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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
/X/ OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-26009
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JUNO ONLINE SERVICES, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE 13-3914547
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1540 BROADWAY, NEW YORK, NY 10036
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (212) 597-9000
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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock $0.01 par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X

As of March 8, 2001, the aggregate market value of voting stock held by
non-affiliates of the registrant, based upon the last reported sales price for
the registrant's common stock, as reported on the Nasdaq National Market, was
approximately $38.1 million (calculated by excluding shares owned beneficially
by affiliates).

As of March 8, 2001, the aggregate market value of all voting stock of the
registrant, based upon the last reported sales price for the registrant's common
stock, as reported on the Nasdaq National Market was approximately
$58.3 million, including shares owned beneficially by affiliates.

As of March 8, 2001, there were 41,456,309 shares of the registrant's common
stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference
into the following parts of the Form 10-K: Certain information required in
Part III of this Form 10-K is incorporated from the registrant's Proxy Statement
for its 2001 Annual Meeting of Stockholders.

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INDEX TO FORM 10-K
FOR
JUNO ONLINE SERVICES, INC.

PAGE

PART I.
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 14
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 15
Item 6. Selected Consolidated Financial Data........................ 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 36
Item 8. Financial Statements and Supplementary Data................. 62
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 85

PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 85
Item 11. Executive Compensation...................................... 85
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 85
Item 13. Certain Relationships and Related Transactions.............. 85

PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 85
SIGNATURES............................................................ 88

This report contains forward-looking statements which involve risks and
uncertainties. These forward-looking statements are usually accompanied by words
such as "believes," "anticipates," "plans," "expects" and similar expressions.
Our actual results could differ materially from those expressed or implied by
these forward-looking statements as a result of various factors, as more fully
described in this section and elsewhere in this report.

Juno Online Services, Inc., a Delaware corporation, is the successor by
merger to Juno Online Services, L.P., a Delaware limited partnership. References
in this report to "Juno", "we", "our", and "us" refer to Juno Online
Services, Inc., its majority-owned subsidiaries, and its predecessor prior to
the merger, Juno Online Services, L.P.

PART I

ITEM 1. BUSINESS

OUR COMPANY

Juno Online Services, Inc. is a leading provider of Internet access to
millions of computer users throughout the United States. We offer several levels
of service, including free basic Internet access, billable premium dial-up
service and high-speed broadband access, which is currently available in
selected markets. Unlike most other Internet access providers, we offer both
free basic and billable premium services, and we believe we are unique in having
converted hundreds of thousands of individuals from free to paying customers.
Our strategy of offering several different service levels and our easy-to-use,
intuitive software are designed to attract a broad spectrum of users, including
those who are just now beginning to explore the Internet. Based on our total of
4.0 million active subscribers during the month of December 2000, Juno is one of
the nation's largest Internet access providers. Approximately 842,000 of these
active subscribers were subscribed to Juno's billable premium services, and as
of December 2000, 90% of Juno's active subscribers had full Web access. Juno had
approximately 14.2 million total registered subscriber accounts as of
December 31, 2000.

Our services are provided nationwide through more than 4,000 local telephone
numbers, which we lease from several providers. These phone numbers can be
reached by the vast majority of the U.S. population without having to place a
long distance telephone call. We derive our revenues primarily from the
subscription fees we charge for the use of our premium services, from the sale
of advertising, and from various types of electronic commerce.

We have been a pioneer in providing Internet services since April 1996, when
we launched our basic service, which was the first on the Internet to provide
free e-mail. In July 1998, we introduced our first premium services, which
offered features ranging from enhanced e-mail services to full access to the
World Wide Web, and for which we charged subscription fees. In 1999 and 2000, we
announced a number of major expansions of our services:

- Our BASIC SERVICE now provides full Internet access for free in addition
to e-mail.

- JUNO WEB provides competitively priced premium Internet access,
supplementing the features of the basic service with free live technical
support and customer service, priority access to Juno's network, and the
reduction of some forms of on-screen advertising.

- JUNO EXPRESS is a broadband service designed to provide high-speed access
to the Internet through a variety of technologies. Currently offered in
selected markets around the country, Juno Express is available in digital
subscriber line and wireless versions. Juno plans to test a cable version
of the service in 2001.

In operating our services, we have capitalized on the size of our existing
user base, advantages we believe our technology confers on our cost structure,
and our advertising sales and electronic commerce activities. Our technology has
been designed to maximize hours of consumer contact and potential advertising
revenues while minimizing the number of hours each user actually spends
connected by telephone to our central computers or to the Web, a key component
of our costs. We believe our subscribers spend significantly less time connected
to the Internet each month than those of our largest competitors, in part
because of technology we have developed that enables subscribers to read and
write e-mail offline rather than while connected. Importantly, this technology
allows us to continue displaying highly targetable interactive advertisements
throughout this offline time.

As of December 31, 2000, more than 400 firms had advertised on Juno. In many
cases, we derive revenues not only from advertising fees but also from
conducting electronic commerce in collaboration with our marketing partners. We
have entered into a number of major strategic marketing alliances,

some of which involved multi-million-dollar guaranteed minimum payments to Juno,
such as our multi-year relationships with Qwest and The Hartford. Our
advertising and strategic marketing activities benefit from our ability to
target advertising to selected segments of the Juno subscriber base on the basis
of a wide variety of information obtained from a detailed electronic
questionnaire that must be completed in order to sign up for Juno's basic
service.

In addition to our advertising and strategic marketing relationships, we
derive revenue from relationships with providers of Web-based content and
functionality. All Juno users begin each Web session on our portal site,
WWW.JUNO.COM, which contains tools, information, and product offers supplied by
a wide range of strategic partners. Companies with whom we have formed this sort
of strategic relationship include Amazon.com, CNET, eBay, and LookSmart.

OUR SERVICES

Our services and software have been designed with special attention to the
needs of consumers who are only now taking their first steps onto the Internet.
The needs and preferences of new Internet users often differ significantly from
those of early Internet users and computer hobbyists, who tend to be more
technically sophisticated. We believe the success of our design is reflected in
subscriber feedback indicating that ease of use is among the characteristics
most closely associated with Juno, and in the extent to which our subscribers
have passed along copies of the Juno software to friends and relatives.

We have expended significant effort to make our services easy to use. Our
fundamental design goal has been to create software and Web-based functionality
that novice users can understand at a glance, but which will continue to satisfy
subscribers once they have gained more experience. In addition to the basic
functions of using the Internet, such as connecting to the Web and sending and
receiving e-mail, we also offer easy-to-use tools enabling subscribers to build
their own Web pages and participate in online discussions, a variety of online
customer service resources, a full-function address book and folders for e-mail
management, and access to a wide range of content and community features, all
within a simple and visually attractive point-and-click environment.

Each time Juno subscribers begin a Web session, the first Web pages they see
provide them with a broad set of tools and information to help them understand,
navigate, and use the Web. Most of the content, directory functionality, and
Internet search functions associated with this Web site are currently provided
by third parties. Such parties often compensate Juno through either guaranteed
or performance-based payments for promoting their content or features to the
Juno subscriber base.

Over time, we hope to continue expanding the set of features we offer our
users, and to use such features not only to generate revenue and enhance our
services generally, but also to maintain differentiation between our free basic
service and our billable premium services. Subscribers who are not yet ready to
use or pay for premium features can begin their use of the Internet with our
free basic service, then migrate to our premium services once they are ready to
do so.

FREE BASIC SERVICE

Our basic service provides subscribers with full Internet access, including
access to both e-mail and the World Wide Web. Our subscribers pay us no fees of
any sort for the use of our basic service. Users of the free basic service do,
however, pay a fee of $1.95 per minute if they wish to get live technical
support by phone.

We display advertisements to users of the free basic service in a variety of
locations, including within the main Juno software and on the Web pages
comprising Juno's portal site.

After receiving a copy of our software, a new subscriber follows simple,
clearly worded on-screen instructions to install Juno on his or her computer,
and to select an e-mail address and password. In

addition, in order to create an account, each subscriber to our free basic
service must complete the Member Profile survey, providing information that can
be used for the selective targeting of advertising. Subscribers using a version
of our software older than version Juno 4.0, must upgrade to version 4.0 or
higher before they can use our basic service to connect to the Web.

JUNO WEB

Juno's premium dial-up Internet access service, Juno Web, augments the basic
service by reducing some forms of on-screen advertising and by providing a
number of premium features such as priority access to Juno's network. Juno Web
subscribers also generally receive access to live technical support by phone at
no charge, and are not required to complete the Member Profile.

Juno Web's list price of $19.95 per month is lower than the standard $21.95
price point offered by America Online and The Microsoft Network. In addition,
since launching the service in 1998, we have made use of a variety of
promotional offers that include periods of discounted, free or prepaid access as
well as pricing plans that offer Juno Web, sometimes with a reduced premium
feature set, for flat monthly rates as low $4.95 and flat annual rates as low as
$23.40. At December 31, 2000, most of our billable subscribers were subscribed
to a promotional plan offering our service at the flat rate of $9.95 per month.
We intend to continue experimenting with a variety of pricing plans in the
future to determine their impact on profitability, subscriber acquisition,
conversion and retention rates.

JUNO EXPRESS

Juno Express is a broadband service designed to provide high-speed Internet
access through a variety of technologies such as DSL, cable, and wireless. Juno
Express offers consumers all the features of Juno Web plus the benefits of
broadband, including the ability to run high-bandwidth multimedia applications
that include video and audio content as well as the availability of a dedicated,
continuous connection to the Internet. DSL and wireless versions of Juno Express
are currently available in selected markets around the country, and we plan to
test a cable version of the service during 2001. We will decide to what extent
we will roll out our broadband services as the market for such services evolves,
as consumer demand for various competing broadband offerings can be assessed,
and as the economics of offering broadband services improves, if it does.

OUR STRATEGY

Our principal objective is to maintain our position as a leading provider of
consumer Internet-related services while driving our business toward
profitability, developing potentially valuable new strategic alliances and
continuing our program of ongoing product innovation. In particular, we plan to:

REDUCE THE COSTS ASSOCIATED WITH PROVIDING OUR FREE SERVICE. Internal
statistics collected toward the end of 2000 showed that approximately 5% of our
active free subscriber base was responsible for more than half the total hours
our free service was used to access the Web. Starting in the fourth quarter of
2000, we began implementing measures designed in part to encourage heavier users
of the free service to modify their usage patterns, upgrade to our billable
premium services, or participate in other revenue generating activities that
might help us cover the higher costs they cause us to incur. While we expect
these measures to result in a certain amount of subscriber attrition from the
free service, these measures should reduce our average cost of providing service
to a free subscriber--other things being equal--and might be expected to lead to
some amount of migration from the free service to our billable services.

DRIVE FURTHER MIGRATIONS TO OUR BILLABLE SERVICES. Our software is designed
to allow users to easily move to higher levels of service when they are ready to
use and pay for them through the point-and-click activation of additional
features, and to do so without having to change e-mail addresses. We plan to
continue marketing our premium services to our existing subscriber base through

a variety of advertising messages and promotions delivered through the Juno ad
system. Because internal marketing of this sort is generally less expensive for
us on a per-subscriber basis than subscriber acquisition efforts conducted
through direct mail or most other external advertising channels, we believe the
upward migration of our free basic service subscribers should enable us to avoid
the relatively high subscriber acquisition costs many of our competitors appear
to bear. We may also offer additional services or service levels to meet the
needs of our users, or may restructure or change the nature or pricing of our
various service levels at some point in the future.

SHIFT AND ENHANCE OUR REVENUE STREAMS WHILE REDUCING OUR RELIANCE ON
ADVERTISING REVENUE. Due to current industry-wide softness in demand for
Internet advertising, we are shifting the balance of our revenues toward other
revenue sources and plan to reduce our reliance on advertising as a source of
revenues. In addition to billable service subscription fees, which already
represent the majority of our revenues, we are exploring and developing
additional potential revenue sources, such as the Juno Virtual Supercomputer
Project, a distributed computing effort that aims to harness unused processing
power associated with the free portion of our subscriber base in order to
execute computationally intensive biomedical and other applications on behalf of
commercial clients and research institutions. To further improve the balance
between revenues and expenses, we are also investigating ways to increase
revenues from those subscribers who use our billable services most heavily,
especially those who currently pay a discounted promotional rate for their
service.

ENHANCE OUR SERVICES TO PROVIDE AN INCREASINGLY PERSONALIZED, INTEGRATED AND
ENGAGING INTERNET EXPERIENCE. In order to maintain and enhance our subscribers'
level of satisfaction with our services, we intend to leverage our unique
assets, such as the Member Profile data we collect, the Juno software our
members use, and our current and future relationships with content and feature
providers such as LookSmart and CNET, to enable us to offer our members a
compelling Internet experience.

EMBRACE NEW TECHNOLOGIES WHILE MAINTAINING TECHNOLOGY INDEPENDENCE. We
currently use several wholesalers of telecommunications services to connect our
subscribers to Juno's central computers and to the Web. Although we may at some
point consider investing in various forms of networking infrastructure,
particularly in cases where a given type of access would otherwise be difficult
or prohibitively costly to obtain, we currently expect to continue our extensive
use of wholesale providers. We believe this strategy enables us to remain
network-independent, and to switch providers or technologies as cost and
performance improvements become available. As a result, we believe we can be
flexible in responding to subscriber demand for higher-speed access and other
types of improved service.

TECHNOLOGY AND INFRASTRUCTURE

The operation of our services is supported by computer systems and related
infrastructure that have successfully sustained high levels of usage and growth.
Our servers routinely handle more than four million user connections per day.
Our subscribers have not suffered the sorts of repeated, prolonged system-wide
outages that have reportedly affected other online services. To enable our
computer and telecommunications facilities to support our large subscriber base,
we have made a concerted effort to design our systems architecture to be highly
flexible, to grow quickly without sacrificing reliability, and to handle
problems quickly when they arise.

To use our services, subscribers initiate telephone connections between
their personal computers and computer hardware in local or regional facilities
known as points of presence. We contract for the use of points of presence
around the country from various telecommunications carriers, including MCI
WorldCom Communications, through its UUNET Technologies and MCI WorldCom
Advanced Networks divisions; Level 3 Communications; NaviPath; PSINet; Splitrock
Services; Sprint Communications Company; StarNet; and XO Communications. These
telecommunications companies also carry data between the points of presence and
our central computers, which are located in

Cambridge, Massachusetts and Jersey City, New Jersey. Subscribers typically bear
no expenses for communication beyond the cost, if any, of an ordinary local or
regional phone call. We estimate that our current set of local access numbers
covers the vast majority of the U.S. population. Our reliance on several
independent providers of network capacity has allowed us to provide high quality
service throughout the United States while negotiating progressively lower
telecommunications rates from these competing providers.

Juno Web subscribers have more local access numbers from which to choose
than do users of our free basic service. Limiting the set of local access
numbers available to our free basic service users is one mechanism by which we
can reduce the cost of providing our free basic service and enhance the relative
performance of our premium dial-up service.

For both our free and our premium services, the time each user spends
connected to our central computers is minimized through the use of a patented
architecture that allows subscribers to read and compose e-mail messages
offline, connecting automatically to Juno's central computer facilities only for
the relatively brief period necessary to download incoming mail or upload
outgoing messages. Advertisements intended to be shown in the main Juno software
are downloaded to a subscriber's computer along with the subscriber's incoming
e-mail messages, and are displayed not only while the subscriber is actually
connected to our central facilities, but throughout the significantly longer
period during which he or she is reading and writing e-mail messages offline,
using only his or her own computer. The relatively large ratio between average
ad display time, an important revenue-related resource, and average connect
time, an important expense item, is essential to the economics of our services.
Because we believe that a significant fraction of all time spent online by
subscribers to the leading Internet access services is attributable to their
reading and writing e-mail messages while connected to the services' central
computers, we believe that our offline e-mail architecture confers an economic
advantage on our service relative to those of our competitors. Our subscribers
currently spend significantly fewer hours connected each month than reported
industry averages, and we believe our offline architecture is one of the reasons
for this relative savings.

SUBSCRIBER ACQUISITION

Since the launch of our free basic service in 1996, we have employed a
number of acquisition channels to increase total subscriber count, including
online distribution of our software through our Web site, direct mail, marketing
campaigns through media such as television and print advertising, and
distribution partnerships with third parties such as retailers or manufacturers
of computer hardware. We have also benefited from word-of-mouth and pass-along
distribution, where a subscriber to our service brings Juno to the attention of
a friend or relative.

Starting in the second half of 2000, as part of our strategic decision to
conserve cash, we substantially reduced our subscriber acquisition activities,
in particular our use of cash-intensive marketing channels such as direct mail
and traditional advertising. Online distribution and pass-along of our software
continue to be significant sources of new subscribers to our service, and we
continue to explore, and from time to time may enter into, third-party
distribution partnerships. However, as our principal focus shifts from
maximizing subscriber count to driving our business toward profitability, we
expect to further reduce our marketing expenditures and do not currently plan to
expand our use of marketing channels whose use we have effectively suspended,
such as direct mail.

Instead, we expect to focus our marketing activities on driving further
migrations from our free basic service to our billable premium services. Users
of the free basic service are exposed to a stream of marketing messages
delivered through the Juno ad system that encourage them to upgrade. While we
cannot predict the ultimate rate of conversion to our billable premium services,
we believe that continuing increases in the sophistication of Internet users and
in the demands they place on their Internet services may generate interest in
the features provided by our premium services among new

segments of our user base over time. In addition, when a subscriber to our basic
service is ready to begin using a higher level of service, we believe that it
will be easier and more natural to do so by clicking on a button displayed on
the Juno screen that he or she is already using than by identifying and
switching to an alternate access provider. When users of Juno's basic service
develop an interest in using premium services, we believe we are also likely to
benefit from individuals' reluctance to switch e-mail addresses, which may make
them more likely to obtain premium services from us than from another Internet
access provider. Please see "Item 7A--Risk factors that may affect future
results--Our ability to cause our free basic subscribers to subscribe to our
billable premium services is uncertain. If the number of subscribers upgrading
to our billable services falls short of our goals, our business and financial
results will suffer."

ADVERTISING AND STRATEGIC ALLIANCES

ADVERTISING SALES

Advertising plays an important role in the business model for each of our
service levels. Regardless of the level of service to which they subscribe, Juno
users view advertisements on the portal site where they begin each Web session
and within the main Juno software when they use e-mail, although users of our
free basic service may view more advertisements, or more types of
advertisements, than users of our premium billable services. Because of the
patented advertising technology we have developed, we are able to display ads
not only during the time a subscriber spends connected to the Internet but also
while he or she is using Juno offline to read or write e-mail. We thus have a
wide variety of advertising opportunities which we can offer marketers
interested in communicating with our subscribers, ranging from simple one-time
ad placements to broad sponsorships of categories of content, commerce and
functionality on our portal site or on the Juno services in general.

To manage ad creation and campaign development, we maintain an in-house ad
production and client service staff. We also employ an internal sales force to
market our ad inventory, with the exception of the banner inventory on our
portal site, which is currently marketed principally by third parties.

TYPES OF ADVERTISING ON JUNO'S SERVICES

As described above, we currently display advertising in multiple locations
within the Juno service. In addition to ads that appear on our portal
site--where most of the ads take the form of conventional Web banner ads,
supplemented by various types of sponsorship links--we display a variety of ads
within the main Juno software:

- BANNER ADS, which are displayed in the upper right-hand corner of the main
Juno screen while the subscriber is reading or composing e-mail messages.
Banner ads are displayed on a timed rotation, with a new ad typically
appearing every 20 or 30 seconds, and are interactive, offering viewers
the opportunity to click on them and respond in a number of ways.

- INTERSTITIAL ADS, which are displayed while a subscriber's modem is
dialing into our central computers to send or receive e-mail or to connect
to the Web. Interstitial ads are significantly larger than a banner ad,
and are viewed at a time when the subscriber is not yet occupied with any
other activity.

- POP-UP ADS that interrupt a user's session, and with which the subscriber
must interact at least briefly before continuing with his or her session.
Pop-up ads are most commonly displayed at the start of a session,
immediately after the subscriber types in his or her password, and may
contain any of the features of banner ads.

- DIRECT E-MAIL ADS which subscribers receive in their inbox when they
collect new e-mail that has been sent to them. E-mail ads may be text or
HTML messages, and can allow subscribers to click through to advertisers'
Web sites.

Additionally, we currently display a persistent advertising and navigation
banner to users of our free service at all times while they use the Web.
However, due to pending litigation with a competitor, we are only using this
surface to display ads for our own services for the time being, and may
discontinue its use entirely in the future.

Advertising on Juno may be purchased on a price-per-impression,
price-per-clickthrough or price-per-response basis, or according to special
arrangements negotiated on a case-by-case basis. With the exception of some
types of Web-based ads, each category of ad may be targeted to a narrowly
specified subset of our subscriber base based on data provided by each
subscriber in his or her Member Profile. While our privacy policies preclude the
dissemination to advertisers or other third parties of any of the data contained
in an individual's Member Profile without that individual's consent, aggregate
statistical information about the Juno subscriber base is routinely provided to
advertisers and can be used to target specific ads to all subscribers satisfying
any specified combination of attributes.

STRATEGIC MARKETING ALLIANCES

We have formed a number of large-scale, strategic marketing alliances that
provide for substantial guaranteed payments to Juno as advances against various
forms of revenue-sharing:

- QWEST COMMUNICATIONS. Under our agreement with Qwest Communications, we
received substantial guaranteed payments as a non-refundable advance
against a significant percentage of all revenues derived, on an ongoing
basis, from telephone customers recruited through the Juno service.

- THE HARTFORD. Our agreement with The Hartford provides for reimbursement
of our marketing expenses as well as substantial guaranteed payments as an
advance against both bounties paid when a Juno member purchases an
insurance policy and an ongoing percentage of premiums collected from that
subscriber.

The agreements described above can typically be terminated on short notice
by either party, provided, however, that in some cases, the party terminating
the agreement is required to make specified payments to the other party.

Other types of strategic marketing relationships include a number in which
we have provided advertising credit to other companies in return for
distribution of the Juno software, and a number in which we have exchanged
advertising space with companies on a barter basis.

COMPETITION

The market for Internet services is extremely competitive and includes a
number of substantial participants, including AOL Time Warner, Microsoft and
AT&T. The markets for Internet-based advertising and electronic commerce are
also very competitive. Our ability to compete depends upon many factors, many of
which are outside of our control. We believe that the primary competitive
factors determining success in these markets include effective marketing to
promote brand awareness, a reputation for reliability and service, effective
customer support, pricing, easy-to-use software and geographic coverage. Other
important factors include the timing and introduction of new products and
services as well as industry and general economic trends. The market for
Internet services has begun to consolidate, and we expect competition to
increase as some of our competitors grow larger through consolidation or begin
to bundle Internet services with other products and services. Our current and
potential competitors include many large national companies that have
substantially greater market presence and financial, technical, distribution,
marketing and other resources than we have. This may

allow them to devote greater resources than we can to subscriber acquisition
activities and to the development, promotion and distribution and sale of
products and services.

Our competitors may be able to charge less for premium Internet services
than we do for our billable premium services, or offer services for free that we
currently provide only for a fee, which may put pressure on us to reduce or
eliminate, or prevent us from raising, the fees we charge for our billable
premium services. We may choose, for competitive or other reasons, to lower or
eliminate the fees we currently charge for our billable premium services, or
enhance the features available to users of our free basic service, in order to
remain competitive with other industry participants. Any decrease in such prices
could result in a reduction in our billable services revenue and would harm the
profitability of our billable services.

In the near term, however, we currently believe it is more likely that we
will increase the prices we charge at least some subscribers to our billable
premium services, in an effort to increase our billable services revenue and
profitability. Any such price increase would be expected to result in subscriber
attrition, possibly to an extent sufficient to cause overall revenues from
billable services to decline, either of which outcomes could cause our business
and financial results to suffer.

In recruiting subscribers for our services, we currently compete, or expect
to compete, with the following types of companies, among others:

- National providers of Internet access such as AOL Time Warner, Earthlink,
and Microsoft, including some companies, such as Bluelight.com and
NetZero, that offer some level of Internet access for free;

- Numerous independent regional and local Internet service providers that
may offer lower prices than most national Internet service providers;

- Various national and local telephone companies such as AT&T, MCI WorldCom
Communications and Pacific Bell, a division of SBC Telecom;

- Companies providing Internet access through "set-top boxes" connected to a
user's television, such as WebTV, or through a "cable modem" connected to
a user's personal computer, such as Excite@Home; and

- Companies providing Internet access services using other broadband
technologies, including digital subscriber line technology, commonly known
as DSL, such as the Regional Bell Operating Companies and various partners
of Covad, Rhythms, and NorthPoint.

In addition, Microsoft and Netscape, publishers of the Web browsers utilized
by most Internet users, including Juno subscribers, each own or are owned by
online or Internet service providers that compete with Juno.

In addition to competition from the types of companies listed above, we also
face the risk that subscribers to our premium billable services will migrate to
our free basic service, which would result in a decrease in our subscription
revenues.

We do not currently offer services internationally, other than to a small
base of users located in Canada. If the ability to provide Internet services
internationally becomes a competitive advantage in our markets and we do not
begin to provide services internationally, we will be at a competitive
disadvantage.

If advertisers perceive the Internet to be a limited or ineffective advertising
medium or perceive us to be less effective or less desirable than other Internet
advertising vehicles, advertisers may be reluctant to advertise on our services.

In addition to intense competition, the overall market for Internet
advertising has been characterized in recent quarters by continuing and
significant reduction in demand, the reduction or cancellation of advertising
contracts, a significant increase in uncollectible receivables from advertisers,
and a significant reduction of Internet advertising budgets, especially by
Internet-related companies. In addition, an increasing number of
Internet-related companies have experienced deteriorating financial results and
liquidity positions, and/or ceased operations or filed for bankruptcy
protection, or may be expected to do so. The impact of these trends is
exacerbated in Juno's case because of the large percentage of Juno's advertisers
that are Internet-related companies. If demand for Internet advertising in
general or our advertising inventory in particular does not increase or declines
further, if our advertisers reduce or cancel their contracts with us or if we
are unable to collect amounts they owe us for contracts we fulfill, our business
and financial results may suffer.

Our competition has increased and is likely to continue to increase. We
believe this will probably happen as Internet service providers and online
service providers consolidate and become larger, more competitive companies, and
as large diversified telecommunications and media companies acquire Internet
service providers. Many market participants offer services similar to one or
more of the services we provide. Other market participants may introduce free or
billable Internet services that compete with ours. The larger Internet service
providers and online service providers, including America Online, offer their
subscribers a number of services that we do not currently provide. Some
diversified telecommunications and media companies, such as AT&T, have begun to
bundle other services and products with Internet access services, potentially
placing us at a significant competitive disadvantage. Additionally, some
Internet service providers and personal computer manufacturers have formed
strategic alliances to offer free or deeply discounted computers to consumers
who agree to sign up with the service provider for a one-year or multi-year
term. In a variant on this approach, some Internet service providers have
secured strategic relationships with manufacturers or retailers of computer
equipment in which the service provider finances a rebate to consumers who sign
up with the service provider for one or more years. In the past, we have formed
several such relationships, and did not find them effective as a means of
attracting new subscribers to our services. Our competitors may be able to
establish strategic alliances or form joint ventures that put us at a serious
competitive disadvantage. Increasing competition could result in increased
subscriber attrition. It could also put pressure on us to increase our spending
for sales and marketing and for subscriber acquisition and retention activities
at a time when we may not have adequate cash resources to devote to such
activities. Competition could also require us to lower the prices we charge for
our billable premium services, or eliminate such fees altogether, in order to
maintain our marketplace position--, or, alternatively, could cause our
marketplace position to suffer if, as we currently believe is more likely, we
were to increase the prices we charge at least some subscribers to our billable
services. Any of these scenarios could harm our business and financial results,
and we may not have the resources to continue to compete successfully.

GOVERNMENT REGULATION

Providers of Internet access and e-mail services are not subject to direct
regulation by the Federal Communications Commission, but changes in the
regulatory environment relating to the telecommunications and media industries
could have an effect on our business. For example, some telecommunications
carriers have sought to have communications over the Internet regulated by the
FCC in the same manner as other more traditional telecommunications services.
Local telephone carriers have also petitioned the FCC to regulate Internet
access providers in a manner similar to long distance telephone carriers and to
impose access fees on these providers, and recent events suggest that

they may be successful in obtaining the treatment they seek. In addition, we
operate our services throughout the United States, and regulatory authorities at
the state level may seek to regulate aspects of our activities as
telecommunications services. As a result, we could become subject to FCC and
state regulation as Internet services and telecommunications services converge.

We remain subject to numerous additional laws and regulations that could
affect our business. Because of the Internet's popularity and increasing use,
new laws and regulations with respect to the Internet are becoming more
prevalent. These laws and regulations have covered, or may cover in the future,
issues such as:

- user privacy;

- pricing and disclosure of pricing terms;

- intellectual property;

- federal, state and local taxation;

- distribution; and

- characteristics and quality of products and services.

Legislation in these areas could slow the growth in use of the Internet
generally and decrease the acceptance of the Internet as a communications and
commercial medium. Additionally, because we rely on the collection and use of
personal data from our subscribers for targeting advertisements shown on our
services, we may be harmed by any laws or regulations that restrict our ability
to collect or use this data. The Federal Trade Commission has begun
investigations into the privacy practices of companies that collect information
about individuals on the Internet. In addition, the FTC is conducting an ongoing
investigation into the marketing practices of Internet-related companies,
including Juno. As part of the FTC's activities, we have been requested to
provide, and have provided, marketing-related and customer service-related
information to the FTC. Depending on the outcome of the FTC inquiry, we could be
required to modify our marketing or customer service practices in a way that
could negatively affect our business.

It may take years to determine how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet. Any
new legislation or regulation regarding the Internet, or the application of
existing laws and regulations to the Internet, could harm us. Additionally,
while we do not currently operate outside of the United States, the
international regulatory environment relating to the Internet market could have
an adverse effect on our business, especially if we should expand
internationally.

The growth of the Internet, coupled with publicity regarding Internet fraud,
may also lead to the enactment of more stringent consumer protection laws. For
example, numerous bills have been presented to Congress and various state
legislatures designed to address the prevalence of unsolicited commercial bulk
e-mail on the Internet. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations in this area may
impede the growth of the Internet, which could decrease our potential revenues
or otherwise cause our business to suffer. For additional information, see "Item
7A Risk Factors that may affect future results--Changes in government regulation
could decrease our revenues and increase our costs."

INTELLECTUAL PROPERTY

will result in the issuance of patents, that any patents that have been granted
or that might be granted in the future will provide us with any competitive
advantages or will be exploited profitably by us, or that any of these patents
will withstand any challenges by third parties. We also cannot assure you that
others will not obtain and assert patents against us which are essential for our
business. If patents are asserted against us, we cannot assure you that we will
be able to obtain license rights to those patents on reasonable terms or at all.
If we are unable to obtain licenses, we may be prevented from operating our
business and our financial results may therefore be harmed.

Except as described above, we rely solely upon copyright and trademark law,
trade secret protection and confidentiality agreements with our employees and
with some third parties to protect proprietary technology, processes, and other
intellectual property to the extent that protection is sought or secured at all.
We cannot assure you that any steps we might take will be adequate to protect
against misappropriation of our intellectual property by third parties.
Similarly, we cannot assure you that third parties will not be able to
independently develop similar technology, processes, or other intellectual
property. Furthermore, we cannot assure you that third parties will not assert
claims against us for infringement of their intellectual property rights.

On December 26, 2000, NetZero, Inc. filed a lawsuit in the United States
District Court for the Central District of California alleging that Juno has
infringed NetZero's U.S. patent No. 6,157,946. For additional information, see
"Item 3. Legal Proceedings."

EMPLOYEES

As of December 31, 2000, we employed 332 people in the United States and
India, of whom 162 were in operations, sales and marketing, and customer
support; 102 were in engineering, product development and network operations;
and 68 were in finance, legal and administration. Our employees are not covered
by any collective-bargaining arrangements, and we consider our relations with
our employees to be good.

ITEM 2. PROPERTIES

Our principal executive office is located in New York, New York, where we
lease approximately 26,400 square feet. In addition, we lease additional office
space in New York City and also lease offices in San Francisco, California;
Cambridge, Massachusetts; Washington, D.C.; and Hyderabad, India. We believe
that our current office space is sufficient to accommodate our operations and do
not expect to lease additional office space in the near future.

ITEM 3. LEGAL PROCEEDINGS

We are involved in disputes and litigation in the ordinary course of our
business, as well as the particular matters described below.

In June 2000, we entered into a subscriber referral agreement with
Freewwweb, a provider of free Web access that had elected to cease operations.
Because Freewwweb and its affiliates had sought the protection of Chapter 11 of
the Bankruptcy Code, this agreement was subject to approval by the U.S.
Bankruptcy Court for the Southern District of New York. On July 19, 2000, the
Bankruptcy Court granted Freewwweb's motion to approve the agreement.
Thereafter, we began the subscriber referral process, which included Freewwweb's
voluntary delivery to Juno of a computer file containing their subscribers'
e-mail addresses and passwords in order to enable us to provide e-mail
forwarding services to any former Freewwweb subscribers who chose to sign up for
Juno. On August 1, 2000, Freewwweb and its principals filed a pleading with the
Bankruptcy Court asserting that Juno is obligated to pay compensation in an
amount in excess of $80 million solely as a result of the delivery to Juno of
this file. Freewwweb's assertion is based on the premise that Juno should pay a
subscriber referral fee for every former Freewwweb subscriber whose e-mail
address and password was contained in the file,

rather than, as stipulated in the agreement approved by the Bankruptcy Court,
the significantly smaller number of former Freewwweb subscribers who actually
created a new Juno account and used such account to access the Web for at least
a specified minimum amount of time in a specified qualification period. We
believe that Freewwweb's assertions are entirely without merit, that Freewwweb
is not entitled to the additional consideration it seeks and that the likelihood
that Freewwweb will be awarded any material compensation is remote. We have
commenced a proceeding with the Bankruptcy Court requesting a ruling on this
issue, as well as seeking monetary damages against Freewwweb. We intend to
defend our interests vigorously in this matter.

We filed an action against Qualcomm Incorporated and NetZero, Inc. in the
United States District Court for the District of Delaware on June 1, 2000,
alleging that the defendants have infringed our U.S. Patent No. 5,809,242. The
complaint was served on the defendants on September 25, 2000. Our patent, issued
in 1998, relates to technology developed by Juno that enables advertisements and
other content to be displayed to an Internet user while that user is offline.
The complaint alleges that a version of Qualcomm's Eudora e-mail software
includes a setting called "sponsor mode" that enables advertising to be
displayed while the user reads and writes e-mail offline. NetZero had begun
distributing this version of Eudora and had engaged in activities to encourage
its subscribers to use it. Our lawsuit seeks declaratory relief, permanent
injunctive relief and actual and punitive damages against both defendants. On
November 6, 2000, the defendants filed an answer and counterclaim in which they
seek to have the court declare our patent invalid. Our company policy is to
vigorously pursue the protection of our intellectual property rights. We have
not ruled out the possibility that a settlement of this dispute would be in our
best interests, if it can avoid the time, expense, management distraction and
uncertainty of litigation. There can be no assurance that a settlement, if any
can be reached, would achieve the results that might have been available to us
through litigation, or would otherwise be advantageous to us.

On December 26, 2000, NetZero filed a separate action in the United States
District Court for the Central District of California, alleging that Juno has
infringed U.S. Patent No. 6,157,946. NetZero has alleged that the persistent
advertising and navigation banner displayed to users of Juno's free service,
while they use the Web, along with other elements of Juno's service, infringes
the patent. NetZero is seeking unspecified monetary damages, attorneys fees, and
various forms of preliminary and permanent injunctive relief, including a
prohibition on Juno's continuing to offer its free service in its current form.
On January 5, 2001, the court entered an interim temporary restraining order
prohibiting Juno from displaying third-party advertisements in the persistent
advertising and navigation banner. This order is expected to remain in effect
until March 29, 2001, at which time we expect the court to hold a preliminary
injunction hearing to determine whether to extend, modify, or terminate the
interim order. The court has scheduled a trial commencing in July 2001. We
intend to defend our interests vigorously in this matter.

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

Not applicable.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET PRICE FOR COMMON STOCK

Our common stock has been quoted on the Nasdaq National Market under the
symbol JWEB since our initial public offering on May 25, 1999. The following
table sets forth, for the periods indicated, the high and low sales prices per
share of the common stock as reported on the Nasdaq National Market:

HIGH LOW
-------- --------

FISCAL YEAR ENDED DECEMBER 31, 1999
Second Quarter (from May 26, 1999)........................ $29.3750 $ 8.8750
Third Quarter............................................. $27.7500 $12.0625
Fourth Quarter............................................ $87.0000 $14.0000
FISCAL YEAR ENDED DECEMBER 31, 2000
First Quarter............................................. $48.6250 $14.0000
Second Quarter............................................ $16.1250 $ 5.7500
Third Quarter............................................. $11.8130 $ 3.5000
Fourth Quarter............................................ $ 4.4690 $ 0.5940
FISCAL YEAR ENDING DECEMBER 31, 2001
First Quarter (through March 8, 2001)..................... $ 4.5000 $ 0.7500

On March 8, 2001, the last reported sales price of the common stock on the
Nasdaq National Market was $1.41 per share. As of March 8, 2001, there were 480
holders of record of our common stock.

On June 30, 2000, we entered into a subscriber referral agreement with
WorldSpy.com, Inc., NaviPath, Inc. and other parties. Under the terms of the
subscriber referral agreement, we have provided compensation to WorldSpy and
NaviPath based on the number of former WorldSpy subscribers that became new
subscribers to our services, subject to certain qualifications and restrictions.
As consideration for these referrals, we issued an aggregate of 1,836,283 shares
of our common stock to WorldSpy and NaviPath on October 31, 2000, based on a
closing sale price per share of $2.66 on that date and an aggregate of 172,020
additional shares of our common stock to WorldSpy and NaviPath on December 21,
2000, based on a closing sale price per share of $1.25 on that date. These
transactions, which did not involve the engagement of an underwriter, were
unregistered sales of Juno's common stock and were structured to claim the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended, for sales of securities not involving a public offering. We
received no cash proceeds from these issuances. In accordance with our rights
under the subscriber referral agreement, we ceased accepting additional WorldSpy
subscribers on November 30, 2000, and we do not expect to issue additional
shares of common stock under this agreement.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our capital stock since
inception. We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Consequently, stockholders will need to sell shares of
common stock in order to realize a return on their investment, if any.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to these
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The consolidated statement of
operations data for the years ended December 31, 1998, 1999 and 2000 and the
consolidated balance sheet data at December 31, 1999 and 2000, are derived from
the consolidated financial statements of Juno which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere
herein. The consolidated statement of operations data for the years ended
December 31, 1996, and 1997, and the consolidated balance sheet data at
December 31, 1996, 1997, and 1998 are derived from the audited consolidated
financial statements of Juno not included elsewhere herein.

Net loss per share for the year ended December 31, 1999 is calculated
separately for the periods prior and subsequent to the March 1999 statutory
merger. The pro forma information regarding net loss per share and weighted
average shares outstanding set forth below gives effect to the treatment of
Class A limited partnership units as shares of common stock for all periods
presented and the conversion of Series B redeemable convertible preferred stock
for the period following the March 1999 statutory merger. See the consolidated
financial statements and the notes to these statements appearing elsewhere
herein for the determination of the number of shares used in computing
historical and pro forma basic and diluted loss per share for the year ended
December 31, 1999.

YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- -------- -------- --------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenues:
Billable services..................... $ 73,911 $ 34,545 $ 6,645 $ 1,371 $ 6
Advertising and transaction fees...... 38,708 12,662 6,454 1,875 127
Direct product sales.................. 1,419 4,794 8,595 5,845 3
--------- -------- -------- -------- --------
Total revenues...................... 114,038 52,001 21,694 9,091 136
--------- -------- -------- -------- --------
Cost of revenues:
Billable services..................... 49,024 24,950 5,606 1,053 --
Advertising and transaction fees...... 8,115 4,675 3,725 1,659 278
Direct product sales.................. 1,344 4,176 7,627 5,796 3
--------- -------- -------- -------- --------
Total cost of revenues.............. 58,483 33,801 16,958 8,508 281
--------- -------- -------- -------- --------
Operating expenses:
Operations, free service.............. 38,311 6,698 9,383 11,075 5,803
Subscriber acquisition................ 116,461 47,651 5,334 3,140 6,993
Sales and marketing................... 18,105 11,556 11,584 12,593 4,276
Product development................... 10,282 7,232 7,345 4,860 3,741
General and administrative............ 9,303 4,615 2,760 2,897 2,172
--------- -------- -------- -------- --------
Total operating expenses............ 192,462 77,752 36,406 34,565 22,985
--------- -------- -------- -------- --------
Loss from operations................ (136,907) (59,552) (31,670) (33,982) (23,130)

Interest income, net.................... 5,509 3,718 44 243 128
--------- -------- -------- -------- --------
Net loss............................ $(131,398) $(55,834) $(31,626) $(33,739) $(23,002)
========= ======== ======== ======== ========

YEAR ENDED DECEMBER 31, 1999
--------------------------------------
TEN MONTHS TWO MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, FEBRUARY 28, ------------------------------
2000 1999 1999 TOTAL 1998 1997 1996
------------ ------------ ------------ -------- -------- -------- --------
(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

EARNINGS PER SHARE CALCULATION:
Net loss....................... $(131,398) $(51,484) $(4,350) $(55,834) $(31,626) $(33,739) $(23,002)
========= ======== ======= ======== ======== ======== ========
Basic and diluted net loss per
share........................ $ (3.39) $ (2.07)
========= ========
Basic and diluted net loss per
Class A limited partnership
unit......................... $ (0.25) $ (1.85) $ (3.21) $ (7.01)
======= ======== ======== ========
Weighted average number of:
Shares of common stock....... 38,747 24,877
========= ========
Class A limited partnership
units...................... 17,684 17,091 10,500 3,281
======= ======== ======== ========
Pro forma basic and diluted net
loss per share............... $ (1.84) $ (1.85)
======== ========
Weighted average shares
outstanding used in pro forma
basic and diluted per share
calculation.................. 30,339 17,091
======== ========

YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents............................ $55,729 $ 91,497 $ 8,152 $13,770 $ 598
Working capital (deficiency)......................... 23,216 67,571 (8,343) 6,927 (2,004)
Total assets......................................... 78,371 117,568 14,431 20,133 4,774
Total indebtedness, including current maturities..... 1,611 2,878 10,188 795 --
Liabilities expected to be settled with common
stock................................................ 4,000 -- -- -- --
Partners' capital (deficiency)....................... -- -- (12,588) 10,504 (2,004)
Total stockholders' equity........................... 28,745 71,648 -- -- --

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF JUNO SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE HEREIN. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. JUNO'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED
OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
SUCH AS THOSE SET FORTH UNDER "ITEM 7A--RISK FACTORS THAT MAY AFFECT FUTURE
RESULTS" AND ELSEWHERE HEREIN.

OVERVIEW

We launched our basic service in April 1996. Initially, this service
provided only basic dial-up e-mail services. In July 1998, we introduced our
first premium services, which offered features ranging from enhanced e-mail
services to full access to the World Wide Web, and for which we charged
subscription fees. In 1999 and 2000, we announced a number of major expansions
of our services:

- Our BASIC SERVICE now provides full Internet access for free in addition
to e-mail.

- JUNO EXPRESS is a broadband service designed to provide high-speed access
to the Internet through a variety of technologies. Currently offered in
selected markets around the country, Juno Express is available in DSL and
wireless versions. Juno plans to test a cable version of the service in
2001.

In December 1999, in connection with the expansion of our free basic service
to include full Web access, we upgraded all subscribers using our enhanced
e-mail service, Juno Gold, to Juno Web at no additional cost.

In the month of December 2000, our base of active subscribers increased to
4.0 million, up from 2.4 million in December 1999 and 3.7 million in
September 2000. Our billable subscriber base grew to 842,000 at December 31,
2000, up from 550,000 at December 31, 1999 and 750,000 as of September 30, 2000.
Total registered subscriber accounts grew to 14.2 million at December 31, 2000,
up from 8.1 million as of December 31, 1999 and 12.8 million at September 30,
2000. See Selected Subscriber Data after the Results of Operations section in
this Item for a presentation of subscriber data over the last eight fiscal
quarters. Our base of active subscribers encompasses all registered subscriber
accounts that connected at least once during the month, together with all
subscribers to a billable service, in each case regardless of the type of
activity or activities engaged in by such subscribers. As of December 2000, 90%
of our active subscribers had full Web access, up from 88% in September 2000.

The quarter-over-quarter growth rate of our billable subscriber base
increased to 12.3% in the fourth quarter, up from 2.7% in the third quarter.
Most of the growth in the fourth quarter was the result of migrations from our
free basic service to our billable premium services, principally following our
adoption of measures designed in part to encourage heavier users of the free
service to modify their usage patterns or upgrade to a billable service. While
we expect these measures to result in a certain amount of subscriber attrition
from the free service, we believe they are also responsible for a significant
portion of the increase in migrations to our billable services. There can be no
assurance that the growth rate we experienced in the fourth quarter will
continue in the current quarter or in any

future quarter. Furthermore, given our current focus on the continued reduction
of expenses, and in particular our expectation that we will reduce subscriber
acquisition expenditures further, our overall active subscriber base is unlikely
to grow during 2001. Our billable subscriber base may also not grow during 2001,
particularly to the extent that we implement measures currently being
investigated to increase average revenue per billable subscriber by reducing our
use of discounted promotional pricing for at least some users of our billable
services.

We classify our revenues as follows:

(1) Billable services revenues, consisting of:

(a) subscription fees that we receive from subscribers to our premium
services;

(b) technical support fees received when subscribers to our free basic
service and those subscribers to Juno Web who are subscribed at our
lowest price points call a 900 number for live assistance from a
support technician, as well as fees for other billable services; and

(c) fees charged, at various times, for shipping and handling associated
with mailing copies of the Juno software upon request to prospective
Juno subscribers, and for short-term consulting engagements.

(2) Advertising and transaction fees, consisting of revenues earned from
advertisers and strategic marketing partners for displaying
advertisements to, and facilitating electronic commerce with, our
subscribers. These advertisements are displayed within the main Juno
software while a Juno subscriber reads or writes e-mail and on Juno's Web
portal site, and during 2000 and a portion of 2001 were also displayed on
the persistent advertising and navigation banner shown to our free
subscribers at all times while they use the Web.

(3) Direct product sales, consisting of revenues generated from the sale of
products directly by us to our subscribers and the associated shipping
and handling fees. The Company began phasing out its direct product sales
activities during 1999, and completed this process in August 2000.

We currently offer our billable premium services under a number of pricing
plans. The list price for Juno Web is a flat rate of $19.95 per month, but since
the launch of the service, we have offered a number of promotions, such as a
free month of service or a discounted rate for an initial or prepaid period, as
well as discounted flat-rate plans. Currently, the most common pricing plan for
Juno Web is a flat fee of $9.95 per month following a free initial month. We are
currently evaluating the desirability of reducing the extent of the discounted
promotional pricing we employ. If we were to reduce the extent of such
discounted pricing in the future, this change might be expected to strengthen
billable services gross margin as a percentage of billable services revenues and
reduce our net loss, while resulting in some attrition of our billable
subscriber base that might not occur in the absence of such change. Our
broadband service, Juno Express(SM), is currently offered through a number of
technologies, including DSL technology and mobile wireless technology, at price
points starting at $49.95 per month. To date, DSL subscribers have received
their installation and equipment for free after a manufacturer rebate of $198,
an offer we may or may not continue to extend in the future. We have not
undertaken any substantial amount of marketing for Juno Express to date, and as
of December 31, 2000, only a negligible number of subscribers--roughly 3,000,
not all of whom had completed the installation and set-up process by such
date--had signed up for broadband service through Juno Express. Subscription
revenues for our billable premium services accounted for approximately 98% of
billable services revenues during 2000.

The expansion of our free basic service to include full Web access in
December 1999 caused the costs associated with operating our free basic service
to increase significantly on a quarter-over-quarter basis in each of the first
three quarters of 2000 due to significantly increased telecommunications
connection time per subscriber per month. These costs, which are reflected in
the "Operations, free

service" line of our statement of operations, dropped somewhat in the fourth
quarter of 2000 as compared to the third quarter, following our adoption of
measures designed to address excessive resource consumption by heavier users of
the free service. We currently expect these measures to further reduce average
monthly connection time per free subscriber and average Operations, free service
cost per subscriber during the first quarter of 2001.

When we expanded our free service to include full Web access, we also
introduced a persistent advertising and navigation banner that is displayed to
our free subscribers at all times while they use the Web. Our long-term strategy
contemplated our generating sufficient additional revenues from this persistent
advertising banner and from other advertising inventory we control to cover the
costs associated with our service expansion. However, we have not yet been able
to generate sufficient additional revenues to cover these increased costs.
Furthermore, in December 2000, one of our competitors commenced legal action
against us asserting that elements of the technology we use in connection with
our persistent advertising and navigation banner infringe on a United States
patent issued to them earlier that month. We intend to vigorously contest the
allegations. In the meantime, as per a temporary restraining order issued in
connection with the ongoing dispute, we are not currently displaying any
third-party advertisements in this particular banner. Compliance with the
temporary restraining order issued by the court is not expected to have a
significant impact on our results of operations, as the advertising inventory to
which it pertains contributed less than 4% of total revenues and less than 9% of
advertising and transaction fee revenues during our most recently completed
quarter. In part due to the operation of the temporary restraining order, we
expect that this banner will represent at most a negligible percentage of
revenue for at least the first quarter of 2001. Please see "Item 7A--Risk
Factors that May Affect Future Results--If we fail to adequately protect our
intellectual property or face a claim of intellectual property infringement by a
third party, we could lose our intellectual property rights or be liable for
significant damages" for more detailed information.

Revenues from advertising and transaction fees and from direct product sales
totaled $40.1 million on a combined basis in 2000, up from $17.5 million in
1999. However, in the fourth quarter of 2000, such revenues were approximately
6.0% lower than in the third quarter, reflecting industry-wide softness in the
demand for Internet advertising. On a per subscriber basis, revenues associated
with our free basic service declined approximately 14% in the fourth quarter of
2000, to an average of approximately $0.95 per active free subscriber per month
in the fourth quarter, down from approximately $1.10 per subscriber per month in
the third quarter. We believe it is likely that revenues associated with the
free service will continue to decline over the coming quarters and are thus
taking steps to reduce expenses associated with providing the free service, with
a particular emphasis on telecommunications costs. The full impact of these
steps is unlikely to be realized for several quarters. We currently expect
revenues associated with the free basic service to continue to be exceeded for
some time by the sum of the expenses reported on the Operations, free service
line and the portion of the Cost of revenues line associated with the free
service. Our business may suffer if the market for Internet-based advertising
fails to recover or if the steps we are taking to reduce expenses fail to have
the desired impact. Our strategy contemplates that subscription fees for
billable premium services are likely to remain the largest source of revenues
for Juno in the immediate future. In light of our current focus on the continued
reduction of expenses and improvement of bottom-line performance, as well as the
softness in the Internet advertising market, our firmwide revenues are expected
to decrease during the first quarter of 2001 as compared to the fourth quarter
of 2000.

The impact on Juno of the softness in demand for Internet advertising is
reflected in our backlog of advertising contracts, which decreased to
approximately $12.0 million at the end of the fourth quarter from about
$28.0 million at the end of the third quarter as new signings slowed
substantially and a number of advertisers either shortened or cancelled their
advertising contracts. Over the past several quarters the change in our
advertising backlog has been a fairly reliable directional indicator for the
quarters that follow. Additionally, as certain advertisers have gone out of
business or found themselves in financial distress, we have also experienced a
significant increase in uncollectible

receivables. The impact of these widely reported effects was exacerbated in
Juno's case by the fact that Internet-related companies continued to represent a
significant majority of our advertisers in the fourth quarter of 2000. In light
of these trends, we believe that revenues from advertising and transaction fees
are likely to decline substantially in the first quarter of 2001 as compared to
the fourth quarter of 2000, and are unlikely to increase in the remaining
quarters of 2001. Please see "Item 7A--Risk Factors that May Affect Future
Results--Our strategic marketing alliances and other sources of advertising
revenue are concentrated in the Internet industry, making us vulnerable to
downturns experienced by other Internet companies or the Internet industry in
general." We also expect the balance between billable service revenues and
advertising revenues to continue shifting toward the former, from a ratio of
approximately two to one in the fourth quarter to approximately four to one in
2001.

During the fourth quarter of 2000, we resolved a dispute we had with 24/7
Media regarding guaranteed minimum payments owed to Juno. 24/7 Media is a
third-party sales force that we granted the exclusive right to sell
substantially all of our persistent advertising banner inventory. The results of
the dispute did not have a material effect on our results of operations during
the fourth quarter of 2000. Under the terms of the settlement, we may continue
to work with 24/7 Media, but both our exclusivity obligations to 24/7 Media and
24/7 Media's future guaranteed minimum payments to Juno were eliminated.

Our competitors for revenues from advertising and electronic commerce and
for subscribers to our free or billable services include companies that have
substantially greater market presence, and financial, technical, distribution,
marketing, and other resources than we have. This competitive environment could
have a variety of harmful effects on us, including limiting our ability to enter
into or renew agreements with distribution partners, necessitating advertising
rate reductions or price reductions for our billable services, or placing us at
a competitive disadvantage if we do not maintain or increase, or if we execute
on our plans to decrease, our spending in areas such as marketing,
telecommunications, and product development. Additionally, we believe that
overall demand for Internet-related advertising inventory has declined in recent
quarters, leading to reduced near-term expectations with regard to
advertising-related revenues for a number of companies in the Internet sector,
including Juno.

As of December 31, 2000, we held a total of $55.7 million in cash and cash
equivalents. We believe that changes in the market environment over the past
year have increased the value of corporate cash reserves as well as the relative
importance of bringing expenses more in line with revenues over time and
reducing our reliance on external sources of capital. We continue to place a
high value on flexibility, and may well respond on an opportunistic basis to
further changes within the industry, but for the time being we expect to
continue our recent shift of focus from the aggressive, cash intensive growth of
our subscriber base to the reduction of cash outflows and subscriber acquisition
investments overall and to the exploration and development of additional
potential revenue sources.

Internal statistics we collected late in 2000 indicated that approximately
5% of the active subscribers to our free basic service were responsible for more
than half the total hours that service is used to access the Web, and therefore
a disproportionate fraction of the related telecommunications expense. One of
our goals is to improve the balance between revenues and expenses by segmenting
our subscriber base and concentrating increasingly on extracting value from the
most productive and least costly segments, while taking steps to control the
costs associated with the least productive and most costly. We believe this
increased emphasis on the profitability of various segments of our subscriber
base to be appropriate, particularly in light of recent changes in the Internet
market environment.

We are subject to industry trends that affect Internet access providers
generally, including seasonality and subscriber cancellations. We believe
Internet access providers may incur higher expenses during the last and first
calendar quarters, corresponding to heavier usage during the fall and winter,
and may experience relatively lighter usage and relatively fewer account
registrations during the summer. We believe certain subscriber acquisition
methods also tend to be most effective during the

first and last calendar quarters of each year, and if we were to pursue such
subscriber acquisition activities at some point in the future, we may take these
types of seasonal effects into consideration in scheduling such marketing
campaigns. Although we have relied heavily on direct mail in the past, we do not
currently plan to use direct mail for subscriber acquisition in the near term.
The results of operations of Internet access providers, including those of Juno,
are significantly affected by subscriber cancellations. The failure to retain
subscribers to our billable premium services, or an increase in the rate of
cancellations of those services, would cause our business and financial results
to suffer. Advertising revenues also depend in part on the size of our overall
active subscriber base. Any reduction in our overall active subscriber base due
to subscriber attrition would reduce the amount of ad inventory we have
available to sell and may also have the effect of reducing our advertising
revenue.

Our principal expenses consist of marketing, telecommunications, customer
service, and personnel and related costs. We have elected to obtain a number of
services principally from third-party providers. Services obtained from such
providers include telecommunications services, customer service and technical
support, and services related to the sale of certain advertising inventory and
the delivery of the associated advertisements. Our business and financial
results would be harmed were we no longer able to obtain these services at
competitive rates.

We have incurred net losses of $279.4 million from our inception on
June 30, 1995 through December 31, 2000. We have relied primarily on sales of
equity securities, totaling $299.8 million through December 31, 2000, to fund
our operations. Included in this amount are $81.1 million of net proceeds from
our February 2000 follow-on offering of common stock, $77.3 million of net
proceeds from our May 1999 initial public offering of common stock and
$61.9 million of net proceeds from our March 1999 private placement of Series B
redeemable convertible preferred stock, which automatically converted into
shares of common stock upon the closing of the initial public offering. During
October 2000, Juno secured an equity financing commitment from a private
investment fund in the form of an "equity line" facility. We first drew down on
this facility in February 2001, raising net proceeds of $478,000 as of March 9,
2001. See "Liquidity and Capital Resources" of this Item for additional
information about this facility.

Prior to March 1, 1999, we operated our business primarily through a limited
partnership, Juno Online Services, L.P. On that date, we completed a statutory
merger of Juno Online Services, L.P. into Juno Online Services, Inc., which had
been a wholly owned subsidiary of Juno Online Services, L.P. Juno Online
Services, Inc. is the surviving entity after completion of the statutory merger.
The consolidated financial statements for 1999 included herein consist of the
accounts of both Juno Online Services, L.P. and Juno Online Services, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Since we operated as a limited partnership prior to March 1,
1999, taxable losses incurred through that date have been allocated to the
partners for reporting on their respective income tax returns. Accordingly, as
of that date, we had no available net operating loss carryforwards available for
federal and state income tax purposes to offset future taxable income, if any.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

REVENUES

Total revenues increased $62.0 million, to $114.0 million for the year ended
December 31, 2000 from $52.0 million for the year ended December 31, 1999, an
increase of 119%. This increase was due to increases in billable services and in
advertising and transaction fees, partially offset by a decrease in direct
product sales.

BILLABLE SERVICES. Billable services revenues increased $39.4 million, to
$73.9 million for the year ended December 31, 2000 from $34.5 million for the
year ended December 31, 1999, an increase of

114%. This increase was due primarily to a greater number of billable service
subscribers in the year ended December 31, 2000, as compared with the much
smaller number in the year ago period, partially offset by lower average monthly
revenue per subscriber.

ADVERTISING AND TRANSACTION FEES. Advertising and transaction fees
increased $26.0 million, to $38.7 million for the year ended December 31, 2000
from $12.7 million for the year ended December 31, 1999, an increase of 206%.
This increase was due primarily to the increase in Web-enabled subscribers
associated with the expansion of our free basic service to include full Web
access. We believe this expansion made our subscriber base and ad inventory more
attractive to some categories of advertisers, particularly those interested in
attracting traffic to their own Web sites, and may account in part for our
year-over-year increase in sales. Barter transactions accounted for
approximately 2.8% and 1.5% of total revenues and 8.2% and 6.2% of advertising
and transaction fees for the years ended December 31, 2000 and 1999,
respectively.

DIRECT PRODUCT SALES. Direct product sales decreased $3.4 million, to
$1.4 million for the year ended December 31, 2000 from $4.8 million for the year
ended December 31, 1999, a decrease of 70.4%. This decline reflects our
strategic decision to cease our direct product sales activities and focus
instead on other forms of electronic commerce. Specifically, we decided to
concentrate on forming strategic marketing alliances and developing other uses
for our advertising inventory that we believe should generate revenues with
higher margins than direct product sales. We stopped conducting direct product
sales activities in August 2000.

COST OF REVENUES

Total cost of revenues increased $24.7 million, to $58.5 million for the
year ended December 31, 2000 from $33.8 million for the year ended December 31,
1999, an increase of 73.0%. This increase was due primarily to increases in
costs associated with billable services and in advertising and transaction fees,
partially offset by a decrease in costs associated with direct product sales.

BILLABLE SERVICES. Cost of revenues related to billable services consists
primarily of the costs to provide billable premium services, including
telecommunications, customer service, operator-assisted technical support,
credit card fees, and personnel and related overhead costs. In addition, during
the year ended December 31, 1999, cost of revenues related to billable services
included the costs of mailing copies of the Juno software upon request to
prospective Juno subscribers, who had to pay for delivery of the disks at that
time, a practice we resumed at the end of 2000. Further, during the year ended
December 31, 1999, cost of revenues related to billable services included
personnel and related overhead costs associated with our performance of a
short-term consulting engagement.

Cost of revenues related to billable services increased approximately
$24.1 million, to $49.0 million for the year ended December 31, 2000 from
$25.0 million for the year ended December 31, 1999, an increase of 96.5%. This
increase was due primarily to the costs of providing our billable subscription
services to a substantially larger number of subscribers as compared with the
number of subscribers in the year-ago period. Costs related to the provision of
these billable subscription services, principally telecommunications, customer
service, and technical support expenses, accounted for 92.9% of the total costs
of revenues related to billable services during the year ended December 31, 2000
and accounted for the majority of the increase. These expenses accounted for
91.0% of the total costs of revenues during the year ended December 31, 1999.
Cost of billable services revenues as a percentage of billable services revenues
improved to 66.3% for the year ended December 31, 2000 from 72.2% for the year
ended December 31, 1999. This improvement is primarily attributable to decreased
customer service costs per subscriber and declining average telecommunications
rates, partially offset by increased average hours of usage per subscriber.

ADVERTISING AND TRANSACTION FEES. Cost of revenues for advertising and
transaction fees consists primarily of the transmission costs associated with
downloading advertisements to the hard drives of

subscribers' computers for later display, the personnel and related costs
associated with the creation and distribution of these advertisements, and the
costs associated with reporting the results of ad campaigns to advertisers.

Cost of revenues for advertising and transaction fees increased
$3.4 million, to $8.1 million for the year ended December 31, 2000 from
$4.7 million for the year ended December 31, 1999, an increase of 73.6%. This
increase was due primarily to the increase in advertising and transaction fee
revenue associated with the increase in Web-enabled subscribers due to the
expansion of our free basic service to include full Web access. Cost of revenues
related to advertising and transaction fees as a percentage of advertising and
transaction fees improved to 21.0% for the year ended December 31, 2000 from
36.9% for the year ended December 31, 1999. This improvement is due primarily to
decreased telecommunications rates, faster average connection speeds, larger
average deal sizes over which to spread relatively fixed production costs, and
improvements in our production and distribution methods.

DIRECT PRODUCT SALES. Cost of revenues for direct product sales consists
primarily of the costs of merchandise sold directly by us to our subscribers and
the associated shipping and handling costs.

The cost of revenues for direct product sales decreased approximately
$2.8 million, to $1.3 million for the year ended December 31, 2000 from
$4.2 million for the year ended December 31, 1999, a decrease of 67.8%. This
decrease corresponds to the decrease in merchandise sold. The cost of revenues
for direct product sales as a percentage of direct product sales revenues
increased to 94.7% for the year ended December 31, 2000 from 87.1% for the year
ended December 31, 1999. This increase was due primarily to a greater decline in
the average retail price of merchandise sold relative to the declines in the
costs of such merchandise as well as additional promotional pricing in response
to increasing competition in the computer hardware retail market, which category
represented the majority of our merchandise sold. We stopped conducting direct
product sales activities in August 2000.

OPERATING EXPENSES

OPERATIONS, FREE SERVICE. Operations, free service expenses consist of the
costs associated with providing our free basic service. Costs consist
principally of telecommunications costs, expenses associated with providing
customer service, depreciation of network equipment, and personnel and related
overhead costs.

Expenses associated with operations, free service increased $31.6 million,
to $38.3 million for the year ended December 31, 2000 from $6.7 million for the
year ended December 31, 1999, an increase of 472%. This increase was due
primarily to additional telecommunications costs incurred as a result of the
expansion of our free service to include full Internet access.

SUBSCRIBER ACQUISITION. Subscriber acquisition costs include all costs
incurred to acquire subscribers to either our free basic service or to one of
our billable premium services. These costs include the cost of direct mail
campaigns, advertising through conventional and computer-based media,
telemarketing, the production of advertisements to be displayed over the Juno
services and transmission of such advertisements to our subscribers, disk
duplication and fulfillment, and bounties paid to acquire subscribers, including
fees paid under stock-based subscriber referral agreements where payment is made
primarily or entirely through the issuance of shares of our common stock, among
other marketing activities. These costs also include various subscriber
retention activities, as well as personnel and related overhead costs.

Subscriber acquisition costs increased $68.8 million, to $116.4 million for
the year ended December 31, 2000 from $47.7 million for the year ended
December 31, 1999, an increase of 144%. This increase is due primarily to costs
related to extensive direct mail campaigns as well as other marketing activities
including television, radio, outdoor and other advertising campaigns. To a
lesser extent, the increase reflects costs incurred in connection with two
stock-based subscriber referral agreements as well as inbound telemarketing
costs incurred in connection with subscriber acquisition

and retention activities. As a percentage of revenues, subscriber acquisition
costs increased to 102.1% in the year ended December 31, 2000 from 91.6% in the
year ended December 31, 1999.

SALES AND MARKETING. Sales and marketing expenses consist primarily of the
personnel and related overhead costs of the following departments: advertising
sales and business development; direct product sales; and product marketing.
Also included are costs associated with trade advertising intended to support
our advertising sales effort, corporate branding activities unrelated to
subscriber acquisition, and public relations, as well as advertising production,
advertising transmission, customer service and fulfillment costs associated with
our direct product sales activities.

Sales and marketing costs increased $6.5 million, to $18.1 million for the
year ended December 31, 2000 from $11.6 million for the year ended December 31,
1999, an increase of 56.7%. This increase is due primarily to an increase in
personnel and related costs, including sales commissions, as well as in trade
advertising, partially offset by a reduction in telecommunications costs. As a
percentage of revenues, sales and marketing costs improved to 15.9% in the year
ended December 31, 2000 from 22.2% in the year ended December 31, 1999. This
improvement was due primarily to an increase in revenues for the year ended
December 31, 2000 as compared to the year-ago period.

PRODUCT DEVELOPMENT. Product development includes research and development
expenses and other product development costs. These costs consist primarily of
personnel and related overhead costs as well as, for periods prior to May 1999,
the costs associated with research and development and other product development
activities performed for us on a contract basis by a related party in Hyderabad,
India. In May 1999, we hired as employees substantially all of the individuals
who provided services to us under this related-party arrangement.

Product development costs increased approximately $3.1 million, to
$10.3 million for the year ended December 31, 2000 from $7.2 million for the
year ended December 31, 1999, an increase of 42.2%. This increase is due
primarily to additional personnel and related costs in both our domestic and
India offices related to the development of our Juno Express premium service and
of a new release of our client-side software, version 5.0. These costs were
partially offset by the lower costs associated with operating our India-based
research and development efforts as a majority-owned subsidiary rather than
obtaining these services on a contract basis. To date, we have not capitalized
any expenses related to any software development activities.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel and related overhead costs associated with executive,
finance, legal, recruiting, human resources and facilities functions, as well as
various professional expenses.

General and administrative costs increased $4.7 million, to $9.3 million for
the year ended December 31, 2000 from $4.6 million for the year ended
December 31, 1999, an increase of 102%. This increase is due primarily to a rise
in expenses associated with additional personnel and related overhead costs,
uncollectible receivables, insurance, and professional service fees. As a
percentage of revenues, general and administrative costs improved to
approximately 8.2% for the year ended December 31, 2000 from 8.9% for the year
ended December 31, 1999.

INTEREST INCOME, NET. Interest income, net increased $1.8 million to
$5.5 million for the year ended December 31, 2000, from $3.7 million for the
year ended December 31, 1999, an increase of 48.2%. This increase is due
primarily to interest income earned on higher average cash balances in the year
ended December 31, 2000 as compared to the year ended December 31, 1999.
Interest income, net includes interest expense of $158,000 and $345,000 for the
years ended December 31, 2000 and 1999, respectively.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

REVENUES

Total revenues increased $30.3 million, to $52.0 million for the year ended
December 31, 1999 from $21.7 million for the year ended December 31, 1998, an
increase of 140%. This increase was due to increases in billable services and in
advertising and transaction fees, partially offset by a decrease in direct
product sales.

BILLABLE SERVICES. Billable services revenues increased $27.9 million, to
$34.5 million for the year ended December 31, 1999 from $6.6 million for the
year ended December 31, 1998, an increase of 420%. This increase was due
primarily to the additional number of subscribers to our billable premium
services in the year ended December 31, 1999, as compared with the much smaller
number in the year ended December 31, 1998. Our billable premium services were
introduced in July 1998. Revenues associated with these services contributed
$32.5 million of revenues in the year ended December 31, 1999 compared to
$3.6 million in the year ended December 31, 1998, representing an increase of
797%.

ADVERTISING AND TRANSACTION FEES. Advertising and transaction fees
increased $6.2 million, to $12.7 million for the year ended December 31, 1999
from $6.5 million for the year ended December 31, 1998, an increase of 96.2%.
This increase was due primarily to larger average deal sizes associated with the
shift in our emphasis towards strategic marketing alliances, partially offset by
declines in the number of and the aggregate revenue generated from shorter term
ad sales contracts. Barter transactions accounted for approximately 1.5% and
0.6% of total revenues and 6.2% and 1.9% of advertising and transaction fees for
the years ended December 31, 1999 and 1998, respectively.

DIRECT PRODUCT SALES. Direct product sales decreased $3.8 million, to
$4.8 million for the year ended December 31, 1999 from $8.6 million for the year
ended December 31, 1998, a decrease of 44.2%. This decline reflects our
strategic decision in 1998 to narrow the range of our direct product sales
activities and of the types of products offered to our subscribers. Instead, we
decided to concentrate on forming strategic marketing alliances and developing
other uses for our advertising inventory that we believed would be likely to
generate revenues with higher margins than direct product sales.

COST OF REVENUES

Total cost of revenues increased $16.8 million, to $33.8 million for the
year ended December 31, 1999 from $17.0 million for the year ended December 31,
1998, an increase of 99.3%. This increase was due primarily to increases in
costs associated with higher revenues from billable services and advertising and
transaction fees, partially offset by a decrease in costs associated with direct
product sales revenues.

BILLABLE SERVICES.

Cost of revenues related to billable services increased approximately
$19.3 million, to $25.0 million for the year ended December 31, 1999 from
$5.6 million for the year ended December 31, 1998, an increase of 345%. This
increase was due primarily to the costs of providing our billable premium
services to a substantially larger number of subscribers in the year ended
December 31, 1999, as compared with the year ended December 31, 1998. Costs
related to the provision of these billable premium services, principally
customer service, technical support and telecommunications expenses, accounted
for 80.0% of the total costs of revenues related to billable services during the
year ended December 31, 1999 and accounted for the majority of the increase.
Cost of billable services revenues as a percentage of billable services revenues
improved to 72.2% for the year ended December 31, 1999 from 84.4% for the year
ended December 31, 1998. This improvement is primarily attributable to decreased
customer service costs per subscriber and declining average telecommunications
rates.

ADVERTISING AND TRANSACTION FEES. Cost of revenues for advertising and
transaction fees increased $1.0 million, to $4.7 million for the year ended
December 31, 1999 from $3.7 million for the year ended December 31, 1998, an
increase of 25.5%. This increase was due primarily to the impact of additional
strategic marketing alliances. Cost of revenues related to advertising and
transaction fees as a percentage of advertising and transaction fees improved to
36.9% for the year ended December 31, 1999 from 57.7% for the year ended
December 31, 1998. This improvement is due primarily to decreased
telecommunications rates, faster average connection speeds, larger average deal
sizes over which to spread production costs, and improvements in our production
and distribution methods.

DIRECT PRODUCT SALES. The cost of revenues for direct product sales
decreased approximately $3.5 million, to $4.2 million for the year ended
December 31, 1999 from $7.6 million for the year ended December 31, 1998, a
decrease of 45.2%. This decrease corresponds to the decrease in merchandise
sold. The cost of revenues for direct product sales as a percentage of direct
product sales revenues improved to 87.1% for the year ended December 31, 1999
from 88.7% for the year ended December 31, 1998. This improvement was due
primarily to efficiencies associated with outsourcing various functions rather
than performing them internally, partially offset by a greater decline in the
average retail price of merchandise sold relative to the declines in the costs
of such merchandise, and additional promotional pricing in response to
increasing competition for computer hardware.

OPERATING EXPENSES

OPERATIONS, FREE SERVICE. Expenses associated with operations, free service
decreased $2.7 million, to $6.7 million for the year ended December 31, 1999
from $9.4 million for the year ended December 31, 1998, a decrease of 28.6%.
This decrease was primarily due to declining telecommunications rates and
increasing connection speeds resulting from the use of faster modems by a
portion of our subscriber base. The results were not materially impacted by the
expansion of our basic service to provide full Internet access for free, since
this expansion occurred on December 20, 1999.

SUBSCRIBER ACQUISITION. Subscriber acquisition costs increased
approximately $42.3 million, to $47.7 million for the year ended December 31,
1999 from $5.3 million for the year ended December 31, 1998. This increase is
due primarily to costs related to our 1999 external marketing campaign which
launched in the second quarter of 1999, including direct mail programs,
television and radio commercials, outdoor advertising and various other
advertising expenditures. This increase is also due to inbound telemarketing
costs incurred in connection with subscriber acquisition and retention
activities and to ad production and transmission costs associated with
soliciting basic service subscribers to upgrade to our billable subscription
services. As a percentage of revenues, subscriber acquisition costs increased to
91.6% in the year ended December 31, 1999 from 24.6% in the year ended
December 31, 1998. This percentage increase was primarily due to increased costs
related to our 1999 external marketing campaign.

SALES AND MARKETING. Sales and marketing costs were $11.6 million for the
years ended December 31, 1999 and 1998. Sales and marketing expenses for the
year ended December 31, 1999 include increased trade advertising costs as
compared to the year ended December 31, 1998. This increase was partially offset
by cost reductions associated with our decision to scale back various direct
product sales activities. Sales and marketing costs for the year ended
December 31, 1998 include one-time costs associated with this decision, as well
as expenses related to the closing of regional advertising sales offices. As a
percentage of revenues, sales and marketing costs improved to 22.2% in the year
ended December 31, 1999 from 53.4% in the year ended December 31, 1998. This
improvement was primarily due to an increase in revenues for the year ended
December 31, 1999.

PRODUCT DEVELOPMENT. Product development costs decreased $0.1 million, to
$7.2 million for the year ended December 31, 1999 from $7.3 million for the year
ended December 31, 1998, a decrease of

1.5%. This decrease is primarily due to lower costs associated with operating
our India-based research and development efforts as a majority-owned subsidiary,
rather than obtaining these services on a contract basis, partially offset by
additional personnel and related costs in both our domestic and India offices.
Product development costs in the year ended December 31, 1999 and 1998 related
primarily to the continued development of our billable premium services and of
various pieces of software.

GENERAL AND ADMINISTRATIVE. General and administrative costs increased
approximately $1.9 million, to $4.6 million for the year ended December 31, 1999
from $2.8 million for the year ended December 31, 1998, an increase of 67.2%.
This increase is primarily due to increased insurance costs for directors' and
officers' liability insurance, professional service fees and additional
personnel and related overhead costs. As a percentage of revenues, general and
administrative costs decreased to 8.9% for the year ended December 31, 1999 from
12.7% for the year ended December 31, 1998. This decrease was primarily due to
the increase in revenue for the year ended December 31, 1999 compared to the
year ended December 31, 1998.

INTEREST INCOME, NET. Interest income, net increased approximately
$3.7 million, to $3.7 million for the year ended December 31, 1999 from $44,000
for the year ended December 31, 1998. This increase is primarily due to interest
income earned on higher average cash balances in the year ended December 31,
1999 resulting from our initial public offering in May 1999 and from the
issuance of redeemable convertible preferred stock in March 1999, partially
offset by higher interest payments for borrowings. Interest income, net includes
interest expense of $345,000 and $537,000 for the years ended December 31, 1999
and 1998, respectively.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

REVENUES

Total revenues increased $12.6 million, to $21.7 million for the year ended
December 31, 1998 from $9.1 million for the year ended December 31, 1997, an
increase of 139%. This increase was due primarily to increases in billable
services and in advertising and transaction fees.

BILLABLE SERVICES. Billable services revenues increased approximately
$5.3 million, to $6.6 million for the year ended December 31, 1998 from
$1.4 million for the year ended December 31, 1997, an increase of 385%. This
increase was due primarily to the introduction of our billable premium services,
which contributed $3.6 million in subscription fees in 1998; a short-term
development consulting contract which contributed $1.0 million; and technical
support fees associated with the growth of the subscriber base of Juno's free
basic service and of Juno Gold. At December 31, 1998, there were approximately
144,000 billable services subscribers, with approximately 53,000 subscribing to
Juno Gold and approximately 91,000 subscribing to Juno Web.

ADVERTISING AND TRANSACTION FEES. Advertising and transaction fees
increased $4.6 million, to $6.5 million for the year ended December 31, 1998
from $1.9 million for the year ended December 31, 1997, an increase of 244%.
This increase was due primarily to additional advertisers and advertisements
delivered, and the impact of additional strategic marketing alliances. Barter
transactions accounted for approximately 0.6% and 0.1% of total revenues and
1.9% and 0.3% of advertising and transaction fees for the years ended
December 31, 1998 and 1997, respectively.

DIRECT PRODUCT SALES. Direct product sales increased $2.8 million, to
$8.6 million for the year ended December 31, 1998 from $5.8 million for the year
ended December 31, 1997, an increase of 47.0%. However, revenues from direct
product sales decreased $1.0 million, to $4.0 million for the six months ended
December 31, 1998 from $5.0 million for the six months ended December 31, 1997,
a decrease of 20.1%. This decline reflects our strategic decision during the
first quarter of 1998 to narrow the range of our direct product sales activities
and of the types of products offered to our subscribers. Instead, we decided to
concentrate on forming strategic marketing alliances and developing other uses

for our advertising inventory that we believed would be likely to generate
revenues with higher margins than direct product sales.

COST OF REVENUES

Total cost of revenues increased $8.5 million, to $17.0 million for the year
ended December 31, 1998 from $8.5 million for the year ended December 31, 1997,
an increase of 99.3%. This increase was due primarily to increases in costs
associated with billable services and with advertising and transaction fees.

BILLABLE SERVICES. Cost of revenues related to billable services increased
approximately $4.6 million, to $5.6 million for the year ended December 31, 1998
from $1.1 million for the year ended December 31, 1997, an increase of 433%.
This increase is primarily due to the costs of providing our billable premium
services. Costs related to the provision of these billable premium services,
principally customer service, technical support and telecommunications expenses,
accounted for 58.0% of the total costs of revenues related to all billable
services during 1998 and accounted for a majority of the increase. Cost of
revenues related to billable services as a percentage of total billable services
revenues increased to 84.4% for the year ended December 31, 1998 from 76.8% for
the year ended December 31, 1997. This increase was principally related to the
introduction of billable premium services, the relatively high percentage of
subscribers to these services who were in their initial months, and the higher
costs incurred in the early stages of a subscriber's life cycle. We believe that
customer service and technical support costs are substantially higher in the
initial months following sign-up than during later months. We also incurred
significant startup costs associated with training customer service and
technical support representatives and with developing processes necessary to
support the subscriber base and its anticipated future growth.

ADVERTISING AND TRANSACTION FEES. Cost of revenues for advertising and
transaction fees increased approximately $2.1 million, to $3.7 million for the
year ended December 31, 1998 from $1.7 million for the year ended December 31,
1997, an increase of 125%. This increase was principally due to additional
advertisers and advertisements delivered and the impact of additional strategic
marketing alliances. The cost of revenues for advertising and transaction fees
as a percentage of advertising and transaction fees revenue improved to 57.7%
for the year ended December 31, 1998 from 88.5% for the year ended December 31,
1997. This improvement is primarily due to economies of scale associated with
higher volumes of ad production, decreased telecommunications rates, faster
average connection speeds, and improvements in our production and distribution
methods.

DIRECT PRODUCT SALES. The cost of revenues for direct product sales
increased $1.8 million, to $7.6 million for the year ended December 31, 1998
from $5.8 million for the year ended December 31, 1997, an increase of 31.6%.
This increase corresponds to the increase in merchandise sold. The cost of
revenues for direct product sales as a percentage of direct product sales
revenue improved to 88.7% for the year ended December 31, 1998 from 99.2% for
the year ended December 31, 1997. This improvement was primarily due to
efficiencies associated with outsourcing various functions rather than
performing them internally.

OPERATING EXPENSES

OPERATIONS, FREE SERVICE. Expenses associated with operations, free service
decreased $1.7 million, to $9.4 million for the year ended December 31, 1998
from $11.1 million for the year ended December 31, 1997, a decrease of 15.3%.
This decrease was primarily due to declining telecommunications rates and
increasing connection speeds resulting from the use of faster modems by a
portion of our subscriber base. These cost savings were partially offset by an
increase in the number of subscribers connecting in a given month.

SUBSCRIBER ACQUISITION. Subscriber acquisition costs increased
$2.2 million, to $5.3 million for the year ended December 31, 1998 from
$3.1 million for the year ended December 31, 1997, an increase of 69.9%. This
increase is primarily due to direct mail and advertising costs incurred to
acquire subscribers to our free basic service in the first half of 1998, ad
production and transmission costs associated with soliciting basic service
subscribers to upgrade to our billable premium services starting in July 1998,
and costs incurred during the second half of 1998 to prepare for the large-scale
marketing activities planned for 1999. The increase in these costs was partially
offset by a decrease in expenses related to referral bounties as various
agreements that called for bounty payments expired or were terminated. As a
percentage of revenues, subscriber acquisition costs improved to 24.6% in 1998
from 34.5% in 1997. This improvement was primarily due to the relatively larger
1998 revenues.

SALES AND MARKETING. Sales and marketing costs decreased $1.0 million, to
$11.6 million for the year ended December 31, 1998 from $12.6 million for the
year ended December 31, 1997, a decrease of 8.0%. This decrease is primarily due
to reductions in the level of trade advertising we undertook in 1998 as well as
to cost savings associated with our decisions to close our regional ad sales
offices and to narrow the range of our direct product sales activities. We
reduced the headcount assigned to our direct product sales activities, as well
as inventory risk, primarily by outsourcing substantially all of the
procurement, warehousing, fulfillment, billing and customer service aspects of
this initiative. In each of the first and second quarters of 1998, sales and
marketing expenses include charges of approximately $300,000 relating to
inventory write-offs, severance pay, and lease termination costs. As a
percentage of revenues, sales and marketing costs improved to 53.4% in 1998 from
139% in 1997. This percentage decrease was primarily due to our relatively
larger 1998 revenues.

PRODUCT DEVELOPMENT. Product development costs increased approximately
$2.5 million, to $7.3 million for the year ended December 31, 1998 from
$4.9 million for the year ended December 31, 1997, an increase of 51.1%. This
increase is primarily due to the costs associated with establishing development
operations in Hyderabad, India, a project we initiated in the fourth quarter of
1997. Product development costs in 1998 related primarily to the continued
development of our billable subscription services and of various pieces of
software.

GENERAL AND ADMINISTRATIVE. General and administrative costs decreased
$0.1 million, to $2.8 million for the year ended December 31, 1998 from
$2.9 million for the year ended December 31, 1997, a decrease of 4.7%. This
decrease is primarily due to reduced personnel and related overhead costs, lower
professional fees, and cost containment programs. As a percentage of revenues,
general and administrative costs improved to 12.7% for the year ended
December 31, 1998 from 31.9% for the year ended December 31, 1997. This
improvement was primarily due to the increase in revenues for the year ended
December 31, 1998.

INTEREST INCOME, NET. Interest income, net decreased $199,000, to $44,000
for the year ended December 31, 1998 from $243,000 for the year ended
December 31, 1997, a decrease of 81.9%. This decrease is primarily due to
interest payments for borrowings and increased capital lease obligations,
partially offset by interest income earned on higher average cash balances
during 1998. Interest income, net includes interest expense of $537,000 and
$243,000 for the years ended December 31, 1998 and 1997, respectively.

QUARTERLY RESULTS OF OPERATIONS DATA

The following table sets forth unaudited quarterly statement of operations
data for each of the eight quarters ended December 31, 2000, as well as the same
data expressed as a percentage of our total revenues for the periods indicated.
In our opinion, this unaudited information has been prepared substantially on
the same basis as the audited consolidated financial statements appearing
elsewhere herein, and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below for fair
presentation of the unaudited quarterly results of operations data. The
quarterly data should be read in conjunction with the consolidated financial
statements and the notes to these statements appearing elsewhere herein. The
operating results for any quarter are not necessarily indicative of the
operating results for any future period.

THREE MONTHS ENDED
---------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUN. 30, MAR. 31, DEC. 31, SEPT. 30, JUN. 30, MAR. 31,
2000 2000 2000 2000 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenues:
Billable services................ $ 19,784 $ 18,962 $ 18,429 $ 16,736 $ 13,016 $ 8,654 $ 7,069 $ 5,806
Advertising and transaction
fees........................... 10,509 11,105 10,685 6,409 4,327 3,367 2,703 2,265
Direct product sales............. -- 78 439 902 712 1,083 1,350 1,649
-------- -------- -------- -------- -------- -------- -------- -------
Total revenues................. 30,293 30,145 29,553 24,047 18,055 13,104 11,122 9,720
-------- -------- -------- -------- -------- -------- -------- -------
Cost of revenues:
Billable services................ 12,297 12,130 12,557 12,040 8,831 5,960 5,481 4,678
Advertising and transaction
fees........................... 1,929 2,174 2,262 1,750 1,313 1,120 1,162 1,080
Direct product sales............. -- 74 414 856 599 988 1,165 1,424
-------- -------- -------- -------- -------- -------- -------- -------
Total cost of revenues......... 14,226 14,378 15,233 14,646 10,743 8,068 7,808 7,182
-------- -------- -------- -------- -------- -------- -------- -------
Operating expenses:
Operations, free service......... 10,888 11,773 9,506 6,144 1,617 1,464 1,771 1,846
Subscriber acquisition........... 8,717 24,874 38,119 44,751 16,003 15,028 13,920 2,700
Sales and marketing.............. 3,870 5,010 5,610 3,615 3,348 3,180 2,716 2,312
Product development.............. 2,249 2,470 3,100 2,463 1,809 1,592 1,977 1,854
General and administrative....... 2,902 2,139 2,486 1,776 1,645 1,284 982 704
-------- -------- -------- -------- -------- -------- -------- -------
Total operating expenses....... 28,626 46,266 58,821 58,749 24,422 22,548 21,366 9,416
-------- -------- -------- -------- -------- -------- -------- -------
Loss from operations........... (12,559) (30,499) (44,501) (49,348) (17,110) (17,512) (18,052) (6,878)
Interest income, net............... 974 1,163 1,650 1,722 1,382 1,430 795 111
-------- -------- -------- -------- -------- -------- -------- -------
Net loss....................... $(11,585) $(29,336) $(42,851) $(47,626) $(15,728) $(16,082) $(17,257) $(6,767)
======== ======== ======== ======== ======== ======== ======== =======

PERCENTAGE OF REVENUES:
Revenues:
Billable services.................. 65.3% 62.9% 62.4% 69.6% 72.1% 66.0% 63.6% 59.7%
Advertising and transaction fees... 34.7 36.8 36.2 26.7 24.0 25.7 24.3 23.3
Direct product sales............... -- 0.3 1.5 3.8 3.9 8.3 12.1 17.0
------ ------ ------ ------ ------ ------ ------ ------
Total revenues................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Billable services.................. 40.6 40.2 42.5 50.1 48.9 45.5 49.3 48.1
Advertising and transaction fees... 6.4 7.2 7.7 7.3 7.3 8.5 10.4 11.1
Direct product sales............... -- 0.2 1.4 3.6 3.3 7.5 10.5 14.7
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues........... 47.0 47.7 51.5 60.9 59.5 61.6 70.2 73.9
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Operations, free service........... 35.9 39.1 32.2 25.5 9.0 11.2 15.9 19.0
Subscriber acquisition............. 28.8 82.5 129.0 186.1 88.6 114.7 125.2 27.8
Sales and marketing................ 12.8 16.6 19.0 15.0 18.5 24.3 24.4 23.8
Product development................ 7.4 8.2 10.5 10.2 10.0 12.1 17.8 19.1
General and administrative......... 9.6 7.1 8.4 7.4 9.1 9.8 8.8 7.2
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses......... 94.5 153.5 199.0 244.3 135.3 172.1 192.1 96.9
------ ------ ------ ------ ------ ------ ------ ------
Loss from operations............. (41.5) (101.2) (150.6) (205.2) (94.8) (133.6) (162.3) (70.8)
Interest income, net................. 3.2 3.9 5.6 7.2 7.7 10.9 7.1 1.1
------ ------ ------ ------ ------ ------ ------ ------
Net loss......................... (38.2)% (97.3)% (145.0)% (198.1)% (87.1)% (122.7)% (155.2)% (69.6)%
====== ====== ====== ====== ====== ====== ====== ======

The following table sets forth selected subscriber data for each of the
eight quarters in the year ended December 31, 2000. This data should be read in
conjunction with the information appearing elsewhere herein. The selected
subscriber data for any quarter are not necessarily indicative of future
periods.

DEC. 31, SEPT. 30, JUN. 30, MAR. 31, DEC. 31, SEPT. 30, JUN. 30, MAR. 31,
2000 2000 2000 2000 1999 1999 1999 1999
---------- ---------- ---------- --------- --------- --------- --------- ---------

SELECTED SUBSCRIBER DATA:
Total registered subscriber
accounts as of(1)............ 14,153,000 12,771,000 11,048,000 9,430,000 8,137,000 7,613,000 7,175,000 6,817,000
Active subscriber accounts in
month ended(2)............... 4,001,000 3,700,000 3,379,000 3,053,000 2,394,000 2,326,000 2,311,000 2,464,000
Active Web-enabled subscribers
in month ended(3)............ 3,587,000 3,251,000 2,876,000 2,358,000 771,000 268,000 160,000 121,000
Billable service accounts as
of(4)........................ 842,000 750,000 730,000 661,000 550,000 400,000 270,000 207,000

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

(1) Includes all subscriber accounts created since Juno's inception, computed
after deduction of any accounts that have since been cancelled, but
regardless of current activity, if any.

(2) Encompasses all registered subscriber accounts that connected at least once
during the month, together with all subscribers to a billable service, in
each case regardless of the type of activity or activities engaged in by
such subscribers.

(3) Refers to the subset of active subscriber accounts that have been centrally
provisioned for, and provided with the client-side software necessary to
access, not only e-mail, but also the World Wide Web, regardless of the
extent, if any, to which such subscribers have actually used the Web.

(4) Represents the subset of active subscriber accounts that carry a charge for
premium functionality.

We have historically experienced seasonality, with use of Internet services
being somewhat lower during the summer and year-end holiday periods. We believe
seasonality generally has favorably impacted subscriber acquisition during the
first and fourth calendar quarters. See "Item 7A. Risk factors that may affect
future results--Juno's business is subject to fluctuations in operating results
which may negatively impact the price of our stock."

Despite the impact of seasonality, our revenues have increased in all
quarters presented. We believe that these increases occurred for a number of
reasons, including:

- the overall growth of our business and the industry's growth as a whole;

- the launch of our billable subscription services on July 22, 1998; and

- the expansion of our free basic service to provide full Internet access in
December 1999.

There can be no assurance that our revenues will increase in any future
quarter; indeed, we currently expect overall revenues to decline in the first
quarter of 2001 as compared to the fourth quarter of 2000.

Operating expenses increased in each quarter through the three months ended
June 30, 2000 due principally to aggressive investments in subscriber
acquisition and to the expansion of our free service to include full Internet
access in December 1999. Both of these actions were taken as part of a strategy
to grow our subscriber base. Subscriber acquisition expenses increased due to
the costs related to the launch of significant external marketing campaigns that
we conducted primarily following the free service expansion. The free service
expansion also increased costs due to the provision of full Internet access for
free as compared to the cost of providing basic e-mail services, which is
reflected in the Operations, free service line of our statement of operations.
In quarters subsequent to June 30, 2000, operating expenses have gone down. This
is the result of our strategic decision to focus on bringing our expenses more
in line with revenues. We took a number of steps to effect this change,
including curtailment of cash intensive external marketing campaigns in the
quarters ended September 30, 2000 and December 31, 2000 and the adoption of
measures late in the quarter ended December 31, 2000 to address excessive
resource consumption by heavier users of the free service.

LIQUIDITY AND CAPITAL RESOURCES

Since our formation, we have financed our operations primarily from funds
generated by the sale of equity securities. Sales of equity securities include
$81.1 million of net proceeds from our February 2000 follow-on offering of
common stock, $77.3 million of net proceeds from our May 1999 initial public
offering of common stock and $61.9 million of net proceeds from our March 1999
private placement of redeemable convertible preferred stock, which converted
into common stock upon the completion of our initial public offering. We have
incurred significant losses since inception, totaling $279.4 million through
December 31, 2000. As of December 31, 2000 we had $55.7 million in cash and cash
equivalents.

Net cash used in operating activities was $109.5 million, $45.1 million and
$20.9 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The increase of approximately $64.4 million in the year ended
December 31, 2000 was primarily the result of the cash portion of increased
subscriber acquisition expenses, which represented approximately 79% of the
overall increase in the net loss. Accounts receivable includes the portion of
advertising and transaction fees and billable subscriber fees that have been
billed in advance of the performance of all or a portion of the related services
and that have not been collected. The portions of accounts receivable related to
these fees as of December 31, 2000 and 1999--and the corresponding equal amounts
that remained in our deferred revenue liability account balances at such
dates--were $3,696 and $2,508, respectively.

Cash used in operating activities for the year ended December 31, 1999
reflects the purchase of $10.0 million in prepaid advertising that we had the
right to use at any time prior to March 2001. At December 31, 2000,
$0.9 million of this prepaid advertising remained unused. This remaining prepaid
advertising balance was used in January 2001.

Net cash used in investing activities was $7.7 million, $1.3 million and
$1.6 million for the years ended December 31, 2000, 1999 and 1998, respectively.
The principal use of cash for the periods presented was for the purchase of
fixed assets.

As a result of our outsourcing arrangements for telecommunications services
and customer service, we have substantially reduced the level of capital
expenditures that would otherwise have been necessary to develop our product
offerings. In the event that these outsourcing arrangements were no longer
available to us, significant capital expenditures would be required and our
business and financial results could suffer. Expenditures associated with the
purchase of telecommunications capacity, the provision of customer service, and
subscriber acquisition and retention activities are expected to continue to
represent a material use of our cash resources.

Net cash provided by financing activities was $81.4 million, $129.7 million
and 16.9 million for the years ended December 31, 2000, 1999, and 1998,
respectively. Financing activities for the year ended December 31, 2000
primarily included $81.1 million in net proceeds we received from our
February 2000 follow-on offering of common stock. Financing activities for the
year ended December 31, 1999 primarily included $61.9 million of net proceeds
received from our March 1999 private placement and $77.3 million of net proceeds
from our May 1999 initial public offering of common stock. Financing activities
for the year ended December 31, 1998 primarily included $9.1 million from a net
of the borrowing and repayments under a note from an affiliated party and
$8.5 million of capital contributions. Proceeds of $8.6 million from our
March 1999 private placement were used to repay, in full, the note.

In July 1999, we entered into a credit facility with a bank that provided
for borrowings up to $10.0 million. During August 2000, we extended this
facility through October 2000. No borrowings were ever made under this facility,
and we did not renew the facility subsequent to October 2000.

On October 6, 2000, we entered into a common stock investment agreement with
a private investment fund, The Kingston Limited Partnership, providing for the
future issuance and purchase of shares of our common stock. This agreement and a
related registration rights agreement constitute what is commonly referred to as
an "equity line facility." Under the equity line facility, we may sell, subject
to various volume- and price-related limitations, up to $7.5 million of common
stock in each of up to 20 drawdown periods of 22 trading days each over the
course of a period of up to two years, provided that we cannot sell more than
$125 million worth of shares in total under the facility and may in practice
only be able to sell a much lower amount. The total number of shares that may be
issued under the facility depends on a number of factors, including the market
price and trading volume of our common stock during each drawdown period we
choose to initiate. Any stock issued to the fund under this facility will
generally be purchased at a price equal to 94% of the volume-weighted average
price of our common shares on each purchase day. However, the fund will
generally not be obligated to purchase shares from us on any day when the
purchase price would be less than $2.50 per share, although the fund and we have
previously agreed to waive this condition with respect to one drawdown period,
and may agree to waive this condition from time to time, in order to allow us to
sell shares to the fund at lower prices in the future. We will control the
timing and frequency of any sales, subject to the facility's volume-and
price-related limitations, and will have no obligation to draw down any minimum
amount or number of times. However, the facility may be terminated if we sell no
shares to the fund for a period of four consecutive months.

The common stock investment agreement provides that the equity line will not
be available to Juno unless a registration statement is available to permit the
fund to resell the shares purchased by it. Juno filed a registration statement
on Form S-3 with the Securities and Exchange Commission ("SEC") on November 28,
2000 to register the resale by the fund of up to 10,000,000 shares of the common
stock that may be issued to it under the equity line facility. The registration
statement was declared

effective by the SEC on January 23, 2001. As of March 9, 2001 we had sold
317,400 shares and raised net proceeds of $478,000 under this facility.

As of December 31, 2000, we held a total of $55.7 million in cash and cash
equivalents. We believe that our existing cash and cash equivalents will be
sufficient to meet our anticipated cash needs for at least the next twelve
months. We believe that changes in the market environment over the past year
have increased the value of corporate cash reserves as well as the relative
importance of bringing expenses more in line with revenues over time and
reducing our reliance on external sources of capital. We continue to place a
high value on flexibility, and may well respond on an opportunistic basis to
further changes within the industry, but for the time being we expect to
continue our recent shift of focus from the aggressive, cash intensive growth of
our subscriber base to the reduction of cash outflows and subscriber acquisition
investments overall and to the exploration and development of additional
potential revenue sources.

The cash portion of our net loss decreased to approximately $9 million for
the three months ended December 31, 2000, from approximately $16 million in the
three months ended September 30, 2000. Subscriber acquisition expenses
represented the vast majority of our overall net loss and of the cash portion of
our net loss. We reduced our subscriber acquisition expenses to $8.7 million
during the three months ended December 31, 2000, from $24.9 million during the
three months ended September 30, 2000. Evaluating our loss before subscriber
acquisition expenses, while not a measurement of financial performance under
generally accepted accounting principles, can be a useful way to understand the
effect that adjustments to subscriber acquisition costs can have on our cash
flow. Loss before subscriber acquisition expenses improved to $2.9 million in
the three months ended December 31, 2000, from $4.5 million in the three months
ended September 30, 2000. In addition to reducing overall subscriber acquisition
expenses, we hope to further reduce the cash portion of our net loss over the
coming quarters, in particular by reducing expenses associated with operating
our free service, and possibly by reducing discounted promotional pricing for
our billable services over time.

In 2000, we entered into several transactions in which Juno's payment for
services rendered may be settled, in whole or in part, through the issuance of
our common stock.

On June 29, 2000, we entered into a subscriber referral agreement with
SmartWorld Communications, Inc. and its subsidiaries SmartWorld Technologies,
LLC and Freewwweb, LLC. Under the terms of the Freewwweb Agreement, Freewwweb
began to refer its subscribers to our Internet access services on July 19, 2000
and is entitled to receive consideration from us for each former Freewwweb
subscriber that becomes a new subscriber to our services and subsequently meets
certain qualification criteria. Under the terms of the Freewwweb Agreement, such
consideration will include cash and may include, at our option, shares of our
common stock. The number of shares of our common stock will be based on the
closing sale price of our common stock on the dates of issuance. In accordance
with the Freewwweb Agreement, we have ceased accepting additional Freewwweb
subscribers. We have not yet issued any shares of our common stock to Freewwweb
or its affiliates under this agreement. Please see Part I, Item 3 "Legal
Proceedings" for additional information concerning this transaction.

On June 30, 2000, we entered into a subscriber referral agreement with
WorldSpy.com, Inc. and NaviPath, Inc. and other parties. In connection with this
transaction, we have issued an aggregate of 2,008,303 shares of our common
stock. Please see Part II, Item 5 "Market for Registrant's Common Equity and
Related Stockholder Matters" for additional information concerning this
transaction.

On September 18, 2000, we entered into a distribution agreement with
Babbage's Etc. LLC. Under the terms of this agreement, Babbage's agreed to
distribute our software and will receive periodic compensation from us for each
new subscriber generated by such distribution that subsequently meets certain
qualification criteria. The compensation received by Babbage's will include
shares of our common stock or, at our option, cash. The number of shares of our
common stock issuable to

Babbage's will be based on the closing sale price of our common stock on the
dates of issuance. We have not yet issued any shares of our common stock to
Babbage's under this agreement.

We may find additional opportunities to issue our equity securities as
consideration for subscriber acquisition, telecommunications, or other
significant operating costs in the future. We may also seek to sell additional
equity or debt securities. If non-cash methods for payment of operating costs
are used or additional funds are raised by our issuing equity securities,
stockholders may experience significant dilution of their ownership interest and
the newly issued securities may have rights superior to those of our common
stock. If additional funds are raised by our issuing debt, we may be subject to
limitations on our operations. There can be no assurance that financing will be
available in amounts or on terms acceptable to us, or at all.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CURRENCY RATE FLUCTUATIONS

Our results of operations, financial position, and cash flows are not
materially affected by changes in the relative values of non-U.S. currencies to
the U.S. dollar. We do not use derivative financial instruments to limit our
foreign currency risk exposure.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

OUR BILLABLE PREMIUM SERVICES AND OUR FREE BASIC WEB ACCESS SERVICE HAVE A
LIMITED OPERATING HISTORY AND FACE NUMEROUS RISKS AND UNCERTAINTIES

We have a limited operating history upon which you can evaluate our business
and our services. We began offering our free basic service to the public in its
original form in April 1996, first offered billable premium services to the
public in July 1998 and expanded our free basic service to include full Internet
access in addition to e-mail in December 1999. As a company in the rapidly
evolving market for Internet services, we face numerous risks and uncertainties.
Some of these risks relate to our ability to:

- attract and retain subscribers to our free basic service and our billable
premium services;

- anticipate and adapt to the changing Internet market;

- generate revenues sufficient to cover our operating expenses through the
sale of our billable premium services, through the sale of advertising or
from other revenue sources;

- preserve or raise the capital necessary to fund our operations to the
extent that they are not profitable;

- control the cost of providing our free basic service by implementing
measures designed to discourage excessive use of this service, and to do
so without causing undesirable levels of subscriber attrition;

- maintain and develop strategic relationships with business partners to
advertise their products over our services, particularly in light of
ongoing weakness in the market for Internet advertising;

- cost-effectively implement a marketing strategy to promote awareness of
and attract subscribers to the Juno services, should we choose to pursue
such a strategy;

- prevent increases and achieve reductions in the rates we pay for
telecommunications services;

- respond to actions taken by our competitors and the entry of new
competitors into our markets;

- develop and deploy successive versions of the Juno software;

- operate computer systems and related infrastructure adequate to
effectively provide our basic service and our billable premium services;

- provide technical and customer support to our subscribers in a
cost-effective manner;

- operate broadband Internet access services, whether independently or in
collaboration with one or more third parties;

- manage the billing systems used to invoice subscribers to our billable
premium services; and

- attract, retain and motivate qualified personnel.

Our business and financial results will depend heavily on the commercial
acceptance and profitability of both our free basic service and our billable
premium services. If we are unsuccessful in addressing these risks or in
executing our business strategy, our business and financial results may suffer.

WE HAVE A HISTORY OF LOSSES SINCE OUR INCEPTION IN 1995 AND MAY NOT EVER BECOME
CASH-FLOW POSITIVE OR PROFITABLE

Since our inception in 1995, we have not been profitable. We have incurred
substantial costs to create and introduce our various services, to operate these
services, to attract subscribers to and promote awareness of these services and
to build our business. We incurred net losses of approximately $3.8 million from
inception through December 31, 1995, $23.0 million for the year ended
December 31, 1996, $33.7 million for the year ended December 31, 1997,
$31.6 million for the year ended December 31, 1998, $55.8 million for the year
ended December 31, 1999, and $131.4 million for the year ended December 31,
2000.

As of December 31, 2000, our accumulated net losses totaled $279.4 million.
We incurred negative cash flows from operations of approximately $16.4 million
for the year ended December 31, 1996, $33.6 million for the year ended
December 31, 1997, $20.9 million for the year ended December 31, 1998, and
$45.1 million for the year ended December 31, 1999, and $109.5 for the year
ended December 31, 2000.

At December 31, 2000, $0.9 million remained prepaid for advertising that
Juno had the right to display on a third party's media properties. This prepaid
amount was used in January 2001.

Since we operated as a limited partnership prior to the merger of Juno
Online Services, L.P. into Juno Online Services, Inc. in March 1999, taxable
losses incurred prior to the merger were allocated to the partners of Juno
Online Services, L.P. for reporting on their income tax returns. As a result, we
will not be able to offset future taxable income, if any, against losses
incurred prior to the merger.

We may not ever be successful in implementing our business strategies or in
addressing the risks and uncertainties facing our company. Even if we do
implement these strategies and address these risks successfully, our business
might not ever become cash-flow positive or profitable. Were we to achieve
profitability for any particular period, we cannot assure you that we would be
able to sustain or increase profitability on a quarterly or annual basis
thereafter.

OUR BUSINESS IS SUBJECT TO FLUCTUATIONS IN OPERATING RESULTS WHICH MAY
NEGATIVELY IMPACT THE PRICE OF OUR STOCK

Our revenues, expenses and operating results have varied in the past and may
fluctuate significantly in the future due to a variety of factors. These include
factors within and outside of our control. Some of these factors include:

- patterns of subscriber acquisition and retention, and seasonal trends
relating to subscriber usage of our services;

- the extent to which our reduction in marketing activity to acquire
subscribers and promote the Juno brand affects our ability to acquire and
retain subscribers;

- the timing and effectiveness of any revenue sharing arrangements or other
strategic alliances into which we enter;

- the demand for Internet advertising and our ability to collect outstanding
receivables from our advertisers;

- seasonal trends relating to Internet advertising spending;

- capital expenses related to upgrading our computer systems and related
infrastructure;

- our ability to protect our systems from any telecommunications failures,
power loss, or software-related system failures;

- our ability to integrate operations and technologies from any acquisitions
or other business combinations or relationships into which we enter;

- the extent to which we experience increased competition in the markets for
Internet services, Internet advertising and electronic commerce;

- changes in operating expenses including, in particular, telecommunications
expenses and the cost of providing various types of technical and
non-technical customer support to our subscribers; and

- economic conditions specific to the Internet, as well as general economic
and market conditions.

Since we expect to be heavily dependent on revenues from our billable
premium services in the foreseeable future, our revenues are likely to be
particularly affected by our ability to recruit new subscribers to our billable
premium services, particularly by encouraging users of our free basic service to
upgrade to our billable premium services, and our ability to retain subscribers
to our billable premium services. In addition, our operating expenses are based
on our expectations of our future revenues and are relatively fixed in the short
term. We may be unable to adjust spending quickly enough to offset any revenue
shortfall, which may cause our business and financial results to suffer.

Due to all of the above factors and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of public
market analysts and investors. In this event, the price of our common stock is
likely to fall.

WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO IMPLEMENT
OUR EXISTING FINANCING PLANS OR SECURE ADDITIONAL FINANCING

Because we expect to continue to incur substantial losses for the
foreseeable future, we may need to raise substantial additional funds in the
future to fund our operations, including our telecommunications and other
service provision costs, subscriber acquisition costs, costs of enhancing or
expanding the range of Internet services we offer and costs associated with
responding to competitive pressures or perceived opportunities. Additional
financing may not be available on terms favorable to us, or at all. If adequate
funds are not available or not available when required in sufficient amounts or
on acceptable terms, we may not be able to devote sufficient cash resources to
continue to provide our services in their current form, acquire additional
subscribers, enhance or expand our services, respond to competitive pressures or
take advantage of perceived opportunities, and our business and financial
results may suffer, or we could be forced to cease our operations entirely. In
light of our historical and expected losses, we are unlikely to be able to raise
significant additional funds through the incurrence of indebtedness. If
additional funds are raised by our issuing debt, we may be subject to
limitations on our operations.

On October 6, 2000, we entered into an equity line facility with The
Kingston Limited Partnership pursuant to which we may, subject to certain
conditions, be able to issue up to $125 million of our common stock to Kingston
over the course of a period of up to two years. However, under our agreement
with Kingston, they are not obligated to purchase shares of our common stock
unless a number of conditions have been satisfied. In particular, they generally
have no obligation to purchase shares to the extent that their purchase price on
a given purchase day would be less than $2.50 per share. Since Kingston's
purchase price will generally be 94% of our volume-weighted average trading
price during a given purchase day, Kingston generally will have no obligation to
purchase shares on a given day to the extent that the volume-weighted average
trading price of our shares during such day is less than $2.66 per share.
Kingston has previously agreed to waive this minimum price condition with
respect to one drawdown period, and Kingston may agree to waive this minimum
purchase price from time to time in the future to allow Juno to sell common
stock to Kingston at prices lower than $2.50 per share but Kingston does not
have an obligation to permit such sales, and may grant or deny such waivers in
its sole discretion. Even if Kingston does grant such a waiver in a particular
case and, at Juno's request, sets a new minimum purchase price lower than $2.50
per share for a given drawdown period, there can be no assurance that Juno will
meet such new minimum trading price condition to our ability to draw down funds
for all or any portion of such drawdown period.

In addition to price-related limitations, Kingston generally has no
obligation to purchase shares on a given day to the extent that such purchases
would exceed specified limitations based on our trading volume. Also, the equity
line facility provides that Kingston may not purchase a number of shares that,
when added to all other shares purchased under the facility, would exceed 19.99%
of the number of shares of our common stock issued and outstanding on
October 6, 2000 unless either we obtain stockholder approval of issuances under
the facility in excess of that amount, or Kingston is advised by counsel that
the rules of the principal market or exchange on which our shares are quoted or
listed would permit such an issuance without stockholder approval. As of
October 6, 2000, we had a total of 38,944,360 shares of common stock issued and
outstanding, 19.99% of which would be 7,784,978 shares.

We have also entered into several transactions pursuant to which we have the
right to pay for goods or services using our common stock, and we may enter into
more such transactions in the future. If we raise additional funds, acquire
assets, or obtain goods or services through the issuance of equity securities,
stockholders may experience significant dilution of their ownership interest and
the newly issued securities may have rights superior to those of our common
stock. The dilutive effect of these issuances will be increased to the extent
our share price declines.

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE AND IS LIKELY TO EXPERIENCE EXTREME
PRICE AND VOLUME FLUCTUATIONS IN THE FUTURE THAT COULD REDUCE THE VALUE OF YOUR
INVESTMENT, SUBJECT US TO LITIGATION, CAUSE US TO BE UNABLE TO MAINTAIN THE
LISTING OF OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET, AND MAKE OBTAINING
FUTURE EQUITY FINANCING MORE DIFFICULT FOR US

The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile, with extreme price and volume
fluctuations. The Nasdaq National Market, where most publicly held Internet
companies are traded, has experienced substantial price and volume fluctuations.
These broad market and industry factors may harm the market price of our common
stock, regardless of our actual operating performance, and for this or other
reasons we could continue to suffer significant declines in the market price of
our common stock.

In the past, companies that have experienced volatility in the market price
of their stock have been the object of securities class action litigation. If we
were to become the object of securities class action litigation, it could result
in substantial costs and a diversion of our management's attention and
resources.

Our common stock is currently listed on the Nasdaq National Market. We must
satisfy a number of requirements to maintain our listing on the Nasdaq National
Market, including maintaining a minimum bid price for our common stock of $1.00
per share. A company fails to satisfy this requirement if its closing bid price
remains below $1.00 per share for 30 consecutive business days. From time to
time our common stock has had a closing bid price below $1.00 per share. There
can be no assurance that our bid price will comply with the requirements of the
Nasdaq National Market to facilitate continued listing of our common stock on
the Nasdaq National Market. If our common stock loses its Nasdaq National Market
status, it would most likely trade on the Nasdaq Over the Counter Bulletin
Board, which is viewed by most investors as a less desirable and less liquid
marketplace. This outcome would be likely to harm the trading price of our
common stock. In addition, continued listing on the Nasdaq National Market or
listing on the Nasdaq SmallCap Market, American Stock Exchange or New York Stock
Exchange is a condition to drawing down funds under the equity line facility.

In addition, declines in our stock price might harm our ability to issue, or
significantly increase the ownership dilution to stockholders caused by our
issuing, equity in financing or other transactions. The price at which we issue
shares in such transactions is generally based on the market price of our common
stock and a decline in our stock price would result in our needing to issue a
greater number of shares to raise a given amount of funding or acquire a given
dollar value of goods or services. A low stock price may impair our ability to
draw down funds under the equity line facility, because The Kingston Limited
Partnership, the purchaser under the equity line facility, is generally not
required to purchase shares of our common stock under the facility on a given
day if our average stock price during such day is less than $2.66 per share or
to the extent that such purchases would exceed specified limitations based on
our trading volume.

OUR STOCK PRICE COULD DECLINE AND OUR STOCKHOLDERS COULD EXPERIENCE SIGNIFICANT
OWNERSHIP DILUTION DUE TO OUR ABILITY TO ISSUE SHARES UNDER THE EQUITY LINE
FACILITY

Under the equity line facility, we may sell, subject to various
restrictions, up to $7.5 million of common stock in each of up to 20 drawdown
periods of 22 trading days each over the course of a period of up to two years,
provided that we cannot sell more than $125 million in total under the facility
and may in practice only be able to sell a much lower amount. The total number
of shares that may be issued under the facility depends on a number of factors,
including the market price and trading volume of our common stock during each
drawdown period we choose to initiate. While we have no obligation to sell any
shares under the equity line facility, the facility may be terminated if we sell
no shares to Kingston for a period of four consecutive months.

Because the purchase price of any shares we choose to sell under the equity
line facility is based on the average market price of the common stock on the
date of purchase, both the number of shares we would have to sell in order to
draw down any given amount of funding and the associated ownership dilution
experienced by our stockholders will be greater if the price of our common stock
declines. The lowest price at which Kingston is obligated to purchase shares
from us under the equity line facility is $2.50 per share, although we and
Kingston have previously agreed to waive this condition with respect to one
drawdown period and may agree to waive this condition from time to time in the
future in order to allow us to sell shares to them at lower prices.

In the event that we were able, in spite of the various restrictions
contained in the equity line facility, to draw down the maximum amount under the
facility, and if we indeed chose to draw down the full $125 million, and if all
sales under the facility occurred at $2.50 per share, then we would need to
issue 50,000,000 shares of common stock to Kingston, well in excess of the
41,134,350 shares of our common stock outstanding as of December 31, 2000. If
Kingston permitted us to sell shares to them at prices lower than $2.50 per
share and we chose to do so, then it is possible that an even greater number of
shares could be issued. In general, ownership dilution will increase as the
market price for our common stock declines.

As of January 23, 2001, we have registered 10,000,000 shares of our common
stock for sale with the Securities and Exchange Commission in connection with
the equity line facility. If issued, these shares would represent 19.56% of our
shares outstanding, when added to the number of shares outstanding as of
December 31, 2000.

The perceived risk associated with the possible sale of a large number of
shares under the equity line facility--at prices as low as $2.50 per share in
the absence of a waiver from Kingston or at even lower prices to the extent such
waivers have been requested and granted--could cause some of our stockholders to
sell their stock, thus causing the price of our stock to decline. In addition,
actual or anticipated downward pressure on our stock price due to actual or
anticipated sales of stock under the equity line facility could cause some
institutions or individuals to engage in short sales of our common stock, which
may itself cause the price of our stock to decline.

WE MAY ISSUE COMMON STOCK TO PAY FOR SERVICES IN TRANSACTIONS THAT CAUSE
DILUTION TO OUR STOCKHOLDERS, AND THE DILUTIVE EFFECT OF THESE ISSUANCES WOULD
INCREASE TO THE EXTENT THAT OUR STOCK PRICE DECLINES

In addition to the equity line facility, we have entered into a number of
relationships in which we expect to use our common stock to compensate third
parties for services performed for us, including subscriber referral services,
and we may enter into additional such relationships in the future. In most of
these transactions, the payments owed by Juno will be calculated in dollar
terms, with Juno having the right to issue an equivalent amount of its common
stock in lieu of making cash payments. We currently anticipate that we will
exercise those rights to make payments in our common stock where available to
us, although we may choose to pay for some or all of such expenses in cash. If
the price of Juno common stock should decline, our electing to pay with common
stock would entail issuing a relatively larger number of shares, increasing the
dilutive effect on our stockholders, and potentially impairing our ability to
draw down on the equity line facility or execute other financing transactions.
Additionally, the third parties to whom we issue common stock will generally
have registration rights that require us to register these shares of common
stock for resale in the public markets. The market price of our common stock
could decline as a result of sales of these shares in the market, or the
perception that such sales could occur.

FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK PRICE

In addition to potential future issuances of our common stock, we have a
large number of shares of common stock currently outstanding and available for
resale. The market price of our common stock could decline as a result of sales
of a large number of shares of our common stock in the market, or the perception
that such sales could occur. These sales also might make it more difficult for
us to sell equity securities in the future at a price that we think is
appropriate, or at all.

THE PROVISION OF FULL WEB ACCESS AS A FEATURE OF OUR FREE BASIC SERVICE CREATES
SUBSTANTIAL RISKS

In December 1999, we expanded our free basic service to include full
Internet access, including access to the World Wide Web. We face numerous costs,
operational and legal risks, and other uncertainties associated with our
provision of free Web access to consumers, including the following:

- RISK THAT OUR PAYING SUBSCRIBERS WILL CANCEL THEIR BILLABLE SERVICE
SUBSCRIPTIONS AND SWITCH TO OUR FREE SERVICE. Since users of our basic
service can access the Web for free, some Juno Web subscribers may cancel
their billable service subscriptions and switch to the free basic service.
If the number of Juno Web subscribers who switch to the free basic service
is significant, our business and financial results may suffer.

- RISK THAT THE NUMBER OF HOURS OUR FREE BASIC SERVICE IS USED, AND THE COST
OF PROVIDING THE SERVICE, WILL NOT DECREASE, AND MAY INCREASE. The cost
of providing our free basic service is proportional to the amount of time
subscribers to the service spend using it to connect to the

Internet or to Juno's central computers. As users of the service spend
more time connected, the costs we incur to provide the service go up.
Starting toward the end of 2000, we began implementing measures designed
to address disproportionate resource consumption by relatively heavy users
of our free basic service, but there can be no assurance that these or any
future measures we may implement will be successful in reducing either
average connection time per subscriber or aggregate connection time for
all users of the service. If aggregate hours of connection time associated
with our free basic service do not decline, our business and financial
results may suffer.

- RISK THAT WE MAY BE UNABLE TO GENERATE SIGNIFICANT REVENUES FROM THE SALE
OF ADVERTISING ON THE PERSISTENT ADVERTISING AND NAVIGATION BANNER
CURRENTLY DISPLAYED WHILE FREE SUBSCRIBERS USE THE WEB, OR THAT PENDING
LITIGATION MIGHT REQUIRE US TO PERMANENTLY DISABLE THIS BANNER OR
DISCONTINUE ITS USE FOR THE DISPLAY OF THIRD-PARTY ADVERTISING. The
display of a persistent advertising and navigation banner to users of our
basic service when they use the Web creates a significant amount of
advertising inventory. To date, this advertising inventory has not
generated significant revenues, even with the efforts of a third party,
24/7 Media, engaged by us to bear primary responsibility for the sale of
this inventory in return for a commission. In late 2000, we settled an
arbitration proceeding we initiated against 24/7 Media, and the parties
agreed to a restructured, non-exclusive relationship without future
guaranteed minimum payments to Juno.

Additionally, in connection with a patent infringement action brought
against us by NetZero, Inc., we have discontinued the display of
third-party advertisements in the persistent advertising and navigation
banner as of January 12, 2001, pursuant to a temporary injunction entered
by the court. The injunction is expected to remain in effect through
March 29, 2001, and may be extended thereafter. If NetZero ultimately
succeeds in its infringement action, we may be permanently prohibited from
utilizing our advertising and navigation banner for the display of
third-party advertising or possibly for any purpose, including the
promotion of Juno's own premium billable services and the differentiation
of our free basic service from our premium billable services.

There can be no assurance that, in the future, we will be able to continue
the use of the advertising and navigation banner on our free basic
service, or, that if we are permitted to do so, we will be able to
generate significant revenues from the sale of advertising inventory on
this banner, either through 24/7 Media, any other third-party sales agent,
or our own internal sales organization. If we are unable to sell this
inventory or to do so at favorable rates, our advertising revenues could
suffer.

WE MAY EXPERIENCE CONTINUED INCREASES IN OUR TELECOMMUNICATIONS COSTS

Our telecommunications costs represent one of the most significant expenses
of providing our services, and they may continue to increase, especially if
overall use of the Web by our subscribers increases. When using e-mail,
subscribers generally need to be connected to our central computers only for the
relatively short period of time required to send e-mail they have written or
download e-mail that has been sent to them. However, when using the Web, or when
using e-mail while connected to the Web, a subscriber remains continuously
connected to the Internet for the entire duration of the session. Since we
purchase telecommunications resources on a metered basis based on hours of
connection time, the longer connections associated with accessing the Web
generate significantly higher expenses than the shorter connections generally
associated with downloading or uploading e-mail messages. Starting toward the
end of 2000, we began implementing measures designed to reduce the amount of
time heavier users of our free basic service spend connected, but there is a
substantial risk that our efforts will not result in significant reductions in
the overall telecommunications resources consumed by users of our free basic
service. Additionally, since some of our telecommunications agreements include
tiered pricing arrangements under the terms of which our rates increase if usage

declines below specified levels, even a significant reduction in per-subscriber
telecommunications consumption might fail to result in proportional savings to
Juno.

Furthermore, we have experienced significant increases in the amount of time
that users of our billable premium services spend connected to the Web. We
believe this trend is likely to continue and may accelerate, potentially causing
overall connection time by Juno subscribers and/or connection time per Juno
subscriber to increase, even if we are successful at reducing connection time
per subscriber to the free basic service. Accordingly, this trend could be
expected to increase our telecommunications costs both on an absolute and a
per-subscriber basis, unless we are able to achieve corresponding reductions in
our telecommunications rates. If we were to attract new subscribers to our
services, our telecommunications costs would increase still further on an
absolute basis. We cannot assure you that we will be able to achieve adequate
reductions in our per-subscriber telecommunications costs, or any such
reductions, and if we are unable to achieve such reductions, our business and
financial results will suffer.

IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR SIGNIFICANT DAMAGES

We have taken steps to protect our intellectual property rights, but we
cannot be certain that our efforts will be adequate to safeguard our rights to
technology we have developed. Disputes concerning the ownership or rights to use
intellectual property could be costly and time-consuming to litigate, may
distract management from other tasks of operating the business, and may result
in our loss of significant rights or possibly the loss of our ability to operate
our business entirely.

On December 26, 2000, NetZero, Inc. filed an action in the United States
District Court for the Central District of California, alleging that Juno has
infringed U.S. Patent No. 6,157,946. NetZero has alleged that the persistent
advertising and navigation banner used on Juno's free service, along with other
elements of Juno's service, infringes the patent. NetZero is seeking unspecified
monetary damages, attorneys fees, and various forms of preliminary and permanent
injunctive relief, including a prohibition on Juno's continuing to offer its
free service in its current form. On January 5, 2001, the court granted an
interim temporary restraining order prohibiting Juno from displaying third-party
advertisements in the persistent advertising and navigation banner displayed to
users of Juno's free service. This order is expected to remain in effect until
March 29, 2001, at which time we expect the court to hold a preliminary
injunction hearing to determine whether to extend, modify, or terminate the
interim order. The court has scheduled a trial commencing in July 2001. If, as a
result of this dispute, we were required to permanently discontinue our display
of third-party advertising on the advertising and navigation banner, our
advertising revenues could be materially harmed. If we were further required to
discontinue our use of the persistent advertising and navigation banner
entirely, the presence of this device as a differentiating feature between our
free service and our premium services, as well as our ability to use the banner
to promote our billable premium services, would be eliminated, and our ability
to upgrade users to and retain users in our billable premium services would be
impaired. If we were required to cease providing our free service in its current
form, our financial results and our business prospects could be materially
adversely affected. We intend to defend our interests vigorously in this matter.

We have been granted four U.S. patents covering aspects of our technology
for the offline display of advertisements and the authentication and dynamic
scheduling of advertisements and other messages to be delivered to computer
users. We have also filed a number of other U.S. patent applications relating to
additional aspects of our business. We cannot assure you, however, that these
applications will result in the issuance of patents, that any patents that have
been granted or that might be granted in the future will provide us with any
competitive advantages or will be exploited profitably by us, or that any of
these patents will withstand any challenges by third parties. We also cannot
assure you that

others will not obtain and assert patents against us which are essential for our
business. If patents are asserted against us, we cannot assure you that we will
be able to obtain license rights to those patents on reasonable terms or at all.
If we are unable to obtain licenses, we may be prevented from operating our
business and our financial results may therefore be harmed.

Except as described above, we rely solely upon copyright and trademark law,
trade secret protection and confidentiality agreements with our employees and
with some third parties to protect our proprietary technology, processes, and
other intellectual property, to the extent that protection is sought or secured
at all. We cannot assure you that any steps we might take will be adequate to
protect against infringement and misappropriation of our intellectual property
by third parties. Similarly, we cannot assure you that third parties will not be
able to independently develop similar or superior technology, processes, or
other intellectual property. Furthermore, we cannot assure you that third
parties will not assert claims against us for infringement and misappropriation
of their intellectual property rights nor that others will not infringe or
misappropriate our intellectual property rights, for which we may wish to assert
claims.

OUR ABILITY TO CAUSE OUR FREE BASIC SERVICE SUBSCRIBERS TO UPGRADE TO OUR
BILLABLE PREMIUM SERVICES IS UNCERTAIN. IF THE NUMBER OF SUBSCRIBERS UPGRADING
TO OUR BILLABLE SERVICES FALLS SHORT OF OUR GOALS, OUR BUSINESS AND FINANCIAL
RESULTS WILL SUFFER

Our business strategy contemplates that some of the subscribers to our free
basic service will decide over time to upgrade to our premium services. We are
relying increasingly on this migration as a major source of subscribers to our
billable premium services. Since July 1998, we have conducted advertising to our
free basic service subscribers to encourage them to upgrade. There is a risk
that repeated exposure to these advertisements could cause their effectiveness
to decline. As a result, such advertisements may prove insufficient to generate
growth in or maintain the size of our billable subscriber base. We expect that
it will become more difficult and expensive over time to effectively market our
premium services to users of our free basic service. Accordingly, the rate at
which users of the free basic service upgrade to our billable premium services
may decline. If our marketing techniques fail to generate an adequate conversion
rate from free to billable premium services, if the acquisition cost for
subscribers acquired directly or indirectly into our billable premium services
is greater than expected, if diminished capital resources require us to curtail
even further our use of external marketing channels, or if technical limitations
make the conversion process more difficult or time-consuming than anticipated,
our business and financial results will suffer.

OUR MARKETING RESOURCES MAY BE INSUFFICIENT TO GENERATE NEW SUBSCRIBERS OR
AWARENESS OF OUR SERVICES

In light of our objective of preserving cash resources, we have
significantly reduced our marketing activities in recent quarters, and we may
reduce such activities further in the future. Any marketing activities we do
engage in may not be sufficient to increase or maintain either the size of our
subscriber base or awareness of our services. Many of our competitors have
greater financial resources than we do and have undertaken significant
advertising campaigns. We cannot predict the timing, the type, or the extent of
future advertising activities by our competitors. It is possible that marketing
campaigns undertaken by our competitors will have an adverse effect on our
ability to retain or acquire subscribers. If we incur costs in implementing
marketing campaigns without generating sufficient new subscribers to our
services, or if capital limitations or other factors prevent us from
implementing marketing campaigns, or if marketing campaigns undertaken by
competitors cause attrition in our subscriber base, our business and financial
results may suffer.

OUR SUBSCRIBER COUNT MAY DECLINE AND OUR BUSINESS MAY SUFFER AS A RESULT OF
CONTINUED REDUCTIONS IN OUR SUBSCRIBER ACQUISITION ACTIVITIES

We may not succeed in acquiring or retaining a sufficiently large subscriber
base for our free basic service and our billable premium services. To acquire
new subscribers, we have historically relied on a number of cash-intensive
distribution channels for our free proprietary software that enables subscribers
to use our services. The most significant channel has been the use of direct
mail to circulate diskettes or CDs containing our software to large numbers of
prospective subscribers. We have suspended substantially all use of direct mail
for subscriber acquisition, and although our plans could change in response to
any of a number of factors, we do not currently expect to increase its use in
the near future. We have also reduced our use of other subscriber acquisition
channels, particularly channels that require significant cash expenditures, and
currently plan to reduce subscriber acquisition activities further in the
future. We have undertaken some alternative subscriber acquisition activities
that entail the expenditure of lesser amounts of cash, including stock-based
subscriber referral agreements with two former Internet access providers,
WorldSpy and Freewwweb, and with a retailer of computer software, Babbage's.
However, there can be no assurance that we will choose to pursue such
opportunities in the future, that we will be successful in identifying or
exploiting additional such opportunities if we do choose to pursue them, or that
the number of subscribers generated by any such opportunities we do identify and
exploit will be sufficient to grow, or even to maintain the size of, our
subscriber base. Additionally, there is a risk that declines in the trading
price of our common stock will adversely affect the willingness of potential
counterparties to accept Juno common stock as an alternative to cash
consideration in connection with such opportunities. To the extent that
alternative subscriber acquisition methods we employ involve the issuance of
Juno common stock as consideration, existing stockholders may experience
significant dilution of their ownership interest and the newly issued securities
may have rights superior to those of our common stock.

DIFFICULTY RETAINING SUBSCRIBERS TO OUR SERVICES, AS WELL AS SUBSCRIBER
ATTRITION CAUSED BY MEASURES WE HAVE IMPLEMENTED TO DISCOURAGE DISPROPORTIONATE
USAGE OF OUR FREE SERVICE BY OUR HEAVIEST USERS, MAY CAUSE OUR BUSINESS TO
SUFFER

Our business and financial results are dependent on, among other things, the
number of subscribers to our services. Among other things, our number of active
subscribers has a significant impact on the number of advertising impressions we
have available to sell, and on how many billable service subscribers we can
potentially acquire by soliciting users of our free service. Each month, a
significant number of subscribers to our billable premium services choose to
cancel the service. In addition, each month a significant number of subscribers
to our free basic service become inactive. It is easy for Internet users to
switch to competing providers, and we believe that intense competition has
caused, and may continue to cause, many of our subscribers to switch to other
services. In addition, new subscribers may decide to use our services only out
of curiosity regarding the Internet, or to take advantage of free or low-cost
introductory offers for our billable premium services, and may later discontinue
using our services.

Furthermore, we have recently begun implementing certain measures designed
to encourage the heaviest users of our free service to alter their usage
patterns, upgrade to one of our billable services, or generate additional
revenues in some other way that might help us cover the higher costs they cause
us to incur. While the details of these measures may change over time, these
measures currently include, but may or may not be limited to, the display of
additional advertising to heavier users and the prioritization of access to our
free service according to usage levels, among other factors. Such prioritization
mechanisms currently make it more difficult for the heaviest users of our free
service to establish and maintain a Web connection through Juno's free service,
particularly during those hours when overall usage tends to be highest, than is
expected to be the case for free subscribers whose usage patterns are more
typical. As a result of these measures, we are likely to experience at least
some

degree, and possibly a substantial amount, of incremental subscriber attrition.
We are unable to predict the amount of such attrition we might experience
overall, or the extent to which it might involve subscribers other than those
heavier users to whom we currently expect to target these measures. In the event
such measures were to result in a significant decrease in the size of Juno's
subscriber base, and particularly to the extent such attrition were to involve
subscribers other than the targeted groups, such measures could cause our
business and financial results to suffer. Furthermore, we may at some point in
the future charge a fee for our basic service or cap the amount a subscriber may
use this service in a given period, or increase the fees we charge subscribers
to our billable premium services. If we were to implement such changes, we might
lose a significant number of subscribers and our business and financial results
could suffer.

In the past, we have experienced lengthy periods during which subscriber
attrition caused the total number of subscribers using our services in a given
month to remain relatively static despite our addition of a substantial number
of new users to our services. In recent quarters, we have significantly reduced
our levels of cash expenditure for subscriber acquisition and retention, and we
expect to further reduce our cash expenditures for such activities in the
future. Although the many factors affecting subscriber acquisition and retention
make it difficult to accurately predict the future size of our subscriber base,
such reductions may cause our active subscriber counts to decline. To the extent
that such spending reductions, other changes in our policies or operations,
competitive or other market conditions, or other factors were to result in a
significant decline in the net number of active subscribers to one or more of
our services, this could cause our business and financial results to suffer.

SOME USERS OF OUR FREE BASIC SERVICE MAY BE UNABLE TO ACCESS THE WEB

In order to obtain access to the Web, users of our free basic service must
be equipped with a version of our software at least as recent as version 4.0, as
well as a recent version of Microsoft Internet Explorer, the Web browsing
software that our free basic service requires. At December 31, 2000,
approximately 10% of active users of our free basic service used versions of our
software older than version 4.0. Although we hope to upgrade such users'
software to a more recent version automatically by downloading the newer version
to their computer during one of their connections, technical constraints prevent
us from completing automatic upgrades for users of the oldest versions of our
software. Instead, these users must choose to install the current version of our
software and, in some cases, would need to be sent a copy of the software by
mail before they could complete this process. Approximately 3% of our free basic
service users currently use a version of the Microsoft Windows operating system
older than Windows 95, and cannot upgrade to a current version of the Juno
software unless they upgrade to a more current version of Windows. There is a
risk that some portion of our basic service user base will never upgrade to a
current version of the Juno software and will be unable to access the Web
through our free basic service.

If a significant percentage of our basic service users do not use the Web,
our ability to display Web-related advertisements and generate associated
revenues will be harmed.

COMPETITION IN THE MARKETS FOR INTERNET SERVICES, INTERNET ADVERTISING AND
ELECTRONIC COMMERCE IS LIKELY TO INCREASE IN THE FUTURE AND MAY HARM OUR
BUSINESS

The market for Internet services is extremely competitive and includes a
number of substantial participants, including America Online, Microsoft and
AT&T. The markets for Internet-based advertising and electronic commerce are
also very competitive. Our ability to compete depends upon many factors, many of
which are outside of our control.

INTENSE COMPETITION EXISTS IN THE MARKET FOR INTERNET SERVICES

We may not be able to compete successfully against current or future
competitors, and the competitive pressures that we face may cause our business
and financial results to suffer. We believe that the primary competitive factors
determining success in these markets include effective marketing to promote
brand awareness, a reputation for reliability and service, effective customer
support, pricing, easy-to-use software and geographic coverage. Other important
factors include the timing and introduction of new products and services as well
as industry and general economic trends. The market for Internet services has
begun to consolidate, and we expect competition to increase as some of our
competitors grow larger through consolidation or begin to bundle Internet
services with other products and services. Our current and potential competitors
include many large national companies that have substantially greater market
presence and financial, technical, distribution, marketing and other resources
than we have. This may allow them to devote greater resources than we can to
subscriber acquisition activities and to the development, promotion and
distribution and sale of products and services.

In the near term, however, we will increase the prices we charge at least
some subscribers to our billable premium services, in an effort to increase our
billable services revenue and profitability. Such price increase can be expected
to result in subscriber attrition, possibly to an extent sufficient to cause
overall revenues from billable services to decline, and these outcomes could
cause our business and financial results to suffer.

In recruiting subscribers for our services, we currently compete, or expect
to compete, with the following types of companies, among others:

- Numerous independent regional and local Internet service providers that
may offer lower prices than most national Internet service providers;

- Various national and local telephone companies such as AT&T, MCI WorldCom
Communications and Pacific Bell, a division of SBC Telecom;

WE RELY ON REVENUES FROM ADVERTISING AND ELECTRONIC COMMERCE AND THESE REVENUES
HAVE BEEN, AND MAY CONTINUE TO BE, ADVERSELY AFFECTED BY CONTINUED WEAKNESS IN
THE MARKET FOR INTERNET ADVERTISING.

With respect to the generation of advertising and electronic commerce
revenue, we compete with many of the market participants listed above as well as
with various advertising-supported Web sites, including portal sites such as
Yahoo! and Lycos, content sites such as CNET and CNN.com, and interactive
advertising networks and agencies such as DoubleClick and 24/7 Media. We also
compete with traditional media such as print and television for a share of
advertisers' total advertising budgets. If advertisers perceive the Internet to
be a limited or ineffective advertising medium or perceive us to be less
effective or less desirable than other Internet advertising vehicles,
advertisers may be reluctant to advertise on our services.

OUR COMPETITION IS LIKELY TO INCREASE IN THE FUTURE

pressure on us to increase our spending for sales and marketing and for
subscriber acquisition and retention activities at a time when we may not have
adequate cash resources to devote to such activities. Competition could also
require us to lower the prices we charge for our billable premium services, or
eliminate such fees altogether, in order to maintain our marketplace position--,
or, alternatively, could cause our marketplace position to suffer if, as we
currently believe is more likely, we were to increase the prices we charge at
least some subscribers to our billable services. Any of these scenarios could
harm our business and financial results, and we may not have the resources to
continue to compete successfully.

OUR STRATEGIC MARKETING ALLIANCES AND OTHER SOURCES OF ADVERTISING REVENUE ARE
CONCENTRATED IN THE INTERNET INDUSTRY, MAKING US VULNERABLE TO DOWNTURNS
EXPERIENCED BY OTHER INTERNET COMPANIES OR THE INTERNET INDUSTRY IN GENERAL

In the quarter ended December 31, 2000, we derived approximately 70% of our
advertising revenue from strategic marketing and advertising relationships with
other Internet companies. At the current time, we believe that some of these
companies may be having difficulty generating operating cash flow or raising
capital, or are anticipating such difficulties, and are electing to scale back
the resources they devote to advertising, including on our services. Other
companies in the Internet industry have depleted their available capital, and
have ceased operations or filed for bankruptcy protection or may be expected to
do so. Difficulties such as these may affect the total amount of advertising
inventory we can sell, and may continue to affect our ability to collect
revenues or advances against revenues from our existing partners or advertisers
as such amounts become due. An increasing number of our strategic marketing
partners and advertisers, including some with agreements providing for minimum
guaranteed payments, have either already defaulted on periodic payments due to
us, or informed us that they will not meet their obligations. If the current
environment for Internet advertising does not improve, our business and
financial results may suffer.

In September 1999, Juno entered into an agreement with News America Digital
Publishing, an affiliate of News Corporation, under which Juno received revenues
for displaying Fox-branded news, sports, entertainment and business content on
the Juno Web site. This agreement has been terminated by News America Digital
Publishing, effective February 15, 2001.

WE ARE DEPENDENT ON STRATEGIC MARKETING ALLIANCES AS A SOURCE OF REVENUES AND
OUR BUSINESS COULD SUFFER IF ANY OF THESE ALLIANCES IS TERMINATED

We have strategic marketing alliances with a number of third parties, and
most of our strategic marketing partners have the right to terminate their
agreements with us on short notice. The number of terminations of various types
of advertising contracts by our partners increased over the course of 2000. In
light of the concentration of our advertisers within the Internet industry, we
expect that this trend will continue in 2001, which could cause our business and
financial results to suffer, especially if such terminations are coupled with a
refusal to pay amounts owed to Juno at the time of termination. If any of our
strategic marketing agreements are terminated, we cannot assure you that we will
be able to replace the terminated agreements with equally beneficial
arrangements. We also expect that we will not be able to renew all of our
current agreements when they expire and that, to the extent we are able to renew
some or all, that we may not be able to do so on acceptable terms. We also do
not know whether we will be successful in entering into additional strategic
marketing alliances, or that any additional relationships, if entered into, will
be on terms favorable to us. Our receipt of revenues from our strategic
marketing alliances may also be dependent on factors which are beyond our
control, such as the quality of the products or services offered by our
strategic marketing partners.

OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE MARKET FOR INTERNET ADVERTISING
CONTINUES TO CONTRACT OR FAILS TO RECOVER

Our business and financial results are dependent on the use of the Internet
as an advertising medium. Internet-based advertising accounts for only a small
fraction of all advertising expenditures, and we cannot be sure that
Internet-based advertising will ever grow to account for a substantial
percentage of total advertising spending or when an increase might occur. Our
business may suffer if the market for Internet-based advertising continues to
contract or fails to recover. Our business also may suffer if users install
"filter" software programs that limit or prevent advertising from being
delivered to their computers. Widespread adoption of this type of software could
harm the commercial viability of Internet-based advertising.

Sales of advertising space on our services represent an important revenue
source for us. Competition for Internet-based advertising revenues is intense,
and this competition, together with an increase in the amount of advertising
space available overall on the Internet, has resulted in significant price
erosion over time, which may continue. We cannot assure you that we will be
successful in selling advertising or capturing a significant share of the market
for Internet-based advertising. We also cannot assure you that we will be able
to sell advertising at the rates we currently project, and it may become
necessary to lower the rates for advertising space on our services.

We currently rely primarily on our internal sales and marketing personnel
for generating sales leads and promoting our services to the advertising
community. We also rely on third-party relationships in which Juno receives
revenue in return for displaying advertising sold by a third party or in which
Juno is compensated for delivering viewers to Web pages on which ads sold by a
third party are displayed. These arrangements include a relationship with
LookSmart Ltd., under the terms of which LookSmart provides Internet search and
directory features to our subscribers through our Web portal site, and we are
entitled to receive payments based on the volume of Web pages viewed by users of
these features. We cannot be sure that our users will find the services provided
by LookSmart useful, or that they will utilize LookSmart's search and directory
features in a manner that generates significant revenue to Juno, or that our
relationship with LookSmart will continue in its current form or at all. If use
of the LookSmart features is less than projected or if Juno's relationship with
LookSmart is either terminated or modified in ways that are unfavorable to us,
our business and financial results may suffer. In recent quarters, we have
experienced difficulties in achieving our projected level of advertising sales.
If our internal sales organization or any third-party sales agents we might rely
on are not able to accomplish our sales objectives, then our business and
financial results may suffer.

Additionally, as of January 12, 2001, in connection with a patent
infringement action brought against us by NetZero, Inc., we have, pursuant to a
temporary order entered by the court, discontinued the display of third-party
advertisements in the persistent advertising and navigation banner displayed to
users of our free basic service when they use the Web. The order will remain in
effect through March 29, 2001, and possibly thereafter. If NetZero ultimately
succeeds in its infringement action, we may be permanently prohibited from
utilizing our advertising and navigation banner as an additional source of
advertising inventory. There can be no assurance that, in the future, we will be
able to continue the use of the advertising and navigation banner in any
fashion, or that, if we are permitted to do so, we will be able to generate
significant revenues from the sale of advertising inventory on this banner,
either through a third-party sales agent or our own internal sales organization.
If we are unable to sell this inventory or to do so at favorable rates, our
advertising revenues could be materially adversely affected. Furthermore, if
Internet-based advertising continues to contract or fails to recover or if we
are unable to capture a sufficient share of Internet-based advertising, our
business and financial results may suffer.

IF INTERNET USAGE DOES NOT CONTINUE TO GROW, OUR BUSINESS WILL SUFFER

Our business and financial results depend on continued growth in the use of
the Internet. We cannot be certain that this growth will continue or that it
will continue in its present form. If Internet usage declines or evolves away
from our business, our ability to grow, if any, will be harmed.

WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS OR WE WILL
NOT BE COMPETITIVE

Our failure to respond in a timely and effective manner to new and evolving
technologies, including cable modem and other broadband technology, could harm
our business and financial results. The Internet services market is
characterized by rapidly changing technology, evolving industry standards,
changes in member needs and frequent new service and product introductions. We
may not be able to foresee or respond to these technical advances effectively or
at all. Our business and financial results depend, in part, on our ability to
use leading technologies effectively, to develop our technical expertise, to
enhance our existing services and to develop new services that meet changing
member needs on a timely and cost-effective basis. In particular, we must
provide subscribers with the appropriate products, services and guidance
required to best take advantage of the rapidly evolving Internet. If the market
for our services should fail to develop, develop more slowly than we expect,
become saturated with competitors, or develop in a fashion that renders our
services uncompetitive or otherwise unappealing to consumers, our business and
financial results may suffer.

We are also at risk due to fundamental changes in the way that Internet
access may be provided in the future. Currently, consumers access Internet
services primarily through computers connected by telephone lines. Broadband
connections, however, allow significantly faster access to the Internet than is
possible using the telephone-based analog modems currently used by most of our
subscribers. In many regions, cable television companies, local and long
distance telephone companies, and wireless communications companies, have begun
to provide Internet access. These competitors may include Internet access in
their basic bundle of services or may offer Internet access for a nominal
additional charge. We have begun to enter into arrangements with providers of
broadband connections to allow the delivery of our services over distribution
channels they own or control. However, the majority of our broadband
relationships are at a developmental, trial, or initial implementation stage and
the associated services are used by a negligible number of subscribers at the
current time. Moreover, only a portion of our subscriber base is currently
served by broadband providers with which we have existing agreements. In other
segments of our market, there is a risk that we may be unable to offer our
subscribers high-speed Internet access. In the future, we might also be
prevented from delivering high-speed Internet access through networks controlled
by competitors of ours, or from doing so on a cost-effective basis.

Even if we are not prevented from delivering our Internet services through
the broadband connections owned by other companies, the delivery of our Internet
services using broadband technology is subject to significant risks and
uncertainties, and we may be unable to adapt to the challenges posed by
broadband technologies.

We may also have to modify the means by which we deliver our Internet
services, in which case we would incur significant costs. If consumers adopt
alternative forms of Internet access that provide a continuous connection to the
Internet rather than relying on a series of separate dial-up connections, then
any competitive advantage that we currently realize because our technology
minimizes connect time may diminish. If other companies are able to prevent us
from delivering our Internet services through the wire, cable or wireless
connections that they own, if we are unable to adapt to the challenges posed by
broadband technologies or if we incur significant costs without generating
sufficient revenues, our business and financial results may suffer.

AS THE MARKET FOR BROADBAND SERVICES EXPANDS, OUR BUSINESS MAY BE HARMED IF WE
CANNOT PROVIDE COMPETITIVE BROADBAND SERVICES

Juno Express, our billable broadband service, delivers Internet access at
broadband speeds, currently through the use of DSL and mobile wireless
technologies. Juno Express currently accounts for an extremely small percentage
of our active subscriber base and may never account for a material percentage.
If broadband services increase in popularity and we are not successful at
rolling out or expanding our broadband services, our business and financial
results may suffer.

To date, we have found Juno Express to be a costly service to market and to
operate, due in part to factors such as unfamiliarity on the part of consumers,
unavailability to large portions of our subscriber base, installation
difficulties, relatively high retail price points, and high operating costs,
among others. There can be no assurance that we will be successful in addressing
any of these issues.

Consumers who wish to subscribe to the DSL version of Juno Express currently
must go through a complex installation process, for which we are dependent on
the performance of the local telephone company. We are also currently dependent
on the performance of a national supplier of DSL services, Covad Communications,
with whom we have chosen to partner for the delivery of Juno Express using DSL
technology. If our relationship with Covad is unsuccessful or is terminated, if
Juno and Covad are unable to coordinate effectively with local telephone
companies, if difficulties associated with the installation process cause
subscribers to cancel their DSL orders, or if other factors delay or otherwise
hinder our ability to expand beyond the markets in which the service is
currently available or prevent us from continuing to offer service in our
current markets, or if these or other factors affect our ability to deliver
DSL-based services in a timely and cost-effective fashion, then our business and
financial results may suffer.

In addition to the DSL service described above, we currently offer a Juno
Express mobile wireless service powered by Metricom's Ricochet technology. This
service is currently being offered in only 14 markets, and there can be no
assurances that the performance or availability of this service will be
acceptable to us or to our subscribers, that Metricom will be able to continue
providing this service in its current markets or expand the service into
additional markets, or that Metricom will have the capital resources to continue
operating the Ricochet service at all beyond the middle of 2001. Use of this
service requires subscribers to purchase and install special hardware, in
connection with which we are dependent on a third party that must coordinate
installation and activation with Metricom. If Metricom discontinues offering the
Ricochet service, it is unlikely that Juno could provide a substitute mobile
wireless service to its subscribers.

Although we have begun to make arrangements for the provision of the Juno
Express service over other broadband platforms, the relationships on which such
expansion depends are new and are subject to significant risks and
uncertainties. We have entered into preliminary agreements with AT&T Broadband,
Comcast, and Time Warner Cable to test the provision of Internet services over
their cable systems, initially in small-scale, single-city trials. In the case
of AT&T Broadband and Comcast, there is a significant risk that our partners
will not succeed in renegotiating existing agreements under which Excite@Home
has the exclusive right to provide high-speed broadband services over these
partners' cable systems through June 2002. If they are unsuccessful, we will not
be able to offer Juno Express over their cable systems at speeds above 128kbps
until July 2002 at the earliest. Additionally, we may find that offering Juno
Express over cable systems requires us to incur levels of operating expense that
make broad expansion of these relationships unfeasible or unattractive to us.
Conversely, if we enter into agreements with these or other partners that
require us to undertake such broad expansion, the cost of performing our
obligations under such agreements might prove prohibitive. We may find that we
are unsuccessful in attracting a significant number of subscribers through these
relationships, especially in light of competitive services that are expected to
be offered through the same platforms.

There are also risks that either of these companies could exercise rights to
terminate their relationship with Juno or simply choose not to expand such
relationships beyond the initial test stage.

We have entered into an arrangement that allows us to offer Juno Express
through broadband satellite services provided by Hughes, but we do not currently
expect to offer this service in the foreseeable future. There are significant
risks and uncertainties associated with this arrangement, including risks that
additional technical development may be required, that the service may prove
unattractive to our customers, and that the pricing of the service may not be
competitive with other broadband services.

The market for broadband services is in the early stages of development, and
we cannot assure you that broadband services in general, or that any of DSL,
cable, mobile wireless or satellite technologies in particular, will become
popular with consumers. We cannot assure you that we will have adequate access
to any of these technologies at favorable rates, that we will be able to reach a
sufficient number of users through the broadband partners identified above, or
that we will have adequate capital to take advantage of existing or future
opportunities to provide broadband services. Juno Express faces competition in
the market for broadband services from many competitors with significant
financial resources, well-established brand names, and large existing customer
bases. In many markets, these competitors already offer, or are expected to
offer, broadband Internet access at prices lower than we expect to be able to
offer to potential customers for Juno Express. If we are unable to provide
competitive broadband services at competitive rates, our business and financial
results may suffer.

OUR ADVERTISING SYSTEM REQUIRES LABOR AND IMPOSES COSTS ON US BEYOND THOSE
ASSOCIATED WITH STANDARD WEB ADVERTISING

A significant fraction of the advertising inventory available on our
services is non-standard when compared to advertising on the Web, which may put
Juno at a competitive disadvantage. Although our Web portal site and the
persistent advertising and navigation banner shown to users of our free basic
service when they access the Web can utilize standard Web formatting, the
substantial amount of advertising inventory associated with the e-mail portion
of our services employs non-standard formatting. The advertisements displayed
while a subscriber reads and writes e-mail are created using proprietary tools
that are not fully compatible with standard Web advertising. Therefore, many
advertisements displayed on our services require customization that would not be
required by a Web site capable of displaying previously prepared standard
advertisements. This customization work increases the time necessary to prepare
an advertisement to be displayed on our services and the costs associated with
running these ads. We must also absorb the telecommunications cost associated
with downloading ads to our subscribers, which is an expense that
advertising-supported Web sites do not incur. As ads become more complex, our
telecommunications expenses may increase. Furthermore, the costs associated with
selling or attempting to sell advertising space on our services are significant.
These costs may be greater than the costs associated with selling advertising
space on Web sites that exclusively utilize standard Web advertising formats.
Additionally, our use of a proprietary advertising format on the e-mail portion
of our services could interfere with our packaging this advertising space for
sale by an advertising network such as DoubleClick or 24/7 Media. Any of the
above factors could discourage advertising on our network by some advertisers.

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

Seasonal trends are likely to affect our business. Subscribers typically use
our Internet services less during the summer months and year-end holiday
periods. Under most of our advertising and strategic marketing relationships,
our advertising revenue is dependent on the number of impressions displayed to
our users. To the extent that usage by our subscribers is lower seasonally, our
revenues may be lower during these periods. In addition, the rate at which new
subscribers sign up for our billable premium

services may be lower during the summer months and year-end holiday periods,
other things being equal.

Since our operating expenses are based on our expectations of future
revenues, including seasonal fluctuations, it is possible that operating results
will suffer if these seasonal trends do not continue in the future or if
different seasonal trends develop in the future.

WE ARE DEPENDENT ON A SMALL NUMBER OF TELECOMMUNICATIONS CARRIERS AND MAY BE
UNABLE TO FIND ADEQUATE REPLACEMENTS IF THEIR RATES INCREASE, SERVICE QUALITY
DECLINES, OR IF THEY DISCONTINUE DOING BUSINESS WITH US

Our business and financial results depend in significant part on the
capacity, affordability, reliability and security of our telephone company data
networks. To use our services, subscribers must initiate telephone connections
between their personal computers and computer hardware in local or regional
facilities known as "points of presence." We contract for the use of points of
presence around the country from various telecommunications carriers. These
carriers currently include UUNET Technologies, which is operated by MCI WorldCom
Communications; Level 3 Communications; XO Communications (formerly Concentric);
Splitrock Services; Sprint Communications Company; PSINet; NaviPath and StarNet.
We also rely on these telecommunications companies to carry data between their
points of presence and our central computers located in Cambridge, Massachusetts
and Jersey City, New Jersey.

As of February 28, 2001, we had contracted for the use of more than 4,000
local telephone numbers associated with points of presence throughout the United
States. Nevertheless, a minority of our subscriber base may be unable to access
our services through a point of presence that is within their local calling
area. These users may be particularly reluctant to use the Web, either through
our free basic service or through Juno Web, due to the telecommunications
charges that they would incur during an extended connection to the Web. The
inability of some of our subscribers to access the Web with a local call in some
areas of the country could harm our business. We cannot be sure if or when
additional infrastructure developments by our telecommunications providers will
establish points of presence that cover these areas.

At various times in the past, network capacity constraints at particular
points of presence have prevented or delayed access by subscribers attempting to
connect to our services. This could happen in the future, especially during
times of peak usage. Difficulties accessing our services due to poor network
performance could cause our subscribers to terminate their subscriptions with
us. Because we depend on third-party telecommunications carriers for crucial
portions of our network infrastructure, we do not have direct control over
network reliability and some aspects of service quality. A natural disaster or
other unanticipated problem that affects the points of presence or the
telecommunications lines we use, or that affects the nation's telecommunications
network in general, could cause interruptions in our services.

Only a small number of telecommunications companies can provide the network
services we require. This number has been reduced through consolidation in the
telecommunications industry, and there is a significant risk that further
consolidation could make us reliant on an even smaller number of providers. We
are particularly dependent on WorldCom, which, as of February 28, 2001, provided
more than 1,000 of the more than 4,000 points of presence for which we contract,
many of which are in locations not served competitively by other
telecommunications carriers.

Our business could be significantly harmed if we are unable to maintain a
favorable relationship with WorldCom and the companies they control. We cannot
assure you that we would be able to replace all of the services provided to us
through WorldCom were our relationship with them to be terminated.

Our financial results are highly sensitive to variations in prices for the
telecommunications services described above. In the past, we have benefited from
reductions in per-unit pricing for telecommunications services. We cannot assure
you that telecommunications prices will continue to decline, or that there will
not be telecommunications price increases due to factors within or beyond our
control, including but not limited to consolidation in the telecommunications
industry, and a decline in the total number of telecommunications hours our
subscribers consume, possibly due in part to reductions in the size of our
subscriber base or in the amount of telecommunications-related resources we
allow subscribers to use. We cannot assure you that our telecommunications
carriers will continue to provide us access to their points of presence on our
current or better price terms, that the price terms that they do offer us, if
any, will be sufficiently low to meet our needs, or that alternative services
will be available in the event that their quality of service declines or that
our relationship with WorldCom or any of our other current carriers is
terminated. Additionally, the number of telecommunications companies providing
service to us may be reduced as a result of one or more of these companies
discontinuing dial-up service or ceasing operations entirely. If any of these
companies becomes unable to provide service in locations not served by numerous
other providers, the rates we pay for telecommunications services may increase
as a result of reduced competition.

Most of the telecommunications services we purchase are provided to us under
short-term agreements that the providers can terminate or elect not to renew. As
a result, there is a significant risk that any or all of our telecommunications
carriers could end their relationship with us. In addition, each of our
telecommunications carriers provides network access to some of our competitors,
and could choose to grant those competitors preferential network access,
potentially limiting our members' ability to access the Internet or connect to
our central computers. Furthermore, the majority of our telecommunications
providers compete, or have announced an intention to compete, with us in the
market to provide consumer Internet access. If our telecommunications service
providers were to decrease the levels of service or access provided to us, or if
they were to terminate their relationships with us for competitive or other
reasons, our business and financial results would suffer.

WE ARE DEPENDENT ON A THIRD PARTY FOR TECHNICAL AND CUSTOMER SERVICE SUPPORT AND
OUR BUSINESS MAY SUFFER IF IT IS UNABLE TO PROVIDE THESE SERVICES, CANNOT EXPAND
TO MEET OUR NEEDS, OR TERMINATES ITS RELATIONSHIP WITH US

Our business and financial results depend, in part, on the availability and
quality of live technical and customer service support services. Although many
Internet service providers have developed internal customer service operations
designed to meet these needs, we have elected to outsource these functions. We
currently purchase almost all of our technical and customer service support from
ClientLogic Corporation. As a result, we maintain only a small number of
internal customer service personnel. We are not equipped to provide the
necessary range of customer service functions in the event that ClientLogic
becomes unable or unwilling to offer these services to us.

At December 31, 2000, ClientLogic provided approximately 550 full-time or
part-time employees at its facilities to service our account. We believe the
availability of call-in technical support and customer service is especially
important to acquire and retain subscribers to our billable premium services,
and we are dependent on ClientLogic to provide this function. At times, our
subscribers have experienced lengthy waiting periods to reach representatives
trained to provide the technical or customer support they require. We believe
that failure to provide consistent customer support and to maintain consumer-
acceptable hold times could have an adverse effect on our subscriber acquisition
and retention efforts in the future. However, maintaining desired customer
support levels may require significantly more support personnel than are
currently available to us through ClientLogic, or significantly greater expense
than we feel it is appropriate, or than we are able, to incur. Additionally, if
we elect to offer customer service features that we do not currently support, or
to enhance the overall quality of our customer support for competitive reasons,
we may require even greater resources. We are currently

soliciting proposals from additional vendors to supplement the services provided
to us by ClientLogic, or to provide such services in the event our relationship
with ClientLogic terminates. Our current agreement with ClientLogic converted to
a month-to-month contract on August 1, 2000, under which either party has the
right to terminate the relationship at any time upon one month's notice.
Although we are currently renegotiating the terms of our relationship with
ClientLogic, there is a significant risk that ClientLogic could exercise its
one-month termination rights under the current agreement if the parties are
unable to reach mutually acceptable terms. If our relationship with ClientLogic
terminates and we are unable to enter into a comparable arrangement with a
replacement vendor, if ClientLogic is unable to provide enough personnel to
provide the quality and quantity of service we desire, if system failures,
outages or other technical problems make it difficult for our subscribers to
reach customer service representatives at ClientLogic, or if we are unable to
obtain externally or develop internally the additional customer service and
technical support capacity we expect to need, our business and financial results
may suffer.

DISRUPTION OF OUR INTERNET SERVICES DUE TO SECURITY BREACHES AND SYSTEM FAILURES
COULD RESULT IN SUBSCRIBER CANCELLATIONS

Both our infrastructure and the infrastructure of our network providers are
vulnerable to security breaches or similar disruptive problems and system
failures. Our systems are also subject to telecommunications failures, power
loss, software-related system failures and various other events. Any of these
events, whether intentional or accidental, could lead to interruptions, delays
or cessation of service to our subscribers. This could cause some of our
subscribers to stop using our Internet services. Third parties could also
potentially jeopardize the security of confidential information stored in our
computer systems or our subscribers' computer systems through their
inappropriate use of the Internet, which could cause losses to us or our
subscribers or deter some people from subscribing to our services. People may be
able to circumvent our security measures or the security measures of our third
party network providers.

We may have to interrupt, delay or cease service to our subscribers to
alleviate problems caused by computer viruses, security breaches or other
failures of network security. Any damage or failure that interrupts or delays
our operations could result in subscriber cancellations, could harm our
reputation, and could affect our business and financial results. Our insurance
coverage may not adequately compensate us for any losses that may occur due to
any failures in our systems or interruptions in our services.

STAFF ATTRITION COULD STRAIN OUR MANAGERIAL, OPERATIONAL, FINANCIAL AND OTHER
RESOURCES

We had 65 employees at December 31, 1996; 152 employees at December 31,
1997; 144 employees at December 31, 1998; 263 employees at December 31, 1999,
including 60 employees in India; and 332 employees at December 31, 2000,
including 72 employees in India. Prior to May 21, 1999, consultants used in
India were employed by an affiliate of Juno. We expect to continue to rely on
outsourcing arrangements for our customer service needs and for the performance
of some advertising sales functions.

Any staff attrition we experience, whether initiated by the departing
employees or by the company, could place a significant strain on our managerial,
operational, financial and other resources. To the extent that the company does
not initiate or seek any staff attrition that occurs, there can be no assurance
that we will be able to identify and hire adequate replacement staff promptly,
or at all. In January 2001, in addition to conducting some performance-related
terminations, we eliminated a small number of positions at Juno in response to
changes in our business needs, such as the significant reduction in our
marketing activities. We expect to evaluate our needs and the performance of our
staff on a periodic basis, and may choose to make further adjustments in the
future. If the size of our staff is significantly reduced, either by the
company's choice or otherwise, we could face significant

management, operational, financial and other constraints. For example, it may
become more difficult for us to manage existing, or establish new, relationships
with advertisers, vendors and other counterparties, or to expand and improve our
service offerings. It may become more difficult for us to implement changes to
our business plan or to respond promptly to opportunities in the marketplace. It
may become more difficult for us to devote personnel resources necessary to
maintain or improve existing systems, including our financial and managerial
controls, billing systems, reporting systems and procedures. Thus, any
significant amount of staff attrition could cause our business and financial
results to suffer.

OUR JUNO VIRTUAL SUPERCOMPUTING PROJECT IS UNPROVEN AND MAY FAIL TO GENERATE
REVENUES OR CONSUMER ACCEPTANCE

In February 2001, we announced the Juno Virtual Supercomputer Project,
designed to make unused processing power existing on the computers of Juno's
subscribers available to third parties as an alternative to conventional
supercomputing resources. As designed, the project would involve dividing
computationally intensive problems into a large number of smaller computational
tasks, and distributing those smaller tasks to the computers of Juno subscribers
for such computers to process while the computers were not otherwise being used
by the subscribers. Management believes that commercial opportunities might
exist to sell this unused processing power to companies in fields such as
pharmaceutical research for biomedical or other applications.

However, we face a number of significant risks in connection with the
Virtual Supercomputer Project. The project is brand new. As of February 28,
2001, we had not secured any customers for this project, and there can be no
assurance that we will be successful in identifying, locating or securing
customers, in the pharmaceutical field or any other field, that are willing to
compensate Juno for its subscribers' unused processing power. Prospective
customers may raise concerns about the security of their data, and there can be
no assurance that any steps we take to ensure such security will be effective or
that demonstrations of their effectiveness will be persuasive to such
prospective customers. Additionally, while we may require some or all
subscribers to our free basic service to participate in the Virtual
Supercomputer Project as a condition of using the service for free, there can be
no assurance that a material number of Juno's subscribers will be willing to
participate in the Virtual Supercomputer Project, even if their only alternative
is to stop using our free basic service, or that any who are willing will comply
with the requirements for participation, such as leaving their computers turned
on when not in use. Some members of the media and some subscribers have raised
concerns regarding whether the operation of the Virtual Supercomputer Project
might harm them or their computers in some way, and there can be no assurance
that we will be successful in allaying such concerns. If we are not successful
in overcoming consumer concerns, we may be unable to derive significant revenues
from the Virtual Supercomputer Project and we may experience significant
subscriber attrition. Additionally, Juno has not conducted large-scale tests of
some of the technology associated with the Virtual Supercomputer Project, and
there can be no assurances that such technology will operate successfully on the
scale that might be required by paying clients or at all. Unfavorable outcomes
with regard to any of the above could cause our business and financial results
to suffer.

WE FACE POTENTIAL LIABILITY FOR INFORMATION TRANSMITTED OR RETRIEVED THROUGH OUR
INTERNET SERVICES

Our business and financial results may suffer if we incur liability as a
result of information transmitted or retrieved through our services. The
liability of Internet service providers and online services companies for
information transmitted or retrieved through their services is uncertain. It is
possible that claims may be filed against us based on a variety of theories,
including defamation, obscenity, negligence, copyright or trademark
infringement, or other theories based on the nature, publication or distribution
of this information. These types of claims have been brought, sometimes
successfully, against providers of Internet services in the past. Such claims,
with or without merit, would

likely divert management time and attention and result in significant costs to
investigate and defend. In addition, if we become subject to these types of
claims and we are not successful in our defense, we may be forced to pay
substantial damages. We may also be forced to implement expensive measures to
alter the way our services are provided to avoid any potential liability.

CHANGES IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUES AND INCREASE OUR
COSTS

Changes in the regulatory environment could decrease our revenues and
increase our costs. As a provider of Internet access services, we are not
currently subject to direct regulation by the Federal Communications Commission.
However, some telecommunications carriers have sought to have communications
over the Internet regulated by the FCC in the same manner as other more
traditional telecommunications services. Local telephone carriers have also
petitioned the FCC to regulate Internet access providers in a manner similar to
long distance telephone carriers and to impose access fees on these providers
and some developments suggest that they may be successful in obtaining the
treatment they seek. In addition, we operate our services throughout the United
States, and regulatory authorities at the state level may seek to regulate
aspects of our activities as telecommunications services. As a result, we could
become subject to FCC and state regulation as Internet services and
telecommunications services converge.

- user privacy;

- children's privacy;

- pricing and disclosure of pricing terms;

- intellectual property;

- federal, state and local taxation;

- advertising;

- distribution; and

- characteristics and quality of products and services.

Legislation in these areas could slow the growth in use of the Internet
generally and decrease the acceptance of the Internet as a communications and
commercial medium.

It may take years to determine how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet. Any
new legislation or regulation regarding the Internet, or the application of
existing laws and regulations to the Internet, could harm us. Additionally, we
have begun to service a small number of subscribers who are located in Canada.
Laws and regulations relating to the Internet, or to doing business in Canada,
or similar laws and regulations in other jurisdictions should we choose to
continue to expand elsewhere outside of the United States, could have an adverse
effect on our business.

The growth of the Internet, coupled with publicity regarding Internet fraud,
may also lead to the enactment of more stringent consumer protection laws. For
example, numerous bills have been presented to Congress and various state
legislatures designed to address the prevalence of unsolicited commercial bulk
e-mail on the Internet. These laws may impose additional burdens on our
business. Additionally, because we rely on the collection and use of personal
data from our subscribers for targeting advertising and other communications to
our subscribers, we may be harmed by any laws or

regulations that restrict our ability to collect or use this data. The Federal
Trade Commission has conducted investigations into the privacy practices of
companies that collect information about individuals on the Internet. The
enactment of any additional laws or regulations in this area, or renewed
enforcement activity of existing laws and regulations, may impede the growth of
the Internet, which could decrease our potential revenues or otherwise cause our
business to suffer.

FEDERAL TRADE COMMISSION ACTION COULD IMPACT OUR FINANCIAL RESULTS AND MARKETING
PRACTICES

The FTC has been investigating the advertising, billing and cancellation
practices of various Internet-related companies, including Juno. At the FTC's
request, we have provided marketing-related and customer service-related
information concerning our services. On the basis of these submissions, the FTC
staff has claimed, among other things, that Juno's disclosure practices about
the possibility of users incurring telephone charges were insufficient, and that
Juno's cancellation policies for subscribers to its billable services were
unduly restrictive. On the basis of our discussions with the FTC staff, we have
begun implementing modifications to the disclosure we make about
telecommunications charges that users might incur and to our billable services
cancellation practices. Depending on the final outcome of the FTC inquiry, we
could be required, under a consent order or otherwise, to make compensatory
payments, to revise our advertising and marketing materials, and to make further
modifications to our business practices. As a result, our business and financial
results could suffer.

UNANTICIPATED DELAYS OR PROBLEMS IN THE INTRODUCTION OF NEW FEATURES OR SERVICES
MAY CAUSE CUSTOMER DISSATISFACTION

If we experience problems related to the reliability and quality of our
services or delays in the introduction of new versions of or enhancements to our
services, we could experience increased subscriber cancellations, adverse
publicity and reduced sales of advertising and products. Our services are very
complex and are likely to contain a number of undetected errors and defects,
especially when new features or enhancements are first released. Furthermore, in
order to introduce new features or enhancements, we may elect to license
technology from other companies rather than develop such features or
enhancements ourselves, and we may be exposed to undetected errors or defects in
third-party technology that is out of our control. Any errors or defects, if
significant, could harm the performance of these services, result in ongoing
redevelopment and maintenance costs and cause dissatisfaction on the part of
subscribers and advertisers. These costs, delays or dissatisfaction could
negatively affect our business.

WE ARE DEPENDENT ON THIRD-PARTY SOFTWARE TO ACCURATELY BILL SUBSCRIBERS TO OUR
BILLABLE PREMIUM SERVICES

The operation of our billable premium services requires the accurate
operation of billing system software as well as our development of policies
designed to reduce the incidence of credit card fraud and other forms of
uncollectible "chargebacks." If we encounter difficulty with the operation of
these systems, or if errors, defects or malfunctions occur in the operation of
these systems, this could result in erroneous overcharges to customers or in the
under-collection of revenue, either of which could hurt our business and
financial results.

RELATIONSHIPS WITH ENTITIES AFFILIATED WITH THE CHAIRMAN OF OUR BOARD OF
DIRECTORS MAY PRESENT POTENTIAL CONFLICTS OF INTEREST

The Chairman of our board of directors and our largest stockholder,
Dr. David E. Shaw, is the Chairman and Chief Executive Officer of
D. E. Shaw & Co., Inc., which is the general partner of D. E. Shaw & Co., L.P.
("DESCO, L.P."), a securities firm whose activities focus on various aspects of
the intersection between technology and finance. Dr. Shaw and entities
affiliated with him are also involved in other technology-related businesses
apart from our company. As a result of these other interests,

Dr. Shaw devotes only a portion of his time to our company, and spends most of
his time and energy engaged in business activities unrelated to us. In addition
to his indirect ownership of a controlling interest in DESCO, L.P., Dr. Shaw may
have a controlling interest in these other businesses. Transactions between us
and other entities affiliated with Dr. Shaw may occur in the future and could
result in conflicts of interest that prove harmful to us.

We sublease office space in New York City from DESCO, L.P. Additionally, our
subsidiary in Hyderabad, India subleases office space from an affiliate of
DESCO, L.P. We cannot be sure that we would be able to lease other space on
favorable terms in the event these sublease arrangements were to be terminated.

In May 1999, we terminated an agreement with DESCO, L.P. under which
individuals employed by its affiliates located in India provided consulting
services to us. Following the termination of this agreement, these individuals
became employees of a Juno subsidiary located in Hyderabad, India.

OUR DIRECTORS AND OFFICERS EXERCISE SIGNIFICANT CONTROL OVER US

As of February 28, 2001, the executive officers, directors, and persons and
entities affiliated with executive officers or directors beneficially owned in
the aggregate approximately 36.2% of our outstanding common stock. The Chairman
of our board of directors is Dr. David E. Shaw. Dr. Shaw continues to serve as
the Chairman and Chief Executive Officer of D. E. Shaw & Co., Inc., which is the
general partner of DESCO, L.P. As of February 28, 2001, Dr. Shaw and persons or
entities affiliated with him, including DESCO, L.P., beneficially owned, in the
aggregate, approximately 34.4% of our outstanding common stock as of that date.
As a result of this concentration of ownership, Dr. Shaw is able to exercise
significant influence over matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership could also have the effect of
delaying or preventing a change in control of Juno.

WE ARE DEPENDENT ON KEY MANAGEMENT PERSONNEL FOR OUR FUTURE SUCCESS

Our business and financial results depend in part on the continued service
of our key personnel. Over the past year a number of senior financial, marketing
and technical executives have left the company or announced their intention to
do so. We do not carry key person life insurance on any of our personnel. The
loss of the services of any of our executive officers or the loss of the
services of other key employees could harm our business and financial results.

WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED EMPLOYEES

Our business and financial results depend in part on our ability to attract,
retain and motivate highly skilled employees. Competition for employees in our
industry can be intense. Concerns about developments in the Internet industry in
general, or about our company in particular, may make it more difficult than in
the past to retain our key employees or to attract, assimilate or retain other
highly qualified employees. We have from time to time in the past experienced
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications, and we expect to continue to experience such difficulties. At
times, we have also experienced high rates of employee attrition, including the
departures of a number of our most senior managers. We are likely to experience
further such attrition, including of senior managers, in the future.

WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES

Although in 2000 we entered into two transactions in which other companies
have referred their subscribers to us in return for compensation either
primarily or entirely in the form of Juno common stock, we have limited
experience in completing acquisitions of, or making investments in, companies or
their assets. From time to time we have had discussions with companies regarding
our acquiring, or

investing in, their businesses, products or services, or customers. If we buy a
company, we could have difficulty in assimilating that company's personnel and
operations, and the key personnel of the acquired company may decide not to work
for us. We would expect that any acquisition may present us with difficulties in
assimilating the acquired services, technology assets or customer bases into our
operations. Similarly, subscriber referral transactions may expose us to
difficulties resulting from the conversion of subscribers from a competitive
service to our own services. Any of these difficulties could disrupt our ongoing
business, and distract our management and employees. In addition, these
transactions could increase our cash expenditures, and require the amortization
of goodwill, both of which could have an adverse effect on our financial
results. To date we have issued equity securities in order to pay for our
subscriber referral transactions and we expect to issue additional equity
securities in satisfaction of our obligations under subscriber referral
transactions. In connection with any other transactions we might choose to
undertake in the future, we may issue additional equity securities and may
additionally assume indebtedness. The issuance of equity securities could be
dilutive to our existing stockholders and might, to the extent such securities
were sold into the public market, impair our ability to draw down funding under
the equity line facility.

WE COULD FACE ADDITIONAL REGULATORY REQUIREMENTS, TAX LIABILITIES AND OTHER
RISKS IF WE DECIDE TO EXPAND INTERNATIONALLY

We currently provide services to a small number of users who are located in
Canada. We may decide to increase the international availability of our
services, and we believe that any international operations would be subject to
most of the risks of our business generally. In addition, there are risks
inherent in doing business in international markets, such as changes in
regulatory requirements, tariffs and other trade barriers, fluctuations in
currency exchange rates, and adverse tax consequences, and there are likely to
be different consumer preferences and requirements in such markets. We cannot
assure you that one or more of these factors would not harm any current or
future international operations.

WE HAVE ANTI-TAKEOVER PROVISIONS WHICH MAY MAKE IT DIFFICULT FOR A THIRD PARTY
TO ACQUIRE US

Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders.

WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE AND, AS A RESULT,
STOCKHOLDERS WILL NEED TO SELL SHARES TO REALIZE A RETURN ON THEIR INVESTMENT

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)(1) Consolidated Financial Statements

All consolidated financial statements of Juno Online Services, Inc. and the
Report of Independent Accountants thereon are included herein:

Report of Management........................................ 63
Report of Independent Accountants........................... 64
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 65
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999, and 1998......................... 66
Consolidated Statement of Partners' Capital
(Deficiency)/Statement of Stockholders' Equity for the
years ended December 31, 2000, 1999, and 1998............. 68
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998......................... 69
Notes to Consolidated Financial Statements.................. 70

REPORT OF MANAGEMENT

The management of Juno Online Services, Inc. is responsible for the
integrity and objectivity of the financial and operating information contained
in this Annual Report on Form 10-K, including the consolidated financial
statements covered by the Report of Independent Accountants. These statements
were prepared in conformity with generally accepted accounting principles and
include amounts that are based on the best estimates and judgments of
management, which it believes are reasonable under the circumstances.

The Company maintains a system of internal accounting policies, procedures
and controls designed to provide management with reasonable assurance that
assets are safeguarded against loss from unauthorized use or disposition, and
that transactions are executed in accordance with management's authorization and
recorded properly.

The Company engaged PricewaterhouseCoopers LLP, independent accountants, to
audit and render an opinion on the consolidated financial statements in
accordance with generally accepted auditing standards. These standards include
an assessment of the systems of internal controls and tests of transactions to
the extent considered necessary by them to support their opinion. In addition,
the Audit Committee of the Board of Directors meets periodically with management
and the independent auditors to review internal accounting controls, audit
results and accounting principles and practices, and annually recommends to the
Board of Directors the selection of independent auditors.

CHARLES E. ARDAI

President, Chief Executive Officer and Director

HARSHAN BHANGDIA

Senior Vice President and Corporate Controller; Acting Chief Financial
Officer

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Juno Online Services, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, partners' capital
(deficiency)/stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Juno Online Services, Inc. and subsidiaries
at December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule appearing
under Item 14 (a) (2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

New York, New York
January 17, 2001

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 55,729 $ 91,497
Accounts receivable, net of allowance for doubtful
accounts of $2,688 and $2,064 in 2000 and 1999,
respectively............................................ 9,420 4,850
Prepaid expenses and other current assets................. 3,141 15,437
--------- --------
Total current assets.................................... 68,290 111,784
Fixed assets, net........................................... 9,164 5,684
Other assets................................................ 917 100
--------- --------
Total assets............................................ $ 78,371 $117,568
========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 29,287 $ 28,280
Current portion of capital lease obligations.............. 1,209 1,423
Deferred revenue.......................................... 14,578 14,510
--------- --------
Total current liabilities............................... 45,074 44,213
Capital lease obligations................................... 402 1,455
Deferred rent............................................... 150 252
Liabilities expected to be settled with common stock........ 4,000 --

Commitments and contingencies

Stockholders' equity:
Preferred stock--$0.01 par value; 5,000,000 shares
authorized, none issued and outstanding................. -- --
Common stock--$0.01 par value; 133,333,334 shares
authorized, 41,134,350 and 34,833,568 shares issued and
outstanding in 2000, and 1999, respectively............. 411 348
Additional paid-in capital................................ 211,550 123,530
Unearned compensation..................................... (333) (745)
Cumulative translation adjustment......................... (1) (1)
Accumulated deficit....................................... (182,882) (51,484)
--------- --------
Total stockholders' equity.............................. 28,745 71,648
--------- --------
Total liabilities and stockholders' equity.............. $ 78,371 $117,568
========= ========

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

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER LIMITED PARTNERSHIP UNIT AND PER SHARE DATA)

YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- -------- --------

REVENUES:
Billable services......................................... $ 73,911 $ 34,545 $ 6,645
Advertising and transaction fees.......................... 38,708 12,662 6,454
Direct product sales...................................... 1,419 4,794 8,595
--------- -------- --------
Total revenues.......................................... 114,038 52,001 21,694
--------- -------- --------

COST OF REVENUES:
Billable services......................................... 49,024 24,950 5,606
Advertising and transaction fees.......................... 8,115 4,675 3,725
Direct product sales...................................... 1,344 4,176 7,627
--------- -------- --------
Total cost of revenues.................................. 58,483 33,801 16,958
--------- -------- --------

OPERATING EXPENSES:
Operations, free service.................................. 38,311 6,698 9,383
Subscriber acquisition.................................... 116,461 47,651 5,334
Sales and marketing....................................... 18,105 11,556 11,584
Product development....................................... 10,282 7,232 7,345
General and administrative................................ 9,303 4,615 2,760
--------- -------- --------
Total operating expenses................................ 192,462 77,752 36,406
--------- -------- --------
Loss from operations.................................... (136,907) (59,552) (31,670)

Interest income, net........................................ 5,509 3,718 44
--------- -------- --------
Net loss................................................ $(131,398) $(55,834) $(31,626)
========= ======== ========

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

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER LIMITED PARTNERSHIP UNIT AND PER SHARE DATA)

YEAR ENDED DECEMBER 31, 1999
--------------------------------------
TEN MONTHS TWO MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28, DECEMBER 31,
2000 1999 1999 TOTAL 1998
------------ ------------ ------------ -------- ------------

Net loss........................... $(131,398) $(51,484) $(4,350) $(55,834) $(31,626)
========= ======== ======= ======== ========

Basic and diluted net loss per
share............................ $ (3.39) $ (2.07)
========= ========

Basic and diluted net loss per
Class A limited partnership
unit............................. $ (0.25) $ (1.85)
======= ========

Weighted average number of:
Shares of common stock........... 38,747 24,877
========= ========

Class A limited partnership
units.......................... 17,684 17,091
======= ========

Pro forma basic and diluted net
loss per share................... $ (1.84) $ (1.85)
======== ========

Weighted average shares outstanding
used in pro forma basic and
diluted per share calculation.... 30,339 17,091
======== ========

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

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)/
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

PARTNERS'
CONTRIBUTIONS COMMON STOCK ADDITIONAL CUMULATIVE
------------------- ------------------- PAID-IN UNEARNED TRANSLATION
UNITS AMOUNT SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENT
-------- -------- -------- -------- ---------- ------------- -----------

BALANCE, DECEMBER 31, 1997.......... 15,794 $ 71,078
Capital contributions............. 1,890 8,500
Net loss.......................... -- --
Amortization of unearned
compensation.................... -- --
------- --------
BALANCE, DECEMBER 31, 1998.......... 17,684 79,578

Net loss for the period
January 1, 1999 to February 28,
1999............................ -- --
Effect of statutory merger (see
Note 1)......................... (17,684) (79,578) -- -- $(95,788) $(728) --
Preferred stock accretion......... -- -- (151) -- --
Issuance of common stock, net of
offering costs.................. 6,500 $ 65 77,220 -- --
Issuance of common stock upon
exercise of stock options....... 511 5 506 -- --
Proceeds from sale of preferred
stock........................... -- -- 59 -- --
Conversion of redeemable
convertible preferred stock to
common stock.................... 27,823 278 141,251 -- --
Net loss for the ten months ended
December 31, 1999............... -- -- -- -- --
Unearned compensation............. -- -- 433 (433) --
Amortization of unearned
compensation.................... -- -- -- 416 --
Foreign currency adjustment....... -- -- -- -- $ (1)
------ ---- -------- ----- --------
BALANCE, DECEMBER 31, 1999.......... 34,834 $348 $123,530 $(745) $ (1)
Issuance of common stock, net of
offering costs.................. 3,600 36 81,044 -- --
Issuance of common stock upon
exercise of stock options....... 569 6 939 -- --
Issuance of common stock in
connection with employee stock
purchase plan................... 123 1 1,165 -- --
Issuance of common stock to settle
liabilities..................... 2,008 20 5,072 -- --
Forfeitures of unearned
compensation.................... -- -- (200) 200 --
Amortization of unearned
compensation.................... -- -- -- 212 --
Net loss.......................... -- -- -- -- --
------- -------- ------ ---- -------- ----- --------
BALANCE, DECEMBER 31, 2000.......... -- $ -- 41,134 $411 $211,550 $(333) $ (1)
======= ======== ====== ==== ======== ===== ========

ACCUMULATED
DEFICIT TOTAL
------------ --------

BALANCE, DECEMBER 31, 1997.......... $ (60,574) $ 10,504
Capital contributions............. -- 8,500
Net loss.......................... (31,626) (31,626)
Amortization of unearned
compensation.................... 34 34
--------- --------
BALANCE, DECEMBER 31, 1998.......... (92,166) (12,588)
Net loss for the period
January 1, 1999 to February 28,
1999............................ (4,350) (4,350)
Effect of statutory merger (see
Note 1)......................... 96,516 (79,578)
Preferred stock accretion......... -- (151)
Issuance of common stock, net of
offering costs.................. -- 77,285
Issuance of common stock upon
exercise of stock options....... -- 511
Proceeds from sale of preferred
stock........................... -- 59
Conversion of redeemable
convertible preferred stock to
common stock.................... -- 141,529
Net loss for the ten months ended
December 31, 1999............... (51,484) (51,484)
Unearned compensation............. --
Amortization of unearned
compensation.................... 416
Foreign currency adjustment....... -- (1)
--------- --------
BALANCE, DECEMBER 31, 1999.......... $ (51,484) $ 71,648
Issuance of common stock, net of
offering costs.................. -- 81,080
Issuance of common stock upon
exercise of stock options....... -- 945
Issuance of common stock in
connection with employee stock
purchase plan................... -- 1,166
Issuance of common stock to settle
liabilities..................... -- 5,092
Forfeitures of unearned
compensation.................... -- --
Amortization of unearned
compensation.................... -- 212
Net loss.......................... (131,398) (131,398)
--------- --------
BALANCE, DECEMBER 31, 2000.......... $(182,882) $ 28,745
========= ========

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

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DEEMBER 31,
-------------------------------
2000 1999 1998
--------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(131,398) $(55,834) $(31,626)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 3,900 2,396 2,438
Stock-based subscriber acquisition...................... 9,092 -- --
Amortization of deferred rent........................... (84) (66) 157
Amortization of unearned compensation................... 212 416 34
Changes in operating assets and liabilities:
Accounts receivable, net.............................. (4,570) (3,007) (702)
Prepaid expenses and other current assets............. 12,296 (15,269) 1,001
Accounts payable and accrued expenses................. 989 17,368 2,589
Deferred revenue...................................... 68 8,908 5,251
--------- -------- --------
Net cash used in operating activities............... (109,495) (45,088) (20,858)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets................................. (6,895) (1,359) (1,942)
Proceeds from sale of fixed assets........................ -- -- 402
Other assets.............................................. (817) 82 (95)
--------- -------- --------
Net cash used in investing activities............... (7,712) (1,277) (1,635)
--------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations..................... (1,752) (816) (754)
Proceeds from senior note................................. -- -- 10,000
Payments on senior note................................... -- (9,129) (871)
Net proceeds from issuance of redeemable convertible
preferred stock......................................... -- 61,859 --
Capital contributions..................................... -- -- 8,500
Net proceeds from issuance of common stock................ 81,080 77,285 --
Proceeds from issuance of common stock in connection with
employee stock purchase plan............................ 1,166 -- --
Proceeds from issuance of common stock upon exercise of
stock options........................................... 945 511 --
--------- -------- --------
Net cash provided by financing activities........... 81,439 129,710 16,875
--------- -------- --------
Net (decrease) increase in cash and cash
equivalents....................................... (35,768) 83,345 (5,618)
Cash and cash equivalents, beginning of period............ 91,497 8,152 13,770
--------- -------- --------
Cash and cash equivalents, end of period.................. $ 55,729 $ 91,497 $ 8,152
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 171 $ 370 $ 496
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred for network
equipment............................................... $ 485 $ 2,635 $ 1,018

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

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

1. ORGANIZATION AND BUSINESS

Juno Online Services, Inc. (the "Company" or "Juno") is a provider of
Internet-related services throughout the United States and parts of Canada. The
Company offers multiple levels of service, including free basic Internet access,
billable premium dial-up service, and (in selected markets) high-speed broadband
access. The Company's revenues are derived primarily from the subscription fees
charged for its billable premium services, from the sale of advertising, and
from various forms of electronic commerce.

The Company announced the expansion of its free basic service to include
full Internet access on December 20, 1999. Prior to the announcement, the
Company's free basic service provided only basic dial-up e-mail functionality.

The Company has experienced operating losses since its inception. Such
losses are due to the Company's historical efforts to maximize the number of
subscribers to both its free basic service and its premium services, and to its
development of computer systems and related infrastructure that could be rapidly
expanded to accommodate additional users. Although the Company reduced its
investments in subscriber acquisition and other marketing activities by a
substantial amount in the second half of 2000, and has taken steps to reduce
operating expenses, there can be no assurance that the Company will achieve or
sustain profitability or positive cash flow in its operations.

Juno Online Services, Inc. is the surviving entity of a statutory merger
with Juno Online Services, L.P. (the "Partnership"). On March 1, 1999, the
Partnership and Juno Online Services, Inc., entities under common control,
effected the statutory merger pursuant to which the Partnership was merged with
and into Juno Online Services, Inc., in a manner similar to a pooling of
interests (the "Statutory Merger"). This tax-free transaction resulted in the
combination of the Partnership with its wholly owned subsidiary, Juno Online
Services, Inc. such that Juno Online Services, Inc. is the surviving entity. In
connection with the Statutory Merger, the Class A Units of the Partnership were
converted into Series A Redeemable Convertible Preferred Stock, and accumulated
losses of the Partnership were reclassified to additional paid-in capital.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company; its wholly-owned subsidiary, Juno Internet Services, Inc.; and its
majority-owned India-based subsidiary, Juno Online Services Development Private
Limited. All intercompany accounts and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

The Company's consolidated financial statements are prepared in accordance
with generally accepted accounting principles, which require management to use
its judgment in making certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
liabilities at the dates of the financial statements and the reported amounts of
operating revenues and expenses during the reporting periods. It is expected
that such estimates, primarily tax valuation and bad debt allowances, will
differ to some extent from the amounts ultimately realized due to uncertainties
inherent in any such estimation process.

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash balances at
December 31, 2000 consisted of bank deposits with a number of institutions and
investment grade overnight securities.

REVENUE RECOGNITION

Billable services revenues are recognized over the period services are
provided and consist primarily of fees charged for the Company's billable
premium services and technical support fees.

Advertising and transaction fees are derived both from advertising,
including the sale of impressions and sponsorships, and strategic marketing
alliance contracts in which the Company typically is compensated for generating
leads or transactions in addition to or instead of receiving a fee for
displaying impressions. Impression-based contracts are generally structured to
provide a fixed number of impressions on a fee-per-impression basis without
regard to a specific period of time over which the impressions are to be shown.
These contracts tend to be short-term in nature and the Company's obligations
are typically fulfilled over a period of a few months. Sponsorship contracts
typically involve integration with the Company's portal site, such as placement
of buttons that provide users with direct links to the advertiser's Web site.
These contracts generally are for a fixed term and during 2000 and 1999 the
typical length of sponsorship contracts tended to be less than one year.
Strategic marketing alliance contracts are generally structured over longer
specific periods of time, ranging from a few months to several years. Strategic
marketing alliance contracts generally provide the Company with guaranteed
payments as advances against various forms of revenue-sharing for generating
leads or transactions, or for producing advertisements and displaying
impressions.

Revenues generated by advertising and strategic marketing alliance contracts
are generally recognized as earned, provided that the Company does not have any
significant remaining obligations and collection is reasonably assured.
Remaining obligations include the fulfillment of a fixed or guaranteed minimum
number of impressions to be displayed or the achievement of performance targets.
The earnings process typically coincides with when the impressions are
displayed, leads or transactions are generated, or services are performed. To
the extent that guaranteed minimum impressions or performance targets exist for
a specific time period, revenue is recognized at the lesser of the ratio of the
obligations delivered over total obligations, or on a straight-line basis for
the term of the contract. To the extent that guaranteed minimum impressions or
performance targets exist and are not met, the Company defers recognition of the
corresponding revenues until the remaining guaranteed impressions are displayed
or performance targets are achieved.

From time to time the Company enters into advertising barter arrangements in
which it exchanges rights to place advertisements with other companies. Revenues
associated with the advertising the Company provides and expenses associated
with the advertising the Company receives are recognized at their respective
fair values in accordance with EITF 99-17, "Accounting for Advertising Barter
Transactions" ("EITF 99-17"). EITF 99-17 provides that revenues from advertising
barter transactions should be recognized at fair value only when the fair value
of the advertising provided in the arrangement is determinable based on the
Company's own historical practice of receiving cash from customers unrelated to
the counterparty in the barter transaction. Barter transactions accounted for

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
approximately 2.8%, 1.5% and 0.6% of total revenues and approximately 8.2%, 6.2%
and 1.9% of advertising and transaction fees for the years ended December 31,
2000, 1999 and 1998, respectively.

Costs associated with advertising and strategic marketing alliance
contracts--principally transmission, development, production and campaign
management costs--are expensed as incurred.

Revenues from direct product sales and delivery fees were recognized upon
shipment of products to subscribers. We ceased our direct product sales
activities in 2000.

Deferred revenue consists of monthly and annual prepaid subscriber fees
related to billable subscription services and advertising and transaction fees
billed in advance of the performance of all or a portion of the related service.

Accounts receivable includes the portion of advertising and transaction fees
and billable subscriber fees that have been billed in advance of the performance
of all or a portion of the related services and that have not been collected.
The portions of accounts receivable related to these fees as of December 31,
2000 and 1999--and the corresponding equal amounts that remained in deferred
revenue at such dates--were $3,696 and $2,508, respectively.

FIXED ASSETS

Fixed assets are stated at cost, net of accumulated depreciation and
amortization, which is calculated on a straight-line basis over lives ranging
from 3 to 5 years or, for leasehold improvements, over the life of the lease, if
shorter.

LONG-LIVED ASSETS

The Company periodically evaluates the net realizable value of long-lived
assets, including fixed assets and other assets, relying on a number of factors
including operating results, business plans, economic projections and
anticipated future cash flows. In addition, the Company's evaluation considers
non-financial data such as market trends, product and development cycles, and
changes in management's market emphasis. An impairment in the carrying value of
an asset is recognized when the expected future operating cash flows derived
from the asset are less than its carrying value. Maintenance and repairs are
charged to expense as incurred. Major renewals, betterments and additions are
capitalized.

COMPREHENSIVE INCOME

The Company adopted SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130") during the year ended December 31, 1999. SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components. Other than the cumulative translation adjustment identified in
stockholders' equity on the balance sheet, the Company has no items of other
comprehensive income in any period presented.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's foreign subsidiary in India is the
local currency. Accordingly, all assets and liabilities of the foreign
subsidiary are translated into U.S. dollars at

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period-end exchange rates and expenses are translated using the average rates
during the period. The effects of foreign currency translation adjustments have
been accumulated and are included as a separate component of stockholders'
equity.

ADVERTISING AND SUBSCRIBER ACQUISITION COSTS

The Company expenses all advertising and subscriber acquisition costs as
incurred. Advertising expenses for 2000, 1999 and 1998 were $87,573, $39,871,
and $2,389, respectively.

PRODUCT DEVELOPMENT COSTS

The Company's product offerings comprise various features which contribute
to the overall functionality and are delivered through client-side software,
server-side software, and database applications which have principally been
developed internally. Software development costs include direct labor and
related overhead for software produced by the Company and the cost of software
licensed from third parties. All costs in the software development process which
are classified as research and development are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the software is generally available. To date, the
establishment of technological feasibility of the Company's products and the
general availability of such software have substantially coincided. As a result,
software development costs that qualify for capitalization have been
insignificant and therefore, the Company has not capitalized any software
development costs.

OPTION PLANS

The accompanying financial position and results of operations for the
Company have been prepared in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, generally, no
compensation expense is recognized in the financial statements in connection
with the awarding of stock option grants to employees provided that, as of the
grant date, the number of shares and the exercise price of the award are fixed
and the fair value of the Company's stock, as of the grant date, is equal to or
less than the amount an employee must pay to acquire the stock as defined.

The Company has elected the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Pro forma operating results had the Company prepared
its financial statements in accordance with the fair-value-based method of
accounting under SFAS 123 have been included in Note 12.

SEGMENT REPORTING

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") during the year ended
December 31, 1999. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 requires
the

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
presentation of financial information in a manner similar in nature to how the
company views its business. The Company operates in one principal business
segment, a provider of Internet access-related services. Substantially all of
the Company's operating results and identifiable assets are in the United
States.

INCOME TAXES

Income taxes are accounted for under the assets and liability method.
Deferred income taxes are recorded for temporary differences between financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities reflect the tax rates expected to be in effect for
the years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or all of the
deferred tax asset will not be realized.

Prior to the statutory merger on March 1, 1999, U.S. federal and state
income taxes had not been provided for because the partners report their
respective distributive share of the Company's income or loss on their
respective returns.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The carrying values of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximate fair value. Financial instruments
that potentially subject the Company to concentration of credit risk consist
principally of cash investments and trade receivables. At times cash balances
may exceed federally insured limits. The Company has limited its cash
investments to investment grade overnight securities. Credit is extended to
trade customers based on an evaluation of their financial condition. The Company
performs ongoing credit evaluations of its trade customers and maintains an
allowance for doubtful accounts. Credit risk with regard to the sale of billable
subscription services is mitigated by the requirement to use credit cards for
purchases.

RECLASSIFICATION

Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (A
Replacement of SFAS No. 125)". SFAS No. 140 provides guidance on accounting for
(1) securitization transactions involving financial assets; (2) sales of
financial assets (including loan participations); (3) factoring transactions;
(4) wash sales; (5) servicing assets and liabilities; (6) collateralized
borrowing arrangements; (7) securities lending transactions; (8) repurchase
agreements; and (9) extinguishment of liabilities. The provisions of SFAS
No. 140 will become effective for the Company for transactions it enters into
after March 31, 2001. The adoption of this standard is not expected to have a
material impact on the Company's financial position or results of operations.

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of SFAS No. 133, an
Amendment of SFAS No. 133," which has delayed the required implementation of
SFAS No. 133 such that the Company must adopt this new standard no later than
January 1, 2001. The adoption of this standard will not have a material impact
on the Company's financial position or results of operations.

3. EARNINGS PER SHARE

In accordance with SFAS No. 128, "Earnings per Share", basic earnings per
share is calculated based on the weighted average number of shares of common
stock outstanding during the reporting period. Diluted earnings per share is
calculated giving effect to all potentially dilutive common shares, assuming
such shares were outstanding during the reporting period. Stock options in the
amount of 7,018,283, 4,356,567, and 2,584,369 shares with weighted average
exercise prices of $10.53, $8.15, and $0.45 for the years ended December 31,
2000, 1999 and 1998, respectively, were not included in the computation of
diluted EPS as they are antidilutive as a result of net losses during the
periods presented.

Basic and diluted net loss per share for the year ended December 31, 1999 is
calculated separately for the periods prior and subsequent to the March 1999
statutory merger.

The pro forma information regarding net loss per share and weighted average
shares outstanding set forth below gives effect to the treatment of Class A
limited partnership units as shares of common stock and the conversion of
Series B Redeemable Convertible Preferred Stock for the period following the
March 1999 statutory merger.

YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
----------- -----------

Numerator:
Net loss.................................................. $ (55,834) $ (31,626)
=========== ===========
Denominator:
Weighted average number of:
Shares of common stock.................................. 20,933,828
Class A limited partnership united treated as
shares of common stock................................ 17,091,436
Redeemable Convertible Preferred Stock treated
as shares of common stock:
Series B.............................................. 2,380,301
Series A (Class A limited partnership units prior to
March 1, 1999)...................................... 7,025,165
----------- -----------
Denominator for pro forma basic and diluted net loss per
share................................................. 30,339,294 17,091,436
=========== ===========
Pro forma basic and diluted net loss per share.............. $ (1.84) $ (1.85)
=========== ===========

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

4. FIXED ASSETS

Fixed assets consists of the following:

DECEMBER 31,
-------------------
2000 1999
-------- --------

Computers, network equipment and software................... $16,219 $ 9,657
Furniture and office equipment.............................. 362 196
Leasehold improvements...................................... 1,424 772
------- -------
Subtotal................................................ 18,005 10,625
Accumulated depreciation and amortization................... (8,841) (4,941)
------- -------
$ 9,164 $ 5,684
======= =======

Included in fixed assets is equipment acquired under capital leases,
principally network equipment, of $5,106 and $4,621 as of December 31, 2000 and
1999, less accumulated amortization of $3,093 and $1,761, respectively.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

DECEMBER 31,
-------------------
2000 1999
-------- --------

Trade accounts payable...................................... $ 9,430 $ 5,738
Personnel and related expenses.............................. 6,288 5,437
Telecommunications services................................. 6,978 7,228
Customer service expenses................................... 675 1,199
Marketing expenses.......................................... 3,146 5,430
Other....................................................... 2,770 3,248
------- -------
$29,287 $28,280
======= =======

6. RELATED PARTY TRANSACTIONS

The Company is affiliated with a group of entities that are under control of
or are subject to substantial influence by D. E. Shaw & Co., Inc.
("DESCO, Inc."). In 1997, D.E. Shaw & Co., L.P. ("DESCO, L.P."), an affiliate of
DESCO, Inc., provided certain administrative and support services to the
Company. Subsequent to 1997, DESCO, L.P. continues to provide these services to
the Company at substantially reduced levels.

Prior to May 1999, the Company was a party to a services agreement with an
India- based affiliate of DESCO, L.P. DESCO, L.P. was paid a fixed monthly fee
for engineering and operations services rendered, and was reimbursed for
incidental expenses. In May 1999, this agreement was terminated. The Company
currently obtains occupancy and related services from DESCO, L.P. and its
affiliates.

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

6. RELATED PARTY TRANSACTIONS (CONTINUED)
The aggregate amounts and nature of the expenditures made by DESCO, L.P. and
its affiliate on behalf of the Company were as follows:

YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------

India-based engineering and operations expense.............. $ -- $ 870 $1,454
Personnel related expenses.................................. -- 244 521
Occupancy costs............................................. 1,965 867 338
Other operating expenses.................................... 86 150 375
------ ------ ------
$2,051 $2,131 $2,688
====== ====== ======

In 1998, the Company transferred fixed assets with a net book value of $402
to DESCO, L.P.

SENIOR NOTE

On March 31, 1998, the Company borrowed $10,000 from D. E. Shaw Securities
Group, L.P. ("Shaw Securities"), pursuant to an unsecured Senior Note (the
"Senior Note"). Shaw Securities, whose general partner is DESCO, L.P. is an
affiliate of the Company. The Senior Note, as amended, had an interest rate
computed at the Federal Funds Rate plus 0.375%. In June 1999, the Company repaid
the balance of the Senior Note in the amount of $8,634, including accrued
interest.

The Company's interest expense under the Senior Note was approximately $182
and $418 for the years ended December 31, 1999 and 1998, respectively.

GENERAL PARTNER FEES AND OTHER COMPENSATION

Prior to the Statutory Merger, the Partnership's general partner was
entitled to a monthly management fee equal to one-twelfth of one percent of the
aggregate value of all outstanding limited partnership Units (or other property
into which such Units have been converted) as of the most recent Valuation Event
(as specified in the limited partnership agreement, as amended) as compensation
for managing the affairs of the Partnership. In 1999 and 1998, the Partnership's
general partner elected to waive management fees of $52 and $285, respectively.

7. OBLIGATIONS UNDER CAPITAL LEASES

The following is a schedule, by year, of future minimum lease payments under
capital leases, together with the present value of the minimum lease payments as
of December 31, 2000:

YEAR ENDING DECEMBER 31,
2001........................................................ $ 1,209
2002........................................................ 335
2003........................................................ 181
---------
Total minimum lease payments............................ 1,725
Less: Amount representing interest.......................... (114)
---------
Present value of minimum lease payments................. 1,611
Less: Current portion....................................... 1,209
---------
$ 402
=========

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

8. LIABILITIES EXPECTED TO BE SETTLED WITH COMMON STOCK

The Company has entered into subscriber referral agreements with two former
providers of free Internet access, WorldSpy and Freewwweb, under which the
Company is obligated to pay certain amounts based on the number of "Qualified
Referred Subscribers" generated by referral activities specified in the
agreements. A new Juno subscriber referred to Juno by WorldSpy or Freewwweb is a
Qualified Referred Subscriber if he or she meets certain qualification criteria
defined in the relevant subscriber referral agreement. Under the terms of these
agreements, Juno has the right to settle a portion of the liabilities incurred
in connection with acquiring the Qualified Referred Subscribers through the
issuance of shares of its common stock. To date, the Company has issued an
aggregate of 2,008,303 shares of its common stock at a weighted average price of
$2.54 in satisfaction of liabilities incurred in connection with the subscriber
referral agreements. At December 31, 2000, the Company had liabilities of
$4.0 million as an estimate of the remaining amounts to be settled through the
issuance of its common stock.

9. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company has committed to a minimum usage level for two of its
telecommunications service providers. For one of these providers, the Company is
obligated to pay a minimum of $2,800 for certain telecommunications services
over a two-year period that commenced May 5, 2000. At December 31, 2000, the
Company's remaining commitment under this arrangement was $1,205. As of
December 31, 2000, the Company was committed to paying another provider $4,950
for telecommunications services that will be provided through May 31, 2001.

Telecommunications services expense for the years ended December 31, 2000,
1999 and 1998 was $65,791, $14,394, and $8,772, respectively.

The Company has also entered into various non-cancelable operating leases.
DESCO, L.P. has also entered into a leasing arrangement for office space used by
the Company. A portion of the Company's operations are located in a single
location that is leased by DESCO, L.P. The Company, which benefits from the use
of this office space, has agreed to assume performance of DESCO, L.P.'s payment
obligations under the lease to the extent the Company occupies such office
space. Minimum lease payments below include $7,675 related to this arrangement
with DESCO, L.P. The remaining commitments under these operating leases and this
arrangement are as follows:

YEAR ENDING DECEMBER 31,
- ------------------------

2001........................................................ $ 4,626
2002........................................................ 4,113
2003........................................................ 1,350
2004........................................................ 862
2005........................................................ 215
-------
Total minimum payments...................................... $11,166
=======

The Company's rental expense under operating leases in the years ended
December 31, 2000, 1999 and 1998, was approximately $6,019, $2,100, and $1,070,
respectively.

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONTINGENCIES

Various claims and actions have been asserted or threatened against the
Company in the ordinary course of business. In the opinion of management, the
outcome of these asserted or threatened claims or actions would not have a
materially adverse effect on the Company's consolidated financial position,
results of operations, and cash flows, taken as a whole.

The Federal Trade Commission has been investigating the advertising, billing
and cancellation practices of various Internet-related companies, including the
Company. At the FTC's request, the Company has provided marketing-related and
customer service-related information concerning our services. On the basis of
these submissions, the FTC staff has claimed, among other things, that the
Company's disclosure practices about the possibility of users incurring
telephone charges were insufficient, and that the Company's cancellation
policies for subscribers to its billable services were unduly restrictive. On
the basis of the Company's discussions with the FTC staff, the Company has begun
implementing modifications to the disclosure we make about telecommunications
charges that users might incur and to our billable services cancellation
practices. Depending on the final outcome of the FTC inquiry, the Company could
be required, under a consent order or otherwise, to make compensatory payments
and implement additional modifications to its business practices. The results of
operations for the year ended December 31, 2000 reflect a charge for exposure
that management estimates could result from this FTC inquiry.

10. STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL

EQUITY LINE

On October 6, 2000, the Company entered into a common stock investment
agreement with a private investment fund providing for the future issuance and
purchase of shares of the Company's common stock. This agreement and a related
registration rights agreement constitute what is commonly referred to as an
"equity line facility." Under the equity line facility, the Company may sell,
subject to various volume- and price-related limitations, up to $7.5 million of
common stock in each of up to 20 drawdown periods of 22 trading days each over
the course of a period of up to two years, provided that the Company cannot sell
more than $125 million worth of shares in total under the facility and may in
practice only be able to sell a much lower amount. The total number of shares
that may be issued under the facility depends on a number of factors, including
the market price and trading volume of our common stock during each drawdown
period the Company chooses to initiate. Any stock issued to the fund under this
facility will generally be purchased at a price equal to 94% of the
volume-weighted average price of the Company's common shares on each purchase
day. However, the fund will generally not be obligated to purchase shares from
the Company on any day when the purchase price would be less than $2.50 per
share, although the fund and the Company have previously agreed to waive this
condition with respect to one drawdown period, and the parties may agree to
waive this condition from time to time in the future, in order to allow the
Company to sell shares to the fund at lower prices. The Company will control the
timing and frequency of any sales, subject to the facility's volume- and
price-related limitations, and will have no obligation to draw down any minimum
amount or number of times. However, the facility may be terminated if we sell no
shares to the fund for a period of four consecutive months.

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

10. STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL (CONTINUED)
The common stock investment agreement provides that the equity line will not
be available to Juno unless a registration statement is available to permit the
fund to resell the shares purchased by it. Juno filed a registration statement
on Form S-3 with the Securities and Exchange Commission ("SEC") on November 28,
2000 to register the resale by the fund of up to 10,000,000 shares of the common
stock that may be issued to it under the equity line facility. The registration
statement was declared effective by the SEC on January 23, 2001. As of March 9,
2001 the Company had sold 317,400 shares and raised net proceeds of $478 under
this facility.

INITIAL AND FOLLOW-ON PUBLIC OFFERINGS

On February 8, 2000, the Company completed a follow-on offering of 3,600,000
shares of common stock at $24.00 per share. Net proceeds received by the
Company, after deducting offering costs, totaled $81,080.

On May 25, 1999, the Company completed its initial public offering of
6,500,000 shares of common stock at $13.00 per share. Net proceeds received by
the Company, after deducting offering costs, totaled $77,285.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

In 1999, the Company, after giving effect to the Statutory Merger, received
$61,859 in proceeds net of $3,200 of issuance costs, for the issuance of
10,138,716 shares of Series B Redeemable Convertible Preferred Stock ("Series B
Preferred"), $0.01 par value. In addition, 17,684,035 shares of Series A
Redeemable Convertible Preferred Stock ("Series A Preferred") were issued to the
holders of Series A Partnership Units in connection with the Statutory Merger.
Each share of the Series A Preferred and Series B Preferred were automatically
converted into one share of Common Stock upon consummation of the initial public
offering of the Company's common stock on May 25, 1999.

11. INCOME TAXES

Subsequent to the Statutory Merger, the Company elected to be treated as a C
Corporation under the Internal Revenue Code ("IRC"). Since March 1, 1999, the
date of the Statutory Merger, the Company has incurred losses and generated a
net operating loss carryforward of approximately $202,028 at December 31, 2000.
This carryforward is available to offset future taxable income, if any, and
expires in the years 2019 and 2020 ($63,072 and $138,956, respectively).

Section 382 of the IRC, as amended, places a limitation on the utilization
of federal net operating loss carryforwards upon the occurrence of an ownership
change. In general, a change in ownership occurs when a greater than 50% change
in ownership takes place over a three-year testing period. The annual
utilization of net operating loss carryforwards generated prior to such change
is limited, in any one year, to a percentage of the entity's fair value at the
time of the change in ownership.

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

11. INCOME TAXES (CONTINUED)
Significant components of the deferred tax asset (estimated at an effective
rate of 40%) at December 31, 2000, 1999 and March 1, 1999 are as follows:

DECEMBER 31, MARCH 1,
------------------- --------
2000 1999 1999
-------- -------- --------

Deferred tax assets:
Net operating loss........................................ $ 80,811 $ 25,222 $ --
Start-up costs, capitalized for tax purposes.............. 153 767 1,314
Accruals, reserves and other.............................. 1,725 1,423 3,433
Depreciation.............................................. 736 511 499
-------- -------- -------
Total deferred tax assets............................... 83,425 27,923 5,246
Less: valuation allowance................................... (83,425) (27,923) (5,246)
-------- -------- -------
Deferred tax asset, net..................................... $ -- $ -- $ --
======== ======== =======

The net operating loss carryforward and temporary differences between
carrying amounts of assets and liabilities for financial reporting and income
tax purposes result in a net deferred tax benefit of $83,425 and $27,923 at
December 31, 2000 and 1999, respectively. The Company's operating plans
anticipate taxable income in future periods; however, such plans make
significant assumptions which cannot be reasonably assured. Therefore, in
consideration of the Company's losses and the uncertainty of its ability to
utilize this deferred tax benefit in the future, the Company has recorded
valuation allowances in the amounts of $83,425 and $27,923 at December 31, 2000
and 1999 to offset the deferred tax benefit amounts.

Prior to the Statutory Merger on March 1, 1999, U.S. federal and state
income taxes had not been provided because the partners reported their
respective share of the Partnership's losses on their respective returns.

The deferred tax asset at March 1, 1999, subject to a full valuation
allowance, was generated by the Partnership, through March 1, 1999, the date of
the Statutory Merger. This deferred tax asset was made available to Juno Online
Services, Inc., as the successor company following the Statutory Merger.

The benefit for income taxes differs from the amount of income tax
determined by applying the applicable U.S. tax rate to net loss as follows:

YEAR ENDED
DECEMBER 31,
-----------------------
2000 1999
-------- --------

Expected federal income tax at the statutory rate........... (35.0)% (35.0)%
Loss incurred prior to statutory merger..................... -- 2.7
State income taxes, net of federal tax benefit.............. (5.8) (5.0)
Exercise of nonqualified stock options...................... (1.6) (3.4)
Other....................................................... (0.4) 0.1
Increase in valuation allowance............................. 42.8 40.6
----- -----
Income tax rate as recorded................................. --% --%
===== =====

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

12. EMPLOYEE BENEFIT PLANS

STOCK OPTION PLANS

In March 1999, the Company implemented its 1999 Stock Incentive Plan (the
"1999 Plan"). The 1999 Plan serves as the successor equity incentive program to
the 1997 Class B Unit Option/Issuance Plan (the "1997 Plan"). Under the 1999
Plan, 9,616,946 shares have been authorized subject to automatic increases in
January of each year. On the effective date of the 1999 Plan, shares authorized
for issuance and options issued and outstanding under the 1997 Plan were
incorporated into the 1999 Plan. No further option grants will be made under the
1997 Plan. The exercise price shall not be less than the fair market value on
the date of grant of the option and shall not be less than 110% of the fair
market value on the date of grant to any 10% owners of the Company. In general,
the options vest at a rate of 25% annually on the anniversary of the grant date
and expire 10 years from the date of grant.

At December 31, 2000, the balance of unearned compensation recorded by the
Company was $333. This amount represents the unrecognized portion of unearned
compensation the Company recorded in the years ended December 31, 1999 and prior
for options issued below deemed fair value for accounting purposes and is being
charged to compensation expense over the vesting period of the options
(generally four years). The Company recognized $212, $416 and $34 of unearned
compensation during the years ended December 31, 2000, 1999 and 1998,
respectively.

The 1999 Stock Incentive Plan includes four programs. The first provides for
the discretionary grant of options to purchase common shares to employees,
consultants, and members of the board of directors. The second allows
individuals to purchase shares or receive them as a bonus tied to the
performance of services. The third allows executive officers and other highly
compensated employees to apply a portion of their salary to the acquisition of
special below-market stock option grants. No such grants have been made to date.
The fourth program automatically grants options at periodic intervals to
eligible non-employee board members.

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

The following information relates to options issued to purchase common stock
under the 1999 Plan:

2000 1999 1998
--------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
---------- -------- --------- --------- --------- --------

Options outstanding, beginning of
year................................. 4,356,567 $ 8.15 2,584,369 $ 0.67 1,360,103 $0.45
Options granted........................ 5,596,764 11.99 2,798,843 13.06 1,577,437 0.84
Options exercised...................... (569,256) 13.19 (510,762) 0.99 -- --
Options forfeited...................... (2,365,792) 11.72 (515,883) 4.49 (353,171) 0.45
---------- --------- ---------
Options outstanding, end of year....... 7,018,283 $10.53 4,356,567 $ 8.15 2,584,369 $0.67
========== ========= =========

OPTIONS WEIGHTED
OUTSTANDING WEIGHTED AVERAGE
AT AVERAGE REMAINING
DECEMBER 31, EXERCISE CONTRACTUAL
2000 PRICE LIFE IN YEARS
------------ -------- -------------

At $0.45 to $0.90........................................... 637,239 $0.47 7.0
At $1.28 to $6.56........................................... 2,890,609 5.41 9.3
At $8.50 to $13.13.......................................... 1,296,662 11.15 8.6
At $14.25 to $19.88......................................... 1,603,833 17.76 8.9
At $22.50 to $45.00......................................... 589,940 25.48 9.1

The Company accounts for its equity-based compensation in accordance with
APB Opinion No. 25 and its related interpretations.

Had the Company's equity-based employee compensation been determined by the
fair-value based method of SFAS 123, the Company's net loss and net loss per
basic and diluted share on a pro-forma basis for the years ended December 31,
2000 and 1999 would have been $141,717 ($3.66 per share) and $58,662 ($1.93 per
share), respectively. Net loss on a pro-forma basis was not materially impacted
for the year ended December 31, 1998.

For disclosure purposes, the fair value of all options granted was
determined using the Black-Scholes option-pricing model. The fair value for 2000
and 1999 option grants was based on the following assumptions:

2000 1999
-------- --------

Average risk-free interest rate............................. 6.15% 4.92%
Dividend yield.............................................. 0.00% 0.00%
Volatility.................................................. 80.00% 85.00%
Expected option life (in years)............................. 5 5

STOCK PURCHASE PLAN

In April 1999, the Company adopted the 1999 Employee Stock Purchase Plan
(the "1999 ESPP"). A total of 555,556 shares are available to be issued under
the 1999 ESPP. The 1999 ESPP allows eligible employees to purchase shares of
common stock at semi-annual intervals, through periodic

JUNO ONLINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT LIMITED PARTNERSHIP UNIT AND SHARE DATA)

payroll deductions of up to 15% of cash earnings, as defined. The purchase price
per share is 85% of the lower of the fair market value on the eligible
employee's entry date or the fair market value on the semi-annual purchase date.
The 1999 ESPP will terminate no later than the last business day in July 2009.
The Company issued 123,223 shares of common stock to employees under the 1999
ESPP during the year ended December 31, 2000.

DEFINED CONTRIBUTION PLAN

The Company is a participating employer in a tax-qualified retirement plan
(the "Savings Plan") under Section 401(k) of the IRC. Under the Savings Plan,
participating employees may defer a portion of their pre-tax earnings, up to the
Internal Revenue Service ("IRS") annual contribution limit. The Company matches
50% of each employee's contribution up to a maximum of 6% of the employee's
eligible earnings. In 2000, 1999 and 1998 the Company match was $658, $394, and
$238, respectively. Company matching payments vest over 4 years.

13. SUBSEQUENT EVENTS

SUPPLEMENTAL STOCK INCENTIVE PLAN

In January 2001, the Company adopted an additional employee benefit plan,
the 2001 Supplemental Stock Incentive Plan (the "2001 Supplemental Plan"). The
2001 Supplemental Plan complements the Company's 1999 Plan. The Company has
authorized for issuance 1,500,000 shares of common stock under the 2001
Supplemental Plan. The plan provides for granting non-qualified stock options to
certain non-executive employees of the Company. As of March 9, 2001, options to
purchase 863,400 shares had been granted under the Plan.

The 2001 Supplemental Plan includes two programs. The first provides for the
discretionary grant of options to purchase common shares to eligible persons, at
the discretion of the plan administrator. The second allows individuals to
purchase shares or receive them as a bonus tied to the performance of services.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to the information contained in the Company's proxy
statement to be mailed to stockholders on or about April 5, 2001, which
information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Reference is made to the information contained in the Company's proxy
statement to be mailed to stockholders on or about April 5, 2001, which
information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Reference is made to the information contained in the Company's proxy
statement to be mailed to stockholders on or about April 5, 2001, which
information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to the information contained in the Company's proxy
statement to be mailed to stockholders on or about April 5, 2001, which
information is incorporated herein by reference.

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1)Financial Statements

Reference is made to the consolidated financial statements included in Item
8 to this Report on Form 10-K.

(a) (2)Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts

BALANCE AT ADDITIONS BALANCE AT
BEGINNING COSTS AND END OF
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ---------------------------------------------- ---------- --------- ---------- ----------
(IN THOUSANDS)

Year ended December 31, 2000:
Allowance for doubtful accounts............. $ 2,064 $ 3,037 $ (2,413) $ 2,688
Valuation allowance-deferred tax assets..... $ 27,923 $ 55,502 $ -- $ 83,425
Year ended December 31, 1999:
Allowance for doubtful accounts............. $ 568 $ 1,697 $ (201) $ 2,064
Valuation allowance-deferred tax assets..... $ -- $ 27,923 $ -- $ 27,923
Year ended December 31, 1998:
Allowance for doubtful accounts............. $ 106 $ 649 $ (187) $ 568

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

(a)(3) Exhibit Index

EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------ --------

3.1 Amended and Restated Certificate of Incorporation, filed
June 1, 1999 (incorporated by reference to Exhibit 3.5 to
Registration Statement on Form S-1, filed May 7, 1999, File
No. 333-73449)..............................................

3.2 Certificate of Amendment to Amended and Restated Certificate
of Incorporation, filed June 1, 1999........................

3.3 Certificate of Correction to Amended and Restated
Certificate of Incorporation, filed July 15, 1999
(incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999)....

3.4 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.7 to Registration Statement on Form S-1, filed May
7, 1999, File No. 333-73449)................................

4.1 Specimen Common Stock certificate (incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-1, filed
April 23, 1999, File No. 333-73449).........................

4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions defining
the rights of holders of common stock of the registrant.....

10.1 1999 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to Registration Statement on Form S-1, filed
April 23, 1999, File No. 333-73449)*........................

10.2 1999 Stock Incentive Plan (Amended and Restated as of March
2, 2000) (incorporated by reference to Exhibit 99.1 to
Registration Statement on Form S-8, filed August 22, 2000,
File No. 333-44262)*........................................

10.3 1999 Stock Incentive Plan (Amended and Restated as of
March 12, 2001)*............................................

10.4 1999 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.2 to Registration Statement on Form S-1, filed
April 23, 1999, File No. 333-73449)*........................

10.5 Amended and Restated Registration Rights Agreement
(incorporated by reference to Exhibit 10.3 to Registration
Statement on Form S-1, filed April 23, 1999, File No.
333-73449)..................................................

10.6+ Marketing Services Agreement, dated September 30, 1998,
among the registrant and Hartford Fire Insurance Company and
its affiliates/ subsidiaries (incorporated by reference to
Exhibit 10.4 to Registration Statement on Form S-1, filed
April 23, 1999, File No. 333-73449).........................

10.7+ Addendum to Marketing Services Agreement among the
registrant and Hartford Fire Insurance Company and its
affiliates/subsidiaries, dated
August 29, 2000............................................

10.8+ Distributor Agreement, dated March 12, 1998, between the
registrant and LCI International Telecom Corp. (incorporated
by reference to Exhibit 10.6 to Registration Statement on
Form S-1, filed April 23, 1999, File No. 333-73449).........

EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------ --------

10.9+ Amendment No. 1 to the Distributor Agreement between the
registrant and Qwest Communications Corporation, as
successor in interest to LCI International Telecom Corp.,
dated June 19, 2000.........................................

10.10 Consent to Assignment and Assumption of the Distributor
Agreement by and between the registrant and Qwest
Communications Corporation, as successor in interest to LCI
International Telecom Corp., dated as of June 19, 2000......

10.11 Common Stock Investment Agreement, dated as of October 6,
2000, between the registrant and Westgate International,
L.P. (incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-3, filed November 28, 2000,
File No. 333-50760).........................................

10.12 Registration Rights Agreement, dated October 6, 2000,
between the registrant and Westgate International, L.P.
(incorporated by reference to Exhibit 10.2 to Registration
Statement on Form S-3, filed November 28, 2000, File No.
333-50760)..................................................

10.13 Assignment and Assumption Agreement, dated November 20,
2000, by and between Westgate International, L.P. and The
Kingston Limited Partnership (incorporated by reference to
Exhibit 10.3 to Registration Statement on Form S-3, filed
November 28, 2000, File No. 333-50760)......................

10.14 Employment Agreement, dated March 9, 2001, between the
registrant and Charles Ardai*...............................

21.1 Subsidiaries of registrant..................................

23.1 Consent of PricewaterhouseCoopers LLP.......................

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

+ Confidential treatment requested for portions of this agreement.

*Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K during the last quarter of the fiscal year covered
by this Report:

On October 13, 2000, Juno filed a report on Form 8-K reporting under Item 5
an "equity line" financing facility.

On October 26, 2000, Juno filed a report on Form 8-K reporting under Item 5
its third-quarter results for fiscal year 2000.

On October 26, 2000, Juno filed a report on Form 8-K reporting under Item 5
the filing of a Registration Statement on Form S-3 with the Securities and
Exchange Commission in connection with the "equity line" facility.

On December 26, 2000, Juno filed a report on Form 8-K reporting under Item 5
that its chief financial officer, Rick Eaton, intended to resign during the
first quarter of 2001.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 16, 2001:

JUNO ONLINE SERVICES, INC.

By: /s/ CHARLES E. ARDAI
-----------------------------------------
Charles E. Ardai
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on its behalf by the following persons on behalf of the
registrant and in the capacities indicated on March 16, 2001.

SIGNATURE TITLE

/s/ Charles E. Ardai President, Chief Executive Officer and
------------------------------------------- Director
Charles E. Ardai (principal executive officer)

Senior Vice President and Corporate
/s/ Harshan Bhangdia Controller;
------------------------------------------- Acting Chief Financial Officer
Harshan Bhangdia (principal accounting and financial officer)

/s/ Thomas L. Phillips, Jr.
------------------------------------------- Director
Thomas L. Phillips, Jr.

/s/ Edward J. Ryeom
------------------------------------------- Director
Edward J. Ryeom

/s/ Louis K. Salkind
------------------------------------------- Director
Louis K. Salkind

/s/ David E. Shaw
------------------------------------------- Director
David E. Shaw