of our professional services and technical
consulting are integrated into the sales and marketing of each of our products.
Additionally, our existing client base and client referrals generate inquiries
and leads for more general e-commerce consulting projects not directly related
to the implementation of a rewards or loyalty product.

Member Service

  We believe that to sell high volumes of ClickMiles to merchants we need to
offer them a large attractive base of potential consumers. We believe that our
ability to create a loyal and valuable membership base for ClickRewards depends
on high quality member service. Furthermore, direct member feedback on our
service is an important way in which we can continually improve the
ClickRewards shopping experience. The member service team is responsible for
providing phone support during business hours and e-mail support with a 24-hour
response time. Representatives are responsible for resolving general inquiries
about ClickRewards, and inquiries relating to the status of orders and
redemption requests. Many of these requests require coordination with the
member service teams of participating merchants and reward suppliers. E-mail
support utilizes customized automatic response systems and a staff of trained
member support agents to generate personalized responses to inquiries. To
customers of our Custom Loyalty Networks and Enterprise Incentive Solutions
products, we offer the option of outsourcing member service support for
inquiries related to their program, or utilizing the member service module of
our software platform for their internal member service representatives.

                                       40
Technology

  We have built a robust, scalable, and secure system for the exchange and
management of an online promotional currency. Our SecureRewards Architecture
consists of a set of modular applications and protocols that interact across
the Internet to create a network among merchants, rewards suppliers and
consumers. We designed this system for security and high volume transaction
processing, with the ability to handle hundreds of thousands of transactions
per day. Our system uses a high performance database design and distributed
value transfer architecture.

[A diagram using a grid to represent the Internet and boxes representing the
Netcentives Website and a typical merchant Website. The elements of the
Netcentives software residing on the Netcentives Web site and the merchant
Website are represented by boxes within the boxes representing the Web sites.
The software element within the merchant site is the Reward Broker and the
software elements within the Netcentives site are the Payment System,
Netcentives Central, the Redemption System and the Member Relationship Systems.
Arrows representing the interactions between Netcentives, the merchant, rewards
suppliers and a consumer. The merchant site and the Netcentives site are
connected by the Secure Value Transfer Protocol.]

  The modular design of our SecureRewards Architecture allows merchants to
distribute promotional currency safely at their own site. The following is a
description of the modules within the SecureRewards Architecture:

  . RewardBroker resides at the merchant or aggregator site and initiates
    promotional currency transfers in real time. We provide merchants with a
    range of integration options with RewardBroker, including application
    programming interfaces, database table integration and integration
    services to enable rapid customization and integration with the
    merchant's own unique e-commerce environment.

  . Payment System resides at our data center and receives and processes all
    promotional currency transfer requests from RewardBroker. It first
    determines if the requestor is legitimate and that the request has not
    been modified. It then passes the request through the Fraud Detection
    System, and finally fulfills the request.

  . Secure Value Transfer Protocol ensures the privacy and origin of all
    messages in the network. RewardBroker and Payment System communicate
    through the protocol, which is transport-independent and supports a wide
    variety of message types. It employs commercial, financial transaction-
    grade cryptography to sign and encrypt messages.

  . Fraud Detection System provides both per-transaction and aggregate fraud
    detection and prevention. The system applies a combination of business
    rules about each promotion and velocity controls based on past behavior
    to determine if activity is fraudulent.

  . Account Management Systems provides consumer, merchant and reward
    supplier lifecycle services, such as account creation and reactivation,
    promotion funding and transaction inquiries, as well as a consumer
    support knowledge base to facilitate timely response to inquiries.

                                       41
. Member Relationship Systems presents the current promotions, rewards and
    account balance information to individual consumers through an HTML
    interface. Each request to manipulate an individual consumer's account
    requires authentication to prevent fraudulent activity. Member
    Relationship Systems also include the Customer Contact Module and the
    Targeting and Segregation Database.

  . Consumer Contact Module provides consumers with instant receipts of
    account activity and periodic account statements. We are developing the
    capability to use the Consumer Contact Module to provide consumers with
    relevant promotions and award opportunities based on self-identified
    interests and past behavior in the network.

  . Targeting and Segmentation Database is being developed to provide
    relevant promotions and rewards opportunities by tracking consumer
    preferences, both explicit and implicit. It will be used in conjunction
    with the Consumer Contact Module to personalize each consumer's
    experience.

  . Redemption Systems reside at our data center and processes all requests
    by consumers to redeem promotional currency for goods or services. The
    requests pass through the Fraud Detection System and are then formatted
    for transmission as fulfillment requests to the various rewards partners.
    Responses to fulfillment requests are also processed by the Redemption
    Systems.

  . Netcentives Central provides merchants and their account managers with
    up-to-date information via the Web on current promotions, including
    promotion balances and transactional history.

  All elements of the SecureRewards Architecture are designed to be operating
system and hardware independent facilitating deployment on a wide range of
merchant systems. This modularity also helps us to deploy new technologies
without needing to re-write the entire system. Much of the SecureRewards
Architecture is written in Java. The SecureRewards Architecture is the
technological foundation for the ClickRewards Network, Enterprise Incentive
Solutions, and Custom Loyalty Networks.

  We designed all elements of the SecureRewards Architecture from the ground up
with security in mind. RewardBroker and Payment System, in particular, utilize
private key cryptography with highly secure financial transaction grade ciphers
to authenticate merchants and encrypt transactions. Each request to manipulate
an individual consumer's account requires authentication to prevent fraudulent
activity and encryption to enhance consumer security. We have implemented
additional fraud prevention mechanisms such as velocity controls and user login
tracking to track unusual behavior.

Competition

  As a provider of loyalty, direct marketing, and promotion products, we
generally compete with advertising and other promotion programs for a portion
of a customer's total marketing budget against other marketing solutions such
as advertising. In addition, within the promotions market, we compete with a
variety of businesses in connection with each of our three programs. For the
ClickRewards Network our primary competition can be categorized as follows:

  . loyalty programs operated by and/or for portals and other large e-
    commerce sites, such as AOL Rewards;
  . Custom Loyalty Networks that we intend to operate on behalf of third
    parties; and
  . standalone loyalty programs and promotion tools developed by and/or for
    standalone e-commerce sites, such as Autobytel.com Mobalist Rewards,
    CDnow Fast Forward Rewards, CBS Sportsline Rewards, Cybergold and
    MyPoints.

  We believe that we face substantial obstacles competing against internally
developed products created by our existing and potential customers. Our
Enterprise Incentive Solutions products compete with existing, offline
incentive products provided by parties such as Maritz Marketing Research,
Carlson Marketing Group, Loyalty

                                       42
Group, a division of Alliance Data Systems and BI Performance Services. Our
Custom Loyalty and Enterprise Incentive Solution products and services also
compete with products offered by third parties, such as MyPoints.com.

  For each of our programs, we expect competition to intensify as more
competitors enter our markets. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. In addition,
while we currently operate as a partner with many rewards suppliers, such as
airline frequent flyer programs, any of these suppliers could themselves enter
into our markets and provide us with substantial competition.

  Many of our current and potential competitors, and in particular offline
promotions companies and offline rewards programs, have longer operating
histories, stronger brand names and significantly greater financial, technical,
marketing and other resources than we do. In addition, these companies may have
existing relationships with our potential customers and may be able to respond
to changes in market dynamics and technology faster than we can. We cannot
assure you that we will be able to compete successfully against our current or
future competitors. If we are unable to compete successfully against current or
future competitors, our business, financial condition and results of operations
would be materially adversely affected.

Proprietary Rights

  We currently rely on a mixture of patents, copyrights, trademarks, trade
secrets, agreements with third parties and employees, and clickwrap license
agreements to protect our proprietary rights. Despite our efforts to protect
our proprietary rights, unauthorized parties may utilize aspects of our
business model and products and obtain and use information we regard as
proprietary. In addition, other parties may breach confidentiality agreements
or other protective contracts, and we may not be able to enforce our rights in
the event of such breaches. Our competitors may independently develop
technologies or business models that are substantially equivalent or superior
to ours. Furthermore, if we expand internationally, many countries do not
protect our intellectual property rights to the same extent as the laws of the
United States. In the event that we are unable to protect our proprietary
rights, our business, financial condition and results of operations could be
harmed.

  The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the past several months, including our business process patent.
We believe that several additional, related patents are currently pending. We
believe that there will continue to be substantial activity in this area and
that litigation may arise due to our attempts or a third party's efforts to
enforce patent rights.

  We may incur substantial expenses, and the attention of our management may be
diverted if such litigation occurs. In addition, whether or not any claims
against us are meritorious, we may be required to enter into license agreements
or be subject to injunctive or other equitable relief, any of which would
materially adversely affect our business, results of operations and financial
condition.

  We have obtained a patent on our principal business process, which we believe
would be useful to third parties. We have entered into a non-exclusive,
royalty-bearing license agreement with MyPoints.com, an Internet advertising
company, permitting them to use this patent. We expect to negotiate with other
online promotions companies in this regard, although there can be no assurance
that we will enter into any such license agreements or that any agreements we
do enter into will result in material royalties to us.

Employees

  As of June 30, 1999, Netcentives had 149 full time employees, including 78 in
marketing and sales, 35 in research and development, 19 in professional
services, and 17 in finance and administration. Our employees are not
represented by any collective bargaining unit or labor union and we have never
experienced a work stoppage. We believe our relations with our employees are
good.

                                       43
Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber personnel. Competition for qualified
personnel in our industry and geographic region is intense, and we may not be
successful in attracting and retaining such personnel. There are only a limited
number of people with the skills that we require, and the market in which we
compete is characterized by rapidly increasing salaries and equity incentives.
These factors may increase our operating expenses and equity dilution or hinder
our ability to recruit and retain qualified personnel. To the extent we are not
able to attract, retain and motivate additional personnel effectively, our
business, financial condition and results of operations would be adversely
affected. In addition, our business is substantially dependent on the efforts
of certain key executives, including West Shell, III, our Chairman and Chief
Executive Officer, the loss of whom we believe could delay our ability to
achieve major corporate milestones. In addition, we believe that as a result of
the complexity of our financial model, the loss of members of our financial
management team could adversely affect us. We currently do not maintain key
person life insurance on any of our employees.

Facilities

  Our current headquarters are located in San Francisco, California, where we
lease five locations aggregating approximately 40,000 square feet under leases
expiring between 2000 and 2001. In May 1997, we entered into a lease that
expires in 2007 for approximately 70,000 square feet in which we will
consolidate our San Francisco headquarters in early 2000. We also lease
approximately 1,000 square feet in Chicago, Illinois, approximately 500 square
feet in New York, New York and approximately 4,000 square feet in Healdsburg,
California under leases that are month-to-month.

Legal Proceedings

  We are currently involved in no material legal proceedings.

                                       44
MANAGEMENT

Executive Officers and Directors

  Our executive officers and directors and their ages as of June 30, 1999 are
as follows:
Name                        Age Position
 ----                        --- --------
West Shell, III............ 44  Chairman of the Board of Directors and Chief
                                  Executive Officer

 Murray Brozinsky........... 34  Executive Vice President and Managing
                                  Director, North America

 John F. Longinotti......... 54  Executive Vice President, Operations and Chief
                                  Financial Officer

 Elizabeth S. Ames.......... 42  Senior Vice President and General Manager,
                                  Custom Loyalty Networks

 Timothy J. O. Catlin....... 35  Senior Vice President, Research & Development

 Edward Fong Soo Hoo........ 47  Senior Vice President, Corporate Development

 George Loyer............... 50  Vice President and General Manager,
                                  Netcentives Professional Services

 Elliott S. Ng.............. 30  Vice President and General Manager,
                                  ClickRewards

 William B. Rusitzky........ 35  Vice President and General Manager, Enterprise
                                  Incentive Solutions

 Paul F. Danielsen.......... 44  Vice President, Sales

 Perryman K. Maynard........ 43  Vice President, Relationship Marketing and
                                  Strategic Alliances
 William McGee.............. 42  Vice President, Corporate Marketing

 Stewart Alsop(2)........... 47  Director

 Tom Byers, Ph.D.(2)........ 46  Director

 Eric W. Tilenius........... 31  Director

 Virginia M. Turezyn(1)(2).. 41  Director

 Wendell G. Van Auken(1).... 54  Director

 Sergio Zyman(1)(2)......... 53  Director
---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

  Mr. Shell was elected to our Board of Directors in January 1997 and as
Chairman of the Board of Directors in July 1999. He has served as our President
and Chief Executive Officer since June 1997. In 1986, Mr. Shell founded Pacific
Marketing Group (subsequently Highway One Communications), a marketing firm
whose clients included Coca Cola, Inc., Compaq Computer Corp., Disney
Enterprises, Inc., and Visa, and acted as its Managing Partner until November
1996. Prior to founding Pacific Marketing Group, Mr. Shell held marketing
positions at Atari Corp., Johnson & Johnson and Grey Advertising Inc. Mr. Shell
holds a B.S. in Business Administration from the University of Vermont.

  Mr. Brozinsky joined Netcentives in April 1998 and has served us in a variety
of capacities since that time, including currently as Executive Vice President
and Managing Director, North America, a position he has held since July 1999.
From September 1994 to April 1998, Mr. Brozinsky was a consultant with the
Boston Consulting Group, a management consulting firm, where he specialized in
developing e-commerce strategies for high technology and financial services
clients. Prior to September 1994, Mr. Brozinsky served as the Director of
Finance at McCaw Cellular Communications Inc., a cellular telecommunications
company, General Manager of Monitor Marine, a subsidiary of Monitor Aerospace
Corporation, a high technology manufacturing company, and as an investment
banker with Morgan Stanley and Company, Inc., an investment bank. Mr. Brozinsky
holds a B.S. in Finance and a B.A. in Philosophy from the University of
Pennsylvania and an M.B.A. in management and manufacturing from Northwestern
University's Kellogg and McCormick schools.

                                       45
Mr. Longinotti joined Netcentives in January 1998 and has served as our
Executive Vice President, Operations since July 1999 and as Chief Financial
Officer since January 1998. Mr. Longinotti served as a consultant to
Netcentives from October 1997 to January 1998. From April 1995 to January 1998
he was an independent consultant in an operational and financial consulting
practice. From July 1993 to March 1995 Mr. Longinotti was Chief Executive
Officer of Digital Collections, Inc., a graphics software and multimedia firm.
Mr. Longinotti started his career at U.S. Leasing International where he spent
sixteen years in a variety of executive positions, followed by two years at
AT&T Capital. Mr. Longinotti holds a B.S. in Engineering from Stanford
University and an M.B.A. from the University of California at Berkeley's Haas
School of Business.

  Ms. Ames joined Netcentives in November 1998 and has served us in a variety
of capacities since that time, including currently as Senior Vice President and
General Manager, Custom Loyalty Networks, a position she has held since July
1999. From May 1998 to November 1998, Ms. Ames was General Manager, Internet
Merchant Group at VeriFone, Inc., an electronic payment system company, where
she had profit and loss responsibility for sales, marketing and product
development for the Internet merchant market. While at VeriFone, Ms. Ames also
served as Director, Product Marketing, Internet Commerce Division from June
1997 to May 1998. From October 1996 to June 1997, Ms. Ames was an independent
consultant with a focus on internet commerce and marketing technology. From
November 1995 to October 1996, Ms. Ames was Vice President, Product Development
at Eagle River Interactive, an interactive advertising agency. From January
1994 to November 1995, Ms. Ames was a Principal at Opus Consulting, a strategic
marketing and Internet consulting group. Prior to 1994, Ms. Ames held a variety
of positions with Apple Computer, Inc., a computer manufacturer. Ms. Ames holds
a B.F.A. from the Hartford Art School at the University of Hartford and an
M.B.A. from Southern Methodist University.

  Mr. Catlin joined Netcentives in November 1996 as our Vice President,
Research & Development and became our Senior Vice President, Research &
Development in July 1999. From July 1996 to October 1996, Mr. Catlin was Senior
Director of Engineering at Eagle River Interactive. From March 1995 to July
1996, Mr. Catlin was an Engineering Manager at Intuit, Inc., a financial
software company. From September 1993 to January 1995, Mr. Catlin was President
and Chief Executive Officer of Streetlight Software, Inc., a software services
company. Mr. Catlin holds a B.A. in Computer Science from Brown University.

  Mr. Soo Hoo has served as our Senior Vice President, Corporate Development
since March 1998. From September 1997 to March 1998, Mr. Soo Hoo was Executive
Vice President of Sales at Quote.com, Inc., a Web-based financial services
information company. From February 1996 to September 1997, Mr. Soo Hoo was
Director of Business Development at CyberCash, Inc., an Internet commerce
payment solutions company. From January 1994 to February 1996, Mr. Soo Hoo was
Business Development Manager, OEM at Novell, Inc., a network operating systems
manufacturer. Mr. Soo Hoo studied business administration at both the
University of San Francisco and California State University, Hayward.

  Mr. Loyer has served as our Vice President and General Manager, Netcentives
Professional Services since July 1999. From December 1998 to July 1999, Mr.
Loyer served as our Director, Netcentives Professional Services. From March
1993 to December 1998, Mr. Loyer served in a variety of capacities at Panttaja
Consulting Group, Inc., a technology consulting firm which was acquired by
Netcentives, including most recently as Panttaja's Vice President and General
Manager from June 1996 to December 1998. Mr. Loyer studied Chemical Engineering
at Rensselaer Polytechnic Institute.

  Mr. Ng was a co-founder of Netcentives in June of 1996 and has served
Netcentives in a variety of capacities since that time, including currently as
our Vice President and General Manager, ClickRewards a position he has held
since July 1999. Mr. Ng also served as a Director of Netcentives from June 1996
to September 1997 and as our Chief Financial Officer from June 1996 to January
1998. From December 1995 to June 1996, Mr. Ng was a Partner in Tilenius & Ng
Ventures, a predecessor entity to Netcentives. From July 1991 to August 1994,
Mr. Ng was a Product Manager at Microsoft Corp., a software developer. Mr. Ng
holds a B.A. in Social Studies from Harvard University and an M.B.A. from the
Harvard University Graduate School of Business.

                                       46
Mr. Rusitzky joined Netcentives in February 1997, and has served us in a
variety of capacities, including currently as our Vice President and General
Manager, Enterprise Incentive Solutions, a position he has held since July
1999. From February 1994 to February 1997, Mr. Rusitzky was Manager, Business
Development and International Marketing/Sales at Silicon Graphics, Inc., a
computer workstation manufacturer. Prior to 1994, Mr. Rusitzky served in a
variety of positions with Silicon Graphics. Mr. Rusitzky holds a B.M.E. from
the Georgia Institute of Technology and an M.E. in Operations Research and
Industrial Engineering and an M.B.A. from Cornell University.

  Mr. Danielsen has served as our Vice President, Sales since May 1997. From
October 1995 to May 1997, Mr. Danielsen was Director of Business Development at
Sportsline USA, Inc., an internet-based sports media company, where he was
responsible for developing strategic relationships with national governing
bodies, athletes, and new channel partnerships. From 1990 to October 1995, Mr.
Danielsen was a Managing Partner of P&P West, a sports marketing company
specializing in event packaging, production and television. Mr. Danielsen holds
a B.A. in Economics from the University of Colorado.

  Mr. Maynard has served as our Vice President, Relationship Marketing and
Strategic Alliances since August 1998. From July 1997 to August 1998, Mr.
Maynard was a Principal at Maynard & Associates, a marketing consulting firm.
From February 1996 to June 1997, Mr. Maynard was a Senior Vice President at
Brierley & Partners, a direct marketing agency. From October 1994 to January
1996, Mr. Maynard was Executive Director, Marketing at Hilton Grand Vacations
Corporation, a developer and marketer of timeshare resorts. Prior to October
1994, Mr. Maynard was Vice President, Marketing Programs with Hilton Hotels
Corporation, a hotel management company and owner. Mr. Maynard holds a B.A. in
History from Bates College.

  Mr. McGee joined Netcentives in March 1999, and has served us in a variety of
capacities, including, currently, as our Vice President, Corporate Marketing, a
position he has held since July 1999. From March 1999 to July 1999, Mr. McGee
served as our Director of Marketing Services. From September 1990 to March
1999, Mr. McGee was Partner and General Manager of Creative Media, Inc., a
media placement and advertising firm. Prior to September 1990, Mr. McGee served
as a Management Supervisor and Vice President at Ketchum Advertising, an
advertising firm, a Product Manager at Microsoft, an Advertising Manager at
Atari, and as a Media Buyer for Foote, Cone & Belding, an advertising firm. Mr.
McGee holds a B.A. in Economics from the University of California, Santa
Barbara.

  Mr. Alsop has served as a director of Netcentives since September 1997. Mr.
Alsop has been a General Partner at New Enterprise Associates, a venture
capital investment firm, since November 1998. Mr. Alsop was a Venture Partner
at New Enterprise Associates from June 1996 to November 1998. From June 1991 to
June 1996, Mr. Alsop served as Senior Vice President and Editor in Chief of
InfoWorld Publishing Company, Inc., which publishes InfoWorld, a weekly
newspaper for information-technology professionals. Prior to 1991, Mr. Alsop
founded Industry Publishing Company, a publisher of computer industry
newsletters. Mr. Alsop also serves on the board of directors of Macromedia,
Inc., a developer of multimedia and digital arts software tools. Mr. Alsop
holds a B.A. in English from Occidental College.

  Dr. Byers has served as a director of Netcentives since December 1998. Dr.
Byers has been an Associate Professor at Stanford University and the founding
Director of the Stanford Technology Ventures Program since July 1995. He also
currently serves as the Director of the AEA/Stanford Executive Institute, a
professional development program for high technology executives. From January
1994 to June 1995, Dr. Byers was a Lecturer at the University of California at
Berkeley's Haas School of Business. Dr. Byers also serves on the board of
directors of Visio Corporation, a graphics software company. Dr. Byers holds a
B.S. in Industrial Engineering and Operations Research, and an M.B.A. and Ph.D.
in Business Administration from the University of California, Berkeley.

                                       47
Mr. Tilenius has served as a member of the Board of Directors since our
founding in June 1996. Mr. Tilenius has served as an Entrepreneur-in-Residence
at Mayfield Fund, a venture capital investment firm, since July 1999. Prior to
joining Mayfield Fund, Mr. Tilenius co-founded Netcentives in June 1996, and
served us in a variety of capacities, including as Chairman of the Board of
Directors and Vice President, Business Development, from June 1997 and to July
1999 and President and Chief Executive Officer from June 1996 to June 1997.
From September 1995 to June 1996, Mr. Tilenius was a Partner in Tilenius & Ng
Ventures. From April 1992 to September 1994, Mr. Tilenius was Product Manager
of the Quicken for Macintosh business at Intuit, Inc. From September 1990 to
April 1992 Mr. Tilenius held product management positions at Oracle
Corporation, a database software company. Mr.  Tilenius holds a B.A. in
Economics from Princeton, a Certificate in Space Studies from International
Space University and an M.B.A. from Stanford University.

  Ms. Turezyn has served as a director of Netcentives since November 1996. Ms.
Turezyn co-founded Information Technology Ventures, a venture capital firm, in
September 1994 and has served as a General Partner from that time to the
present. From April 1982 to September 1994 she served in a variety of
capacities at Morgan Stanley & Company, Inc., including most recently as a Vice
President in the Venture Capital Group. Ms. Turezyn holds a B.A. in Accounting
from Queens College and is a Certified Public Accountant.

  Mr. Van Auken has served as a director of Netcentives since September 1997.
Mr. Van Auken has been a General Partner of the Mayfield Fund since October
1986. Prior to joining Mayfield, Mr. Van Auken was an officer, founder or chief
executive officer of three successful start-ups in three different technology-
oriented fields. Mr. Van Auken serves as a director of Advent Software, Inc., a
portfolio management software company and Montgomery Street Income Securities
Inc., a closed-end bond fund. Mr. Van Auken holds a B.E.E. from Rensselaer
Polytechnic Institute and an M.B.A. from Stanford University.

  Mr. Zyman has served as a director of Netcentives since December 1998. Mr.
Zyman has been an independent consultant since June 1998. For more than five
years prior to June 1998, Mr. Zyman served in a variety of positions at Coca-
Cola, Inc., including most recently as the Chief Marketing Officer. Mr. Zyman
serves as a director of Gap, Inc., an apparel retailer, and UC Television
Network Corp., a college television network.

  Each executive officer serves at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of Netcentives.

Board Composition

  We currently have authorized seven directors. In accordance with the terms of
our Certificate of Incorporation, effective upon the closing of this offering,
the terms of office of the directors will be divided into two classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in 2000
or special meeting held in lieu thereof, and Class II, whose term will expire
at the annual meeting of stockholders to be held in 2001 or special meeting
held in lieu thereof. The Class I directors are Ms. Turezyn, Messrs. Alsop and
Tilenius and Dr. Byers and the Class II directors are Messrs. Shell, Van Auken,
and Zyman. At each annual meeting of stockholders after the initial
classification or special meeting in lieu thereof, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the second annual meeting following election or special
meeting held in lieu thereof. In addition, our Certificate of Incorporation
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the two
classes so that, as nearly as possible, each class will consist of one-half of
the directors. This classification of the Board of Directors may have the
effect of delaying or preventing changes in control or management of
Netcentives.

                                       48
Board Compensation

  We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors or its committees. Our directors are generally eligible
to participate in our 1996 Stock Option Plan and, if a director is an employee
of Netcentives, to participate in our 1999 Employee Stock Purchase Plan.
Directors who are not employees will also receive periodic stock option grants
under our 1999 Directors' Stock Option Plan.

Board Committees

  The Compensation Committee currently consists of Ms. Turezyn, Messrs. Alsop
and Zyman and Dr. Byers. The Compensation Committee:

  . reviews and approves the compensation and benefits for our executive
    officers and grants stock options under our stock option plans; and
  . makes recommendations to the Board of Directors regarding these matters.

  The Audit Committee currently consists of Ms. Turezyn and Messrs. Van Auken
and Zyman. The Audit Committee:

  . makes recommendations to the Board of Directors regarding the selection
    of independent auditors;
  . reviews the results and scope of the audit and other services provided by
    our independent auditors; and
  . reviews and evaluates our audit and control functions.

Compensation Committee Interlocks and Insider Participation

  The members of the Compensation Committee are currently Ms. Turezyn, Messrs.
Alsop and Zyman and Dr. Byers. Neither Ms. Turezyn, Messrs. Alsop and Zyman nor
Dr. Byers has at any time been an officer or employee of Netcentives. No
executive officer of Netcentives serves as a member of the board of directors
or compensation committee of an entity that has one or more executive officers
serving on Netcentives' Board of Directors or Compensation Committee.

                                       49
Executive Compensation

  The following table sets forth certain compensation earned by our Chief
Executive Officer and the four other most highly compensated executive officers
whose total compensation exceeded $100,000 during the year ended December 31,
1998.

                           Summary Compensation Table
Long-Term
                                         Annual                    Compensation
                                      Compensation                    Awards
                                    -----------------              ------------
                                                         Other      Securities
                                                         Annual     Underlying
Name and Principal Position          Salary  Bonus(1) Compensation  Options(#)
---------------------------         -------- -------- ------------ ------------
West Shell, III.................... $200,000 $66,936    $7,836(2)         --
 Chairman and Chief Executive
  Officer

Timothy J.O. Catlin................  130,000  44,667          --      50,000
 Senior Vice President, Research &
  Development

Paul F. Danielsen..................  110,000  72,624          --      40,000
 Vice President, Sales

John F. Longinotti.................  137,427  32,163          --      50,000
 Executive Vice President,
 Operations and Chief Financial
  Officer

Edward Fong Soo Hoo ...............  106,329  56,163          --     182,000
 Senior Vice President, Corporate
 Development
---------------------
(1)Includes the fair market value of ClickMiles awarded in the past fiscal
year.
(2)Represents term life insurance payments.

                       Option Grants in Last Fiscal Year

  The following table shows certain information regarding stock options granted
to each of the executive officers named in the Summary Compensation Table
during the year ended December 31, 1998. No stock appreciation rights were
granted to the executive officers named in the Summary Compensation Table
during the year.
Potential Realizable
                                                                         Value at Assumed
                         Number of                                     Annual Rates Of Stock
                           Shares   Percentage of                       Price Appreciation
                         Underlying Total Options Exercise              For Option Term(3)
                          Options    Granted to     Price   Expiration ---------------------
Name                     Granted(1) Employees(2)  per Share    Date        5%        10%
----                     ---------- ------------- --------- ---------- ---------- ----------
West Shell, III.........       --         --           --          --          --         --
Timothy J.O. Catlin.....   50,000        1.6%       $1.05    12/28/08  $   33,017 $   83,671
Paul F. Danielsen.......   40,000        1.3         1.05    12/28/08      26,414     66,937
John F. Longinotti......   50,000        1.6         1.05    12/28/08      33,017     83,671
Edward Fong Soo Hoo.....  155,000        4.9         0.15    03/15/08      14,622     37,055
                           27,000        0.9         1.05    12/28/08      17,829     45,183
---------------------
(1) These stock options, which were granted under the 1996 Stock Option Plan,
    become exercisable at a rate of 1/8th of the total number of shares of
    common stock subject to the option on the six month anniversary of the date
    of grant, and 1/48th of the total number of shares monthly thereafter, as
    long as the optionee remains an employee of, consultant to, or director of
    Netcentives.
(2) Based on an aggregate of 3,132,293 options to purchase common stock of
    Netcentives granted by Netcentives under the 1996 Stock Option Plan in
    fiscal year 1998.

                                       50
(3) Potential realizable values are net of exercise price, but before taxes
    associated with exercise. The 5% and 10% assumed annual rates of compounded
    stock price appreciation are mandated by the Securities and Exchange
    Commission. There is no assurance provided to any executive officer or any
    other holder of our securities that the actual stock price appreciation
    over the 10-year option term will be at the assumed 5% and 10% levels or at
    any other defined level. Unless the market price of the common stock
    appreciates over the option term, no value will be realized from the option
    grants made to the executive officers.

Option Exercises and Holdings

  The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by each of the executive officers named in
the Summary Compensation Table during our last fiscal year, and the number and
value of securities underlying unexercised options held by the these executive
officers as of December 31, 1998:

                         Fiscal Year-End Option Values
Number of Securities
                          Number of            Underlying Unexercised     Value of Unexercised
                           Shares                    Options at           In-the-Money Options
                         Acquired on  Value     December 31, 1998 (#)   At December 31, 1998 (2)
                          Exercise   Realized ------------------------- -------------------------
Name                         (#)       (1)    Exercisable Unexercisable Exercisable Unexercisable
----                     ----------- -------- ----------- ------------- ----------- -------------
West Shell, III.........       --         --    40,833         9,167      $38,191      $ 8,709
Timothy J.O. Catlin.....       --         --    25,000       125,000       22,500       67,500
Paul F. Danielsen.......       --         --    30,833       109,167       28,224       62,975
John F. Longinotti......   41,979    $20,990        --       163,021           --      101,719
Edward Fong Soo Hoo.....       --         --    29,062       152,938       26,156      113,344
---------------------
(1) The amount set forth represents the difference between the fair market
    value of the shares on the date of exercise as determined by the Board of
    Directors and the exercise price of the option.
(2) Based on the fair market value as of December 31, 1998 ($1.05 per share),
    as determined by the Board of Directors, minus the exercise price,
    multiplied by the number of shares underlying the option.

Employment Agreements

  In June 1997, we entered into an Employment Agreement with West Shell, III,
our Chairman and Chief Executive Officer in which we agreed to pay Mr. Shell an
annualized salary of $200,000. In the event of Mr. Shell's involuntary
termination, we agreed to pay Mr. Shell his regular salary for a period of six
months; agreed to provide medical, dental and other like benefits for a period
of six months; agreed to release our repurchase option as to 1/4th of the
common stock then held by him that is then subject to repurchase; and agreed to
preserve Mr. Shell's eligibility to receive a discretionary bonus on the
involuntary termination date.

  In October 1998, we entered into an amendment to Mr. Shell's Employment
Agreement. In this amendment, we agreed to extend the term of the Employment
Agreement until October 29, 2000; agreed to increase Mr. Shell's annualized
salary to $250,000; and agreed to loan Mr. Shell $100,000 upon his request. We
subsequently loaned him $100,000 in January 1999.

  In January 1998, we entered into a Change of Control Agreement with John F.
Longinotti, our Executive Vice President, Operations and Chief Financial
Officer in which we agreed that, subject to certain limitations, if Mr.
Longinotti's employment relationship is involuntarily terminated within twelve
months following a change of control transaction, all of Mr. Longinotti's stock
options shall immediately vest.

Stock Plans

  1996 Stock Option Plan. Our 1996 Stock Option Plan (the "Option Plan")
provides for the grant of incentive stock options to employees and nonstatutory
stock options and stock purchase rights to employees, directors and
consultants. The purposes of the Option Plan are to attract and retain the best
available personnel,

                                       51
to provide additional incentives to our employees and consultants and to
promote the success of our business. The Option Plan was originally adopted by
our Board of Directors in November 1996 and approved by our stockholders in
August 1997. Unless terminated earlier by the Board of Directors, the Option
Plan shall terminate in November 2006. A total of 7,671,400 shares of common
stock have been reserved for issuance under the Option Plan, plus an automatic
annual increase on the first day of our fiscal years beginning in 2000, 2001,
2002, 2003 and 2004 equal to 1,250,000 shares or such lesser number of shares
as the Board of Directors determines. As of June 30, 1999, options to purchase
4,815,736 shares of common stock were outstanding at a weighted average
exercise price of $1.93, 563,776 shares had been issued upon exercise of
outstanding options, and 2,291,888 shares remained available for future grant.
In addition, options to purchase 30,000 shares of our common stock were
outstanding outside of the Option Plan.

  The Option Plan may be administered by the Board of Directors or a committee
of the Board. The Option Plan administrator determines the terms of options or
purchase rights granted under the Option Plan, including the number of shares
subject to an option or award, the exercise or purchase price, and the term and
exercisability of options. In no event, however, may an individual employee
receive option grants or purchase rights under the Option Plan during any one
fiscal year which would allow him or her to purchase more than 2,000,000
shares. Incentive stock options granted under the Option Plan must have an
exercise price of at least 100% of the fair market value of the common stock on
the date of grant and at least 110% of such fair market value in the case of an
optionee who holds more than 10% of the total voting power of all classes of
our stock. The exercise or purchase price of nonstatutory stock options and
stock purchase rights granted under the Option Plan shall be determined by the
Option Plan administrator; provided however that the exercise price of any
nonstatutory stock option granted to our Chief Executive Officer or our four
other most highly compensated officers will generally equal at least 100% of
the fair market value of the common stock on the date of grant. Payment of the
option exercise or purchase price may be made in cash or other consideration,
as determined by the Administrator.

  With respect to options granted under the Option Plan, the Option Plan
administrator determines the term of options, which may not exceed 10 years (or
5 years in the case of an option granted to a holder of more than 10% of the
total voting power of all classes of our stock). No option may be transferred
by the optionee other than by will or the laws of descent or distribution;
provided that the Option Plan administrator may grant nonstatutory stock
options with limited transferability rights in certain circumstances.
Generally, each option may be exercised during the lifetime of the optionee
only by the optionee. The Option Plan administrator determines when options
vest and become exercisable.

  In the event of a sale of substantially all of the assets of Netcentives, or
its merger or consolidation with or into another corporation, each option may
be assumed or an equivalent option substituted by the successor corporation.
However, if the successor corporation does not agree to such assumption or
substitution of an option, the option will terminate. The Administrator has the
authority to amend or terminate the Option Plan provided that no action that
impairs the rights of any holder of an outstanding option may be taken without
the holder's consent, and provided that stockholder approval for any amendments
to the Option Plan shall be obtained to the extent required by applicable law.

  1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 300,000 shares of common stock have been reserved for
issuance under the Purchase Plan, none of which have been issued as of the date
of this offering. The number of shares reserved for issuance under the Purchase
Plan will be subject to an annual increase on the first day of each of our
fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser
of 75,000 shares, 1% of our outstanding common stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the Board
of Directors determines. The Purchase Plan becomes effective upon the date of
this prospectus. Unless terminated earlier by the Board of Directors, the
Purchase Plan shall terminate in March 2019.

                                       52
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods (other than
the first offering period) commencing on May 1 and November 1 of each year.
Each offering period will consist of 4 consecutive purchase periods of 6
months' duration. At the end of each such 6 month period an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on October 31, 2001; the initial
purchase period is expected to commence on the date of this offering and end on
April 30, 2000. The Board of Directors may, however, amend or terminate an
offering period or a purchase period, if prevailing accounting rules change so
as to have a harmful effect on our financial statements. The Purchase Plan will
be administered by the Board of Directors or by a committee appointed by the
Board. Employees (including officers and employee directors) of Netcentives, or
of any majority-owned subsidiary designated by the Board, are eligible to
participate in the Purchase Plan if they are employed by Netcentives, or any
such subsidiary, for at least 20 hours per week and more than 5 months per
year. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions of up to 20% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of the common stock at
the beginning of each offering period or at the end of each purchase period.
The Board of Directors shall have the discretion to increase, prior to the
beginning of an offering period, the percentage of participants' compensation
that may be withheld through the Purchase Plan. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment.

  No employee shall be granted an option under the Purchase Plan if immediately
after the grant such employee would own stock and/or hold outstanding options
to purchase stock equaling 5% or more of the total voting power or value of all
classes of Netcentives' stock or its subsidiaries, or if the option would
permit an employee to purchase stock, under all of our, or our subsidiaries',
employee stock purchase plans, to accrue at a rate that exceeds $25,000 of fair
market value of such stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 2,500
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan shall automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new 24 month offering
period beginning on the first business day following the purchase date.

  The Purchase Plan provides that in the event of a merger or consolidation of
Netcentives with or into another corporation or a sale of all or substantially
all of its assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens any ongoing offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to the
transaction. The Board of Directors has the power to amend or terminate the
Purchase Plan and to change or terminate offering periods as long as such
action does not adversely affect any outstanding rights to purchase stock under
the Purchase Plan, provided however that the Board may amend or terminate the
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.

  1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 400,000 shares of common stock have been reserved for
issuance under the Directors' Plan. The number of shares reserved for issuance
under the Directors' Plan will be subject to an annual increase on the first
day of each of our fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lesser of 50,000 shares or 1% of our outstanding common stock on
the last day of the immediately preceding fiscal year. The Directors' Plan
becomes effective upon the effective date of this prospectus. The Directors'
Plan provides for the grant of nonstatutory stock options to nonemployee
directors of Netcentives and is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors without participation by a director with
respect to matters in which the director has a personal interest. Unless
terminated earlier, the Directors' Plan will terminate in March 2009.

                                       53
The Directors' Plan provides for an initial grant of an option to purchase
40,000 shares of common stock to each nonemployee director who has not received
a grant under the Option Plan during the twelve months preceding the effective
date of the Directors' Plan, and to each person who first becomes a nonemployee
director thereafter. These options shall become exercisable in four equal
installments on the first, second, third, and fourth anniversaries of the
grant. On the first day of each fiscal year, each nonemployee director who has
served on our Board of Directors for at least 6 months shall be granted an
additional option to purchase 10,000 shares of common stock, which shall become
exercisable in full on the fourth anniversary of the date of grant. The
exercise price of all stock options granted under the Directors' Plan shall be
equal to the fair market value of a share of Netcentives' common stock on the
date of grant of the option.

  The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to a qualified domestic relations order. Each option is exercisable, during the
lifetime of the optionee, only by the optionee. If a nonemployee director
ceases to serve as a director for any reason other than death or disability, he
or she may, within 90 days after the date he or she ceases to be a director,
exercise options granted under the Directors' Plan to the extent that he or she
was entitled to exercise it at the date of termination. To the extent that he
or she was not entitled to exercise any such option at the date of termination,
or if he or she does not exercise an option (which he or she was entitled to
exercise) within the 90 day period, the option shall terminate. If a director's
service on our Board terminates as a result of his or her death, the director's
estate will have the right to exercise any option granted under the Directors'
Plan as if the deceased director had continued in his or her position on the
Board of Directors for an additional six months following the date of death.
Options granted under the Directors' Plan have a term of ten years.

  In the event of a dissolution or liquidation of Netcentives, a sale of all or
substantially all of its assets, or a merger, consolidation or other capital
reorganization of Netcentives with or into another corporation, each option
outstanding under the Directors' Plan shall be assumed or equivalent options
substituted by the successor corporation, unless such successor corporation
does not agree to such assumption or substitution, in which case the options
shall terminate upon consummation of the transaction; provided however that
upon a sale of all or substantially all of our assets or a merger or
consolidation of Netcentives with or into another corporation in which more
than 50% of the shares entitled to vote are exchanged, each director holding
options under the Directors' Plan shall have the right to exercise his or her
options immediately prior to the consummation of such transaction as to all of
the shares of stock underlying such options, including shares as to which the
director would not otherwise be entitled to exercise.

  The Board of Directors may amend or terminate the Directors' Plan at any
time; provided however that no such action may adversely affect any outstanding
option and provided that stockholder approval for any amendments to the
Directors' Plan shall be obtained to the extent required by applicable law.

Limitation of Liability and Indemnification Matters

  Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability:

  . for any breach of such director's duty of loyalty to Netcentives or to its
    stockholders;

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

  . for unlawful payments of dividends or unlawful stock repurchases or
    redemptions as provided in Section 174 of the Delaware General
    Corporation Law; or

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

                                       54
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the
fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of an
indemnified party. Our bylaws also permit us to advance expenses incurred by an
indemnified party in connection with the defense of any action or proceeding
arising out of the party's status or service as a director, officer, employee
or other agent of Netcentives upon an undertaking by the party to repay such
advances if it is ultimately determined that the party is not entitled to
indemnification.

  We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to, among other things,
indemnify each director or officer against expenses (including attorney's
fees), judgments, fines and settlements paid by such individual in connection
with any action, suit or proceeding arising out of an individual's status or
service as a director or officer of Netcentives (other than liabilities arising
from willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest) and to advance expenses incurred by an individual in connection with
any proceeding against an individual with respect to which an individual may be
entitled to indemnification by us. We believe that our Certificate of
Incorporation and bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers. We also
expect to obtain directors' and officers' liability insurance.

  At present we are not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of Netcentives where indemnification
will be required or permitted. Furthermore, we are not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.

                                       55
RELATED PARTY TRANSACTIONS

  Certain stock option grants to directors and executive officers of
Netcentives are described in this prospectus under the caption "Management--
Executive Compensation."

Private Placement Transactions

  Since our inception, we have issued, in private placement transactions,
shares of preferred stock, warrants for the purchase of shares of preferred
stock, and notes convertible into shares of preferred stock as follows:

  . an aggregate of 1,452,613 shares of Series A Preferred Stock at $0.65 per
    share in September 1996;
  . an aggregate of 485,000 shares of Series B Preferred Stock at $1.00 per
    share in November 1996;
  . warrants to purchase an aggregate of 175,000 shares of Series B Preferred
    Stock, and promissory notes with an aggregate principal amount of
    $1,312,601.60 convertible into an aggregate of 2,281,770 shares of Series
    C Preferred Stock during January, June, August, and September 1997;
  . an aggregate of 7,754,847 shares of Series C Preferred Stock at $1.30 per
    share in September 1997;
  . warrants to purchase an aggregate of 530,000 shares of Series N Preferred
    Stock in July, August, September and October 1997;
  . an aggregate of 5,476,192 shares of Series D Preferred Stock at $3.15 per
    share in August 1998; and
  . an aggregate of 5,278,583 shares of Series E Preferred Stock at $6.82 per
    share in March, April and June 1999.

  The following table summarizes the shares of preferred stock purchased by the
executive officers named in the Summary Compensation Table, directors and 5%
stockholders of Netcentives, and persons and entities associated with them, in
private placement transactions:
Series A  Series B  Series C  Series D  Series E
                                Preferred Preferred Preferred Preferred Preferred
  Investor                        Stock     Stock     Stock     Stock     Stock
  --------                      --------- --------- --------- --------- ---------
Information Technology
     Ventures and
     Virginia M. Turezyn.....      --      437,243  1,538,461   539,683   73,314
    Integral Capital
     Partners................      --           --         -- 1,269,841  168,621
    Mayfield Fund and Wendell
     G. Van Auken............      --           --  2,769,231 1,317,460  549,857
    New Enterprise Associates
     and Stewart Alsop.......      --           --  1,923,077   634,921  366,568
---------------------
Each of the above holders is a 5% stockholder.

Loans to Officers

  We have loaned West Shell, III, our Chairman and CEO, funds according to the
terms set forth in the table below. In each case such note is secured by the
common stock of Netcentives owned by Mr. Shell and partnerships affiliated with
Mr. Shell.
Note    Interest
    Issue Date                                    Due Date     Amount     Rate
    ----------                                    --------    --------- --------
August 1997................................. August 2001   $  60,000   6.29%
   November 1997............................... November 2001 $ 157,290   6.01%
   December 1998............................... December 2002 $ 130,000   4.47%
   January 1999................................ January 2003  $ 100,000   4.47%
Indemnification Agreements

  We have entered into indemnification agreements with certain of our officers
and directors containing provisions which may require us to, among other
things, indemnify our officers and directors against certain

                                       56
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature) and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.

Registration Rights Agreements

  Certain holders of common stock and preferred stock have certain registration
rights with respect to their shares of common stock (including common stock
issuable upon conversion of their preferred stock) as described in "Description
of Capital Stock--Registration Rights of Certain Holders."

Other Related Party Transactions

  In April 1999, we entered into a computer software licensing agreement with
Connectify which provides for payments by Netcentives of approximately $300,000
in fees during fiscal 1999. Mr. Alsop is a director of both Netcentives and
Connectify. We believe that this agreement was entered into on terms and
conditions no less favorable to Netcentives than those that could have been
obtained from an unaffiliated third party.

                                       57
PRINCIPAL STOCKHOLDERS

  The following table sets forth certain information with respect to beneficial
ownership of our common stock as of June 30, 1999, and as adjusted to reflect
the sale of common stock offered hereby, as to (i) each person (or group of
affiliated persons) known by us to own beneficially more than 5% of our
outstanding common stock, (ii) each of our directors, (iii) each of the
executive officers named in the Summary Compensation Table, and (iv) all
directors and executive officers of Netcentives as a group.
Percent
                                                  Beneficially Owned(2)
                                                  ---------------------------
Name and Address of Beneficial         Number of   Before           After
Owner(1)                               Shares(2)  Offering       Offering(3)
------------------------------         ---------- -----------    ------------
Wendell G. Van Auken(4)..............   4,636,548        17.98%               %
 2800 Sand Hill Road
 Menlo Park, CA 94025
Stewart Alsop(5).....................   2,873,461        11.14
 2490 Sand Hill Road
 Menlo Park, CA 94025
Virginia M. Turezyn(6)...............   2,588,701        10.04
 3000 Sand Hill Road, Building I
 Suite 280
 Menlo Park, CA 94025
West Shell, III(7)(8)................   1,792,766         6.94
Eric W. Tilenius(7)..................   1,004,166         3.89
Timothy J.O. Catlin(7)...............     149,999            *               *
Tom Byers............................     125,000            *               *
 373 Terman Engineering Center
 Stanford University
 Stanford, CA 94305-4024
John F. Longinotti(7)................      76,145            *               *
Edward Fong Soo Hoo(7)...............      59,395            *               *
Paul F. Danielsen(7).................      54,166            *               *
Sergio Zyman(7)......................      50,000            *               *
 PO Box 724705
 Atlanta, GA 31139
Mayfield Fund(9).....................   4,576,741        17.75
 2800 Sand Hill Road
 Menlo Park, CA 94025
New Enterprise Associates(10)........   2,924,566        11.34
 2490 Sand Hill Road
 Menlo Park, CA 94025
Information Technology Ventures(11)..   2,588,701        10.04
 3000 Sand Hill Road, Building I
 Suite 280
 Menlo Park, CA 94025
Integral Capital Partners(12)........   1,438,462         5.58
 2750 Sand Hill Road
 Menlo Park, CA 94025
All directors and officers as a group
 (18 persons)(4)(5)(6)(7)(8).........  14,777,353        56.08
---------------------
   *Less than 1%.

                                       58
(1) Except as otherwise noted, the address of each person listed in the table
     is c/o Netcentives Inc., 690 Fifth Street San Francisco, California 94107,
     and the persons named in the table have sole voting and investment power
     with respect to all shares of common stock shown as beneficially owned by
     them, subject to community property laws where applicable.
 (2) Applicable percentage of beneficial ownership is based on 25,790,282
     shares of common stock outstanding as of June 30, 1999, together with
     applicable options exercisable within 60 days of June 30, 1999 and
     warrants for such stockholder. Shares issuable pursuant to such options
     are deemed outstanding for computing the percentage ownership of the
     person holding such options but are not deemed outstanding for the
     purposes of computing the percentage ownership of each other person.
     Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission.
 (3) Assumes that the underwriters do not exercise their over-allotment option.
 (4) Includes 59,807 shares held by the Wendell G. Van Auken & Ethel S. Van
     Auken Trust. Additionally, Mr. Van Auken is a general partner of Mayfield
     VIII Management, which is the General Partner of Mayfield VIII which holds
     4,033,692 shares and Mayfield Associates Fund III which holds 212,300
     shares. Affinity Trust, an investment entity affiliated with the Mayfield
     Fund, holds an additional 330,749 shares. Mr. Van Auken disclaims
     beneficial ownership of the shares held by Mayfield VIII, Mayfield
     Associates Fund III, and Affinity Trust except to the extent of his
     pecuniary interest in such entities. See Note 8.
 (5) Mr. Alsop is a limited partner of New Enterprise Associates VII, L.P.
     which holds 2,873,461 shares. Mr. Alsop disclaims beneficial ownership of
     the shares held by this entity except to the extent of his pecuniary
     interests in such entities. See Note 10. Shares attributable to Mr. Alsop
     do not include any shares owned by NEA President's Fund or NEA Ventures
     1997.
 (6) Ms. Turezyn is a general partner of Information Technology Ventures, L.P.
     which holds 2,521,988 shares and ITV Affiliates Fund, L.P. which holds
     66,713 shares. Ms. Turezyn disclaims beneficial ownership of the shares
     held by these entities except to the extent of her pecuniary interests in
     such entities. See Note 11.
 (7) Includes the following shares issuable upon exercise of outstanding
     options exercisable within 60 days of June 30, 1999: Mr. Shell, 44,166;
     Mr. Tilenius, 4,166; Mr. Catlin, 20,833; Mr. Danielsen, 54,166;
     Mr. Longinotti, 34,166; Mr. Soo Hoo, 59,395; Mr. Zyman, 50,000; and
     others, 293,594.
 (8) Includes 677,512 shares held by Shell Associates, L.P. a family limited
     partnership of which Mr. Shell is a general partner.
 (9) Includes 4,033,692 shares held by Mayfield VIII, 212,300 shares held by
     Mayfield Associates Fund III, and 330,749 shares held by Affinity Trust.
(10) Includes 2,873,461 shares held by New Enterprise Associates VII, L.P.,
     47,259 shares held by NEA President's Fund and 3,846 shares held by NEA
     Ventures 1997.
(11) Includes 2,521,988 shares held by Information Technology Ventures, L.P.
     and 66,713 shares held by ITV Affiliates Fund, L.P.
(12) Includes 1,431,313 shares held by Integral Capital Partners IV, L.P. and
     7,149 shares held by Integral Capital Partners IV MS Side Fund, L.P.

                                       59
DESCRIPTION OF CAPITAL STOCK

  Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001
par value.

Common Stock

  As of June 30, 1999, there were 25,790,282 shares of common stock outstanding
that were held of record by approximately 129 stockholders after giving effect
to the conversion of our preferred stock into common stock at a one-to-one
ratio and the exercise of 46,891 warrants terminable upon the closing of this
offering, and assuming no exercise or conversion of outstanding convertible
securities after June 30, 1999. There will be           shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option
and no exercise or conversion of outstanding convertible securities after June
30, 1999) after giving effect to the sale of the shares of common stock offered
hereby.

  The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Netcentives, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of preferred stock, if
any, then outstanding. Our common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund
provisions available to the common stockholders. All outstanding shares of
common stock are fully paid and non-assessable.

Preferred Stock

  Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. The Board of Directors will
have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Netcentives without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. At present, we have
no plans to issue any shares of preferred stock.

Registration Rights of Certain Holders

  The holders of 20,569,126 shares of common stock, and the holders of 62,948
shares issuable upon exercise of warrants, or their transferees, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement among
Netcentives and the holders of these securities dated March 19, 1999. Subject
to certain limitations in this agreement, the holders of the these securities
may require, on two occasions at any time after six months from the effective
date of this offering, that we use our best efforts to register the Registrable
Securities for public resale, provided that the proposed aggregate offering
price is at least $10,000,000. If we register any of our common stock either
for our own account or for the account of other security holders, the holders
of these securities are entitled to include their shares of common stock in the
registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in that offering.

  Additionally, holders of these securities may require on no more than two
separate occasions in a twelve-month period, that we register their shares for
public resale on Form S-3 or similar short-form registration, once we are
eligible to use Form S-3 or similar short-form registration and provided
further that the value of the securities to be registered is at least $500,000.

                                       60
All fees, costs and expenses of such registrations must be borne by
Netcentives and all selling expenses (including underwriting discounts, selling
commissions and stock transfer taxes) relating to these securities must be
borne by the holders of the securities being registered.

Anti-Takeover Provisions of Delaware Law

  We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of Netcentives without further action by the
stockholders. In addition, upon completion of this offering, certain provisions
of our charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of
delaying or preventing changes in control or management of Netcentives, which
could have a negative effect on the market price of our common stock. Our
Option Plan, Purchase Plan and Directors' Plan generally provide for assumption
of such plans or substitution of an equivalent option of a successor
corporation or, alternatively, at the discretion of the Board of Directors,
exercise of some or all of the options stock, including non-vested shares, or
acceleration of vesting of shares issued pursuant to stock grants, upon a
change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of
the holders of the common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be
issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control of Netcentives.
Furthermore, such preferred stock may have other rights, including economic
rights senior to the common stock, and, as a result, the issuance of such
preferred stock could have a negative effect on the market value of the common
stock. We have no present plans to issue shares of preferred stock.

Warrants

  As of June 30, 1999, warrants were outstanding to purchase an aggregate of
615,448 shares of common stock at a weighted average exercise price of $1.13
per share. Warrants to purchase 22,500 shares at $2.00 per share will expire in
January 2000. Warrants to purchase 190,000 shares at $1.00 per share will
expire in August 2001. Warrants to purchase 10,000 shares at $1.00 per share
will expire in October 2001. Warrants to purchase 120,000 shares at $1.30 per
share will expire in October 2001. Warrants to purchase 110,000 shares at
$1.00 per share will expire in July 2001. Warrants to purchase 50,000 shares at
$1.00 per share will expire in September 2001. Warrants to purchase 21,000
shares at $1.30 per share will expire in May 2002. Warrants to purchase 10,000
shares at $1.30 per share will expire in September 2002. Warrants to purchase
50,000 shares at $1.00 per share will expire in October 2002. Warrants to
purchase 31,948 shares at $1.30 per share will expire in May 2003.

Transfer Agent and Registrar

  The Transfer Agent and Registrar for our common stock is American Stock
Transfer and Trust. Their phone number is (212) 936-5100.

Listing

  We expect to apply to list our common stock on the Nasdaq National Market of
the Nasdaq Stock Market, Inc. under the trading symbol "NCNT."

                                       61
SHARES ELIGIBLE FOR FUTURE SALE

  Prior to this offering, there has been no public market for our common stock.
We cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for our
common stock or our future ability to raise capital through an offering of
equity securities.

  After this offering, we will have outstanding          shares of common
stock. Of these shares, the         shares to be sold in this offering (
shares if the underwriters' over-allotment option is exercised in full) will be
freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by "Affiliates" of Netcentives, as that term
is defined in Rule 144 under the Securities Act of 1933.

  The remaining 25,790,282 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). We issued and sold the Restricted Shares in private
transactions in reliance on exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, as summarized below.

  Pursuant to certain lock-up agreements, all the executive officers, directors
and certain stockholders of Netcentives, who collectively hold the Restricted
Shares, have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any such shares for a period of 180 days from
the date of this prospectus. We also have entered into an agreement with the
underwriters that we will not offer, sell or otherwise dispose of common stock
for a period of 180 days from the date of this prospectus.

  Assuming that this offering is effective on September 15, 1999, on the date
of the expiration of the lock-up agreements, 19,499,026 Restricted Shares that
will not then be subject to any repurchase option will be eligible for
immediate sale (of which 16,298,641 shares will be subject to certain volume,
manner of sale and other limitations under Rule 144). The remaining 6,291,256
Restricted Shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following
the expiration of the lock-up period and the expiration of certain repurchase
options over the four years following the original purchase date of such
shares. Following the completion of this offering, warrants to purchase 615,448
shares will be outstanding, which if exercised pursuant to net-exercise
provisions would be immediately saleable without restriction upon the
expiration of the 180 day lock-up period. If such warrants were to be otherwise
exercised, they would be saleable upon the expiration of various one-year
holding periods, subject to certain volume, manner of sale, and other
limitations under Rule 144. In general, under Rule 144 as in effect at the
closing of this offering, beginning 90 days after the date of this prospectus,
a person (or persons whose shares of Netcentives are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not an Affiliate of Netcentives) would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of (1) 1% of the then-outstanding shares of common
stock 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 such
sale. Sales under Rule 144 are also subject to certain manner of sale and
notice requirements and to the availability of current public information about
Netcentives. Under Rule 144(k), a person who is not deemed to have been an
Affiliate of Netcentives at any time during the 90 days 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 who is not an Affiliate
of Netcentives) is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.

  Of the 4,845,736 options to purchase shares of common stock outstanding as of
June 30, 1999, on the date 180 days following the assumed effective date of
this offering, options to purchase 1,992,091 shares of common stock will be
fully exercisable and saleable.

                                       62
We intend to file, no later than the effective date of this offering, a
Registration Statement on Form S-8 to register approximately 7,807,624 shares
of common stock reserved for issuance under the Option Plan, the Purchase Plan
and the Directors' Plan. The Registration Statement will become effective
automatically upon filing. Shares issued under the foregoing plans, after the
filing of a Registration Statement on Form S-8, may be sold in the open market,
subject, in the case of certain holders, to the Rule 144 limitations applicable
to Affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by us.

  In addition, following this offering, the holders of 20,569,126 shares of
outstanding common stock and the holders of warrants to purchase 62,948 shares,
or their transferees, will, under certain circumstances, have rights to require
us to register their shares for future sale.

                                       63
UNDERWRITING

  Under the terms and subject to the conditions contained in an underwriting
agreement dated       , 1999 we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist LLC
and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:
Number
                                                                           of
          Underwriter                                                    Shares
          -----------                                                    -------
Credit Suisse First Boston Corporation.............................
     Hambrecht & Quist LLC..............................................
     Thomas Weisel Partners LLC.........................................
                                                                         -------
       Total............................................................
                                                                         =======
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

  We have granted to the underwriters a 30-day option to purchase on a pro rata
basis up to          additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

  The underwriters propose to offer the shares of common stock initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $       per share. The underwriters
and selling group members may allow a discount of $         per share on sales
to other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.

  The following table summarizes the compensation and estimated expenses we
will pay.
Per Share               Total
                                   ------------------- -----------------------
                                    Without    With      Without      With
                                     Over-     Over-      Over-       Over-
                                   allotment allotment  allotment   allotment
                                   --------- --------- ----------- -----------
Underwriting discounts and
 commissions paid by us...........  $         $        $           $
Expenses payable by us............  $         $        $           $
The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock being offered.

  We, our officers and directors, and some of our stockholders have agreed that
we and they will not offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except, in our case,
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.

                                       64
The underwriters have reserved for sale, at the initial public offering
price, up to          shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.

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

  We will apply to list the shares of common stock on The Nasdaq Stock Market's
National Market under the symbol NCNT.

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between us
and the representatives. The principal factors to be considered in determining
the public offering price include: the information set forth in this prospectus
and otherwise available to the representatives; the history and the prospects
for the industry in which we will compete; the ability of our management; our
prospects for future earnings; the present state of our development and our
current financial condition; the general condition of the securities markets at
the time of this offering; and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.

  The representatives on behalf of the underwriters may engage in over-
allotment, stabilizing transactions, syndicate covering transactions, penalty
bids and "passive" market making in accordance with Regulation M under the
Securities Exchange Act of 1934.

  . Over-allotment involves syndicate sales in excess of the offering size,
    which creates a syndicate short position.

  . Stabilizing transactions permit bids to purchase the underlying security
    so long as the stabilizing bids do not exceed a specified maximum.

  . Syndicate covering transactions involve purchases of the common stock in
    the open market after the distribution has been completed in order to
    cover syndicate short positions.

  . Penalty bids permit the representatives to reclaim a selling concession
    from a syndicate member when the common stock originally sold by such
    syndicate member are purchased in a syndicate covering transaction to
    cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

  Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
44 filed public offerings of equity securities, of which 26 have been
completed, and has acted as a syndicate member in an additional 19 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except as provided below and with respect to its
contractual relationship with us pursuant to the underwriting agreement entered
into in connection with this offering.

                                       65
In March, April and June 1999, Hambrecht & Quist LLC acted as private
placement agent for the sale of an aggregate of 5,278,583 shares of our Series
E preferred stock for which it received a customary fee for its services.
Hambrecht & Quist did not purchase any of the shares in this sale, and they
were selected as the private placement agent through arms-length negotiations
on terms substantially similar to the terms obtained by other underwriters.
Thomas Weisel Partners LLC purchased 73,313 shares of our Series E preferred
stock on the same terms as other purchasers in this sale.

                                       66
NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

  The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

  Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to us and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such common stock without the benefit of
a prospectus qualified under these securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."

Rights of Action (Ontario Purchasers)

  The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

  All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.

Notice to British Columbia Residents

  A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

  Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

                                       67
LEGAL MATTERS

  The validity of the common stock offered hereby will be passed upon for
Netcentives by Venture Law Group, A Professional Corporation, Menlo Park,
California. Craig W. Johnson and Elias J. Blawie, each a director of Venture
Law Group, are the Secretary and Assistant Secretary of Netcentives,
respectively. VLG Investments 1996, an entity affiliated with Venture Law
Group, holds an aggregate of 69,538 shares of our common stock. Mr. Johnson and
Mr. Blawie, hold an aggregate of 20,385 shares and 12,692 shares, respectively,
of our common stock and each has a pecuniary interest in the shares owned by
VLG Investments 1996. The underwriters have been represented by Wilson Sonsini
Goodrich & Rosati, Palo Alto, California.

                                    EXPERTS

  The (1) consolidated balance sheets of Netcentives Inc. and its subsidiary as
of December 31, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period June 21, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998, and (2) Statements of Operations and Cash Flows of Panttaja Consulting
Group, Inc. for the years ended November 30, 1997 and 1998 included herein and
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing in this
prospectus, and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

  We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act with respect to the common stock
offered. This prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the SEC. For further information with
respect to Netcentives and the common stock being offered, reference is made to
the Registration Statement, including its exhibits, and the financial
statements and notes filed as a part of the Registration Statement. Statements
made in this prospectus concerning the contents of any other document herein
are not necessarily complete. With respect to each such document filed with the
SEC as an exhibit to the Registration Statement, you should see the exhibit
itself for a more complete description of the matter involved. The Registration
Statement, including exhibits and the financial statements and notes filed as a
part of the Registration Statement, as well as such reports and other
information filed with the SEC, may be inspected without charge at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any part of these documents may be obtained from the SEC upon payment of
certain fees prescribed by the SEC. These reports and other information may
also be inspected without charge at a Web site maintained by the SEC. The
address of this Web site is http://www.sec.gov.

                                       68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
                                                                            ----
Netcentives Inc.:
Independent Auditors' Report...............................................  F-2

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

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

Consolidated Statements of Stockholders' Equity............................  F-5

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

Notes to Consolidated Financial Statements.................................  F-7
Panttaja Consulting Group, Inc.:
Independent Auditors' Report............................................... F-20

Statements of Operations................................................... F-21

Statements of Cash Flows................................................... F-22

                                                                            F-23
Notes to Financial Statements..............................................

Pro Forma Consolidated Financial Information:
Pro Forma Consolidated Statement of Operations............................. F-26

Notes to Pro Forma Consolidated Statement of Operations.................... F-27
F-1
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Netcentives Inc.:

  We have audited the accompanying consolidated balance sheets of Netcentives
Inc. and its subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period June 21, 1996 (inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

  In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Netcentives Inc. and its
subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the periods stated above in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
July 14, 1999

                                      F-2
NETCENTIVES INC.

                          CONSOLIDATED BALANCE SHEETS
           (Dollars in thousands except share and par value amounts)
December 31,
                                                   -----------------   March 31,
                                                    1997      1998       1999
                                                   -------  --------  -----------
                                                                      (unaudited)
ASSETS
Current assets:
  Cash and equivalents............................ $ 6,608  $ 13,651   $ 31,994
  Accounts receivable.............................      23       893        862
  Prepaid incentive awards........................     703     1,600      1,575
  Prepaid expenses................................     239       147        269
                                                   -------  --------   --------
    Total current assets..........................   7,573    16,291     34,700
Property and equipment--net.......................     933     1,858      2,545
Intangible assets--net............................      36     3,611      3,192
Other assets......................................       7       175        169
                                                   -------  --------   --------
    Total assets.................................. $ 8,549  $ 21,935   $ 40,606
                                                   =======  ========   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Bank loan payable............................... $   200  $    100   $     --
  Accounts payable................................     583     1,324      1,440
  Accrued compensation and benefits...............      51       667        455
  Accrued redemption costs........................     --        509      1,509
  Other accrued liabilities.......................     266     1,198      2,303
  Deferred revenue--product.......................      43     1,250      1,912
  Deferred revenue--services......................      16       656        945
  Current portion of long-term obligations........      66       664        859
                                                   -------  --------   --------
    Total current liabilities.....................   1,225     6,368      9,423
Long-term obligations.............................     196     1,233        887
Commitments and contingencies (Notes 3, 5, 7, 12
 and 13)
Stockholders' equity:
  Convertible preferred stock, $.001 par value--
   16,050,000 shares authorized;
   shares outstanding: 1997, 9,692,460; 1998,
   15,168,652; March 31, 1999, 18,762,705
   (aggregate liquidation preference of $28,760 at
   1998)..........................................      10        15         19
  Common stock, $.001 par value--30,000,000 shares
   authorized;
   shares outstanding: 1997, 3,735,683; 1998,
   4,894,069;
   March 31, 1999, 5,180,765......................       4         5          5
  Paid-in capital.................................  11,780    41,126     64,925
  Deferred stock compensation.....................      --    (7,905)    (7,438)
  Receivables from sales of stock.................    (220)     (350)      (450)
  Accumulated deficit.............................  (4,446)  (18,557)   (26,765)
                                                   -------  --------   --------
    Total stockholders' equity....................   7,128    14,334     30,296
                                                   -------  --------   --------
    Total liabilities and stockholders' equity.... $ 8,549  $ 21,935   $ 40,606
                                                   =======  ========   ========
See notes to consolidated financial statements.

                                      F-3
NETCENTIVES INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
June 21, 1996    Years Ended       Three Months
                           (Inception) to   December 31,     Ended March 31,
                            December 31,  -----------------  ----------------
                                1996       1997      1998     1998     1999
                           -------------- -------  --------  -------  -------
                                                               (unaudited)
Revenues:
  Product.................     $   --     $    --  $     64  $     2  $   103
  Program-related
   services...............         --           9       583       13      117
  Technical consulting
   services...............         --          --        --       --    1,436
                               ------     -------  --------  -------  -------
    Total revenues........         --           9       647       15    1,656
                               ------     -------  --------  -------  -------
Costs and expenses:
  Cost of product
   revenues...............         --          --        59        2       92
  Program-related
   services, marketing and
   support costs..........        102       1,496     7,293      684    4,519
  Cost of technical
   consulting services
   revenues...............         --          --        --       --      817
  Research and
   development............         63       1,505     3,383      685    1,032
  Selling, general and
   administrative.........        108       1,210     3,134      704    1,992
  Amortization of deferred
   stock compensation.....         --          --       296        7      467
  Amortization of supplier
   stock awards...........         --          63       811       65      604
  Amortization of
   intangibles............         --          --        79        1      444
                               ------     -------  --------  -------  -------
    Total costs and
     expenses.............        273       4,274    15,055    2,148    9,967
                               ------     -------  --------  -------  -------
Loss from operations......       (273)     (4,265)  (14,408)  (2,133)  (8,311)
Interest income...........          7         121       441       74      146
Interest expense..........         --         (36)     (144)     (21)     (43)
                               ------     -------  --------  -------  -------
Net loss..................     $ (266)    $(4,180) $(14,111) $(2,080) $(8,208)
                               ======     =======  ========  =======  =======
Net loss per share--basic
 and diluted..............     $(0.97)    $ (5.70) $  (8.58) $ (1.63) $ (2.73)
                               ======     =======  ========  =======  =======
Shares used in computing
 per share amounts--basic
 and diluted..............        273         734     1,644    1,276    3,004
                               ======     =======  ========  =======  =======
Pro forma net loss per
 share--basic and
 diluted..................                         $  (1.05)          $ (0.44)
                                                   ========           =======
Shares used in computing
 pro forma per share
 amounts..................                           13,422            18,746
                                                   ========           =======
See notes to consolidated financial statements.

                                      F-4
NETCENTIVES INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
  Years ended December 31, 1996, 1997 and 1998 and for the three months ended
                                 March 31, 1999
                                  (unaudited)
                    (In thousands except per share amounts)
Preferred
                             Stock     Common Stock            Deferred   Receivables
                         ------------- ------------- Paid-In    Stock     from Sales  Accumulated
                         Shares Amount Shares Amount Capital Compensation  of Stock     Deficit    Total
                         ------ ------ ------ ------ ------- ------------ ----------- ----------- --------
Issuance of common
  stock.................               2,050   $ 2   $     1                                      $      3
 Sale of Series A
  preferred stock, at
  $0.65 per share, net
  of expenses of $7.....  1,453  $ 1                     936                                           937
 Sale of Series B
  preferred stock, at
  $1.00 per share, net
  of expenses of $13....    485    1                     471                                           472
 Net loss ..............                                                               $   (266)      (266)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, December 31,
 1996...................  1,938    2   2,050     2     1,408                               (266)     1,146
 Sale of Series C
  preferred stock, at
  $1.30 per share, net
  of expenses of $17....  7,755    8                  10,057                                        10,065
 Sale of common stock...               1,564     2       216                 $(207)                     11
 Exercise of common
  stock options.........                 122              13                   (13)
 Stock warrants.........                                  86                                            86
 Net loss...............                                                                 (4,180)    (4,180)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, December 31,
 1997...................  9,693   10   3,736     4    11,780                  (220)      (4,446)     7,128
 Sale of Series D
  preferred stock, at
  $3.15 per share, net
  of expenses of $18....  5,476    5                  17,226                                        17,231
 Sale of common stock...                 200             630   $  (500)       (130)                    --
 Common stock issued for
  patent................                  35              76                                            76
 Exercise of common
  stock options.........                 115              19                                            19
 Stock warrants.........                                 841                                           841
 Deferred stock
  compensation related
  to option grants......                               7,071    (7,071)                                --
 Shares issued in
  Panttaja acquisition..                 808     1     2,547      (630)                              1,918
 Vested options issued
  in Panttaja
  acquisition...........                                 936                                           936
 Amortization of
  deferred stock
  compensation..........                                           296                                 296
 Net loss...............                                                                (14,111)   (14,111)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, December 31,
 1998................... 15,169   15   4,894     5    41,126    (7,905)       (350)     (18,557)    14,334
 Sale of Series E
  preferred stock, at
  $6.82 per share, net
  of
  expenses of $1,010*...  3,519    4                  22,986                                        22,990
 Issuance of receivable
  related to previously
  issued common stock*..                                                      (100)                   (100)
 Exercise of common
  stock options*........                 287             110                                           110
 Stock warrants*........                                 628                                           628
 Exercise of Series B
  warrants*.............     75                           75                                            75
 Amortization of
  deferred stock
  compensation*.........                                           467                                 467
 Net loss*..............                                                                 (8,208)    (8,208)
                         ------  ---   -----   ---   -------   -------       -----     --------   --------
BALANCES, March 31,
 1999* ................. 18,763  $19   5,181   $ 5   $64,925   $(7,438)      $(450)    $(26,765)  $ 30,296
                         ======  ===   =====   ===   =======   =======       =====     ========   ========
--------
*unaudited

                See notes to consolidated financial statements.

                                      F-5
NETCENTIVES INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
Three Months
                            June 21, 1996    Years Ended      Ended March 31,
                            (Inception) to   December 31,     ----------------
                             December 31,  -----------------
                                 1996       1997      1998     1998      1999
                            -------------- -------  --------  -------  -------
                                                                (unaudited)
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Cash received from
  customers...............      $   --     $    45  $  1,294  $    81  $ 2,288
 Cash paid to suppliers
  and employees...........        (177)     (4,222)  (11,156)  (2,144)  (6,398)
 Cash paid for interest...          --         (23)     (114)     (21)     (43)
 Cash paid for income
  taxes...................          --          (2)       --       --       --
 Interest received........           7         121       441       74      146
                                ------     -------  --------  -------  -------
      Net cash used in
       operating
       activities.........        (170)     (4,081)   (9,535)  (2,010)  (4,007)
                                ------     -------  --------  -------  -------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Purchases of property and
  equipment...............        (124)       (967)   (1,157)    (250)  (1,474)
 Cash paid in Panttaja
  acquisition, net of cash
  acquired................          --          --      (150)      --       --
 Other long-term assets...          --          --       (58)      --       --
                                ------     -------  --------  -------  -------
      Net cash used in
       investing
       activities.........        (124)       (967)   (1,365)    (250)  (1,474)
                                ------     -------  --------  -------  -------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
 Sales of common stock....           3          11        19       --      110
 Issuance of receivable
  related to previous
  issuances of common
  stock...................          --          --        --       --     (100)
 Sales of preferred
  stock...................       1,409      10,065    17,231       --   24,065
 Borrowings on long-term
  debt....................          --         279     1,141      125       --
 Principal payments on
  long-term debt..........          --         (17)     (248)      --     (151)
 Borrowings on bank loan
  payable, net............          --         200      (200)      --     (100)
                                ------     -------  --------  -------  -------
      Net cash provided by
       financing
       activities.........       1,412      10,538    17,943      125   23,824
                                ------     -------  --------  -------  -------
NET INCREASE IN CASH AND
 EQUIVALENTS..............       1,118       5,490     7,043   (2,135)  18,343
CASH AND EQUIVALENTS,
 Beginning of period......          --       1,118     6,608    6,608   13,651
                                ------     -------  --------  -------  -------
CASH AND EQUIVALENTS, End
 of period................      $1,118     $ 6,608  $ 13,651  $ 4,473  $31,994
                                ======     =======  ========  =======  =======
NONCASH INVESTING AND
 FINANCING ACTIVITIES:
 Stock and warrants issued
  in exchange for patent..      $   --     $    10  $     76  $    --  $    --
                                ======     =======  ========  =======  =======
 Sales of stock for notes
  and accounts
  receivable..............      $   --     $   217  $    130  $    --  $    --
                                ======     =======  ========  =======  =======
 Acquisition of Panttaja:
   Value of stock and
    options issued, net of
    deferred stock
    compensation..........                          $  2,854
   Cash paid..............                               194
   Liabilities assumed....                             1,090
                                                    --------
      Assets acquired
       (including
       intangibles of
       $3,526)............                          $  4,138
                                                    ========
See notes to consolidated financial statements.

                                      F-6
NETCENTIVES INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended December 31, 1996, 1997 and 1998 and three months ended March 31,
                                 1999 and 1998.
                 (Information as of March 31, 1999 and for the
            three months ended March 31, 1999 and 1998 is unaudited)

1. Business and Operations

  Netcentives Inc. (the "Company") provides Internet-based merchants, portals
and community sites with promotion tools to drive consumer behavior, loyalty,
and sales on the Internet. The Company was incorporated in June 1996.

  The Company has developed an Internet-based network (the "ClickRewards
Network") of merchants ("Merchants"), consumers ("Members") and redemption
award suppliers ("Suppliers"). The Company has developed a promotional currency
("ClickMiles") which is used throughout the network. The Company sells
ClickMiles to Merchants who use them as promotional incentives to drive their
consumers' behavior in areas such as brand loyalty and increased transaction
size. As consumers are awarded ClickMiles, they establish accounts and become
Members of the Company's ClickRewards program. Consumers can accumulate and
manage ClickMiles on their personal online account and redeem these for
frequent flyer airline miles or other merchandise. ClickMiles expire if not
redeemed within specified periods. Members who do not record any activity for a
twelve-month period forfeit their accumulated ClickMiles. The Company also
offers its Merchants consulting, promotional, and direct marketing services for
a variety of fee arrangements.

  In December 1998 the Company acquired Panttaja Consulting Group, Inc. (see
Note 3). the Company now provides technical consulting services to its
Merchants as well as other customers through this wholly-owned subsidiary.

2. Summary of Significant Accounting Policies

  Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Netcentives Inc. and its wholly-owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated.

  Cash equivalents consist of highly-liquid debt instruments with a maturity at
time of purchase of three months or less.

  Prepaid Incentive Awards--The Company has purchased frequent flyer airline
miles ("airmiles") under frequent flyer programs from several airlines. Such
airmiles are stated at cost determined on a weighted-average basis.

  Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated useful
lives of three years.

  Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities result from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. Valuation allowances are provided when
necessary to reduce deferred tax assets to the amount expected to be realized.

  Revenue Recognition--The Company allocates the sales price of ClickMiles
based on relative fair values between the redemption component of the award
ultimately provided to the Member (the "product component") and the service
components related to the marketing and support services provided to Merchants

                                      F-7
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and members (the "services component"). The product component of revenues is
deferred until the Member redeems the ClickMiles for frequent flyer miles or
other awards, or until the ClickMile expires. The service components of the
ClickMile sale are initially deferred until the sale of the ClickMile becomes
non-refundable, which typically is upon award of the currency by the Merchant
to the Member. Upon award of the ClickMile by the Merchant to a Member,
revenues attributable to the service component generally are amortized over the
period from award through expected redemption or expiration (the life of the
ClickMile). Service revenues relating to separately-priced services,
principally software integration services performed at the inception of the
Merchant relationship, are recognized at the time the services are delivered.
Upon termination of a Merchant relationship, unamortized deferred service
revenue attributable to the Merchant is recognized as revenue.

  For all ClickMiles sold through March 31, 1999, the service periods for the
member and merchant elements have been initially calculated for the maximum
life of the ClickMile based on its expiration date. To the extent ClickMiles
are redeemed prior to expiration or Merchants leave the ClickRewards Network,
the remaining amount of deferred service revenues associated with the member or
merchant services, as appropriate, is recognized at that time. Deferred
revenues arising from non-refundable ClickMiles which have not been awarded by
a Merchant are recognized as program-related service revenues at the time the
ClickMiles are forfeited by the Merchant.

  The Company exchanges ClickMiles with certain of its Merchants in return for
advertising and merchandise. Such advertising services are recorded as an
expense or prepaid asset, as appropriate, based on the lower of the estimated
fair value of the services received or the cash value of the ClickMiles issued.
Revenues from such barter transactions are accounted for on the same basis as
cash transactions; i.e., the product component of revenues is deferred until
redemption and the marketing services component is recognized over the service
period. In 1998, approximately $956,000 of advertising expense was recognized
under these arrangements, of which 74% was transacted with two Merchants.
ClickMiles exchanged for advertising are non-returnable and must be awarded by
the Merchant within a specified time frame. Program-related service revenues
for 1998 include $296,000 from an Internet portal which provided the
advertising services but permitted the ClickMiles it purchased to expire
unissued.

  Program-related revenues are comprised of the service component of ClickMiles
described above, as well as advertising and other direct marketing services
provided to Merchants, which are recognized as these services are performed.
Technical consulting service revenues are recognized as the services are
performed.

  Accrued redemption Costs--The Company issues ClickMiles to certain Merchants
in exchange for Member referrals and other cross-promotional activities, as
well as awards ClickMiles directly to Members in connection with promotional
and other activities. These ClickMiles are accounted for as expenses and an
accrual is recorded at the time they are exchanged for these services for the
expected costs to be incurred at redemption.

  Advertising Costs--Advertising costs are expensed as incurred. The Company
does not incur any direct-response advertising costs. Advertising expense was
approximately $12,000 in 1996, $534,000 in 1997 and $3,652,000 in 1998.

  Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

  The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of Statement at Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, and Emerging Issues
Task Force ("EITF") Issue No. 96-18, Accounting for Equity Instruments That Are

                                      F-8
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, which requires that the fair value of such instruments be
recognized as an expense over the period in which the related services are
received.

  Segment Reporting--Effective January 1, 1998, the Company adopted SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. In
1998, the Company operated in a single reportable segment and will evaluate
additional segment disclosure requirements as it expands its operations.

  Comprehensive Income--For the periods presented, the Company's comprehensive
loss, as defined by SFAS 130, Reporting Compensation Income, is equal to its
net loss.

  Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses. The Company
anticipates it will be able to better estimate this expense after it has
obtained additional exchange experience. Actual results will differ from these
estimates.

  Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash and equivalents,
short-term investments, and accounts receivable. Risks associated with cash are
mitigated by banking and creditworthy institutions. Cash equivalents and short-
term investments consist primarily of governmental obligations and bank
certificates of deposit and are regularly monitored by management. Credit risk
with respect to the trade receivables is spread over diverse customers who make
up the Company's customer base. At December 31, 1997, three customers accounted
for 43%, 26% and 26% of total accounts receivable. At December 31, 1998, one
customer accounted for 17% of total accounts receivable.

  Recently Issued Accounting Standards--In March 1998, the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires the capitalization of direct costs after
management commits to funding a project it believes will be completed and used
to perform the functions intended. The Company adopted SOP 98-1 in 1999 as it
is applicable to certain software systems internally developed by the Company.
Through December 31, 1998, no development costs had been capitalized and
capitalized development costs for the three months ended March 31, 1999 were
not significant.

  In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was released. The statement requires the recognition of all
derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the planned use of the derivative and
the resulting designation. The Company is required to implement the statement
in the first quarter of fiscal 2000. The Company has not used derivative
instruments and is still evaluating the statement's impact.

  Fair Value of Financial Instruments--The carrying amount of cash and cash
equivalents, accounts receivable, capital leases and long-term debt approximate
fair value, based on management's estimate.

  Unaudited Interim Financial Statements--Unaudited interim financial
statements as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 are unaudited but have been prepared in accordance with generally
accepted accounting principles for interim financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the full year.

                                      F-9
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Reclassifications--Certain prior year amounts have been reclassified for
consistency with the current year presentation. Such reclassifications had no
impact to net loss or total stockholders' equity.

3. Acquisition of Panttaja

  On December 18, 1998, the Company acquired all of the outstanding shares and
assumed the outstanding options of Panttaja Consulting Group, Inc.
("Panttaja"), a software consulting firm, in exchange for 808,780 shares of
common stock valued at $2,548,000, cash of $194,000 and options to purchase
455,648 shares of Company stock at $0.254 per share, of which 306,755 were
vested at the date of the acquisition and have been included as part of the
acquisition price at their fair value of $936,000. The common stock includes
200,000 shares subject to vesting over a four-year period, which has initially
been recorded as deferred stock compensation and will be expensed over the
vesting period. The Company also agreed to pay the stockholders additional cash
of up to $450,000 within 13 months following closing based on meeting certain
employment retention milestones, which was considered probable at the time of
the acquisition and has been accrued as part of the purchase price of Panttaja.

  The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's consolidated financial statements. The total consideration
exceeded the fair value of the net assets acquired by $3,526,000, which
represents the value of the existing consulting relationships and is being
amortized on a straight-line basis over two years.

  The following unaudited pro forma information shows the results of operations
for the two years ended December 31, 1997 and 1998 as if the Panttaja
acquisition had occurred at the beginning of the year. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of the respective periods presented or of future
operations of the combined companies (in thousands, except per share
information).
1997      1998
                                                             -------  --------
Total revenues........................................... $ 3,005  $  4,079
   Net loss................................................. $(6,004) $(16,218)
   Net loss per share, basic and diluted.................... $ (4.39) $  (7.12)
4. Property and Equipment

  Property and equipment consists of (in thousands):
December 31,
                                                      -------------   March 31,
                                                      1997    1998      1999
                                                      -----  ------  -----------
                                                                     (unaudited)
Computer equipment................................... $ 557  $2,131    $ 3,171
Office and furniture equipment.......................   340     192        446
Leasehold improvements...............................   194     237        417
                                                      -----  ------    -------
Total................................................ 1,091   2,560      4,034
Accumulated depreciation.............................  (158)   (702)    (1,489)
                                                      -----  ------    -------
Total property and equipment--net.................... $ 933  $1,858    $ 2,545
                                                      =====  ======    =======
At December 31, 1998 the Company had assets under capital lease with a net
book value of $236,000.

                                      F-10
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Bank Loan Payable and Line of Credit

  The Company had a bank loan with principal outstanding at December 31, 1997
of $200,000. During the year ended December 31, 1998, this loan was paid in
full.

  In connection with the Panttaja acquisition, the Company assumed a $100,000
bank loan which was repaid in January 1999. The Company pays interest based on
a variable rate determined by the bank (10.5% at December 31, 1998). At
December 31, 1998, the amount due on the credit line is $100,000. Accounts
receivable are pledged as collateral on this line of credit. The borrowing
agreement includes various covenants, including restrictions on payments of a
note payable to an officer.

6. Long-term Obligations

  Long-term obligations consist of the following (in thousands):
December
                                                             31,
                                                         -----------  March 31,
                                                         1997  1998     1999
                                                         ---- ------ -----------
                                                                     (unaudited)
Notes payable........................................... $262 $1,155   $1,068
Capital lease obligations...............................   --    193      180
Note payable to officer.................................   --     48       48
Panttaja acquisition payable (note 3)...................   --    450      450
Other...................................................   --     51       --
                                                         ---- ------   ------
Total...................................................  262  1,897    1,746
Less current portion....................................   66    664      859
                                                         ---- ------   ------
Long-term obligations................................... $196 $1,233   $  887
                                                         ==== ======   ======
The notes payable are collateralized by the assets purchased with the
proceeds of these borrowings and are payable in monthly installments through
November 2001. The borrowings bear interest ranging from 9.15% to 14%.

  The note payable to officer bears interest at 8%, is subordinated to other
debt of the Company and may not be repaid until other long-term debt is repaid.

  Maturities of long-term debt and capital leases as of December 31, 1998 are
as follows (in thousands):
Year Ending                                                           Capital
   December 31,                                                    Debt  Leases
   ------------                                                   ------ -------
1999.......................................................... $  577  $103
   2000..........................................................    600    82
   2001..........................................................    527    32
                                                                  ------  ----
   Total payments................................................ $1,704   217
                                                                  ======
   Less amount representing interest.............................          (24)
                                                                          ----
   Present value of capital leases...............................         $193
                                                                          ====
F-11
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Stockholders' Equity

 Convertible Preferred Stock

  At December 31, 1998, the amounts, terms and liquidation values of the
Company's preferred stock are as follows:
Amount,
                                                   Shares    Net of   Aggregate
                                        Shares   Issued and   Issue  Liquidation
   Series                             Designated Outstanding  Costs  Preference
   ------                             ---------- ----------- ------- -----------
                                                               (In thousands)
A................................   1,452,613  1,452,613  $   937   $   944
   B................................     660,391    485,000      472       485
   C................................   7,787,155  7,754,847   10,065    10,081
   D................................   5,500,000  5,476,192   17,231    17,250
   N................................     650,000         --       --        --
                                      ---------- ----------  -------   -------
   Total............................  16,050,159 15,168,652  $28,705   $28,760
                                      ========== ==========  =======   =======
Significant terms of the outstanding preferred stock are as follows:

  . Each share of preferred stock is convertible into shares of common stock
    on a one-for-one basis, subject to adjustment in certain instances, at
    the option of the stockholder. Such shares will be converted
    automatically following the effectiveness of a registration statement
    under the Securities Act of 1933 meeting certain criteria or the
    affirmative vote of the holders of a majority of the shares of preferred
    stock outstanding at the time of such vote.

  . Except for Series N, each share of preferred stock has voting rights
    equivalent to the number of shares of common stock into which it is
    convertible. In addition, holders of each series of preferred stock are
    entitled as a group to elect two members of the Board of Directors.
    Series N has no voting rights.

  . Stockholders are entitled to receive noncumulative dividends as declared
    by the Board of Directors out of any assets legally available, prior to
    and in preference to any declaration or payment of any dividend on the
    common stock. The dividend rate for Series A, Series B, Series C, Series
    D and Series N preferred stock per share per annum is $0.052, $0.08,
    $0.104, $0.252 and $.08 respectively. No dividends have been declared as
    of December 31, 1997 and 1998.

  . In the event of liquidation, dissolution or winding up of the Company,
    stockholders of Series A, Series B, Series C, Series D and Series N
    preferred stock are entitled to receive $0.65, $1.00, $1.30, $3.15 and
    $1.00 per share, respectively, plus any declared and unpaid dividends
    with respect to such shares prior to any distributions to common
    stockholders or non-voting convertible stockholders. If the assets and
    funds to be distributed are insufficient to permit full payment, then the
    funds shall be distributed on a pro rata basis. Upon completion of the
    distribution, the holders of the common stock will receive all remaining
    assets of the corporation.

 Warrants

  During 1997, the Company issued warrants to purchase 410,000 shares of Series
N preferred stock at $1.00 per share to various airlines in connection with
their airmile purchase agreements (see Note 12). The warrants vest over three
years, subject to continuation of exclusivity arrangements with such airlines,
and expire in four or five years. Also during 1997, the Company issued warrants
to purchase 120,000 shares of Series N preferred stock at $1.30 per share to
one of its Merchants. The warrants vest over two years, subject to certain
exclusivity provisions, and expire in four years. All of the warrants permit
the holder to "net exercise" and receive shares of stock with a value equal to
the net appreciation at the time of exercise. Because

                                      F-12
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the vesting of these warrants is subject to maintaining the exclusivity of the
arrangement with these partners, the valuation of the warrants is not finalized
until their vesting date. The value of these warrants has been estimated using
the Black-Scholes option pricing model with the following assumptions: expected
life, the term of the option; risk-free interest rate of 5.8% in 1997 and 4.6%
in 1998; volatility of 70% in 1997 and 95% in 1998; and no dividend during the
expected term. The estimated value of such warrants is being expensed over the
related exclusivity periods. At December 31, 1997 and 1998, 90,000 and 204,000
warrants, respectively, were vested. Operating expenses include $63,000,
$811,000 and $628,000 in 1997 and 1998 and the three months ended March 31,
1999, respectively, relating to these warrants.

  During 1997, the Company issued warrants to purchase 175,391 shares of Series
B preferred stock at an average price of $1.16 per share in connection with the
Company's financing transactions. During 1998, the Company issued warrants to
purchase 31,948 shares of Series C preferred stock at an average price of $1.30
per share in connection with the Company's financing transactions. The
estimated fair value of these warrants on their grant date was $105,000 in 1997
and $31,000 in 1998, which is being expensed over the term of the related
financings. The Company has included in interest expense $13,000 and $30,000
for the portion relating to 1997 and 1998, respectively.

  All warrants issued were outstanding at December 31, 1998; warrants to
purchase 75,000 shares of Series B were exercised in the three months ended
March 31, 1999.

 Receivables from Sales of Stock

  At December 31, 1997 and 1998 and March 31, 1999, receivables from sales of
stock included notes receivable from an officer of the Company totaling
$217,000, $347,000 and $447,000, respectively. These notes are secured by
common stock and bear simple interest from 4.5% to 6.3% per annum. At December
31, 1998, the notes are due $217,000 in 2001 and $130,000 in 2002. The stock
sold in connection with these notes is subject to repurchase at the original
sale price; this right lapses ratably over a four-year period subject to the
officer's continued employment. At December 31, 1998, 1,167,875 shares of
common stock were subject to this repurchase right.

 Stock Option Plan

  The Company has a stock option plan (the 1996 Stock Option Plan), under which
incentive and non-qualified options to purchased 5,671,400 shares of common
stock may be granted to employees and independent contractors. Options
generally vest in installments over four years from the grant date and expire
ten years from the grant date.

                                      F-13
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  A summary of activity under the option plan is set forth below:
Outstanding Stock Options
                                                   ---------------------------
                                                              Weighted Average
                                                   Number of   Exercise Price
                                                    Shares       per Share
                                                   ---------  ----------------
1996 Grants (weighted average fair value of
    $0.02 per share)..............................   205,500       $0.10
                                                   ---------       -----
   Outstanding, December 31, 1996.................   205,500        0.10
   Granted (weighted average fair value of $0.03
    per share).................................... 1,221,550        0.12
   Exercised......................................  (122,083)       0.10
   Canceled.......................................   (16,000)       0.10
                                                   ---------       -----
   Outstanding, December 31, 1997 (284,749
    exercisable at a weighted average price of
    $.10)......................................... 1,288,967        0.12
   Granted (weighted average fair value of
    $0.70 per share).............................. 2,676,645        0.64
   Issued in connection with Panttaja
    acquisition...................................   455,648        0.25
   Exercised......................................  (114,606)       0.17
   Canceled.......................................  (218,137)       0.15
                                                   ---------       -----
   Outstanding, December 31, 1998 (914,132
    exercisable at a weighted average price of
    $0.26)........................................ 4,088,517       $0.51
                                                   =========       =====
At December 31, 1998, options to purchase 1,346,194 shares of common stock
were available for grant.

  During the three months ended March 31, 1999, the Company issued options to
purchase 561,790 shares of common stock at a weighted average exercise price of
$6.27 per share.

  Additional information regarding options outstanding as of December 31, 1998
is as follows:
Stock Options Outstanding     Options Exercisable
                          -------------------------------- --------------------
                                       Weighted
                                        Average
                                       Remaining  Weighted             Weighted
                                      Contractual Average              Average
      Range of              Number       Life     Exercise   Number    Exercise
   Exercise Prices        Outstanding   (years)    Price   Exercisable  Price
   ---------------        ----------- ----------- -------- ----------- --------
$0.10-$0.15...........  1,447,559     8.83      $0.14     459,428    $0.13
   $0.20-$0.25...........    681,938     9.83       0.25     280,240     0.25
   $0.35-$0.65...........    699,588     9.75       0.64     149,000     0.60
   $1.05.................  1,259,432     9.92       1.05      25,464     1.05
                           ---------     ----      -----     -------    -----
                           4,088,517     9.51      $0.51     914,132    $0.26
                           =========     ====      =====     =======    =====
Shares of common stock sold to employees, directors and consultants under
stock purchase agreements are subject to repurchase at the Company's option
upon termination of their employment or services at the original purchase
price. This right to repurchase expires ratably over the vesting period. At
December 31, 1997 and 1998, respectively, 2,578,985 and 2,105,585 shares were
subject to such repurchase right.

 Deferred Stock Compensation

  In connection with certain equity transactions during the year ended December
31, 1998, the Company recorded deferred stock compensation of $7,571,000 for
the difference between the exercise or sale price of the stock and deemed fair
value of the stock at that time. This total consists of $7,071,000 related to
stock option

                                      F-14
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

grants (including $432,000 arising from the Panttaja acquisition) and $500,000
related to common stock sold to an officer of the Company. An additional
$630,000 arose from shares of common stock issued in connection with the
Panttaja acquisition which are subject to vesting. Deferred compensation
related to stock option grants is being amortized over the four-year vesting
periods of the related options. Amortization of such expense during  1998 and
the three months ended March 31, 1999 totaled approximately $296,000 and
$467,000, respectively.

 Additional Stock Plan Information

  As discussed in Note 1, the Company accounts for its stock-based award using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.

  Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, requires the disclosure of pro forma net loss and net loss
per share had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the minimum value
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1996 and 1997 and 4.6% in 1998; and no
dividends during the expected term. The Company's calculations are based on a
single option valuation approach, and forfeitures are recognized as they occur.
If the computed fair values of the Company's awards had been amortized to
expense over their related vesting periods, the effect would have been to
increase net loss to $271,000 ($0.99 per share) in 1996, $4,313,000 ($5.88 per
share) in 1997 and $14,427,000 ($8.78 per share) in 1998.

8. Net Loss Per Share

  The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands).
Year Ended       Three Months
                                        December 31,     Ended March 31,
                                      -----------------  ----------------
                         Period from
                        June 21, 1996
                         (inception)
                           through
                        December 31,
                            1996       1997      1998     1998     1999
                        ------------- -------  --------  -------  -------
                                                           (Unaudited)
Net loss (numerator),
   basic and diluted...    $ (266)    $(4,180) $(14,111) $(2,080) $(8,208)
                           ------     -------  --------  -------  -------
  Shares (denominator):
    Weighted average
     common shares
     outstanding.......     1,074       2,372     3,818    3,746    5,068
    Weighted average
     common shares
     outstanding
     subject to
     repurchase........      (801)     (1,638)   (2,174)  (2,470)  (2,064)
                           ------     -------  --------  -------  -------
  Shares used in
   computation, basic
   and diluted.........       273         734     1,644    1,276    3,004
                           ======     =======  ========  =======  =======
  Net loss per share,
   basic and diluted...    $(0.97)    $ (5.70) $  (8.58) $ (1.63) $ (2.73)
                           ======     =======  ========  =======  =======
F-15
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  For the above mentioned periods, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following (in thousands):
Period from
                                        June 21, 1996              Three Months
                                         (inception)   Year Ended     Ended
                                           through    December 31,  March 31,
                                        December 31,  ------------ ------------
                                            1996      1997   1998  1998   1999
                                        ------------- ----- ------ ----- ------
                                                                   (Unaudited)
Convertible preferred stock..........     1,938     9,693 15,169 9,693 18,763
  Shares of common stock subject to
   repurchase..........................     1,614     2,579  2,106 2,361  1,745
  Outstanding options..................       206     1,289  4,089 1,689  4,280
  Warrants.............................        --       705    737   705    662
Pro forma net loss per share assumes that the conversion of all shares of
convertible preferred stock into common stock, which occurs upon the
consummation of the initial public offering contemplated by this Prospectus,
had occurred as of the beginning of 1998.

9. Income Taxes

  Deferred income taxes result from temporary differences in the recognition of
certain assets and liabilities for financial statement and tax return purposes
and from net operating loss carryforwards. Net deferred tax assets at December
31, 1997 and 1998 of approximately $1,420,000 and $7,757,000, respectively,
consist principally of net operating loss carryforwards, which have been offset
by a valuation allowance.

  At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $14,200,000 which expires through
2018. In addition, the Company had, at December 31, 1998, a net operating loss
carryforward for California state income tax purposes of approximately
$14,100,000 which expires through 2004.

  Current Federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and tax credit carryforwards may be limited as a
result of such "ownership change" as defined. Such a limitation could result in
the expiration of carryforwards before they are utilized.

10. Employee Benefit Plan
  The Company has a 401(k) plan for its employees who meet certain service and
age requirements. Participants may contribute up to 15% of their salaries up to
amounts specified under the Internal Revenue Code. The Company does not
contribute to this plan.

11. Significant Customers and Merchant Relationships

  In 1996, no sales were recorded by the Company. In 1997, one Merchant
accounted for 85% of net revenues and 82% of the ClickMiles awarded by all
Merchants during the year. In 1998, two customers accounted individually for
46% and 13% of revenues. Additionally, two Merchants accounted individually for
34% and 21% of the ClickMiles awarded by Merchants during 1998.

                                      F-16
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. Airline Arrangements

  The Company has entered into certain long-term arrangements to purchase
airmiles from its airline suppliers. At December 31, 1998, the Company had
prepaid for airmiles with a cost of $1,600,000 which are available for
redemption by Members. Certain of these airmiles expire if not exchanged by
Members for Click Miles within specified time periods, including $237,000 which
are subject to expiration in 1999.

  The contracts require certain minimum annual airmile purchases in order for
the Company to maintain its exclusivity agreement. These future minimum
payments, including excise tax, are as follows (in thousands):
Year ending December 31:
         1999............................................................ $1,142
         2000............................................................  1,432
         2001............................................................    860
                                                                          ------
           Total......................................................... $3,434
                                                                          ======
13. Leases

  The following is a schedule of future lease payments required under
noncancelable operating leases, as of December 31, 1998 (in thousands):
Year Ending December 31,
         1999........................................................... $  552
         2000...........................................................    459
         2001...........................................................    119
                                                                         ------
           Total minimum payments....................................... $1,130
                                                                         ======
Rent expense under all rental agreements was $8,000 in 1996, $158,000 in 1997
and $334,000 in 1998.

                                      F-17
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Consolidated Statement of Cash Flows Information

  A reconciliation of net loss to net cash used in operating activities follows
(in thousands):
June 21, 1996    Years Ended      Three months ended
                         (Inception) to   December 31,          March 31,
                          December 31,  -----------------  --------------------
                              1996       1997      1998      1998       1999
                         -------------- -------  --------  ---------  ---------
CASH FLOWS FROM
 OPERATING ACTIVITIES:
  Net loss..............     $(266)     $(4,180) $(14,111) $  (2,080) $  (8,208)
  Reconciliation to net
   cash used in
   operating activities
    Depreciation and
     amortization.......         8          150       629        106      1,181
    Deferred stock
     compensation
     expense............        --           --       296          7        467
    Expenses relating to
     stock warrants.....        --           76       841         72        628
    Advertising expense
     arising from barter
     transactions.......        --           --       956         --        350
    ClickMiles issued
     for services.......        --           --       587         29      1,114
    Changes in operating
     assets and
     liabilities:
      Accounts
       receivable.......        --          (23)     (201)       (66)        31
      Prepaid incentive
       awards...........        --         (703)     (897)       (40)        25
      Prepaid expenses..       (19)        (220)      115       (164)      (122)
      Other assets......        (2)         (31)     (155)        10         31
      Accounts payable..        71          512       281       (217)       116
      Accrued
       compensation and
       benefits.........        --           13       877        193       (212)
      Accrued redemption
       costs............        --           --       (78)        (3)      (114)
      Other accrued
       liabilities......        38          266       477         11        105
      Deferred revenue -
       product and
       services.........        --           59       848        132        601
                             -----      -------  --------  ---------  ---------
        Net cash used in
         operating
         activities.....     $(170)     $(4,081) $ (9,535) $  (2,010) $  (4,007)
                             =====      =======  ========  =========  =========
15. Subsequent Events

  In March and April 1999, the stockholders of the Company approved the
increase of the number of authorized shares of its common stock to 33,240,000
and its preferred stock to 21,329,221 and designated 5,279,062 shares as Series
E. The Series E preferred stock has similar rights and preferences to the other
series of preferred stock (see Note 7), other than its liquidation preference
of $6.82 per share and its annual dividends which, if declared, would be $0.546
per share.

  In March 1999, the Company sold 3,519,053 shares of Series E to investors for
aggregate proceeds of approximately $23,000,000, net of expenses. In April and
June 1999, the Company sold an additional 1,759,530 shares of Series E to
investors for aggregate proceeds of approximately $12,000,000, net of expenses.

                                      F-18
NETCENTIVES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  In May 1999, the stockholders of the Company approved the following:

  . Adoption of the 1999 Employee Stock Purchase Plan, and reserved 300,000
    shares of common stock (increasing by 75,000 shares in each of the
    following five years) for sale to employees at a price no less than 85%
    of the lower of fair market value at the beginning of the two-year
    offering period or the end of each of the six-month purchase periods.

  . Adoption of the 1999 Outside Directors Stock Option Plan, and reserved
    400,000 shares of common stock (increasing by 50,000 shares in each of
    the following five years) for grants of options to each outside director
    to purchase 40,000 shares of common stock at fair market value as of the
    grant date, as well as additional option grants for 10,000 shares to be
    issued in each subsequent year.

  . The reincorporation of the Company into Delaware by exchanging one share
    of common stock of the successor Delaware corporation for each share of
    common stock of the predecessor California corporation. Such
    reincorporation and stock exchange will be effective prior to the
    effective date of the initial public offering contemplated by this
    Prospectus.

  . The number of shares of authorized but unissued preferred stock was
    designated at 5,000,000. Such authorization is contingent upon the
    reincorporation of the Company into Delaware and the closing of the
    initial public offering contemplated by this Prospectus.

  In June 1999, the stockholders of the Company approved an increase in the
number of authorized shares available under the Employee Stock Option Plan by
2,000,000 shares and provided for annual increases of 1,250,000 shares in each
of the following five years.

  In May 1999, the Company entered into a seven-year operating lease for a new
headquarters facility. The lease, which is expected to commence in January
2000, requires annual rental payments ranging from approximately $2,600,000 to
$2,900,000 over the term of the lease. The Company is required to obtain a
letter of credit of approximately $2,400,000 as a security deposit prior to
lease commencement (of which $500,000 was obtained in May 1999), a portion of
which may be released over the term of the lease.

  On July 12, 1999, the Company issued to a customer a warrant to purchase
150,000 shares of common stock at an exercise price of $8.00 per share in
exchange for advertising to be provided on the customer's web sites. The
warrant expires in July 2001. The estimated fair value of the warrant of
approximately $630,000 will be expensed at the time the advertising services
are provided.

                                   * * * * *

                                      F-19
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Panttaja Consulting Group, Inc.:

  We have audited the accompanying statements of operations and cash flows of
Panttaja Consulting Group, Inc. (the "Company") for the years ended November
30, 1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. These 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, such financial statements refer to above present fairly, in
all material respects, the result of the Company's operations and its cash
flows for the years ended November 30, 1997 and 1998 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
March 12, 1999

                                      F-20
PANTTAJA CONSULTING GROUP, INC.

                            STATEMENTS OF OPERATIONS
                                 (In thousands)
Years Ended
                                                               November 30,
                                                              ----------------
                                                               1997     1998
                                                              -------  -------
Net revenues................................................. $ 3,361  $ 4,048
Cost of revenues.............................................  (1,777)  (2,521)
                                                              -------  -------
    Gross profit.............................................   1,584    1,527
Selling, general and administrative expenses.................  (1,416)  (1,624)
                                                              -------  -------
Income (loss) from operations................................     168      (97)
Interest income..............................................       1        1
Interest expense.............................................     (39)     (42)
Other income (expense), net..................................       1       (4)
                                                              -------  -------
Income (loss) before taxes on income.........................     131     (142)
Income tax (expense) benefit.................................     (39)      24
                                                              -------  -------
Net income (loss)............................................ $    92  $  (118)
                                                              =======  =======
See notes to financial statements.

                                      F-21
PANTTAJA CONSULTING GROUP, INC.

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
Years Ended
                                                                    November
                                                                       30,
                                                                   ------------
                                                                   1997   1998
                                                                   -----  -----
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)............................................... $  92  $(118)
  Reconciliation to net cash used in operating activities:
    Depreciation..................................................    90     87
    (Gain) loss from disposition of fixed assets..................    (1)     4
    Deferred income tax provision.................................    36    (25)
    Changes in operating assets and liabilities:
      Accounts receivable.........................................    62   (382)
      Other receivable............................................     2      1
      Prepaid expenses............................................     4     (5)
      Accounts payable............................................  (116)   332
      Accrued liabilities.........................................   (11)    61
      Deferred revenues...........................................   (14)     7
                                                                   -----  -----
        Net cash provided (used) in operating activities..........   144    (38)
                                                                   -----  -----
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.............................    (5)   (31)
  Sale of property and equipment..................................     7      9
                                                                   -----  -----
        Net cash provided (used) in investing activities..........     2    (22)
                                                                   -----  -----
CASH FLOWS FROM FINANCING ACTIVITIES:
  Receipts from short-term borrowing..............................    55    141
  Repayments of capital leases....................................   (58)   (80)
  Repayments of debt..............................................  (115)   (44)
  Proceeds from issuing common stock..............................    --      4
                                                                   -----  -----
        Net cash provided (used) in financing activities..........  (118)    21
                                                                   -----  -----
NET INCREASE (DECREASE) IN CASH...................................    28    (39)
CASH, Beginning of year...........................................    16     44
                                                                   -----  -----
CASH, End of year................................................. $  44  $   5
                                                                   =====  =====
SUPPLEMENTAL DISCLOSURES--
Noncash investing and financing transactions--
  Capital lease obligation incurred for equipment................. $  82  $ 105
                                                                   =====  =====
See notes to financial statements.

                                      F-22
PANTTAJA CONSULTING GROUP, INC.

                         NOTES TO FINANCIAL STATEMENTS
                     Years ended November 30, 1997 and 1998

1. Business and Significant Accounting Policies

  Line of Business--Panttaja Consulting Group, Inc.'s (the "Company") provides
software consulting, development, and educational services in the internet and
client/server market sectors. The Company was incorporated in January 1990.

  Revenue--The Company's revenues consist primarily of fees for services,
including consulting and education. Consulting services are primarily provided
on a time and materials basis. Educational services are generally priced on a
per student basis. Consulting and education revenues are recognized as the
services are performed.

  Cost of Revenues--The cost of services consists primarily of compensation and
travel costs associated with providing consulting and education.

  Cash and Cash Equivalents--The Company considers all highly liquid
investments with original maturities of ninety days or less to be cash
equivalents.

  Depreciation--Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets which range from five to ten
years. Amortization of leasehold improvements is computed over the shorter of
the lease term or the estimated useful lives of the improvements.

  Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income taxes and liabilities result from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. Valuation allowances are provided when necessary to
reduce deferred tax assets to the amount expected to be realized.

  Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

  Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.

2. Major Customers

  Three customers accounted for 10%, 11%, and 18% of total revenues for the
year ended November 30, 1997. Two customers accounted for 15% and 18% of total
revenues for the year ended November 30, 1998.

3. Leases

  Rent expense was $171,000 and $181,000 for the years ended November 30, 1997
and 1998 respectively.

                                      F-23
PANTTAJA CONSULTING GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Income Taxes

  The provision (benefit) from income taxes consists of (in thousands):
1997 1998
                                                                      ---- ----
Current:
         Federal..................................................... $ 2  $ --
         State.......................................................   1     1
                                                                      ---  ----
                                                                        3     1
       Deferred--federal.............................................  36   (25)
                                                                      ---  ----
                                                                      $39  $(24)
                                                                      ===  ====
5. Employee Benefit Plans

Deferred Compensation Plan

  The Company maintains a qualified deferred compensation plan under Section
401(k) of the Internal Revenue Code. Under the plan, employees may elect to
defer up to 10% of their salary, subject to Internal Revenue Service limits.
The plan allows the Company to make discretionary contributions. During 1997
and 1998, all contributions were made by the employees.

Stock Option Plan

  The Company has adopted a stock option plan for employees. Under the terms of
the plan, options generally vest over a period of one to four years after date
of grant. Common stock issued upon exercise of these options is subject to the
Company's right of first refusal upon future sale or transfer. This right of
first refusal terminates at such time as a established market exists for the
Company's common stock.

  A summary of activity under the option plan follows:
Number of  Weighted Average
                                                     Shares    Price per Share
                                                    ---------  ----------------
Outstanding, November 30, 1996.............. 1,790,000       $0.05
       Granted (fair value of $0.01 per share).....   375,000        0.05
       Exercised...................................    (5,000)       0.05
       Canceled....................................  (309,000)       0.05
                                                    ---------       -----
       Outstanding, November 30, 1997.............. 1,851,000        0.05
       Granted (fair value of $0.01 per share)..... 1,187,000        0.05
       Exercised...................................   (86,000)       0.05
       Canceled....................................  (510,000)       0.05
                                                    ---------       -----
       Outstanding, November 30, 1998.............. 2,442,000       $0.05
                                                    =========       =====
Additional Stock Plan Information

  As discussed in Note 1, the Company accounts for its stock-based award using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. Accordingly, no compensation expense has been recognized in
the financial statements for employee stock arrangements.

                                      F-24
PANTTAJA CONSULTING GROUP, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

  Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, ("SFAS 123"), requires the disclosure of pro forma net
income (loss) had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the minimum value
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1997 and 4.6% in 1998; and no dividends
during the expected term. The Company's calculations are based on a single
option valuation approach, and forfeitures are recognized as they occur. If the
computed fair values of awards made in 1997 and 1998 had been amortized to
expense over the vesting period of the awards, the effect on reported net
income (loss) would not have been significant.

6. SUBSEQUENT EVENTS

  On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
Company's outstanding shares of common stock and assumed all of its outstanding
options, at which time the Company became a wholly owned subsidiary of
Netcentives.

                                   * * * * *

                                      F-25
NETCENTIVES INC.

                 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                          Year ended December 31, 1998
              (Unaudited, in thousands, except per share amounts)
Pro Forma     Pro Forma
                             Netcentives Panttaja(1) Adjustments   Consolidated
                             ----------- ----------- -----------   ------------
Revenues:
  Product...................  $     64     $   --      $    --       $     64
  Program-related services..       583         --           --            583
  Technical consulting
   services.................        --      4,048         (616)(2)      3,432
                              --------     ------      -------       --------
    Total revenues..........       647      4,048         (616)         4,079
                              --------     ------      -------       --------
Costs and expenses:
  Cost of product revenues..        59         --           --             59
  Program-related services,
   marketing and support
   costs....................     7,293         --           --          7,293
  Cost of technical
   consulting services
   revenues.................        --      2,521         (368)(2)      2,153
  Research and development..     3,383         --         (248)(2)      3,135
  Selling, general and
   administrative...........     3,134      1,624           --          4,758
  Amortization of deferred
   stock compensation.......       296         --          266 (3)        562
  Amortization of supplier
   stock awards.............       811         --        1,699 (4)      2,510
  Amortization of
   intangibles..............        79         --           --             79
                              --------     ------      -------       --------
    Total Costs and
     expenses...............    15,055      4,145        1,349         20,549
                              --------     ------      -------       --------
Loss from operations........   (14,408)       (97)      (1,965)       (16,470)
Other income (expense)......       297        (45)          --            252
                              --------     ------      -------       --------
Loss before income tax
 provision..................   (14,111)      (142)      (1,965)       (16,218)
Income tax benefit..........                   24          (24)(5)         --
                              --------     ------      -------       --------
Net loss....................  $(14,111)    $ (118)     $(1,989)      $(16,218)
                              ========     ======      =======       ========
Net loss per share--basic
 and diluted................  $  (8.58)                              $  (7.12)
                              ========                               ========
Shares used in per share
 calculations...............     1,644                     634 (6)      2,278
                              ========                 =======       ========
See notes to pro forma consolidated statement of operations.

                                      F-26
NETCENTIVES INC.

      NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
                          Year ended December 31, 1998

  On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
outstanding shares and assumed the outstanding options of Panttaja Consulting
Group, Inc. ("Panttaja"), a software consulting firm in exchange for 808,780
shares of common stock valued at $2,548,000, cash of $194,000 and options to
purchase 455,648 shares of Netcentives stock at $0.254 per share, of which
306,755 were vested at the date of acquisition and have been included as part
of the acquisition price at their fair value of $936,000. The common stock
includes 200,000 shares subject to vesting over a four-year period, will be
accounted for as deferred compensation over the vesting period. Netcentives
also agreed to pay the stockholders additional cash up to $450,000 within 13
months following closing based on certain employment levels, which was
considered probable at the time of the acquisition and has been accrued as part
of the purchase price of Panttaja.

  The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's financial statements. The total consideration exceeded the fair
value of the net assets acquired by $3,526,000, which has been recorded as the
value of the existing consulting relationships and is being amortized on a
straight-line basis over two years.

  The accompanying pro forma statement of operations is presented in accordance
with Article 11 of Regulation S-X.

  The pro forma statement of operations for the year ended December 31, 1998
includes the following adjustments to reflect consummation of the transaction
as if it had occurred at the beginning of 1998:

    1. Represents Panttaja's historical results of operations for its fiscal
  year ended November 30, 1998. The results of operations of Panttaja for the
  period December 18 through December 31, 1998 included in Netcentive's
  consolidated results of operations were not significant.

    2. To eliminate intercompany consulting revenues.

    3. To record one year of compensation expense ($158,000) related to the
  200,000 share restricted stock arrangement and one year of expense
  ($108,000) relating to the options granted to Panttaja employees.

    4. To record one year of amortization of the intangible assets recorded
  in the acquisition.

    5. To reverse income tax benefits recorded by Panttaja. Netcentives has
  incurred losses since inception and records a full valuation on all
  operating loss carryforwards and deferred tax assets.

    6. To reflect the assumed issuance of 608,780 unrestricted shares of
  common stock issued in connection with the acquisition and the vesting of
  50,000 shares of restricted stock during the year.

  The adjustments do not give effect to any potential benefits that might have
been realized through the combination of operations and are not necessarily
indicative of the consolidated results which would have been reported if the
Panttaja acquisition had actually occurred at the beginning of the period
presented.

                                      F-27
[INSIDE BACK COVER]
                         Inside Back Cover Description

                          [Netcentives name and logo]

Text: The philosophy behind Netcentives is simple: help businesses build
lasting relationships with their customers and employees. Our four promotion
and direct marketing solutions revolve around this basic tenet.

Text: ClickRewards
   An Internet-based network loyalty program based on frequent flyer miles,
ClickRewards can help Internet merchants, portals, and community sites attract
and retain valuable consumers. ClickRewards has demonstrated success in
attracting 56 e-commerce merchants and over 1,400,00 members.

Text: Enterprise Incentive Solutions
   Our incentive programs also extend to the workplace, helping businesses
motivate and reward employees, partners and stakeholders across intranets and
extranets. Result? Employees stay loyal, and HR departments are able to offer
a new incentive. First companies to offer Enterprise Incentive Solutions:
Cisco Systems and Microsoft.

Text: Netcentive Professional Services
   A ready team of experts that can help online and off-line companies develop
cost effective e-commerce and other electronic business applications. NPS
specializes in the integration of online technologies with key infrastructure
systems, helping transform e-commerce into mainstream commerce.

Text: Custom Loyalty Networks
   Portals and other Web sites with substantial membership use our proprietary
technology to launch their own branded network loyalty programs, thereby
creating loyal customers and fostering online business growth. Current clients
include Looksmart's Reward Mall and Infoseek's GO Network.

Text: "Most commerce players will achieve a greater return on investment over
two years by participating in a network loyalty program rather than by
operating their own loyalty program."

                                                -Jupiter Communications Loyalty
                                                 Programs Report, November 1998
[LOGO OF NETCENTIVES]
PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution

  The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Netcentives in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq Stock
Market listing fee.
Amount to
                                                                      be Paid
                                                                     ----------
SEC registration fee........................................... $   19,182
     NASD filing fee................................................      7,400
     Nasdaq Stock Market listing fee................................     95,000
     Printing and engraving expenses................................    120,000
     Legal fees and expenses........................................    375,000
     Accounting fees and expenses...................................    350,000
     Transfer Agent and Registrar fees..............................      4,000
     Miscellaneous fees and expenses................................     29,418
                                                                     ----------
       Total........................................................ $1,000,000
                                                                     ==========
ITEM 14. Indemnification of Directors and Officers

  Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Article XIV of our Amended and Restated Certificate of Incorporation (Exhibit
3.3) provides for indemnification of our directors and officers to the maximum
extent permitted by the Delaware General Corporation Law and Section 6.1 of
Article VI of our bylaws (Exhibit 3.4) provides for indemnification of our
directors, officers, employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. In addition, we have entered into
Indemnification Agreements (Exhibit 10.1) with our directors and officers
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require us, among other things, to indemnify
our directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities arising from willful
misconduct of culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' insurance if available on reasonable terms. Reference is also
made to Section 7 of the Underwriting Agreement contained in Exhibit 1.1,
indemnifying our officers and directors against certain liabilities.

ITEM 15. Recent Sales of Unregistered Securities

  (a) From our inception in June 1996 through June 30, 1999, we have issued and
sold (without payment of any selling commission to any person) the following
unregistered securities:

  .  An aggregate of 2,000,000 shares of common stock at $0.001 per share in
     June 1996 to our founders.

  .  An aggregate of 50,000 shares of common stock at $0.02 per share in
     September 1996 to 3 consultants to Netcentives.

  .  An aggregate of 1,452,613 shares of Series A Preferred Stock at $0.65
     per share in September 1996 to 11 investors.

                                      II-1
.  An aggregate of 485,000 shares of Series B Preferred Stock at $1.00 per
     share in November 1996 to 7 investors.

  .  An aggregate of 500,000 shares of common stock at $0.12 per share in
     August 1997 to one of our executives.

  .  Warrants to purchase an aggregate of 175,000 shares of Series B
     Preferred Stock, and promissory notes with an aggregate principal amount
     of $1,312,601.60 convertible into shares of Series C Preferred Stock
     during January, June, August, and September 1997 to 12 investors.

  .  An aggregate of 7,754,847 shares of Series C Preferred Stock at $1.30
     per share in September 1997 to 17 investors.

  .  Warrants to purchase an aggregate of 530,000 shares of Series N
     Preferred Stock in July, August, September and October 1997 to 5
     suppliers.

  .  An aggregate of 30,000 shares of common stock in connection with the
     purchase of the United States patent application having SC/Serial Number
     08/572,017 in September 1997 and November 1998.

  .  An aggregate of 1,048,600 shares of common stock at $0.15 per share in
     December 1997 to one of our executives.

  .  Warrants to purchase an aggregate of 31,948 warrants convertible into
     shares of Series C Preferred Stock in May 1998 to an equipment lessor.

  .  An aggregate of 5,476,192 shares of Series D Preferred Stock at $3.15
     per share in August 1998 to 18 investors.

  .  An aggregate of 808,780 shares of common stock with an aggregate value
     of approximately $525,707 in connection with the acquisition of Panttaja
     Consulting Group Inc. in December 1998.

  .  An aggregate of 200,000 shares of common stock at $0.65 per share in
     December 1998 to one of our executives.

  .  An aggregate of 5,278,283 shares of Series E Preferred Stock at $6.82
     per share in March, April and June 1999 to 27 investors.

  .  An aggregate of 5,786,808 options to purchase shares of common stock at
     an average exercise price of $1.74 per share to our employees and
     consultants.

  (b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).

  The issuances described in Items 15(a) were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
transactions by an issuer not involving any public offering and in the case of
the issuances to our founders, executives, employees and consultants are also
exempt from registration pursuant to Rule 701 promulgated under the Securities
Act. The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
where affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.

ITEM 16. Exhibits and Financial Statement Schedules

  (a) Exhibits
1.1* Form of Underwriting Agreement.

 3.1  Articles of Incorporation of the Registrant.

 3.2  Amended and Restated Bylaws of the Registrant.

 3.3  Form of Amended and Restated Certificate of Incorporation, to be filed
       and effective upon completion of this offering.
II-2
3.4   Form of Amended and Restated Bylaws of the Netcentives, to be effective
         upon completion of this offering.

  4.1*  Form of the Netcentives common stock certificate.

  5.1*  Opinion of Venture Law Group, a Professional Corporation.

 10.1   Form of Indemnification Agreement for directors and officers of
         Netcentives.

 10.2   1996 Stock Option Plan, as amended, and form of stock option agreement
         and restricted stock purchase agreement.

 10.3   1999 Employee Stock Purchase Plan and form of subscription agreement.

 10.4   1999 Directors' Stock Option Plan and form of stock option agreement.

 10.5   Lease between Panttaja Consulting Group and Britphil & Co. Ltd. dated
         November 13, 1995.

 10.6   Lease between Netcentives and Townsend Associates, L.L.C. dated August
         14, 1997.

 10.7   Lease between Netcentives and Townsend Associates, L.L.C. dated August
         11, 1998.

 10.8+  Confidential Advantage Participation Agreement between American
         Airlines, Inc. and Netcentives Inc. dated August 19, 1997.

 10.9+  Supply Agreement between Northwest Airlines, Inc. and Netcentives Inc.
         dated September 5, 1997.

 10.10+ Supply Agreement between Continental Airlines, Inc. and Netcentives
         Inc. dated September 5, 1997.

 10.11+ Supply Agreement between US Airways, Inc. and Netcentives Inc, dated
         September 20, 1997.

 10.12+ Supply Agreement between Mileage Plus Marketing, Inc. and Netcentives
         Inc. dated March 20, 1998.

 10.13+ Marketing Services Agreement between British Airways PLC and
         Netcentives Inc. Agreement Number MKTG 002 dated April 4, 1997.

 10.14+ Supply Agreement between Trans World Airlines, Inc. and Netcentives
         Inc. dated February 25, 1999.

 10.15+ Sky Rewards Delta Air Lines Agreement between Delta Air Lines, Inc. and
         Netcentives Inc. dated July 24, 1997.

 10.16  Office Lease between Netcentives and SKS Brannan Associates, LC dated
         May 5, 1999.

 10.17  Employment Agreement between Netcentives and West Shell, III dated June
         26, 1997 and Amendment to Employment Agreement dated October 29, 1998.

 10.18  Change of Control Agreement between Netcentives and John F. Longinotti
         dated January 15, 1998.

 10.19  Amended and Restated Rights Agreement between Netcentives and certain
         stockholders dated March 19, 1999.

 21.1   Subsidiaries of the Registrant.

 23.1   Independent Auditors' Consent.

 23.2*  Consent of Counsel (included in Exhibit 5.1).

 24.1   Power of Attorney (see page II-5).

 27.1   Financial Data Schedule.
--------
*  To be supplied by amendment.

+Confidential Treatment Requested

                                      II-3
ITEM 17. Undertakings

  Netcentives hereby undertakes to provide to the underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

  Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Netcentives
pursuant to the foregoing provisions, or otherwise, Netcentives 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 Netcentives of expenses
incurred or paid by a director, officer or controlling person of Netcentives 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, Netcentives will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

  Netcentives 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 a 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 this offering of such securities at that time shall be
  deemed to be the initial bona fide offering thereof.

                                      II-4
SIGNATURES

  Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on July 22, 1999.

                                          NETCENTIVES INC.

                                                   /s/ West Shell, III
                                          By: _________________________________
                                                    West Shell, III,
                                          Chairman and Chief Executive Officer

                               POWER OF ATTORNEY

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints West Shell, III and John F. Longinotti, and each
one of them, his or her attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and any
Registration Statement relating to this Registration Statement under Rule 462,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.

  Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-1 has been signed by the following persons in the
capacities and on the dates indicated:
Signature                         Title                 Date
              ---------                         -----                 ----
/s/ West Shell, III          Chairman of the Board of    July 22, 1999
 ____________________________________  Directors and Chief
          (West Shell, III)            Executive Officer
                                       (Principal Executive
                                       Officer)

        /s/ John F. Longinotti        Executive Vice President,   July 22, 1999
 ____________________________________  Operations and Chief
         (John F. Longinotti)          Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)

          /s/ Stewart Alsop           Director                    July 22, 1999
 ____________________________________
           (Stewart Alsop)

            /s/ Tom Byers             Director                    July 22, 1999
 ____________________________________
             (Tom Byers)

         /s/ Eric W. Tilenius         Director                    July 22, 1999
 ____________________________________
          (Eric W. Tilenius)

       /s/ Virginia M. Turezyn        Director                    July 22, 1999
 ____________________________________
        (Virginia M. Turezyn)

       /s/ Wendell G. Van Auken       Director                    July 22, 1999
 ____________________________________
        (Wendell G. Van Auken)

           /s/ Sergio Zyman           Director                    July 22, 1999
 ____________________________________
            (Sergio Zyman)
II-5
EXHIBIT INDEX
Exhibit No.                             Description
 -----------                             -----------
1.1*     Form of Underwriting Agreement.

    3.1      Articles of Incorporation of the Registrant.

    3.2      Amended and Restated Bylaws of the Registrant.

    3.3      Form of Amended and Restated Certificate of Incorporation, to be
              filed and effective upon completion of this offering.

    3.4      Form of Amended and Restated Bylaws of the Netcentives, to be
              effective upon completion of this offering.

    4.1*     Form of the Netcentives common stock certificate.

    5.1*     Opinion of Venture Law Group, a Professional Corporation.

   10.1      Form of Indemnification Agreement for directors and officers of
              Netcentives.

   10.2      1996 Stock Option Plan, as amended, and form of stock option
              agreement and restricted stock purchase agreement.

   10.3      1999 Employee Stock Purchase Plan and form of subscription
              agreement.

   10.4      1999 Directors' Stock Option Plan and form of stock option
              agreement.

   10.5      Lease between Panttaja Consulting Group and Britphil & Co. Ltd.
              dated November 13, 1995.

   10.6      Lease between Netcentives and Townsend Associates, L.L.C. dated
              August 14, 1997.

   10.7      Lease between Netcentives and Townsend Associates, L.L.C. dated
              August 11, 1998.

   10.8+     Confidential Advantage Participation Agreement between American
              Airlines, Inc. and Netcentives Inc. dated August 19, 1997.

   10.9+     Supply Agreement between Northwest Airlines, Inc. and Netcentives
              Inc. dated September 5, 1997.

   10.10+    Supply Agreement between Continental Airlines, Inc. and
              Netcentives Inc. dated September 5, 1997.

   10.11+    Supply Agreement between US Airways, Inc. and Netcentives Inc,
              dated September 20, 1997.

   10.12+    Supply Agreement between Mileage Plus Marketing, Inc. and
              Netcentives Inc. dated March 20, 1998.

   10.13+    Marketing Services Agreement between British Airways PLC and
              Netcentives Inc. Agreement Number MKTG 002 dated April 4, 1997.

   10.14+    Supply Agreement between Trans World Airlines, Inc. and
              Netcentives Inc. dated February 25, 1999.

   10.15+    Sky Rewards Delta Air Lines Agreement between Delta Air Lines,
              Inc. and Netcentives Inc. dated July 24, 1997.

   10.16     Office Lease between Netcentives and SKS Brannan Associates, LLC
              dated May 5, 1999.

   10.17     Employment Agreement between Netcentives and West Shell, III dated
              June 26, 1997 and Amendment to Employment Agreement dated October
              29, 1998.

   10.18     Change of Control Agreement between Netcentives and John F.
              Longinotti dated January 15, 1998.

   10.19     Amended and Restated Rights Agreement between Netcentives and
              certain stockholders dated March 19, 1999.
Exhibit No.                  Description
 -----------                  -----------
21.1     Subsidiaries of the Registrant.

    23.1     Independent Auditors' Consent.

    23.2*    Consent of Counsel (included in Exhibit 5.1).

    24.1     Power of Attorney (see page II-5).

    27.1     Financial Data Schedule.
--------
*  To be supplied by amendment.

+Confidential Treatment Requested