AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999

REGISTRATION NO. 333-73231
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADFORCE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 7374 33-0694260
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)

10590 NORTH TANTAU AVENUE
CUPERTINO, CALIFORNIA 95014
(408) 873-3680
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

JOHN A. TANNER
CHIEF FINANCIAL OFFICER
10590 NORTH TANTAU AVENUE
CUPERTINO, CALIFORNIA 95014
(408) 873-3680

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:

GORDON K. DAVIDSON, ESQ. STEVEN M. SPURLOCK, ESQ.
LAIRD H. SIMONS, III, ESQ. MICHAEL P. KENNEDY, ESQ.
MARK A. LEAHY, ESQ. ERIC E. KEPPLER, ESQ.
EDWARD M. URSCHEL, ESQ. GUNDERSON DETTMER STOUGH VILLENEUVE
FENWICK & WEST LLP FRANKLIN & HACHIGIAN, LLP
TWO PALO ALTO SQUARE 155 CONSTITUTION DRIVE
PALO ALTO, CALIFORNIA 94306 MENLO PARK, CALIFORNIA 94025
(650) 494-0600 (650) 321-2400

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE(3)

Common Stock, $0.001 par value.............. 5,175,000 $15.00 $77,625,000 $21,580

(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).

(3) A fee of $15,290 was previously paid by the Registrant in connection with
the filing on March 2, 1999 and an additional fee of $1,974 was paid by the
Registrant in connection with the filing on April 15, 1999.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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

SUBJECT TO COMPLETION, DATED , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.

PROSPECTUS

4,500,000 SHARES

[LOGO]

COMMON STOCK

This is an initial public offering of common stock by AdForce, Inc. All of
the shares of common stock are being sold by AdForce. The estimated initial
public offering price will be between $13.00 and $15.00 per share.

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

There is currently no public market for the common stock. AdForce has
applied to have the common stock approved for quotation on the Nasdaq National
Market under the symbol ADFC.

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PER SHARE TOTAL
----------------- ----------

Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to AdForce, before expenses........................ $ $

AdForce has granted the underwriters an option for a period of 30 days to
purchase up to 675,000 additional shares of common stock.

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

INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

HAMBRECHT & QUIST
LEHMAN BROTHERS
VOLPE BROWN WHELAN & COMPANY
CHARLES SCHWAB & CO., INC.

, 1999

[OUTSIDE FRONT COVER]

The AdForce logo is centered at the top of the page. The logo appears as a
capital letter "A" without the horizontal line and without the bottom left half
of the letter, along with a crescent shape that wraps around the letter "A" on a
horizontal axis. The name "ADFORCE" appears below the logo.

[INSIDE FRONT COVER]

TITLE: THE ADFORCE ADVANTAGE

The page contains three sections of text bearing the headings "The AdForce
Advantage," "Advertisers and Ad Agencies" and "Web Sites and Ad Rep Firms." The
"AdForce Advantage" section reads: "Centralized, online, outsourced ad
management and delivery--AdForce's highly reliable, scalable technology
infrastructure and data centers currently deliver up to 210 million ads per day.
Our services offer sophisticated ad campaign design, inventory management,
targeting, delivery, tracking, measuring and reporting capabilities. By
outsourcing the technically complex and operationally demanding ad management
and delivery functions to AdForce, our customers can rely on our high
performance systems, technology and personnel while focusing on their own core
competencies." The "Advertisers and Ad Agencies" section reads: "AdForce allows
advertisers and ad agencies to plan and manage Internet advertising across
multiple Web sites. Our services allow our customers to reach large or targeted
audiences and to track, measure and report on their ad campaigns to maximize
return on advertising investments." A chart divided into three rows follows. The
first row contains two rectangles labeled "Advertisers" and "Ad Agencies." Each
rectangle is connected by a line to a large, rectangular bar on the second row
labeled "AdForce," which is connected by lines to five rectangles located in the
third row and labeled "Web Sites" and "Ad Rep Firms." The rectangle labeled "Ad
Agencies" located in the first row is connected to a large rectangular box to
the right. The box reads: "Key Ad Agency Customers: ModemMedia.PoppeTyson,
USWeb, VR Services, Carat Freeman, Bozell Worldwide." The five boxes located in
the third row are connected by a horizontal line to a large rectangular box to
the right. The box reads: "Key Web Site and Ad Rep Customers: 24/7 Media,
Adsmart, GeoCities, Netscape, Mapquest, Fortune City, Encompass, Netcom,
NHL.com, GoTo.com, Virtual Vegas, Spree.com, PGATOUR.com." The "Web Sites and Ad
Rep Firms" section reads: "AdForce helps Web sites and ad rep firms maximize the
value of their page view inventories. AdForce's advanced inventory management
system allows Web sites to accurately monitor sold and unsold inventory and to
sell that inventory more effectively."

[ICONS AT LEFT MARGIN UNDER SERVICES HEADING (PP. 35-36)]

Beginning on p. 35: First icon reads "Media Planning" and contains a file
folder graphic. Second icon reads "Campaign Scheduling" and contains an
appointment book graphic. Third icon reads "Targeting" and contains a target
graphic. Fourth icon reads "Ad Delivery" and contains a truck graphic. Fifth
icon reads "Reporting" and contains a chart graphic. Sixth icon reads
"Transactions" and contains a lighthouse graphic. Seventh icon reads "Auditing
and Accounting" and contains an abacus graphic. Eighth icon reads "Analysis" and
contains a microscope graphic. Ninth icon reads "Inventory Management" and
contains a file boxes graphic.

[INSIDE BACK COVER]

TITLE: ADFORCE MAKE THE RIGHT IMPRESSION

The AdForce logo is centered at the top of the page. The logo is the same
logo as appears on the outside front cover of the prospectus. A circular flow
chart is at the center of the page containing four icons. The icon at the top of
the flow chart reads "Deliver Ad" and contains a truck graphic. A clockwise
arrow leads to an icon that reads "Track User Activity" and contains a
lighthouse graphic. Another clockwise arrow leads to an icon that reads "Measure
Results" and contains a chart graphic. A clockwise arrow leads to an icon that
reads "Target User" and contains a target graphic. A final arrow leads from the
icon that reads "Target User" to the icon that reads "Deliver Ad." Text at the
center of the flow chart reads: "Lifetime Customer Value--AdForce's closed-loop
ad management and delivery services help our customers find, attract and retain
their target customers." The bottom of the page contains the text "End-To-End Ad
Management." Nine icons appear below this text representing media planning,
campaign scheduling, targeting, ad delivery, reporting, transactions, auditing
and accounting, analysis and inventory management.

TABLE OF CONTENTS

PAGE
-----

Prospectus Summary........................................... 4

Risk Factors................................................. 6

Forward-Looking Statements................................... 13

Use of Proceeds.............................................. 14

Dividend Policy.............................................. 14

Capitalization............................................... 15

Dilution..................................................... 16

Selected Financial Data...................................... 17

Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 18

Business..................................................... 27

Management................................................... 40

Related Party Transactions................................... 52

Principal Stockholders....................................... 56

Description of Capital Stock................................. 58

Shares Eligible for Future Sale.............................. 61

Underwriting................................................. 63

Legal Matters................................................ 65

Experts...................................................... 65

Where You Can Find More Information.......................... 65

Index to Financial Statements................................ F-1

PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION.

ADFORCE

AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. Our highly reliable, scalable technology
infrastructure and data centers currently deliver up to 210 million ads per day.
Our services offer sophisticated ad campaign design, inventory management,
targeting, delivery, tracking, measuring and reporting capabilities. Our
technology infrastructure and services allow our customers to:

- Reach large or targeted audiences across multiple Web sites on our
common platform;

- Maximize return on advertising investments for advertisers and ad
agencies;

- Maximize the value of page view inventories for Web sites and ad rep
firms;

- Monitor and measure the effectiveness of ad campaigns;

- Modify ad campaigns based on campaign performance data;

- Aggregate large numbers of sites into a single network and segment the
network into groups of special interest content such as sports or
finance; and

- Take advantage of direct marketing opportunities using sophisticated
targeting technologies supported by our large and growing database of
user information.

By outsourcing the technically complex and operationally demanding ad
management and delivery functions to AdForce, our customers can rely on our high
performance systems, technology and personnel while focusing on their own core
competencies.

Growth of the Internet generally and electronic commerce in particular
has spurred traditional businesses to devote larger portions of their marketing
budgets to Internet advertising, and has prompted Internet and electronic
commerce companies to increase their spending on Internet advertising. Jupiter
Communications estimates that spending on Internet advertising will grow from
$1.9 billion in 1998 to $7.7 billion in 2002, and the Direct Marketing
Association estimates that spending on Internet direct marketing will grow from
$603 million in 1998 to $5.3 billion in 2003.

We incorporated in California as Imgis, Inc. on January 16, 1996 and
reincorporated in Delaware as AdForce, Inc. in April 1999. Our address is 10590
North Tantau Avenue, Cupertino, California 95014, and our telephone number is
(408) 873-3680. Information contained on our Web site is not a part of this
prospectus.

THE OFFERING

Common stock offered by AdForce.............. 4,500,000 shares
Common stock to be outstanding after this
offering..................................... 19,169,429 shares
Use of proceeds.............................. For general corporate purposes, including
working capital. See "Use of Proceeds."
Nasdaq National Market symbol................ ADFC

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ALL INFORMATION IN THIS PROSPECTUS RELATING TO ADFORCE'S OUTSTANDING
CAPITAL STOCK, OPTIONS AND WARRANTS IS AS OF MARCH 31, 1999. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE OVER-ALLOTMENT
OPTION WILL NOT BE EXERCISED AND REFLECTS THE CONVERSION OF ALL PREFERRED STOCK
INTO COMMON STOCK. PLEASE SEE "CAPITALIZATION" FOR A MORE COMPLETE DISCUSSION
REGARDING ADFORCE'S CAPITAL STOCK, OPTIONS AND WARRANTS. THE TERMS "ADFORCE,"
"WE," "US" AND "OUR" REFER TO ADFORCE, INC., A DELAWARE CORPORATION, AND ITS
CALIFORNIA PREDECESSOR.
--------------

THE SUMMARY FINANCIAL DATA PRESENTED BELOW ARE DERIVED FROM THE
FINANCIAL STATEMENTS OF ADFORCE. THE QUARTERLY FINANCIAL DATA HAVE BEEN DERIVED
FROM UNAUDITED FINANCIAL STATEMENTS. THE PRO FORMA WEIGHTED AVERAGE COMMON
SHARES INCLUDE PREFERRED STOCK ON AN AS-CONVERTED BASIS AS WELL AS COMMON STOCK.
THE AS ADJUSTED BALANCE SHEET DATA PRESENTED BELOW REFLECT THE RECEIPT OF THE
NET PROCEEDS FROM THE SALE OF THE 4,500,000 SHARES OF COMMON STOCK OFFERED BY
ADFORCE AT AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $14.00 AND AFTER
DEDUCTING THE ESTIMATED UNDERWRITING DISCOUNTS AND COMMISSIONS AND OFFERING
EXPENSES.

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PERIOD FROM YEARS ENDED DECEMBER THREE MONTHS
JANUARY 16, 1996 31, ENDED MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------

STATEMENT OF OPERATIONS DATA:
Net revenue...................................... $ -- $ 320 $ 4,286 $ 414 $ 3,220
Gross profit (loss).............................. -- (1,188) (773) (396) 1,066
Loss from operations............................. (3,383) (5,596) (14,869) (2,380) (4,770)
Net loss......................................... (3,452) (5,704) (15,020) (2,483) (4,843)
Basic and diluted net loss per share............. $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
Weighted average common shares -- basic and
diluted........................................ 2,465 1,639 2,844 2,079 3,966
Pro forma basic and diluted net loss per share... $ (1.38) $ (0.36)
Pro forma weighted average common shares -- basic
and diluted.................................... 10,877 13,402

QUARTERS ENDED
-------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
--------- --------- ----------- --------- ---------

QUARTERLY STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 414 $ 784 $ 1,064 $ 2,024 $ 3,220
Gross profit (loss)......................................... (396) (616) (151) 390 1,066
Net loss.................................................... (2,483) (3,910) (3,807) (4,820) (4,843)

MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------

BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 9,727 $ 67,217
Working capital......................................................................... 3,044 60,534
Total assets............................................................................ 23,339 80,829
Long-term portion of capital lease obligations.......................................... 5,183 5,183
Total stockholders' equity.............................................................. 9,449 66,939

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND QUARTERLY
AND ANNUAL RESULTS OF OPERATIONS AND COULD RESULT IN A COMPLETE LOSS OF YOUR
INVESTMENT.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT FUTURE RESULTS OF
OPERATIONS AND TO ADDRESS RISKS AND UNCERTAINTIES

We incorporated in January 1996 and have a limited operating history.
You should consider the risks and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets, particularly those
companies whose businesses depend on the Internet. These risks and difficulties
include our inability to predict future results of operations accurately due to
our lack of operating history and the unavailability of comparable business
models. We cannot assure you that our business strategy will be successful or
that we will address these risks and difficulties successfully.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH COULD AFFECT THE MARKET
PRICE OF YOUR SHARES

Our quarterly results of operations have varied in the past. You should
not rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance. It is likely that in future periods our
results of operations will be below the expectations of securities analysts and
investors. If so, the market price of your shares would likely decline. Our
revenue and quarterly results of operations depend on a variety of factors, many
of which are beyond our control. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Fluctuations in
Results of Operations" for a list of these factors.

We expect to make significant capital expenditures as we increase the
capacity and reliability of our existing technology infrastructure and data
center. We also intend to open additional ad management and delivery centers. We
intend to increase our sales and marketing operations and to continue to
allocate a large portion of our budget for research and development. Our
operating costs are relatively fixed. We would likely be unable to adjust
spending quickly enough to offset any unexpected revenue shortfall. If we have a
shortfall in revenue relative to our expenses, our quarterly and annual results
of operations would be materially and adversely affected, which in turn could
affect the market price of your shares.

WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES

We expect to continue to incur net losses on a quarterly and annual
basis for at least the next two years. If our revenue does not grow or grows
more slowly than we anticipate, or if our operating or capital expenditures
exceed our expectations and cannot be reduced, our quarterly and annual results
of operations will be materially and adversely affected. We incurred net losses
of $3.5 million for the period from January 16, 1996 (inception) to December 31,
1996, $5.7 million for the year ended December 31, 1997, $15.0 million for year
ended December 31, 1998, and $4.8 million for the three months ended March 31,
1999. We expect to continue to incur significant operating expenditures, and
capital expenditures of at least $9.0 million, for the remainder of 1999. As a
result, we will need to generate significantly greater revenue than we have
generated to date to achieve and maintain profitability. We expect that future
revenue growth, if any, will not be as rapid as in recent periods. We may never
achieve profitability on a quarterly or an annual basis.

WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR OUR REVENUE, THE LOSS OF ANY OF
WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUE

We derive a substantial portion of our net revenue from a small number
of Web sites and ad rep firms. Our quarterly and annual results of operations
would be materially and adversely affected by the

loss of any of these customers or any significant reduction in net revenue
generated from these customers. Our three largest customers for each quarter of
1998 represented 94%, 81%, 60% and 63% of our net revenue. In the first quarter
of 1999, four of our customers, 24/7 Media, Adsmart, GeoCities and Netscape,
accounted for approximately 77% of our net revenue. Our customer agreements can
generally be terminated at any time with little or no penalty.

CONSOLIDATION IN THE INTERNET INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO
RETAIN OUR PRINCIPAL CUSTOMERS, THE LOSS OF ANY OF WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUE

Many of our principal customers are now and may in the future be
affected by rapid consolidation in the Internet industry. Our quarterly and
annual results of operations would be materially and adversely affected if we
lose any of these customers as a result of consolidation or if our customers are
required to use the proprietary ad delivery technologies of the companies that
acquire them or other ad delivery technologies. Please see
"Business--Competition" for detailed information on industry consolidation.

WE MAY NOT BE ABLE TO SCALE OUR TECHNOLOGY INFRASTRUCTURE, WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT NEW
CUSTOMERS

Our technology infrastructure may not be able to support higher volumes
of ads, additional customers or new types of advertising or direct marketing. If
we are not able to scale our technology infrastructure, we would have difficulty
retaining existing customers and attracting new customers. If our traffic
increases because of heightened demand from existing or new customers, we will
need to accommodate large increases in the number of ads that we manage and
deliver and the amount of data that we store. We will also need to support the
introduction of new and evolving types of advertising and direct marketing that
require greater system resources than current methods of Internet advertising.

We may not be able to continue to scale our data centers on time or
within budget. The uninterrupted performance of our data centers is critical to
our success. We expect to add more data centers to improve redundancy and to
increase capacity. Adding capacity will be expensive, and we may not be able to
do so successfully. In addition, we cannot assure you that we will be able to
protect our new or existing data centers from unexpected events as we scale our
systems. Please see "Business-- Technology and Data Center Operations" for
detailed information on our system capacity.

WE MAY NOT BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT
NEW CUSTOMERS

We may not be able to improve our technology infrastructure to respond
to technological change, changes in customer requirements or preferences, or new
industry standards. We must be able to steadily increase our system capacity,
improve our existing services, and introduce new service offerings without
interrupting or interfering with our operations, and we must be able to do so in
a timely and cost-effective manner. We must ensure that our technology
infrastructure is flexible enough to accommodate technology advancements,
including our ability to deliver ads to a customer base that uses multiple
browsers and multiple versions of those browsers. We must also ensure that our
technology infrastructure is flexible enough to accommodate new customer
requirements and preferences. For example, in August 1998, we had difficulties
transitioning GeoCities from an on-site ad server to our service, AdForce for
Publishers, causing them to revert to their existing on-site ad server for that
month. The difficulties were resolved and GeoCities resumed using our service in
September 1998. Please see "Business--Technology and Data Center Operations" for
detailed information on our technology infrastructure.

WE MAY NOT BE ABLE TO ATTRACT AD AGENCIES AND ADVERTISERS AS CUSTOMERS, WHICH
COULD CAUSE US TO MISS OUR FINANCIAL PROJECTIONS OR THOSE OF SECURITIES
ANALYSTS

If we fail to attract advertisers and ad agencies as customers or do so
more slowly than we anticipate, we may not meet our financial projections or
those of securities analysts. We currently have no agreements with individual
advertisers, and ad agencies accounted for less than 5% of our net revenue in
the first quarter of 1999. The service and support requirements of advertisers
and ad agencies are significantly different from those of Web sites and ad rep
firms, and advertisers and ad agencies may not accept third-party Internet ad
management and delivery services or may not choose our services over those
offered by others. Moreover, advertisers and ad agencies may find Internet
advertising services to be too complex, ineffective or otherwise unsatisfactory
for managing and delivering their ad campaigns.

WE MAY NOT COMPETE SUCCESSFULLY IN THE MARKET FOR INTERNET AD MANAGEMENT AND
DELIVERY SERVICES, WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR
EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS

The market for Internet ad management and delivery services is extremely
competitive, and we expect this competition to increase. Our ability to compete
successfully in this market depends on many factors, including:

- the performance, reliability, ease of use and price of services that
we or our competitors offer;

- market acceptance of centralized, outsourced ad management and
delivery systems as compared to internally-developed or site-specific
software and hardware solutions;

- our ability, relative to our competitors, to scale our technology
infrastructure as our customer needs grow;

- timeliness and market acceptance of new services and enhancements to
existing services introduced by us or our competitors; and

- customer service and support efforts by us or our competitors.

The market for Internet ad management and delivery services is subject
to intense competition as companies attempt to establish a market presence. We
have in the past and may in the future be forced to reduce the prices for our
services in order to compete, which could materially and adversely affect our
net revenue and gross margins.

We currently compete with providers of outsourced ad services, including
DoubleClick and MatchLogic, as well as providers of ad server software and
hardware solutions, such as NetGravity. Many of our current competitors have
substantially greater resources and more developed sales and marketing
strategies than we do. We may be unable to compete effectively against these
competitors now or in the future. In addition, several large Web sites possess
proprietary ad serving technologies and could decide to enter the market for
outsourced Internet advertising solutions. Barriers to entering the Internet
advertising market are relatively low. We may encounter new competitors that
have longer operating histories, greater name recognition, larger customer bases
or significantly greater financial, technical and marketing resources than we
do.

MANY OF OUR CUSTOMERS HAVE LIMITED OPERATING HISTORIES, ARE UNPROFITABLE AND MAY
NOT BE ABLE TO PAY FOR OUR SERVICES, WHICH COULD ADVERSELY AFFECT OUR ABILITY
TO RECOGNIZE REVENUE FROM THESE CUSTOMERS

Many of our leading customers, including GeoCities, 24/7 Media and
Adsmart, have limited operating histories and have not achieved profitability.
If one or more of our customers is unable to pay for our services, or pays more
slowly than we anticipate, our quarterly and annual results of operations could

be materially and adversely affected. You should evaluate the ability of our
customers to meet their payment obligations to us in light of the risks,
expenses and difficulties encountered by companies with limited operating
histories, particularly in the evolving Internet market. In the past, some of
our customers have failed to pay for our services on a timely basis.

WE MAY EXPERIENCE SYSTEM FAILURES OR DELAYS THAT WOULD ADVERSELY AFFECT OUR
OPERATIONS, WHICH COULD LEAD TO CUSTOMER DISSATISFACTION

Our operations depend on our ability to protect our computer systems
against damage from fire, water, power loss, telecommunications failures,
computer viruses, vandalism and other malicious acts, and similar unexpected
adverse events. In the past, interruptions or slowdowns in our services have
resulted from the failure of our telecommunications providers to supply the
necessary data communications capacity in the time frame we require, as well as
from deliberate acts. Unanticipated problems affecting our systems could in the
future cause interruptions or delays in our services. Slow response times or
system failures could also result from straining the capacity of our software or
hardware due to an increase in the volume of advertising delivered through our
servers. Our customers may become dissatisfied by any system failure or delay
that interrupts our ability to provide service to them or slows our response
time.

WE MAY NOT BE ABLE TO TARGET ADVERTISEMENTS, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS

We may not be able to continue to meet the needs of our customers or the
marketplace for more sophisticated targeting solutions. As more advertisers
demand targeting solutions, we will need to develop increasingly effective tools
and larger databases that can provide greater demographic precision in ad
management and delivery. The development of these tools and databases is
technologically challenging and expensive. We cannot assure you that we can
develop any of these tools or databases in a cost-effective and timely manner,
if at all. Moreover, privacy concerns may cause a reduction or limitation in the
use of user information, which could limit the effectiveness of our technology
and adversely affect our ability to retain our existing customers and to attract
new customers.

THE INTERNET ADVERTISING MARKET MAY FAIL TO DEVELOP OR DEVELOP MORE SLOWLY THAN
EXPECTED, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING
CUSTOMERS AND TO ATTRACT NEW CUSTOMERS

The Internet advertising market may fail to develop or develop more
slowly than expected. Our future growth largely depends on the continued growth
in Internet advertising generally, and on the willingness of our potential
customers to outsource their Internet advertising and direct marketing needs.
Companies doing business on the Internet must compete with traditional media,
including television, radio, cable and print, for a share of advertisers' total
advertising budgets. Advertisers may be reluctant to devote a significant
portion of their advertising budgets to Internet advertising if they perceive
the Internet to be a limited or ineffective advertising medium.

Substantially all of our revenue is derived from the delivery of
advertisements placed on Web sites. If advertisers determine that those ads are
ineffective or unattractive as an advertising medium, we may be unable to make
the transition to any other form of Internet advertising. Also, there are filter
software programs that limit or prevent advertising from being delivered to a
user's computer. The commercial viability of Internet advertising would be
materially and adversely affected by Internet users' widespread adoption of
these software programs.

THE INTERNET INFRASTRUCTURE MAY NOT BE ABLE TO ACCOMMODATE RAPID GROWTH, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO
ATTRACT NEW CUSTOMERS

The Internet infrastructure may fail to support the growth of the
Internet. If the Internet continues to experience an increase in users, an
increase in frequency of use or an increase in the capacity

requirements of users, we cannot assure you that the Internet infrastructure
will be able to support the demands placed on it. Any actual or perceived
failure of the Internet could undermine the benefits of our services. In
addition, the Internet could lose its viability as a commercial medium due to
delays in the development or adoption of new technology required to accommodate
increased levels of Internet activity or due to increased government regulation.
Changes in, or insufficient availability of, telecommunications services to
support the Internet could result in slower response times and could hamper use
of the Internet. Even if the Internet infrastructure is able to accommodate
rapid growth, we may be required to spend heavily to adapt to new technologies.

WE MAY NOT BE ABLE TO RETAIN KEY PERSONNEL, AND OUR MANAGEMENT TEAM MAY NOT WORK
TOGETHER SUCCESSFULLY

Our future success depends on the continued service of our key
technical, sales and senior management personnel and their ability to execute
our growth strategy. Recently, we have experienced significant changes in our
management team. One of our founders and former President, Chad Steelberg, who
originally developed some of our core technologies, left AdForce in November
1998. In addition, in January 1999 we hired three new executive officers. Our
future performance will depend, in part, on our ability to integrate our newly
hired executive officers effectively into our management team. Our executive
officers, who have worked together for only a short time, may not be successful
in carrying out their duties or making strategic decisions quickly in a rapidly
changing market.

WE MAY NOT BE ABLE TO MANAGE OUR GROWTH, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO MANAGE OUR BUSINESS

We have grown our workforce substantially, from 52 employees on March
31, 1998 to 109 employees on March 31, 1999, and we plan to continue to expand
our research and development, data center operations, sales, marketing and
customer service organizations. We may not be able to manage our internal growth
effectively to keep pace with the expansion of the Internet advertising market
or our competitors' growth. Our growth has placed, and the anticipated future
growth in our operations will continue to place, a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, and will need to continue to expand, train and manage our workforce.

WE MAY NOT BE ABLE TO PROTECT OUR TECHNOLOGY, WHICH COULD DIMINISH THE VALUE OF
OUR TECHNOLOGY AND OUR SERVICES

Our success and ability to compete are dependent on our internally
developed technologies and trademarks. If our proprietary rights are infringed
by a third party, the value of our services to our customers would be diminished
and additional competition might result from the third party's use of those
rights. We cannot assure you that our patent applications or trademark
registrations will be approved. Even if they are approved, our patents or
trademarks may be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own those
trademarks, our use of these trademarks would be restricted unless we entered
into arrangements with the third-party owners, which might not be possible on
reasonable terms. We cannot assure you that any of our proprietary rights will
be viable or of value since the validity, enforceability and scope of protection
of proprietary rights in Internet-related industries are uncertain and evolving.
We also cannot assure you that the steps we have taken will prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.

THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS, WHICH
COULD RESULT IN LIABILITY FOR DAMAGES, THE INVALIDATION OF OUR RIGHTS OR THE
DIVERSION OF OUR TIME AND ATTENTION

Third parties may assert infringement claims against us or our customers
based on our technology or our collection of user data. Any claims or
litigation, if they occur, could subject us to significant liability for damages
or could result in invalidation of our rights. Even if we were to prevail,
litigation could be time-consuming and expensive to defend, and could result in
diversion of our time and attention. Any claims or litigation from third parties
might also limit our ability to use the proprietary rights subject to these
claims or litigations.

OUR CONTRACTUAL RELATIONSHIP WITH AMERICA ONLINE COULD LEAD TO A DIVERSION OF
OUR DEVELOPMENT RESOURCES AND THE OBLIGATION TO PAY AMERICA ONLINE A LARGE SUM
OF MONEY

We have granted to America Online and its affiliates a royalty-free,
perpetual license to our ad management and delivery technology, including source
and object code, and any improvements to it that we make generally available to
our customers. Under the terms of this license agreement, America Online could
also require us to customize a version of our technology for the exclusive use
of America Online and its affiliates. We are obliged under the license agreement
to provide these services for an indefinite period of time with little potential
for significant profit, which could significantly strain our development
resources. We have also entered into a demographic data agreement with America
Online. Under the terms of this agreement, America Online may elect to make
demographic information available to us at any time within three years,
triggering substantial payment obligations from us even if we do not use this
information and even if we have contracted to obtain similar information from an
alternative source. If America Online makes the demographic data available to us
and then later limits or denies access to the demographic information or
significantly changes its advertising or privacy policies, our ability to market
our technology and services with enhanced targeting abilities and to generate
additional revenue could be severely limited. Please see "Related Party
Transactions" for detailed information on our relationship with America Online.

GOVERNMENT REGULATION OF THE INTERNET MAY INHIBIT THE COMMERCIAL ACCEPTANCE OF
INTERNET

New legislation regulating the Internet could inhibit the growth of the
Internet and decrease the acceptance of the Internet as a communications and
commercial medium. The applicability to the Internet of existing laws governing
issues such as property ownership, libel and personal privacy is uncertain.
Governmental authorities may seek to further regulate the Internet with respect
to issues such as user privacy, pornography, acceptable content, electronic
commerce, taxation, and the pricing, characteristics and quality of products and
services.

POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS

There is significant uncertainty in the software industry regarding the
potential effects associated with Year 2000 compliance issues. We have not
engaged in any official process designed to independently verify our Year 2000
readiness or to assess potential costs associated with Year 2000 risks, nor have
we made any contingency plans to address these risks. We cannot assure you that
unanticipated costs associated with any Year 2000 compliance will not exceed our
present expectations.

We depend heavily on the uninterrupted availability of the Internet
infrastructure to conduct our business as a centralized management and delivery
service. We also rely heavily on the continued operations of our customers, in
particular Web sites hosting advertisements, for our revenue. We are thus
dependent upon the success of the Year 2000 compliance efforts of the many
service providers that support the Internet, and the Year 2000 compliance
efforts of our customers. Interruptions in the Internet infrastructure affecting
us or our customers, or the failure of the Year 2000 compliance efforts of one
or more of our customers, could have a material adverse effect on our quarterly
and annual results of

operations. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance" for detailed
information on our Year 2000 readiness.

WE MAY NOT HAVE ENOUGH CAPITAL TO EXECUTE OUR BUSINESS OBJECTIVES, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO MEET OUR FINANCIAL PROJECTIONS OR THOSE OF
SECURITIES ANALYSTS

We may need to raise additional funds, and we cannot be certain that we
would be able to obtain additional financing on favorable terms, if at all. We
are devoting at least an additional $9.0 million to our data center facilities
in Costa Mesa and Cupertino, California during the remainder of 1999, and will
need to devote additional resources as we establish new ad management and
delivery centers. We also expect to make significant investments in sales and
marketing and the development of new services. The failure to generate
sufficient cash flows or to raise sufficient funds to finance growth could
require us to delay or abandon some or all of our plans or forego new market
opportunities, making it difficult for us to respond to competitive pressures.
If we issue equity securities to raise funds, our stockholders will be diluted.
The holders of the new equity securities may also have rights, preferences or
privileges senior to those of existing holders of common stock.

THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS, AND WE COULD BE SUBJECT TO SECURITIES LITIGATION

The market price of our common stock is likely to be subject to wide
fluctuations. If our revenue does not grow or grows more slowly than we
anticipate, or if operating or capital expenditures exceed our expectations or
cannot be adjusted accordingly, the market price of our common stock could fall.
In addition, if the market for Internet-related stocks or the stock market in
general experiences a loss in investor confidence, the market price of our
common stock could fall for reasons unrelated to our business or results of
operations. Investors may be unable to resell their shares of our common stock
at or above the offering price. In the past, companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. If we were the subject of litigation, it
could result in substantial costs and a diversion of management's attention and
resources.

AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP, WHICH COULD
ADVERSELY AFFECT YOUR ABILITY TO SELL YOUR SHARES AND THE MARKET PRICE OF YOUR
SHARES

Before this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after the offering, which could affect your ability to sell your
shares and depress the market price of your shares. The market price of your
shares may significantly vary from the offering price.

PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER ACQUISITION BIDS FOR ADFORCE,
WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF YOUR SHARES

We have adopted a classified board of directors. In addition, our
stockholders are unable to act by written consent or to fill any vacancy on the
board of directors. Our stockholders cannot call special meetings of
stockholders to remove any director or the entire board of directors without
cause. These provisions and other provisions of Delaware law could make it more
difficult for a third party to acquire us, even if doing so would benefit our
stockholders. Please see "Management" and "Description of Capital Stock" for
detailed information on these protective provisions.

OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER ADFORCE, WHICH COULD
LIMIT YOUR ABILITY TO INFLUENCE ADFORCE AND WHICH COULD DELAY OR PREVENT A
CHANGE OF CONTROL OF ADFORCE

We anticipate that our executive officers, our directors and entities
affiliated with them and our 5% stockholders will beneficially own, in the
aggregate, approximately 56.4% of our outstanding common

stock following the completion of this offering. These stockholders may be able
to exercise substantial influence over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of AdForce.

FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE
MARKET PRICE OF YOUR SHARES

Sales of a substantial number of shares of our common stock in the
public market by our stockholders after this offering could depress the market
price of our common stock and could impair our ability to raise capital through
the sale of additional equity securities. Please see "Shares Eligible for Future
Sale" for a description of shares of our common stock that are available for
future sale.

FORWARD-LOOKING STATEMENTS

Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are forward-looking statements. These forward-looking statements
include statements about our plans, objectives, expectations and intentions and
other statements contained in the prospectus that are not historical facts. When
used in this prospectus, the words expects, anticipates, intends, plans,
believes, seeks and estimates and similar expressions are generally intended to
identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or implied by these
forward-looking statements, including our plans, objectives, expectations and
intentions and other factors discussed under "Risk Factors."

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 4,500,000
shares of common stock offered by us will be $57,490,000, at an assumed initial
public offering price of $14.00 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be $66,278,500.

We intend to use the net proceeds from this offering primarily for
general corporate purposes, including working capital. We may also use a portion
of the net proceeds from this offering to acquire or invest in businesses,
technologies or services that are complementary to our business. We have no
present plans or commitments and are not engaged in any negotiations with
respect to any transactions of this type. Pending these uses, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities. Please see "Risk Factors--We May Not Have Enough
Future Capital to Execute Our Business Objectives, Which Could Adversely Affect
Our Ability to Meet Our Financial Projections or Those of Securities Analysts."

DIVIDEND POLICY

We have never declared or paid any cash dividends on shares of our
capital stock. We intend to retain any future earnings to finance future growth
and do not anticipate paying any cash dividends in the future.

CAPITALIZATION

The following table shows (1) the actual capitalization of AdForce as of
March 31, 1999, (2) the capitalization as of that date on a pro forma basis to
give effect to the conversion of each outstanding share of preferred stock into
two shares of common stock upon the closing of this offering and (3) the pro
forma capitalization as adjusted to reflect the receipt of the net proceeds from
the sale of the 4,500,000 shares of common stock offered by AdForce at an
assumed initial public offering price of $14.00 per share and after deducting
the estimated underwriting discounts and commissions and offering expenses.

The information shown in the table below is qualified by, and should be
read along with, our more detailed financial statements and the related notes
appearing elsewhere in this prospectus.

MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)

Long-term portion of capital lease obligations............ $ 5,183 $ 5,183 $ 5,183
--------- ----------- -----------
Stockholders' equity:
Preferred stock; 6,238,163 shares authorized, 4,733,559
shares issued and outstanding, actual; 5,000,000
shares authorized, no shares issued and outstanding,
pro forma and pro forma as adjusted................... 5 -- --
Common stock; 40,000,000 shares authorized, 5,202,311
shares issued and outstanding, actual; 100,000,000
shares authorized, pro forma and pro forma as
adjusted; 14,669,429 shares issued and outstanding,
pro forma; 19,169,429 shares issued and outstanding,
pro forma as adjusted................................. 5 15 19
Additional paid-in capital.............................. 44,234 44,229 101,715
Deferred stock compensation............................. (5,713) (5,713) (5,713)
Note receivable from stockholder........................ (63) (63) (63)
Accumulated deficit..................................... (29,019) (29,019) (29,019)
--------- ----------- -----------
Total stockholders' equity............................ 9,449 9,449 66,939
--------- ----------- -----------
Total capitalization................................ $ 14,632 $ 14,632 $ 72,122
--------- ----------- -----------
--------- ----------- -----------

The outstanding share information shown in the table above excludes:

- 1,294,686 shares of common stock issuable upon the exercise of
outstanding warrants, at a weighted average per share exercise price
of $6.19;

- 2,280,759 shares of common stock issuable upon the exercise of
outstanding stock options, at a weighted average per share exercise
price of $1.12;

- 861,938 shares of common stock available for future grant under the
1997 Stock Plan;

- 2,200,000 shares available for future grant under the 1999 Equity
Incentive Plan or the 1999 Directors Stock Option Plan; and

- 300,000 shares initially available for issuance under the 1999
Employee Stock Purchase Plan, subject to automatic annual increases up
to a maximum of 3,000,000 shares over the term of the purchase plan.

DILUTION

The pro forma net tangible book value of AdForce as of March 31, 1999
was $5.6 million, or $0.38 per share of common stock. Pro forma net tangible
book value per share represents the amount of AdForce's total tangible assets
less total liabilities, divided by 14,669,429 shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this offering. After giving
effect to the receipt of the net proceeds from the sale of the 4,500,000 shares
of our common stock at an assumed initial public offering price of $14.00 per
share and after deducting the estimated underwriting discounts and commissions
and offering expenses, the pro forma net tangible book value of AdForce as of
March 31, 1999 would have been approximately $63.0 million, or $3.29 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.91 per share to existing stockholders and an immediate dilution of $10.71 per
share to new investors purchasing shares at the initial public offering price.
The following table illustrates the per share dilution:

Assumed initial public offering price per share............................ $ 14.00
Pro forma net tangible book value per share as of March 31, 1999......... $ 0.38
Increase per share attributable to new investors......................... 2.91
---------
Pro forma net tangible book value per share after offering................. 3.29
---------
Dilution per share to new investors........................................ $ 10.71
---------
---------

The following table summarizes as of March 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from
AdForce, the total consideration paid to AdForce and the average price per share
paid by existing stockholders and by new investors purchasing shares of common
stock in this offering, before deducting the estimated underwriting discounts
and commissions and offering expenses:

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ----------- ---------- ----------- -----------

Existing stockholders................ 14,669,429 76.5% $31,179,000 33.1% $ 2.13
New investors........................ 4,500,000 23.5 63,000,000 66.9 14.00
--------- ----------- ---------- -----------
Total.............................. 19,169,429 100.0% $94,179,000 100.0%
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------

The above discussion and tables assume no exercise of any stock options
or warrants outstanding as of March 31, 1999. As of March 31, 1999, there were
options and warrants outstanding to purchase a total of 3,575,445 shares of
common stock with a weighted average exercise price of $2.96 per share. If any
of these options or warrants are exercised, there will be further dilution to
new public investors. Please see "Capitalization," "Management-- Employee
Benefit Plans" and Note 8 of Notes to Financial Statements.

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction
with, and are qualified by reference to, the financial statements and the
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus. The statement
of operations data for the period from January 16, 1996 (inception) to December
31, 1996 and the years ended December 31, 1997 and 1998, and the balance sheet
data at December 31, 1996, 1997 and 1998, are derived from our financial
statements, which have been audited by Ernst & Young LLP, independent auditors,
and, except for the balance sheet as of December 31, 1996, are included
elsewhere in this prospectus. The statement of operations data for the three
months ended March 31, 1998 and 1999 and the balance sheet data as of March 31,
1999 are derived from unaudited financial statements included elsewhere in this
prospectus and, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, that are necessary for a fair
presentation of the results of operations for these periods. Historical results
are not necessarily indicative of future results.

STATEMENT OF OPERATIONS DATA:
Net revenue............................................... $ -- $ 320 $ 4,286 $ 414 $ 3,220
Cost of revenue:
Data center operations.................................. -- 1,508 4,439 709 1,915
Amortization of intangible assets and deferred stock
compensation.......................................... -- -- 620 101 239
------ --------- --------- --------- ---------
Total cost of revenue................................. -- 1,508 5,059 810 2,154
------ --------- --------- --------- ---------
Gross profit (loss)....................................... -- (1,188) (773) (396) 1,066
Operating expenses:
Research and development................................ 1,561 2,236 4,665 818 2,244
Marketing and selling................................... 1,485 1,054 4,863 613 1,773
General and administrative.............................. 337 1,118 1,839 390 615
Amortization of intangible assets and deferred stock
compensation.......................................... -- -- 2,729 163 1,204
------ --------- --------- --------- ---------
Total operating expenses.............................. 3,383 4,408 14,096 1,984 5,836
------ --------- --------- --------- ---------
Loss from operations...................................... (3,383) (5,596) (14,869) (2,380) (4,770)
Interest expense, net..................................... (69) (108) (151) (103) (73)
------ --------- --------- --------- ---------
Net loss.................................................. $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Basic and diluted net loss per share...................... $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share....... 2,465 1,639 2,844 2,079 3,966
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma basic and diluted net loss per share............ $ (1.38) $ (0.36)
--------- ---------
--------- ---------
Weighted average shares used in computing pro forma basic
and
diluted net loss per share.............................. 10,877 13,402
--------- ---------
--------- ---------

DECEMBER 31,
------------------------------- MARCH 31,
1996 1997 1998 1999
--------- --------- --------- -----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 681 $ 1,680 $ 10,045 9,727
Working capital (deficit)................................................... (22) 1,173 7,975 3,044
Total assets................................................................ 1,855 4,269 19,875 23,339
Long-term portion of capital lease obligations.............................. -- 1,744 3,089 5,183
Total stockholders' equity.................................................. 1,078 1,375 12,981 9,449

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

OVERVIEW

AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. We began operations on January 16, 1996
as Imgis, Inc. and spent the first 15 months of our operations developing
technology that could be used to manage and deliver Internet ads for
advertisers, ad agencies, Web sites and ad rep firms. Initially, we did not have
an internal sales force dedicated to selling our services. To generate business,
we relied primarily on the sales forces of ad rep firms that used our services
to manage and deliver ads to the Web site customers they represented. In
December 1997, we began to build a direct sales force to allow us to penetrate
the market for our services more effectively.

We began delivering ads and recognizing revenue during the second
quarter of 1997, and increased our revenue as the ad volumes delivered by our ad
rep firm customers grew. 24/7 Media and its predecessor firms were responsible
for 92% of our net revenue in 1997. In November 1997, we also contracted to
deliver ads for Netcom and FortuneCity, and began to demonstrate the
applicability of our services to Web sites. In 1998, we continued to add
customers with material amounts of ad volume. Adsmart and Netscape began using
our services in early 1998, and GeoCities began using our services in the latter
half of June 1998. Though we continue to derive the majority of our net revenue
from a limited number of customers, we broadened our customer base in 1998. In
the first quarter of 1998, 24/7 Media and Netcom accounted for 76% and 14% of
our net revenue. By the first quarter of 1999, our top four customers, 24/7
Media, Adsmart, GeoCities and Netscape, accounted for 23%, 21%, 20% and 12% of
our net revenue. 24/7 Media has stated that it is currently developing a next
generation ad delivery technology that is intended to serve as its sole ad
delivery solution. It has also stated that, unless and until the development of
and transition to its own ad delivery technology is complete, it will be
primarily dependent on us to deliver ads to its networks and Web sites.

In 1997 and 1998, we earned the vast majority of our revenue by managing
and delivering ads for ad agencies, Web sites and ad rep firms. We intend to
begin marketing our services to advertisers during 1999. We also charged
customers for other services, such as developing custom reports, although
revenue to date from these services has not been significant. We plan to
continue to develop and offer new services, such as advanced consumer targeting
capabilities, and expect that an increasing proportion of our revenue will be
generated by these services.

We charge our customers based on each 1,000 ads delivered. Customers
with higher expected ad volumes than average generally are charged a lower rate
on each 1,000 ads delivered. During 1998, the monthly volume of ads we delivered
increased significantly as Internet traffic increased and we gained market
share. However, the average rate we charged declined during 1998. We believe
that pricing competition and lower rates charged to higher-volume customers were
the primary reasons for this decline. We expect those factors to cause future
declines in average rates charged.

We believe our centralized ad management system is substantially less
expensive than on-site ad delivery alternatives available to most individual Web
sites. Our average cost to manage and deliver each ad is significantly
influenced by the ad volume moving through our system. As we continue to
aggregate Web sites and their ad volumes on our system, and add additional
advertisers, ad agencies and ad rep firms as customers, we expect the average
cost to deliver each ad to generally decline. In the second quarter of 1999, we
opened our second data center, potentially increasing our costs to deliver each
ad during the next 12 months. In addition, a portion of our research and
development efforts is devoted to improving the performance and efficiency of
our systems. We believe that these favorable economies for centralized ad
management will increase if greater and greater ad volumes are delivered by our
system. During 1998, the average cost to deliver each ad declined more
significantly than the decrease in the average rate charged, resulting in
steadily improving gross margins.

In the operating areas of research and development, marketing and
selling, and general and administrative costs, the single most significant cost
is personnel, including the related payroll, facilities and other overhead
costs. Historically, our personnel requirements in these operating areas have
increased at significantly lower rates than revenue.

We have recorded deferred stock compensation for options granted after
February 1998. As of March 31, 1999, we had recorded aggregate deferred stock
compensation of $7.8 million. This deferred stock compensation is being
amortized over the vesting periods of the stock options. AdForce recognized a
total of $1.0 million and $1.1 million in stock compensation expense during 1998
and the three months ended March 31, 1999. In addition, we recorded stock
compensation expense of $1.4 million during 1998 related to unvested founders'
stock that was not repurchased. Since a portion of this expense was related to
persons involved in running our data center operations, we allocated that
portion to cost of revenue and thus reduced our gross margin. The total charges
to be recognized in future periods from amortization of deferred stock
compensation as of March 31, 1999 are anticipated to be approximately $2.7
million, $1.9 million, $900,000 and $200,000 for the remaining nine months of
1999 and for 2000, 2001 and 2002.

In February 1998, AdForce acquired StarPoint Software, Inc., principally
by exchanging AdForce shares for StarPoint shares. We accounted for this
transaction as a purchase with a total purchase price of $2.6 million. The
purchase price was primarily allocated to intangible assets, including purchased
technology of $1.7 million and personnel-related assets of $740,000, which are
being amortized over the respective lives of those assets, and in-process
technology of $100,000 that was expensed at the time of the acquisition.
Amortization charges of $849,000 related to this purchase were recognized during
1998, and further amortization charges of $926,000, $587,000 and $46,000 are
expected to be recognized in 1999, 2000 and 2001.

We incurred net losses of $3.5 million for the period from January 16,
1996 (inception) to December 31, 1996, $5.7 million for the year ended December
31, 1997, $15.0 million for year ended December 31, 1998, and $4.8 million for
the three months ended March 31, 1999. As of March 31, 1999, our accumulated
deficit was $29.0 million. We expect to continue to incur significant operating
expenditures, and capital expenditures of at least $9.0 million, for the
remainder of 1999. As a result, we will need to generate significantly greater
revenue than we have generated to date to achieve and maintain profitability. In
addition, our operating costs are relatively fixed, and cannot be quickly
lowered even if we fail to generate significant revenue. Although we have
experienced significant growth in revenue in recent periods, we expect the
growth rate to decline substantially. We expect to continue to incur net losses
on a quarterly and annual basis for at least the next two years.

RESULTS OF OPERATIONS

The following table shows for the periods presented the dollar amounts
of selected line items from our unaudited statements of operations and also
shows these dollar amounts as a percentage of net revenue for those periods.
Figures below are rounded to the nearest whole percentage, and thus line items
representing subtotal and total percentages may differ, due to rounding, from
the sum of the percentages for each line item.

QUARTER ENDED
---------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)

Net revenue............................ $ 414 $ 784 $ 1,064 $ 2,024 $ 3,220
Cost of revenue:
Data center operations............... 709 1,235 1,044 1,451 1,915
Amortization of intangible assets and
deferred stock compensation........ 101 165 171 183 239
----------- ----------- ----------- ----------- -----------
Total cost of revenue.............. 810 1,400 1,215 1,634 2,154
----------- ----------- ----------- ----------- -----------
Gross profit (loss).................... (396) (616) (151) 390 1,066
Operating expenses:
Research and development............. 818 972 1,241 1,634 2,244
Marketing and selling................ 613 1,221 1,389 1,640 1,773
General and administrative........... 390 453 509 487 615
Amortization of intangible assets and
deferred stock compensation........ 163 571 554 1,441 1,204
----------- ----------- ----------- ----------- -----------
Total operating expenses........... 1,984 3,217 3,693 5,202 5,836
----------- ----------- ----------- ----------- -----------
Loss from operations................... (2,380) (3,833) (3,844) (4,812) (4,770)
Interest income (expense), net......... (103) (77) 37 (8) (73)
----------- ----------- ----------- ----------- -----------
Net loss............................... $ (2,483) $ (3,910) $ (3,807) $ (4,820) $ (4,843)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

AS A PERCENTAGE OF NET REVENUE
---------------------------------------------------------------

Net revenue............................ 100% 100% 100% 100% 100%
Cost of revenue:
Data center operations............... 171 158 98 72 59
Amortization of intangible assets and
deferred stock compensation........ 24 21 16 9 7
----------- ----------- ----------- ----------- -----------
Total cost of revenue.............. 196 179 114 81 67
----------- ----------- ----------- ----------- -----------
Gross margin........................... (96) (79) (14) 19 33
Operating expenses:
Research and development............. 198 124 117 81 70
Marketing and selling................ 148 156 131 81 55
General and administrative........... 94 58 48 24 19
Amortization of intangible assets and
deferred stock compensation........ 39 73 52 71 37
----------- ----------- ----------- ----------- -----------
Total operating expenses........... 479 410 347 257 181
----------- ----------- ----------- ----------- -----------
Loss from operations................... (575) (489) (361) (238) (148)
Interest income (expense), net....... (25) (10) 3 -- (2)
----------- ----------- ----------- ----------- -----------
Net loss............................... (600 )% (499 )% (358 )% (238 )% (150 )%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

NET REVENUE

We experienced revenue growth in each quarter of 1998 and the first
quarter of 1999. When compared to the immediately preceding quarter, quarterly
net revenue grew by 97%, 89%, 36%, 90% and 59% during the first, second, third
and fourth quarters of 1998 and the first quarter of 1999. The increases in net
revenue for all periods presented were primarily due to increases in the volumes
of ads that we delivered on behalf of our customers, partially offset by
declines in the average rates charged for delivering those ads. The ad volume
increases resulted from both the addition of new customers and the growth in ad
volumes experienced by many of our existing customers as the market for Internet
advertising increased. The declines in average rates charged were primarily the
result of competitive pricing pressure and lower rates charged to higher-volume
customers. In 1998, we added several large customers with significant ad
volumes. We expect pricing pressure from competitors and discounts related to
large-contract pricing to continue for at least the next several quarters.

The growth in net revenue between the first and second quarters of 1998
was due primarily to increased ad volumes delivered for 24/7 Media and, to a
lesser extent, to significant ad volume increases from Fortune City and several
new ad agency and Web site customers. The growth in net revenue between the
second and third quarters of 1998 was largely due to the revenue contribution of
GeoCities, which became a customer in late June 1998, and of ad agencies and
other Web sites that became customers during the third quarter. The increase in
net revenue from these customers in the third quarter was partially offset by a
decline in net revenue from 24/7 Media, as it moved a portion of its ad volume
from our systems to its own proprietary server. The revenue growth rate from the
second to the third quarter was significantly less than the revenue growth rate
in previous quarters as we encountered issues in transitioning GeoCities from
its own on-site ad server to our service, AdForce for Publishers, causing them
to revert to their existing on-site ad server for the month of August 1998. The
issues were resolved and GeoCities resumed using our centralized service in
September 1998. As a result, our quarterly revenue growth rate in the fourth
quarter returned to earlier levels. The growth in net revenue between the third
and fourth quarters of 1998 was due to significantly greater net revenue from
GeoCities, from 24/7 Media as it began to move ad volume from its proprietary
server back to the AdForce service, and from Netscape and other customers.
Although Netscape became a customer in the first quarter of 1998, it did not
generate significant revenue for us until the fourth quarter of 1998. The growth
in net revenue between the fourth quarter of 1998 and the first quarter of 1999
was due to increases in revenue from 24/7 Media, Netscape, Adsmart and MapQuest.
The increases in revenue were the result of increased ad volumes. The increase
in ad volumes was partially offset by a decrease in the average rate charged to
deliver 1,000 ads. We expect that future revenue growth, if any, will not be as
dramatic as in recent periods. 24/7 Media has stated that it is currently
developing a next generation ad delivery technology that is intended to serve as
its sole ad delivery solution. It has also stated that, unless and until the
development of and transition to its own ad delivery technology is complete, it
will be primarily dependent on us to deliver ads to its networks and Web sites.

Our net revenue increased from $320,000 in 1997 to $4.3 million in 1998,
and was $3.2 million in the first quarter of 1999. We had no revenue in 1996.
The increases in net revenue were primarily due to the increased number of ads
that we served on behalf of our customers, offset in part by a decline in the
average rates charged for serving these ads. The increase in ad volume resulted
both from the addition of new customers and from increasing ad volumes for
existing and new customers. The decline in the average rates charged resulted
from significant pricing pressure from competitors and volume-based pricing
discounts.

Our net revenue increased from $414,000 in the first quarter of 1998 to
$3.2 million in the first quarter of 1999. This increase in net revenue was
primarily due to the increased number of ads that we delivered on behalf of our
customers, offset in part by a decline in the average rates charged for
delivering these ads. The increase in ad volume resulted both from the addition
of new customers and from

increasing ad volumes for existing and new customers. The decline in the average
rates charged resulted from significant pricing pressure from competitors and
lower rates charged to higher-volume customers.

GROSS PROFIT (LOSS)

Gross margin increased sequentially from negative 96% in the first
quarter of 1998 to negative 79% in the second quarter of 1998 to negative 14% in
the third quarter of 1998 to positive 19% in the fourth quarter of 1998 and to
positive 33% in the first quarter of 1999. Although our average rates charged
declined during 1998 and the first quarter of 1999 as a result of competition
and discounts to customers with large ad volumes, our average cost to manage and
deliver ads declined at a faster pace. Our average cost to manage and deliver
each ad is significantly influenced by ad volume moving through our system. When
a larger number of ads is delivered, the average cost to deliver each ad
declines. In addition, a portion of our research and development efforts is
devoted to more efficient design and deployment of capital assets used in
managing and delivering ads. As the results of these efforts are integrated into
the AdForce system, we expect fewer resources will be required to deliver the
same number of ads and the average cost to deliver each ad will generally
decline, although on a quarterly basis these costs may fluctuate. In April 1999,
we opened our second data center to provide additional capacity and operational
redundancy. The expenses associated with operating this second data center will
increase cost of revenue, and, as such, will have a negative impact on gross
margin in future periods.

Total cost of revenue primarily consists of capital asset costs,
telecommunications costs, facilities costs and personnel-related costs incurred
to operate our data center. It also includes non-cash charges for amortization
of deferred stock compensation to data center personnel who received options
with exercise prices below the fair market value of the underlying shares on the
date of grant, as well as charges for amortization of an intangible asset
acquired in the purchase of StarPoint. The related intangible asset was
technology that has been deployed in our ad delivery system. This asset is being
amortized over its estimated useful life of three years.

Our gross margin was negative 371% in 1997, negative 18% in 1998 and
positive 33% in the first quarter of 1999. The improvement in gross margin from
1997 to 1998 to the first quarter of 1999 was primarily due to increased revenue
resulting from increased ad volumes and an improved technology infrastructure
that allowed us to deploy our resources to deliver ads more efficiently. These
efficiency improvements were offset in part by declining average rates charged
to our customers.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist primarily of personnel and
related costs associated with developing technology, primarily software, for use
in providing our services to customers. These expenses increased sequentially
each quarter from the first quarter of 1998 to the first quarter of 1999, as
personnel were added to enhance the features and performance of our services. In
the fourth quarter of 1998 and the first quarter of 1999, we also incurred
consulting costs in connection with a review of our technology to identify
potential ways to enhance future performance and reliability. Our research and
development expenses were $1.6 million in 1996, $2.2 million in 1997, $4.7
million in 1998 and $2.2 million in the first quarter of 1999. These expenses
increased primarily as a result of growth in the number of research and
development employees and, to a lesser extent, as a result of increases in
capital assets and facility expenses incurred to develop the software used to
deliver ads. We expect our research and development expenses to increase in
absolute dollars over the next several quarters.

MARKETING AND SELLING EXPENSES

Our marketing and selling expenses during 1998 and the first quarter of
1999 consisted primarily of personnel and related costs, as well as costs for
promotional activities associated with raising brand awareness. In 1998 and the
first quarter of 1999, marketing and selling expenses increased across all

quarters presented, reflecting our decision, late in the fourth quarter of 1997,
to establish a direct sales force and to increase brand awareness through
marketing efforts. As a result, we significantly increased the number of our
sales and marketing employees and our promotional events, and greatly expanded
our capital asset base and facilities dedicated to marketing and selling
activities. We incurred no direct selling expenses in 1996 or in 1997, and our
marketing expenses in those periods consisted primarily of personnel and related
costs for the indirect marketing of our services. In 1996, $954,000 of marketing
expenses represented payments for key word rights on certain Web sites under a
marketing plan that was abandoned late in 1996.

Our marketing and selling expenses were $1.5 million in 1996, $1.1
million in 1997, $4.9 million in 1998 and $1.8 million in the first quarter of
1999. The decline in marketing and selling expenses from 1996 to 1997 was
primarily the result of the absence in 1997 of expenses related to key word
rights that was recorded in 1996. The increase in marketing and selling expenses
from 1997 to 1998 to the first quarter of 1999 resulted primarily from our
decision late in the fourth quarter of 1997 to establish a direct sales force
and to increase market awareness through substantial marketing efforts. We
expect our marketing and selling expenses to increase in absolute dollars over
the next several quarters.

GENERAL AND ADMINISTRATIVE EXPENSES

Our general and administrative expenses consist primarily of personnel
and related costs associated with providing executive, financial and legal
support to AdForce, in addition to other costs typically associated with
providing corporate infrastructure. General and administrative expenses
increased in each of the first three quarters of 1998, reflecting increases in
personnel and related costs. In the third quarter of 1998, a $59,000 charge was
made to general and administrative expenses in connection with the settlement of
a claim made by a former officer of AdForce. Since no similar charge occurred in
the fourth quarter, general and administrative expenses were lower in the fourth
quarter of 1998 than in the third quarter of 1998. General and administrative
expenses in the first quarter of 1999 were higher than those in the first
quarter of 1998. Our general and administrative expenses were $337,000 in 1996,
$1.1 million in 1997, $1.8 million in 1998 and $615,000 in the first quarter of
1999. These increases were primarily the result of increased personnel and
infrastructure to address the requirements of increased business volume. We
expect our general and administrative expenses to increase in absolute dollars
over the next several quarters.

AMORTIZATION OF INTANGIBLE ASSETS AND DEFERRED STOCK COMPENSATION

In each of the four quarters of 1998 and in the first quarter of 1999,
we recognized expense for the amortization of deferred stock compensation to
personnel who had been granted options with an exercise price deemed to be below
the fair market value of the underlying common stock on the date of grant for
financial reporting purposes. In connection with our acquisition of StarPoint in
February 1998, intangible assets are being amortized to operations over the
lives of those assets. In addition, approximately $100,000 of the initial
consideration was allocated to the value of purchased in-process technology.
This purchased in-process technology had not achieved technological feasibility
at the time of the acquisition and, therefore, did not qualify for
capitalization under generally accepted accounting principles. Accordingly, the
portion of the purchase price allocated to purchased in-process technology was
charged to operations in the first quarter of 1998.

INTEREST EXPENSE, NET

Interest expense, net was $69,000 in 1996, $108,000 in 1997, $151,000 in
1998 and $73,000 in the first quarter of 1999. In each period, interest expense
resulted primarily from interest on bridge financings and capital equipment
leases, offset in part in 1997, 1998 and the first quarter of 1999 by interest
income earned on cash balances resulting from equity and capital lease
financings.

FLUCTUATIONS IN RESULTS OF OPERATIONS

Our quarterly results of operations have varied in the past, and you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. It is likely that in future periods
our results of operations will be below the expectations of public market
analysts and investors. In this event, the price of our common stock would
likely decline. Our revenue and results of operations depend on a variety of
factors, many of which are beyond our control. These factors include:

- the timing and costs of improvements in our ad management and delivery
infrastructure, including the addition of more capacity;

- our ability to satisfy and retain our existing customers;

- any loss of existing customers due to consolidation in the industry;

- the ability of our existing customers to maintain or increase their
Internet traffic or market share;

- our ability to expand our customer base and the timing of new
customers commencing service with us;

- changes in our pricing policies or those of our competitors resulting
from competitive pressures;

- our ability to provide reliable and scalable service, including our
ability to avoid potential system failures;

- the announcement or introduction of new technology or services by us
or our competitors, including database marketing capabilities;

- seasonal trends in our business; and

- general economic and market conditions.

We anticipate making significant capital expenditures as we increase the
capacity and reliability of our existing technology infrastructure and data
center. We also intend to open additional ad management and delivery centers in
the future. The addition of these centers may increase the average cost to
deliver ads. In addition, we intend to increase our sales and marketing
operations and to continue to allocate a large portion of our budget for
research and development. We would likely be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenue in relation to our costs and expenses, then our business and quarterly
and annual results of operations would be materially and adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily from sales of
preferred stock and capital lease financings and, to a significantly lesser
extent, net proceeds from the issuance of notes payable and proceeds from sales
of common stock.

Net cash used in operating activities was $2.3 million in 1996, $5.6
million in 1997, and $9.6 million in 1998. Net cash provided by operating
activities was $348,000 in the first quarter of 1999. In each annual period,
cash used in operating activities resulted primarily from our net loss, offset
partially by non-cash charges for depreciation and amortization and, in 1998,
also offset partially by amortization of intangible assets and deferred stock
compensation. In the first quarter of 1999, cash provided by operating
activities resulted primarily from increases in deferred revenue and accounts
payable. The increase in deferred revenue was due to a cash prepayment by a
large customer for ad management and delivery services to be provided while the
increase in accounts payable related to the general increase in business
volumes, as well as increased payables to outside professional service providers
related to our initial public

offering. Net cash used in investing activities was $1.4 million in 1996,
$163,000 in 1997, $1.2 million in 1998 and $343,000 in the first quarter of
1999. In each period, net cash used in investing activities was primarily the
result of capital expenditures for equipment used in operating our primary data
center from which ads are managed and delivered.

Net cash provided by financing activities was $4.3 million in 1996, $6.7
million in 1997, $19.1 million in 1998. Net cash used in financing activities
was $323,000 in the first quarter of 1999. In 1996, net cash provided by
financing activities resulted primarily from net proceeds from the issuance of
preferred stock and notes payable. In 1997, net cash provided by financing
activities resulted primarily from net proceeds from the issuance of preferred
stock and proceeds from a sale-leaseback transaction. In 1998, net cash provided
by financing activities resulted primarily from net proceeds from the issuance
of preferred stock and notes payable, offset slightly, by principal payments on
capital lease obligations. In the first quarter of 1999, cash used in financing
activities was the result of payments on capital lease obligations, partially
offset by proceeds received from the issuance of common stock.

At March 31, 1999, our principal sources of liquidity were $9.7 million
of cash and cash equivalents and $2.8 million of availability under an equipment
lease line. At that date, we had commitments of $132,000 for capital
expenditures. These commitments are primarily related to equipping a second data
center and to existing facilities expansion. We expect capital expenditures to
be approximately $9.0 million through the remainder of 1999 and at least $14.0
million in 2000. These expenditures will be primarily for computer hardware and
software, office furniture and equipment, and leasehold improvements. A
significant portion of the equipment may be acquired under capital leases. At
March 31, 1999, we had minimum lease payment obligations, including interest, of
$9.1 million under capital leases and $11.6 million under operating leases. We
will also have to pay America Online quarterly fees totaling at least $10.0
million for the first three years after they give us access to demographic data
specified in our demographic data agreement with America Online. We are
uncertain as to when, if ever, the demographic data may be made available to us.

We believe that our existing cash and cash equivalents, and the net
proceeds from this offering will be sufficient to fund our operating activities,
capital expenditures and other obligations for at least the next 12 months.
However, if we are not successful in raising capital when we need it and on
terms acceptable to us, it could have a material adverse effect on our business,
results of operations and financial condition. If additional funds are raised
from the issuance of equity securities, the percentage ownership of our
stockholders would be reduced.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE." SOP No. 98-1 requires entities to capitalize costs
related to internal-use software once specified criteria have been met. We
adopted SOP No. 98-1 beginning January 1, 1999. The adoption of SOP No. 98-1 did
not have a material impact on our financial position or results of operations.

In April 1998, the AICPA issued SOP No. 98-5, "REPORTING ON THE COSTS OF
START-UP ACTIVITIES." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. We adopted SOP No. 98-5 beginning January 1, 1999. The adoption of SOP
No. 98-5 did not have a material impact on our financial position or results of
operations.

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 133 establishes methods for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. We will be required to
implement SFAS No. 133 for the year ending December 31, 2000. Because we do not
currently hold any derivative instruments and do not

engage in hedging activities, we do not expect that the adoption of SFAS No. 133
will have a material impact on our financial position or results of operations.

YEAR 2000 COMPLIANCE

Many computer systems and software products are coded to accept only two
digit entries in the date code field. These date code fields will need to accept
four-digit entries to distinguish between 21(st) century and 20(th) century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with these Year 2000 requirements.

In the ordinary course of our business, we have evaluated the internally
developed software included in our ad management and delivery system, and
believe that this software is generally Year 2000 compliant, meaning that the
use or occurrence of dates on or after January 1, 2000 will not materially
affect the performance of this software or the ability of this software to
correctly create, store, process and output data involving dates. In the third
quarter of 1999, we intend to implement internal Year 2000 testing procedures
for our software, and we may learn that our software does not contain all of the
necessary software routines and codes necessary for the accurate calculation,
display, storage and manipulation of data involving dates. We expect the costs
associated with these testing procedures to be approximately $250,000. We have
warranted to some of our customers that Year 2000 compliance issues will not
adversely affect the performance of our ad management and ad delivery services.
If our customers experience Year 2000 problems with our services, they could
assert claims against us for damages. Our standard service agreements provide
performance warranties, and we may need to incur costs to address Year 2000
problems that our customers encounter through the use of our services. To date
we have not received any Year 2000 related claims regarding our services.

We are also working with our external suppliers and service providers
with respect to both third-party applications in our ad management and delivery
system and third-party applications in our information technology infrastructure
to ensure that these third-party systems and applications will be able to
interoperate with our hardware and software infrastructure where necessary and
support our needs into the year 2000. We typically use industry-standard
third-party hardware and software. Where possible, we have sought assurances
from our suppliers that we believe are critical to our business that their
products are Year 2000 compliant. While we have received assurances as to the
Year 2000 compliance of some of these third-party products, we generally do not
have any contractual rights with these providers if their software or hardware
fails to function due to Year 2000 issues. If these failures do occur, we may
incur unexpected expenses to remedy any problems, including purchasing
replacement hardware and software.

Though we will continue these efforts, we do not believe we have
significant Year 2000 issues within our systems or services. Because we believe
we are Year 2000 compliant, we have not engaged any third parties to
independently verify our Year 2000 readiness, nor have we assessed potential
costs associated with Year 2000 risks or made any contingency plans to address
these risks. Further, we have not deferred any of our ongoing development
efforts to address Year 2000 issues. However, unanticipated costs associated
with any Year 2000 compliance may exceed our present expectations, which could
materially and adversely affect our quarterly and annual results of operations.

We depend on the uninterrupted availability of the Internet
infrastructure to conduct our business as a centralized ad delivery and
management service. We also rely on the continued operations of our customers,
in particular Web sites hosting advertisements, for our revenue. We are heavily
dependent upon the success of Year 2000 compliance efforts of the many service
providers that support the Internet, and the Year 2000 compliance efforts of our
customers. Interruptions in the Internet infrastructure affecting us or our
customers, or failure of the Year 2000 compliance efforts of one or more of our
customers, could materially and adversely affect our ability to generate
revenue. The purchasing patterns of advertisers and agencies could be affected
by Year 2000 issues as companies expend significant resources to correct their
current systems for the year 2000; these expenditures may result in reduced
funds available for Internet advertising, which could in turn materially and
adversely affect our ability to generate revenue.

BUSINESS

OVERVIEW

AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. Our highly reliable, scalable technology
infrastructure and data centers currently deliver up to 210 million ads per day.
Our services, AdForce for Advertisers and AdForce for Publishers, offer
sophisticated ad campaign design, inventory management, targeting, delivery,
tracking, measuring and reporting capabilities. Our technology infrastructure
and services leverage the advantages of Internet advertising and direct
marketing and allow our customers to:

- Reach large or targeted audiences across multiple Web sites on our
common platform;

- Maximize return on advertising investments for advertisers and ad
agencies;

- Maximize the value of page view inventories for Web sites and ad rep
firms;

- Monitor and measure the effectiveness of ad campaigns;

- Modify ad campaigns based on campaign performance data;

- Aggregate large numbers of sites into a single network and segment the
network into groups of special interest content such as sports or
finance; and

- Take advantage of direct marketing opportunities using sophisticated
targeting technologies supported by our large and growing database of
user information.

During 1998, we delivered 13.6 billion ads with increasing quarterly ad
volumes of 0.9 billion, 1.6 billion, 3.2 billion and 7.9 billion. We delivered
13.2 billion ads in the first quarter of 1999. Our net revenue increased
sequentially from $414,000 in the first quarter of 1998 to $3.2 million in the
first quarter of 1999. Through relationships with key customers, including 24/7
Media, Adsmart, GeoCities, Netscape and ModemMedia.PoppeTyson, we have achieved
a broad reach over the Internet. According to Media Metrix, an Internet research
firm, in December 1998 AdForce served ads to approximately 58% of U.S. Internet
users.

INDUSTRY BACKGROUND

EMERGENCE OF THE INTERNET AS AN ADVERTISING MEDIUM

The Internet has emerged as an important mass medium for advertising and
direct marketing, communication and electronic commerce. International Data
Corporation, a firm specializing in online research and analysis, estimates that
Internet users numbered approximately 100 million in 1998 and will grow to more
than 320 million in 2002. Rapid expansion of the Internet has led to significant
growth in electronic commerce. IDC estimates that purchases of goods and
services over the Internet will increase from $32 billion in 1998 to $426
billion in 2002. Growth of the Internet generally and of electronic commerce in
particular has spurred traditional businesses to devote larger portions of their
marketing budgets to Internet advertising, and has prompted Internet and
electronic commerce companies to increase their spending on Internet
advertising. The Direct Marketing Association estimates that advertisers and
direct marketers spent approximately $284 billion in 1998 on all forms of media
in the United States, up from $264 billion in 1997. Growth in Internet
advertising and direct marketing during this period, though significantly
smaller in absolute dollars, outpaced the growth of traditional advertising and
direct marketing. Jupiter Communications, another online research firm,
estimates that spending on Internet advertising will grow from $1.9 billion in
1998 to $7.7 billion in 2002, while the DMA estimates that spending on Internet
direct marketing will grow from $603 million in 1998 to $5.3 billion in 2003.

ADVANTAGES OF INTERNET ADVERTISING AND DIRECT MARKETING

The Internet offers significant advantages over traditional media as a
medium for advertising and direct marketing. We believe that the advantages
described below will lead advertisers to continue to increase spending on
Internet advertising and direct marketing.

ABILITY TO REACH LARGE OR TARGETED AUDIENCES. As a medium with no
geographic boundaries, the Internet enables advertisers to reach large audiences
in the U.S. and internationally. The Internet also affords advertisers the
opportunity to target ads to specific geographic regions, to specific interest
groups by targeting multiple Web sites with specific characteristics, and to
consumers with specific demographic profiles.

INTERACTIVITY. Unlike the broadcast model of traditional media, the
Internet is a truly interactive mass medium. Advertisers can receive immediate
feedback on the effectiveness of their ad campaigns and can complete sales
online. Advertisers can control the number of times a user sees an ad, rotate
ads in sequence for that user and build highly accurate user profiles through
transaction information, registration procedures and anonymous matching
techniques.

ABILITY TO TRACK, MONITOR AND MEASURE ADVERTISING EFFECTIVENESS. The
Internet allows advertisers to track, monitor and measure the effectiveness of
their ad campaigns, and provides the flexibility to control those campaigns
while the campaign is being delivered. Advertisers can measure the number of
times a user views a particular ad, how often the user responds or clicks
through to that ad and ultimately makes a purchase or other transaction, and
various characteristics of the user. Based on this data, advertisers can modify
ad messages and placement quickly and efficiently to maximize ad campaign
effectiveness, resulting in higher response rates. For this reason, Internet
advertising provides advertisers the potential to achieve returns on their
investments that are higher than returns currently achievable through
traditional media.

GREATER FLEXIBILITY AND REDUCED COSTS. Internet ad campaigns typically
are less time-consuming, less expensive and easier to produce than advertising
in traditional media. This allows Internet advertisers to cost-effectively
launch ad campaigns on short notice in response to specific needs or events. In
addition, once an ad campaign is launched, advertisers can easily and
inexpensively change its content, scope and frequency of delivery in response to
feedback in order to ensure that an effective message is delivered to consumers.

CHALLENGES OF MANAGING AND DELIVERING EFFECTIVE INTERNET ADVERTISING

The dynamic nature and rapid growth of the Internet are steadily
increasing the challenges and infrastructure requirements of delivering
effective advertising.

DISAGGREGATED NATURE OF THE INTERNET. The large number of Web sites and
the dispersed nature of the Internet audience make it difficult for advertisers
and ad agencies to identify and target specific customer segments with specific
ad campaigns. Advertisers and ad agencies often need to book ad campaigns across
hundreds of Web sites to obtain the necessary reach, number of ad impressions
and target audience. This complex and labor-intensive process includes
identifying Web sites with specific characteristics, understanding their
technical capabilities and contractual terms, identifying their available
inventory of desired page views, preparing their Web pages to accept the proper
ads, reserving and delivering ads, and tracking results. In addition, Web sites
operating an ad server independently from a network of other Web sites typically
find that they do not generate enough data from their own users to build an
effective database of Web users and their response patterns that would enable
sophisticated ad targeting.

COMPLEX, RAPIDLY CHANGING TECHNOLOGY. Delivering and tracking hundreds
of ad campaigns, with response times measured in milliseconds, to millions of
Internet users who click through to thousands of Web sites requires complex
networking, computing, applications and database technologies. In addition, as
browser vendors upgrade their software, advertisers pursue richer forms of
Internet advertising

incorporating sound, motion and other advanced features. As other interdependent
technologies evolve, a delivery system must be updated continually to
accommodate the rapid pace of technological change.

SIGNIFICANT OPERATING COSTS AND REQUIREMENTS. Developing, building,
operating and maintaining an ad management and delivery system is costly and
time-consuming. It requires one or more large, complex data centers with
multiple network connections and back-up capabilities. Further, to maintain
reliable performance 24 hours a day, seven days a week, these systems must be
maintained around the clock by highly-specialized operations personnel. For most
advertisers, ad agencies, Web sites and ad rep firms, these operating burdens
create a substantial diversion of investment from their core competencies.

RAPID GROWTH OF WEB SITES. Successful Web sites are experiencing rapid
growth in the number of pages and ads they deliver, with larger portal Web sites
delivering hundreds of millions of ads per day. Increasing ad management and
delivery capabilities at these Web sites requires significant investment in
technology operations infrastructure. The failure to develop a scalable solution
can limit revenue growth for these Web sites.

TRUSTED REPORTING AND RESULTS. Unlike traditional broadcast media,
Internet ads are delivered to individuals one ad at a time. For this reason,
Internet advertising campaigns are typically measured and billed by the exact
number of ad impressions delivered and, in many cases, the exact number of
click-throughs or transactions that result. Advertisers, ad agencies and other
parties prefer third-party verification of ad delivery results to use as a basis
for determining ad campaign costs and effectiveness.

PRIVACY. The use of more precise targeting capabilities by Internet
advertisers will increase the challenges of preserving user privacy. Technology
advancements, strategic partnerships and evolving business practices will be
required to balance privacy concerns with the demand for more precise targeting
capabilities.

NEED FOR A CENTRALIZED, OUTSOURCED INTERNET ADVERTISING AND DIRECT MARKETING
SOLUTION

The rapid growth of the Internet as an advertising medium has made the
management and delivery of effective advertising and direct marketing extremely
important for advertisers, ad agencies, Web sites and ad rep firms. Because of
the significant technical, operational and resource challenges of ad management
and delivery, and the need to aggregate both users and data, we believe there is
a need for an outsourced, centralized Internet advertising and direct marketing
technology infrastructure provider that delivers the unique advantages of
Internet advertising while allowing advertisers, ad agencies, Web sites and ad
firms to focus on their core competencies. This infrastructure must provide high
performance and advanced functionality and be highly reliable and readily
scalable.

THE ADFORCE SOLUTION

We provide the technology infrastructure and services that we believe
advertisers, ad agencies, Web sites and ad rep firms need to exploit the
advantages of Internet advertising and direct marketing. Our turnkey solutions
for advertisers, ad agencies, Web sites and ad rep firms offer sophisticated ad
campaign design, inventory management, targeting, delivery, tracking, measuring
and reporting capabilities built on our technology platform. Our outsourced
services and infrastructure allow our customers to focus on their core
competencies, while leveraging our systems for quick time-to-market, low entry
and maintenance costs, reliability and scalability. During 1998, we delivered
13.6 billion ads with increasing quarterly volumes of 0.9 billion, 1.6 billion,
3.2 billion and 7.9 billion. We delivered 13.2 billion ads in the first quarter
of 1999. To date, we have increased our 30-day ad impression rate to over 5.6
billion, with per day volumes of up to 210 million. Our key Web site customers
include GeoCities and Netscape, our key ad rep firm customers include 24/7 Media
and Adsmart, and our key ad agency customers include ModemMedia.PoppeTyson.
According to Media Metrix, an Internet research firm, in December 1998 AdForce
served ads to approximately 58% of U.S. Internet users.

BENEFITS FOR ADVERTISERS AND AD AGENCIES

- AdForce for Advertisers enables advertisers and ad agencies to
schedule, target, manage and deliver ad campaigns efficiently across
the entire Internet. Advertisers and ad agencies are able to track and
monitor ad campaign results using our data reporting and analysis
capabilities. Our measuring of ads delivered, which results in
advertising billings, is audited by a third party to ensure that
advertisers and ad agencies can have confidence in our results.

- The user interface of AdForce for Advertisers, which is installed on
our customers' personal computers, permits communications with our
systems over the Internet and assists advertisers and ad agencies in
the media planning process. Through this interface, advertisers and ad
agencies can build a schedule for their campaigns by checking and
reserving Web site inventories, and then specifying the content,
targeting criteria and type of media, and the times at which and
frequency with which their ads should appear. Through this interface,
advertisers and ad agencies also can monitor ongoing campaigns, and
adjust priorities or change ads to maximize the value of each ad
delivered.

- We store detailed information regarding every ad delivery in a manner
that allows broad and flexible reporting. In addition to
click-throughs, we track the activity of prospects who act on an ad by
making a purchase or completing a survey or registration form. This
information enables advertisers to track and measure the effectiveness
of a campaign and maximize its value. We offer numerous reports
covering various facets of an ad campaign with the ability to
consolidate data across multiple Web sites.

- Our services enable advertisers and ad agencies to utilize our large
and growing database to target ad campaigns using a wide variety of
criteria, increasing the value of their ad spending. In addition, our
strategic relationship with Experian will permit targeting through the
use of detailed consumer demographic data. We believe our targeting
capabilities allow advertisers and agencies to deliver ads that are
more relevant, less repetitious and more likely to match a particular
user's interests. These capabilities allow ad agencies to
differentiate themselves from their competitors, provide additional
services to their clients and create additional revenue opportunities.

- By relying on our outsourced solution and our technology
infrastructure, advertisers and ad agencies can focus on their core
competencies such as media planning, contract creation and direct
marketing.

BENEFITS TO WEB SITES AND AD REP FIRMS

- AdForce for Publishers provides the infrastructure that Web sites need
to maximize sales of advertising space, increase the value of their
page views, and differentiate themselves from their competition.
AdForce for Publishers also allows entities that operate multiple Web
sites and ad rep firms to aggregate multiple sites and pages within
sites into a single network. The network can then be subdivided based
on content to create special interest groups such as sports or finance
to maximize the value of a Web site's inventory.

- Our outsourced solution provides Web sites and ad rep firms the
advanced technology required for the complex processes of managing and
delivering Internet advertising. In addition, our outsourced solution
allows Web sites and ad rep firms to avoid the significant hardware,
software and personnel costs associated with site-specific software
services and to benefit from the scalability of our technology
infrastructure.

- Our inventory management system provides detailed reporting on current
and estimated future ad inventory. The system ensures that ad
campaigns are delivered evenly, smoothing the potential effects of
unexpected traffic increases. In addition, the system monitors each
active ad campaign, adjusting for differences in Web site traffic, to
ensure that ads are delivered as scheduled to achieve maximum yield
from a Web site's ad inventory. Because

we enable Web sites and ad rep firms to track, monitor and measure ad
inventory consistently, our customers can sell more premium ad space.

- Our advanced targeting and reporting capabilities enable Web sites and
ad rep firms to maximize their advertising revenues by delivering to
their advertisers more valuable ad impressions that are more likely to
result in a click-through or other action.

- AdForce for Publishers allows ad rep firms to aggregate a number of
Web sites to measure and manage available inventory. In addition, our
services allow ad rep firms to schedule multiple campaigns across
multiple sites as simply as scheduling a single site.

STRATEGY

AdForce's objective is to be the primary technology and service
infrastructure for advertising and direct marketing on the Internet. Our
strategy consists of the following key elements:

ENHANCE AND EXPAND OUR CORE TECHNOLOGY. Our technology infrastructure
has enabled us to become a leading provider of centralized, outsourced
advertising and direct marketing services on the Internet. The ability of our
technology infrastructure to scale as Internet advertising has grown has been a
competitive advantage. In addition, by steadily increasing our ad volumes in
1998 and in the first quarter of 1999, we have been able to reduce the cost of
ad management and delivery. We intend to continue to invest heavily in research
and development activities to enhance the performance and functionality of our
core technology. In addition, we intend to continue to invest in enhancing the
reliability, scalability, performance and cost efficiency of our data center
infrastructure. We opened an additional data center in April 1999 that
significantly increases our ad delivery capacity. Our core technology has been
designed to facilitate developing new features and functionality. During the
remainder of 1999, we also plan to continue to develop new services and
capabilities for our customers.

LEVERAGE AND EXPAND CUSTOMER BASE. We seek to maintain, develop and
enhance existing and new revenue streams from our current customer base of ad
agencies, Web sites and ad rep firms, as well as revenue streams from new
customers. Our current customers, including 24/7 Media, Adsmart, GeoCities and
Netscape, substantially increased their Internet traffic during 1998, and we
expect our revenue from these customers will increase to the extent their Web
traffic continues to grow by continuing to provide them ad management and
delivery services. In addition to our recurring ad management and delivery
services, we anticipate developing additional sources of revenue by offering
advanced reporting, targeting and data analysis and by delivering ads featuring
audio, video and animation. We intend to attract and retain new customers by
promoting AdForce as the leading provider of outsourced advertising and direct
marketing services on the Internet, increasing our sales and marketing
activities and developing new services and leading technologies. To facilitate
this, we intend to continue promoting our services through online and
traditional advertising, an extensive public relations campaign, strategic
alliances and other promotional activities. As our network of customers grows,
we believe that our position as a primary provider of technology infrastructure
for ad management and delivery will be reinforced.

MAINTAIN NEUTRALITY. Our customers rely on us to provide accurate,
unbiased services and information. To fill this role as a trusted intermediary,
we believe it is essential that we not compete with our customers and avoid any
media bias. We provide the technology infrastructure to maximize the ad sales of
Web sites and ad rep firms. For this reason, we have avoided selling advertising
and putting ourselves in competition with our customers. In addition, we provide
the tools and infrastructure advertisers use to efficiently schedule and
effectively deliver complex campaigns on the Internet and to learn more about
their prospects and customers. We also avoid media buying or campaign or
creative development that would place us in competition with our existing and
potential customers. Instead, we are committed to continuing to develop the
AdForce brand to be synonymous with reliability, technical competence,
comprehensiveness and neutrality.

LEVERAGE DATABASE MARKETING CAPABILITIES. Our proprietary technology
infrastructure, substantial ad impression volumes and customer relationships
allow us to aggregate significant data regarding specific prospect and customer
behavior. This data is critical to developing a database of user profiles that
ad

agencies and advertisers can use to target their ad campaigns. We intend to use
this data to provide additional database marketing services to our customers so
that advertisers are able to reach targeted audiences more effectively and Web
sites are able to provide a more valuable inventory. Leveraging our strategic
relationship with Experian, we intend to provide advanced targeting and database
marketing services to our customers based on demographic and lifestyle profiles
within the next 12 months. This demographic targeting will allow advertisers and
direct marketers to engage in relationship marketing by permitting them to
identify their audiences very specifically. In order to maintain a clear focus
on user privacy, we will substitute an encrypted code for all personally
identifiable information.

TARGET ADDITIONAL ADVERTISING MEDIA. As other forms of media such as
interactive television and addressable cable boxes converge with the Internet,
we may be able to build on our knowledge and technology in interactive
advertising solutions to penetrate these media. In addition, we believe much of
our industry expertise and developed technology may be transferable to more
traditional advertising media, such as newspaper, television, radio and cable,
that may benefit from centralized, outsourced ad management solutions.

SERVICES

We provide centralized, outsourced ad management and delivery services
that address the requirements of buyers and sellers of Internet advertising and
direct marketing. The buyers, primarily ad agencies, are served by AdForce for
Advertisers. The sellers, primarily Web sites and ad rep firms, are served by
AdForce for Publishers. We provide the following functions for our customers:

MEDIA PLANNING. Reflecting the media planner's workflow, AdForce for Advertisers organizes the
[LOGO] steps in planning and executing Internet advertising. Media planners can utilize in-house
databases or commercial third-party research to select Web sites and build a media plan.

CAMPAIGN SCHEDULING. Advertisers, ad agencies, Web sites and ad rep firms can use a Java client
[LOGO] application to create and schedule ad campaigns over the Internet. Our user interface helps users
build a campaign, allowing them to specify the schedule, content units, frequency and targeting
criteria, and then submit the ad for delivery. AdForce for Advertisers organizes campaigns to
reflect the typical workflow of an ad agency and transmits traffic instructions to many Web sites.
AdForce for Publishers allows Web sites and ad rep firms to view and manage all of the campaigns
running throughout their Web sites.

INVENTORY MANAGEMENT. Our automated inventory management system gives Web sites and ad rep firms
[LOGO] detailed information about current and future inventory, allowing them to sell available media
space more precisely. When an ad campaign is booked, the system uses historical data to forecast
available inventory for specified targets throughout the schedule and establishes the delivery
frequency for each group of ads. Automatically checking each ad campaign in progress, the system
regularly adjusts for variations in site traffic and updates available inventory while factoring
in other ad campaigns. Our system ensures that all ad campaigns are delivered on schedule, so Web
sites get maximum value for their inventory.

TARGETING. Serving ads from a central data center, we can employ more comprehensive targeting
[LOGO] databases than local ad servers. This allows us to offer more targeting options and far greater
targeting accuracy. Our customers can target campaigns using a range of criteria, including
domain/industry code, content area, keyword, geography, schedule and site-provided data. Our
advanced targeting capabilities enable Web sites to deliver valuable ad impressions for
advertisers, reaching the people who are most likely to respond to the ad. Web site visitors are
shown ads that are more relevant, less repetitious and more likely to match their interests.

AD DELIVERY. Our ad delivery system delivers ads quickly, consistently, on schedule and on target.
[LOGO] Because we provide the technology infrastructure, our customers have no hardware, software,
networks or backup systems to purchase or maintain. Our scalable architecture handles millions of
decisions per second in order to deliver targeted ads. We have begun to deliver ads featuring
audio, video and animation to create a more compelling user experience. Our infrastructure offers
our customers built-in redundancy, the security of operating 24 hours a day, 7 days a week, and
the capacity to handle both traffic growth and fluctuations.

TRANSACTIONS. Our transactions feature records user activities such as click-throughs, requesting
[LOGO] information, registering for a service or purchasing a product. The resulting data are made
available through reports that help Web sites demonstrate the effectiveness of campaigns on their
Web site and record their share of transactions generated by traffic on their Web site. The
resulting data also help advertisers and ad agencies interpret results and manage the
effectiveness of their campaigns.

REPORTING. We use detailed information accumulated from every ad delivered and consolidated across
[LOGO] multiple Web sites to provide our customers with dozens of accurate, timely reports. We ensure
that ad impressions are counted accurately, whether they are delivered from our data center, the
user's browser cache or a proxy server. Our reporting features provide Web sites and advertisers
with reports containing information they need in a readily usable format or in Microsoft Excel.
Advertisers and ad agencies can optimize ad campaigns for best results, and media planners can
adjust priorities, targeting criteria and ad rotation, or swap in new ads, to maximize the value
of campaigns in progress.

AUDITING AND ACCOUNTING. We provide audited statements that detail the number of ads delivered,
[LOGO] click-throughs and transactions for auditing and accounting purposes. ABC Interactive, a leading
Internet auditing service, provides a monthly audit of ads delivered and click-throughs that
enables us to provide a statement to each customer, ensuring greater accuracy and saving the
customer time. Our reports help automate and streamline billing operations by reducing the need
for manual data processing. All information required to generate invoices is available in a
readily usable format, exportable to Microsoft Excel and accounting software using a simple data
transfer.

ANALYSIS. Advertisers, ad agencies, Web sites and ad rep firms can use the information stored in
[LOGO] our data center to conduct post-campaign analysis of results, explore trends and examine
alternative scenarios. By integrating user profile information such as Voyager Profiles from
Millward Brown Interactive, a leading market research firm, we allow advertisers and ad agencies
to characterize users who viewed and responded to their ad campaigns and to improve future media
plans and their return on advertising spending. Web sites and ad rep firms can conduct analyses
that help them to increase their revenues from their Web traffic.

PLANNED SERVICE ENHANCEMENTS

The primary service enhancements that we plan to implement in the next
12 months are:

ADFORCE TRACKING. We intend to continue to enhance user tracking
capabilities. While maintaining the anonymity and privacy of users, advertisers
will be able to track and record user activity related to ad campaigns. Using
this information, advertisers will be able to compare customer acquisition costs
using different ads on different sites and to track information such as the
value and frequency of purchases.

DEMOGRAPHIC TARGETING. We have been developing demographic targeting
capabilities and expect to make these capabilities available to advertisers, ad
agencies, Web sites and ad rep firms. Our targeting services will serve
dynamically targeted ads to users based on their demographic and lifestyle
profiles. User demographics will be identified by linking user cookies to known
demographic information with the

user's permission. As part of our demographic targeting strategy, we will
maintain user privacy by substituting all personally identifiable information
with an encrypted code allowing us to match an Internet user anonymously to
existing demographic data. Demographic targeting will increase the value of
Internet marketing and allow marketers to reach their desired prospects more
readily, generating increased revenue for our customers and for us.

BANNER CO-OP SERVICE. Small Web sites and individual home page
publishers often trade ad impressions on their pages in return for promotional
advertising on other sites within an ad network or across the Internet. Home
page publishers typically have fewer of their ads served on the network than the
number of ads they serve on their home page, allowing the network owner to sell
the remaining inventory to earn revenue. We are developing a banner co-op
service that will enable ad networks and larger sites to provide home page
publishers the ability to serve ads on their home pages in exchange for
advertising space in the network or larger site. The banner co-op will leverage
our existing technology and infrastructure to provide a system capable of
handling over a million individual home page publishers and their ad campaigns.

TECHNOLOGY AND DATA CENTER OPERATIONS

Our ad management and delivery infrastructure employs advanced
technology and robust data centers to deliver ads 24 hours a day, 7 days a week,
for leading ad agencies, Web sites and ad rep firms.

THE ADFORCE AD MANAGEMENT AND DELIVERY SYSTEM

Our proprietary ad management and delivery system is divided into five
subsystems: ad management, campaign deployment, ad delivery, data analysis and
reporting. In building these subsystems, we have developed a significant amount
of proprietary software while also utilizing industry-standard hardware and
software and leading third-party technology wherever possible.

AD MANAGEMENT SUBSYSTEM. Our ad management subsystem consists of our
user application software, our inventory management system and an administrative
database. The user application software is loaded onto the customer's personal
computer and is used to communicate with our system over the Internet to design,
input, change and monitor ad campaigns and to request and receive reports.
Customers also use the user application software to validate their desired ad
campaigns against our inventory management system, a software engine that uses
proprietary algorithms to forecast available ad inventory on a given Web site or
in an AdForce-supported network, and to create daily ad campaign schedules.
Customer instructions delivered via the user application software are then
recorded in our administrative database for deployment by the campaign
deployment subsystem.

CAMPAIGN DEPLOYMENT SUBSYSTEM. Our campaign deployment subsystem
consists of a set of processes to transmit ad campaign schedules and ads from
the administrative database to the targeting database in the ad delivery
subsystem. These processes are run nightly and periodically during each day to
update schedule information and place new ad campaigns into production. Because
we are able to run these processes many times each day, customers can insert new
ad campaigns and change existing ad campaigns within an hour of our notifying
them.

AD DELIVERY SUBSYSTEM. The ad delivery subsystem consists of ad
delivery servers, ad selector servers and the targeting database. The ad
delivery servers handle ad requests coming in from the Internet, log those
requests into the data analysis subsystem for reporting purposes, and ask the ad
selector servers which ad should be served to the requesting user. The ad
selector servers choose the ads to be delivered to the particular user using a
patent-pending object-framework technology and by accessing information in the
targeting database. The ad selector servers provide that information to the ad
delivery servers, and the right ad is then served to the user.

DATA ANALYSIS SUBSYSTEM. The data analysis subsystem consists of
database and other applications for processing and storing transaction data
logged from the ad delivery servers. This information is then used by the
reporting subsystem and by our inventory management system. These data
repositories are also used for data mining and transaction correlation. Although
our database does not allow

specific individuals to be individually identified, we have built and will
continue building consumer profiles using information compiled in these data
repositories to use in targeting ad campaigns.

REPORTING SUBSYSTEM. The reporting subsystem also has database and
processing applications that allow us to provide industry standard and custom
reports to our customers using data from the data analysis subsystem. Customers
access the reporting subsystem by logging requests with the administrative
database. We then make reports available to the customer through the user
application software or by e-mail.

DATA CENTER OPERATIONS

We deliver our services primarily from a central data center located at
our product development, operations and customer service and support facility in
Costa Mesa, California. This data center houses an extensive array of servers,
multiple databases, multiple terabytes of hard disk storage and routing
equipment connecting AdForce to the Internet using several fiber optic
providers. In April 1999, we moved our headquarters to and began operating our
second data center in a new facility in Cupertino, California.

We manage our system closely to ensure that we maintain excellent
performance and consistent ad delivery. Our system is self-monitored by
automated tools that measure system performance, including central processing
unit usage levels, disk usage, network and bandwidth usage, report processing
times and the response time of the system to ad requests. We also have
operations staff monitoring the system 24 hours per day, 7 days per week.

In building and maintaining our system, we have focused on reliability,
scalability, performance and operating cost. For reliability, we maintain
running standby servers for components within each subsystem so that a given
server can fail and the system itself will continue to function without
interruption. We use caching in the ad delivery subsystem to ensure ads will
continue to be served to our customers based on last available information even
if the back-end subsystems fail entirely. We have the backup power and
additional air conditioning needed for reliable data center operations, and use
multiple bandwidth network providers so that we have redundant capacity. We also
protect our data by using an off-site data backup service.

We aggressively increased the capacity of our system throughout 1998 and
in the first quarter of 1999 by adding additional servers and other equipment
within subsystems as needed, and by improving the performance of the subsystems
themselves. We are also continuing our development efforts to improve the
performance of components within each subsystem with a view to increasing
capacity and improving response times while reducing overall ad delivery costs.

KEY CUSTOMERS

We believe our continued success depends on establishing a broad
customer base within each of the primary categories of advertisers, ad agencies,
Web sites and ad rep firms. Our key customers include:

AD AGENCIES WEB SITES AD REP FIRMS
- -------------------------- -------------------------- --------------------------
ModemMedia.PoppeTyson GeoCities 24/7 Media
USWeb Netscape Adsmart
VR Services MapQuest Euroserve-InterAd
Carat Freeman FortuneCity Adauction.com
Bozell Worldwide Encompass TVMV, Inc.
Netcom .tmc Ad Network
NHL.com
GoTo.com
Virtual Vegas
Spree.com
PGATOUR.com

We typically are the primary or sole ad management and delivery service
provider for our Web site customers. For example, we deliver through our system
all paid advertisements for GeoCities and the majority of paid advertisements
for Netscape. In addition to our direct Web site customers, we deliver ads on
hundreds of Web sites that our ad rep firm customers represent, including such
sites as AT&T, Reuters-Yahoo, Blizzard Entertainment and Earthlink, which are
customers of 24/7 Media, and Raging Bull, Free Real Time, Net Zero, College Club
USA, The Learning Channel, UBID, 123 Greetings and SecureTax, which are
customers of Adsmart. We also reach a wide variety of additional Web sites on ad
campaigns we manage and deliver for our ad agency customers.

During 1997, Petry Interactive and Katz Millenium, which are now part of
24/7 Media, accounted for 79% and 13% of net revenue. During 1998, 24/7 Media,
GeoCities and FortuneCity accounted for 40%, 16% and 11% of net revenue. During
the first quarter of 1999, 24/7 Media, Adsmart, GeoCities and Netscape accounted
for 23%, 21%, 20% and 12% of net revenue. Our business and quarterly and annual
results of operations would be materially and adversely affected by the loss of
any of these customers or any significant reduction in net revenue generated
from these customers. 24/7 Media has stated that it is currently developing a
next generation ad delivery technology that is intended to serve as its sole ad
delivery solution. It has also stated that, unless and until the development of
and transition to its own ad delivery technology is complete, it will be
primarily dependent on us to deliver ads to its networks and Web sites.

SALES AND MARKETING

Our primary sales strategy is to sell directly to leading Web sites,
large ad agencies and ad rep firms. We sell our services in the United States
through a 20-person sales and marketing organization. These employees are
located in northern and southern California, New York and northern Virginia. In
addition, we utilize the sales organizations of our ad rep firm customers to
provide our services to the Web sites they represent.

We will continue to focus our sales and marketing efforts on
establishing service relationships with large, high volume users of Internet
advertising such as 24/7 Media, Adsmart, GeoCities and Netscape. In addition, we
are increasingly targeting sales to ad agencies and intend to begin marketing to
advertisers within the next 12 months. We rely on our sales and marketing
organization, our senior management and our customer service personnel to
promote and sustain these relationships.

We use a variety of marketing programs to generate demand for our
products, build market awareness, develop customer leads and establish business
relationships. Our marketing activities include preparing market research and
collateral materials, determining market requirements, managing press coverage
and other public relations activities, identifying potential customers,
participating in trade events, seminars and conferences, and establishing and
maintaining close relationships with recognized industry analysts.

CUSTOMER SERVICE AND SUPPORT

We believe that a high level of customer service and support is critical
to the successful marketing and sale of our services. We have a comprehensive
professional organization that provides account management, technical support,
training and ongoing client services for our customers. Our customer service
personnel are available 24 hours a day, 7 days a week, to assist customers as
needed, and are currently located in California and New York. We plan to
establish additional service and support sites as needed.

COMPETITION

The market for Internet ad management and delivery services is extremely
competitive, and we expect this competition to increase in the future. We may be
unable to compete successfully, and competitive pressures may materially and
adversely affect our business and quarterly and annual results of operations.
Our ability to compete successfully in this market depends on many factors
within and beyond our control. Please see "Risk Factors--We May Not Compete
Successfully in the Market for Internet Ad Management and Delivery Services,
Which Would Adversely Affect Our Ability to Retain Our Existing

Customers and to Attract New Customers" for a list of these factors. We
currently compete with providers of outsourced ad servers and related services,
including DoubleClick and MatchLogic, as well as providers of ad server software
and equipment services, such as NetGravity. Our principal competitor is
DoubleClick, which delivered over 8.0 billion ads in March 1999 as compared to
the 5.6 billion ads that we delivered in March 1999. Many of our current
competitors, including DoubleClick, have substantially greater capital
resources, more name recognition, more developed sales and marketing strategies,
and management teams that have a longer history of working together than we do.

Another principal source of competition is Web sites that use
internally-developed Internet advertising and direct marketing services. These
Web sites include America Online, one of our principal stockholders, and Yahoo!.
America Online has acquired Netscape, one of our major customers, and Yahoo! has
entered into an agreement to acquire GeoCities, another of our major customers.
Following these acquisitions, either Netscape or GeoCities, or both, might
transition their systems to the proprietary systems of their acquirors, which
would materially and adversely affect our business and quarterly and annual
results of operations. In addition, 24/7 Media, another of our major customers,
acquired its own ad management and delivery technology in 1998, and currently
uses this technology to serve a portion of its advertising needs. 24/7 Media has
stated that it is currently developing a next generation ad delivery technology
that is intended to serve as its sole ad delivery solution. It has also stated
that, unless and until the development of and transition to its own ad delivery
technology is complete, it will be primarily dependent on us to deliver ads to
its networks and Web sites. If 24/7 Media were to cease doing business with us
or enter into competition with us, it would materially and adversely affect our
business and quarterly and annual results of operations. Finally, a fourth major
customer, 2CAN Media, was recently acquired by Adsmart, a subsidiary of CMG
Investments. CMG Investments also owns Engage, which recently merged with
Accipiter, a supplier of ad server software and equipment services. If Adsmart
were to transition its business from us to Accipiter, it would materially and
adversely affect our business and quarterly and annual results of operations.

We may also encounter a number of potential new competitors that have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These qualities may allow them to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. It may also allow
them to devote greater resources than we can to the development, promotion and
sale of their products and services. These competitors might also engage in more
extensive research and development, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, strategic partners, advertisers and
Web sites. If these companies were to enter the market, we might not be able to
compete against them effectively.

INTELLECTUAL PROPERTY

Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of patent, copyright, trade secret and trademark laws. If our
proprietary rights are infringed by a third party, the value of our services to
our customers would be diminished and additional competition might result from
the third party's use of those rights, which would materially and adversely
affect our business and quarterly and annual results of operations. We have
filed two patent applications in the United States. In addition, we have applied
to register trademarks in the United States. We cannot assure you that our
patent applications or trademark registrations will be approved. Even if they
are approved, our patents or trademarks may be successfully challenged by others
or invalidated. If our trademark registrations are not approved because third
parties own these trademarks, our use of these trademarks would be restricted
unless we entered into arrangements with the third-party owners, which might not
be possible on reasonable terms.

Our technology collects and utilizes data derived from user activity on
the Internet. Although we believe that we generally have the right to use this
information and to compile it in our database, we cannot assure you that any
trade secret, copyright or other protection will be available for this
information. We also cannot assure you that any of our proprietary rights will
be viable or of value in the future since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries are uncertain
and still evolving. We believe that factors such as the technological and
creative skills of our

personnel, new service offerings, brand recognition and reliable customer
service are more essential to establishing and maintaining our technology
leadership position than the legal protection of our technology. There can be no
assurance that others will not develop technologies that are similar or superior
to our technology.

We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.

We have licensed, and we may license in the future, proprietary rights
to third parties. In particular, we have licensed our proprietary software to
America Online and Euroserve Media. In addition, before our acquisition of
StarPoint, StarPoint licensed its software to GeoCities and two other parties.
While we attempt to ensure that the quality of our brand is maintained by these
business partners, they may take actions that could materially and adversely
affect the value of our proprietary rights or our reputation. We cannot assure
you that these business partners will take the same steps we have taken to
prevent misappropriation of our solutions or technologies. Please see "Related
Party Transactions" for detailed information on our license to America Online.

Third parties may assert infringement claims against us or our
customers. We do not believe that our technological processes infringe the
proprietary rights of others, but we cannot assure you that third parties will
not assert claims that we violate their rights. In addition, we believe that we
have the right to use the user data we collect for our database, but we cannot
assure you that third parties will not assert claims that we violate their trade
secrets or copyrights. Although there has not been any claims of these types in
the past, any claims and resultant litigation, if they occur, could subject us
to significant liability for damages or could result in invalidation of our
rights. In addition, even if we were to prevail, litigation could be
time-consuming and expensive to defend and could result in diversion of our time
and attention, which could materially and adversely affect our business and
quarterly and annual results of operations. Any claims or litigation from third
parties might also result in limitations on our ability to use the trademarks
and other intellectual property subject to these claims or litigations unless we
entered into arrangements with the third parties responsible for the claims or
litigation, which might be unavailable on reasonable terms, if at all.

We believe that issues relating to the privacy of Internet users and the
use of personal information about these users are critically important as the
Internet and its commercial use grow. We have adopted a detailed policy
outlining the permissible uses of information about users and the extent to
which such information may be shared with others. Our customers must acknowledge
and agree to this policy when registering to use our service. We do not sell or
license to third parties any personally identifiable information about users.
However, we do use information about users to improve marketing and promotional
efforts and to analyze usage patterns. We comply with all relevant privacy
initiatives in the industry, and we are a member of the TRUSTe program, an
independent non-profit organization that audits the privacy statements of Web
sites and their adherence to those privacy statements. Moreover, we have an
independent accounting firm regularly audit these privacy and business practices
to ensure compliance with all legal and industry accepted privacy standards.

EMPLOYEES

As of March 31, 1999, we had 109 employees, including 53 in engineering
and data center operations, 20 in sales and marketing, 20 in customer service
and support and 16 in general and administrative. Other than as described in
"Management--Employment Agreements and Severance Agreements," none of these
individuals has an employment agreement with us. We believe that we have good
relationships with our employees. We have never had a significant work stoppage,
and none of our employees is represented under a collective bargaining
agreement. We believe that our future success will

depend in part on our ability to attract, integrate, retain and motivate highly
qualified technical and managerial personnel and upon the continued service of
our senior management and key technical personnel. Competition for qualified
personnel in our industry and geographical locations is intense, and there can
be no assurance that we will be successful in attracting, integrating, retaining
and motivating a sufficient number of qualified personnel to conduct our
business in the future.

FACILITIES

Our headquarters, including our principal administrative and marketing
facilities, are located in approximately 41,151 square feet of space we have
subleased in Cupertino, California, which includes a data center with a
fully-installed infrastructure. This sublease extends through April 2003. We
intend to sublet on a short-term basis approximately 40% of the office space in
our new Cupertino headquarters. Our principal data center, product development,
operations and customer service and support facilities are located in
approximately 18,362 square feet of office space in Costa Mesa, California; the
lease on this facility extends through April 2004. We believe our Cupertino and
Costa Mesa facilities will be adequate to meet our needs for at least the next
12 months. We have sales personnel in both California offices, and in a New York
City office of approximately 1,000 square feet. The lease for the New York
office expires in December 1999.

LEGAL PROCEEDINGS

We are not currently subject to any material legal proceedings. We may
from time to time become a party to various legal proceedings arising in the
ordinary course of our business.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table shows the name, age and position of each of our
executive officers and directors as of the date of this prospectus.

NAME AGE POSITION
- ----------------------------- --- -------------------------------------------------------

Charles W. Berger............ 45 Chief Executive Officer, President and Chairman of the
Board
Harish S. Rao................ 57 Executive Vice President, Development and Operations
John A. Tanner............... 41 Executive Vice President and Chief Financial Officer
A. Dee Cravens............... 58 Vice President, Marketing
Anthony P. Glaves............ 41 Vice President, Sales and Business Development
Rex S. Jackson............... 39 Vice President, General Counsel and Secretary
Eric Di Benedetto(1)(2)...... 33 Director
Mark P. Gorenberg(1)......... 44 Director
J. Neil Weintraut(2)......... 40 Director
Dirk A. Wray................. 40 Director
Barton L. Faber.............. 52 Director Nominee
Douglas T. Hickey............ 43 Director Nominee

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

(1) Member of Compensation Committee

(2) Member of Audit Committee

CHARLES W. BERGER joined AdForce in July 1997 as chairman and chief
executive officer and became president in February 1999. From March 1993 to June
1997, Mr. Berger was chairman and chief executive officer of Radius, Inc., now
Digital Origin, Inc., a developer and manufacturer of computer displays and
graphic and video technologies. Before joining Radius, Inc., Mr. Berger was
senior vice president of worldwide sales, operations and support of Claris
Corporation, now FileMaker, Inc., a maker of database software for groups and
individuals, from 1992 to 1993. From 1989 to 1992, he held several positions at
Sun Microsystems, Inc., a provider of hardware, software and services for the
Internet, where he served as president of Sun Microsystems Federal, Inc. from
1991 to 1992, vice president of business development from 1990 to 1991 and vice
president, product marketing from 1989 to 1990. From 1982 to 1989, Mr. Berger
was employed by Apple Computer, Inc., a maker of personal computing products,
serving as vice president and general manager of Apple Integrated Systems from
1988 to 1989, vice president of marketing from 1986 to 1988, vice president,
business development from 1985 to 1986 and treasurer from 1982 to 1985. Mr.
Berger received his bachelor of science in business administration from Bucknell
University and a masters of business administration from the University of Santa
Clara. He serves on the boards of directors of Digital Origin, Inc. and Splash
Technology, Inc. as well as the boards of the University of Santa Clara and the
Kyle Foundation.

HARISH S. RAO joined AdForce in January 1999 as executive vice
president, development and operations. From February 1997 to December 1998, Mr.
Rao served as vice president engineering in the network & service management
business unit at Cisco Systems, Inc., a supplier of networking products for the
Internet, where he was responsible for Cisco's service management system and
focused on end-to-end service architecture and technology development for
management of frame relay, ATM and IP networks. From July 1992 to January 1997,
Mr. Rao was senior vice president of TCSI Corporation, a provider of software
products and services for carrier networks management, where he managed
operations and development both domestically and internationally. Mr. Rao
received his B.E. and M.E. degrees from the University of Bombay, and his Ph.D.
in control systems engineering from the University of Houston.

JOHN A. TANNER joined AdForce in November 1997 as vice president,
finance and administration and chief financial officer and became executive vice
president in September 1998. From October 1995 to

November 1997, Mr. Tanner held several positions with Network Computing Devices,
Inc., a manufacturer of network computers, server software, and other related
software products and services, where he served as vice president and controller
in 1997, corporate controller from 1995 to 1997 and director of corporate
accounting in 1995. From 1990 to October 1995, Mr. Tanner was employed by Aspect
Telecommunications Corporation, a manufacturer of computerized telephonic
switching devices, complementary software, and related services, where he served
in several positions, most recently as corporate planning and reporting manager.
Mr. Tanner received his bachelor of arts in English from San Jose State
University.

A. DEE CRAVENS joined AdForce in January 1999 as vice president,
marketing. From March 1998 to January 1999, Mr. Cravens was president of
Ensemble Solutions, Inc., an electronic distribution company, and, from March
1996 to March 1998, he served as vice president, corporate marketing at Adaptec,
Inc., a manufacturer of SCSI, fiber channel and RAID products. From August 1992
to March 1996, Mr. Cravens served as vice president, marketing at Radius, Inc.,
now Digital Origin, Inc., a developer and manufacturer of computer displays and
graphic and video technologies. From 1989 to 1992, Mr. Cravens was president of
The Cravens Group, Inc., a marketing consulting firm. Mr. Cravens received his
bachelor of arts and masters in communications from San Jose State University.
Mr. Cravens serves on the board of directors of Ensemble, a private company.

ANTHONY P. GLAVES joined AdForce in January 1999 as vice president,
sales and business development. From March 1998 to January 1999, Mr. Glaves
served as senior vice president, strategic relations and business development
for ImproveNet, Inc., a web-based service providing product and contractor
information to consumers for home improvement projects. From 1983 to November
1997, Mr. Glaves held several positions with Time Incorporated Magazine Company,
a magazine publisher, including vice president, publisher and vice president and
associate publisher of Sunset Magazine from May 1994 to November 1997 and vice
president, publisher of Southern Accents Magazine from April 1989 to May 1994.
Mr. Glaves received his bachelor of science in business administration from San
Diego State University.

REX S. JACKSON joined AdForce in August 1998 as vice president, general
counsel and secretary, and served on an interim basis as AdForce's executive
vice president, development and operations from August 1998 to January 1999.
Before joining AdForce, Mr. Jackson was with Read-Rite Corporation, a
manufacturer of thin film recording heads for the disk and tape drive
industries, where he served as vice president, business development and general
counsel from April 1997 to August 1998, and vice president, general counsel and
secretary from September 1992 to April 1997. Mr. Jackson received his A.B.
degree in political science from Duke University, and his J.D. degree from
Stanford University.

ERIC DI BENEDETTO has served as a member of AdForce's board of directors
since December 1997, and has been a co-founder and general partner of
Convergence Partners, L.P., an information technology venture capital firm,
since April 1997. From April 1991 to June 1997, Mr. Di Benedetto was the
managing director of U.S. venture capital funds managed by BANEXI, the merchant
banking arm of Banque Nationale de Paris. From 1989 to 1991, Mr. Di Benedetto
was a workout and restructuring specialist with the PARGESA/Lambert Brussels
Group, an international investment holding company, and, from 1988 to 1989, he
was a mergers and acquisitions associate covering defense electronics for
Bankers Trust Co., a financial services company. Mr. Di Benedetto received his
bachelor of arts in mathematics and physics from Lycee Perier, Marseilles,
France and his masters of business administration from E.S.S.E.C., Paris,
France. He serves on the boards of directors of the following private companies:
AdAuction.com, Inc., Decisive Technology Corporation, Magnifi, Inc. and
PaymentNet, Inc.

MARK P. GORENBERG has served as a member of AdForce's board of directors
since December 1996. Mr. Gorenberg joined Hummer Winblad Venture Partners, a
venture capital fund focused exclusively on software investments, since July
1990, and has served as a partner in the firm since 1993. From 1989 to 1990, Mr.
Gorenberg was a senior software manager in advanced product development at Sun
Microsystems, Inc., a provider of hardware, software and services for the
Internet. Mr. Gorenberg received

his bachelor of science in electrical engineering from the Massachusetts
Institute of Technology, his masters in electrical engineering from the
University of Minnesota, and his masters in engineering management from Stanford
University. He serves on the boards of directors of the following private
companies: Envive Corporation and Escalade Corporation.

J. NEIL WEINTRAUT has served as a member of AdForce's board of directors
since December 1996, and is a founder and has been a partner of 21st Century
Internet Venture Partners, a venture capital firm, since its inception in
October 1996. From June 1987 to May 1996, Mr. Weintraut was a partner at
Hambrecht & Quist, an investment banking firm, where he led the enterprise
software practice, and later the Internet practice. From 1984 to 1985, Mr.
Weintraut worked as an engineer at Daisy Systems, Inc., a developer of computer
aided automation, and, from 1983 to 1984, he was an engineer working in
supercomputer design at International Business Machines Corporation, an
information technology company. Mr. Weintraut received his bachelor of science
in electrical engineering from Drexel University and his masters of business
administration from The Wharton School of Business. He serves on the boards of
directors of the following private companies: CareerBuilder, Inc. and GreenTree
Nutrition, Inc.

DIRK A. WRAY is a co-founder of AdForce, its original chief executive
officer and has served as a member of AdForce's board of directors from its
inception to December 1996 and again since November 1998. Since May 1998, Mr.
Wray has served as president and vice chairman of Omnigon, Inc., a full service
electronic-commerce company. From January 1994 to January 1998, Mr. Wray served
as president and chief financial officer of Covenant Care, Inc., an
international long-term health care provider. Mr. Wray received his bachelor of
science in marketing from Michigan State University, his masters of business
administration from Southern Methodist University, and his masters of
international management from The American Graduate School of International
Management. He serves on the boards of directors of the following private
companies: Covenant Care, Inc., Casa Reha GmbH and Omnigon, Inc.

BARTON L. FABER has been nominated to be a member of AdForce's board of
directors. Mr. Faber is the founder, chairman and chief executive officer of
FABERcapital, which makes private equity investments in information service
companies. Mr. Faber was chairman of Metromail Corporation, a provider of direct
marketing products and services, from January 1996 to June 1998, and a director
of Metromail from July 1995 to June 1998. From January 1995 to June 1996, he
also served as president of information resources for R. R. Donnelley & Sons
Company, a business services company. From September 1989 to January 1995, Mr.
Faber was president of information services for R. R. Donnelley. Mr. Faber
attended Arizona State University for his undergraduate studies and received his
masters of business administration from New York University. Mr. Faber serves on
the board of directors of the following companies: Document Sciences Corporation
and Xeikon N.V., both public companies, and Looking Glass Technologies, a
private company.

DOUGLAS T. HICKEY has been nominated to be a member of AdForce's board
of directors. Mr. Hickey has served as the president and chief executive officer
and a director of Critical Path, Inc., a supplier of e-mail solutions to
businesses, since October 1998. From February 1998 to October 1998, Mr. Hickey
served as executive vice president of Frontier Communications Corporation, a
telecommunications company, and as president of Frontier GlobalCenter. From July
1996 to February 1998, Mr. Hickey served as president and chief executive
officer of GlobalCenter, Inc., a Web hosting company. In February 1998,
GlobalCenter was acquired by Frontier. From December 1994 to July 1996, Mr.
Hickey was president of Internet services at MFS Communications, a provider of
high-speed fiber-optic services. From September 1990 to November 1994, Mr.
Hickey was general manager of North American sales and field operations at
Ardis, a Motorola company. Mr. Hickey received his bachelor of science in
economics from Siena College. Mr. Hickey serves on the board of directors of
Critical Path, a public company.

Our board of directors is currently comprised of five directors and has
two vacancies. We expect Messrs. Faber and Hickey to begin serving as members of
our board of directors following the offering. Directors are elected by the
stockholders at each annual meeting of stockholders and serve for one year or

until their successors are duly elected and qualified. However, our bylaws
provide, following the offering, that our board of directors will be divided
into three classes as nearly equal in size as possible with staggered three-year
terms. The term of office of our Class I directors will expire at the annual
meeting of stockholders to be held in 2000; the term of office of our Class II
directors will expire at the annual meeting of stockholders to be held in 2001;
and the term of office of our Class III directors will expire at the annual
meeting of the stockholders to be held in 2002. At each annual meeting of the
stockholders, beginning with the 2000 annual meeting, the successors to the
directors whose terms will then expire will be elected to serve from the time of
their election and qualification until the third annual meeting following their
election or until their successors have been duly elected and qualified, or
until their earlier resignation or removal, if any. Messrs. Weintraut and Wray
have been designated as Class I directors; Messrs. Di Benedetto and Gorenberg
have been designated as Class II directors; and Messrs. Berger, Faber and Hickey
have been designated as Class III directors. The classification of our board of
directors could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of AdForce.

America Online has the right to elect one director to the board of
directors so long as America Online holds at least 728,332 shares of common
stock, appropriately adjusted for any stock split, dividend, combination or
other recapitalization. This right expires in July 2008.

BOARD COMMITTEES

We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and consults with and
reviews the results and scope of the audit and other services provided by our
independent accountants. The compensation committee reviews and approves the
compensation and benefits for our key executive officers and establishes and
reviews general policies relating to compensation and benefits of our employees.

DIRECTOR COMPENSATION

Our directors do not receive cash compensation for their services as
directors, but are reimbursed for all reasonable expenses incurred in connection
with their attendance at meetings of our board of directors and committee
meetings of the board of directors.

In February 1999, our board of directors adopted, and in March 1999 our
stockholders approved, the 1999 Directors Stock Option Plan. We reserved a total
of 200,000 shares of common stock for issuance under the directors plan. Members
of our board of directors who are not our employees, or employees of any parent,
subsidiary or affiliate of AdForce, are eligible to participate in the directors
plan. Option grants under the directors plan are automatic and nondiscretionary,
and the exercise price of the options must equal the fair market value of our
common stock on the date of grant.

We will initially grant to each eligible director who first becomes a
member of our board of directors on or after the effective date of this offering
an option to purchase 10,000 shares of common stock on the date that director
becomes a member of our board of directors. We will initially grant to each
eligible director who became a member of our board of directors before the
effective date of this offering an option to purchase 10,000 shares of common
stock immediately following the first annual meeting of our stockholders that
occurs after the effective date of this offering. After the effective date of
this offering, immediately following each annual meeting of our stockholders
that occurs, each eligible director will automatically be granted an additional
option to purchase 5,000 shares of common stock if that director has served
continuously as a member of our board of directors for at least one year since
the date of that director's initial grant under the directors plan. The options
have ten year terms. They will terminate seven months after the director ceases
to provide services to us either as a director or a consultant, 12 months if the
termination is due to death or disability. All options granted under the
directors plan will vest at a rate of 25% of the shares on the anniversary of
the date of grant and 2.08% of the shares every

month after that date. Options will stop vesting if a director ceases to provide
services to us either as a director or a consultant. If a merger or other
transaction in which we are not the surviving corporation occurs, all options
issued under the directors plan will accelerate and become exercisable in full.
If a director does not exercise options within seven months of the corporate
transaction, the options will expire.

In April 1999, we granted an option to purchase 50,000 shares of common
stock to Mr. Faber, and granted an option to purchase 75,000 shares of common
stock to Mr. Hickey. These options have an exercise price of $8.50 per share and
have a term of ten years. These options are immediately exercisable and will
vest at a rate of 25% of the shares on the first anniversary of the vesting
start date specified in the stock option agreements and 2.08% of the shares
every month after that date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Before February 26, 1999, our board of directors did not have a
compensation committee and all compensation decisions were made by the full
board of directors. Beginning on February 26, 1999, our compensation committee
has made all compensation decisions. No interlocking relationship exists between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has an interlocking
relationship existed in the past.

EXECUTIVE COMPENSATION

The following table shows all compensation awarded to, earned by or paid
for services rendered to AdForce in all capacities during 1998 by our chief
executive officer and our other executive officers or former executive officers
who earned at least $100,000 in 1998.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($) OPTIONS(#) COMPENSATION($)
- -------------------------------------- ----------- ----------- ------------- -----------------

Charles W. Berger .................... $ 250,000 -- -- $ 42,188(2)
President and Chief Executive
Officer

Chad E. Steelberg(3) ................. 162,692 $ 75,000 101,000(4) 3,000(5)
Former President

John A. Tanner ....................... 148,398 -- 45,000 --
Executive Vice President and Chief
Financial Officer

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

(1) Messrs. Rao, Cravens and Glaves were hired as executive officers in January
1999 and are compensated at annual rates of $215,000, $185,000 and $150,000.
Mr. Jackson was hired as an executive officer in August 1998 and is
compensated at an annual rate of $175,000. See "-- Employment Agreements and
Severance Agreements."

(2) Represents forgiveness of indebtedness evidenced by a promissory note issued
by Mr. Berger to AdForce in connection with the exercise of his option to
purchase 900,000 shares of common stock. See "Related Party Transactions."

(3) Mr. Steelberg resigned from his position as AdForce's president in November
1998.

(4) These options terminated in November 1998 upon termination of Mr.
Steelberg's employment. See "--Employment Agreements and Severance
Agreements."

(5) Represents amount paid to Mr. Steelberg as expense allowances.

OPTION GRANTS IN LAST FISCAL YEAR

The following table shows each stock option grant during 1998 to the
officers named in the summary compensation table above. None of these officers
exercised any option in 1998.

All of these options were immediately exercisable and were incentive
stock options that were granted at an exercise price equal to the fair market
value of our common stock on the date of grant, as determined by our board of
directors. The exercise price may be paid in cash, in shares of our common stock
valued at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. We may also finance
the option exercise by lending the optionee funds to pay the exercise price for
the purchased shares. These options vest over four years at the rate of 25% of
the shares subject to the option on the first anniversary of the vesting start
date specified in the stock option agreement and 2.08% every month after that
date. Unvested shares are subject to AdForce's right of repurchase upon
termination of employment. Upon specified changes in control of AdForce, vesting
will accelerate on all shares that are then unvested. Options expire ten years
from the date of grant. See "--Employee Benefit Plans" and "--Employment
Agreements and Severance Agreements" for a description of the material terms of
these options.

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
- --------------------------------- ------------- ----------------- ----------- ----------- --------- ---------

Charles W. Berger................ -- -- -- -- -- --

Chad E. Steelberg................ 1,000(3) 0.1% $ 1.50 07/25/08 $ 0(3) $ 0(3)
100,000(3) 6.5 1.50 08/14/08 0(3) 0(3)

John A. Tanner................... 45,000 2.9 0.70 06/10/08 19,810 50,203

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

(1) Based on options to purchase 1,533,411 shares of common stock granted during
1998 or issued in connection with the assumption of options granted by
StarPoint Software, Inc.

(2) Potential realizable values are net of the exercise price but before any
payment of taxes, and are based on the assumption that our common stock
appreciates at the annual compounded rate shown from the date of grant until
the expiration of the ten-year term. The 5% and 10% assumed annual rates of
stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of
future common stock prices.

(3) These options terminated in November 1998 upon termination of Mr.
Steelberg's employment. See "--Employment Agreements and Severance
Agreements."

The table below shows the number of shares of common stock covered by
both exercisable and unexercisable stock options held as of December 31, 1998 by
each of the officers named in the summary compensation table above. Also
reported are values of in-the-money options, which represent the positive spread
between the respective exercise prices of outstanding stock options and an
assumed initial public offering price of $14.00 per share.

FY-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)
--------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ------------ ------------- ----------- -------------------

Charles W. Berger..................... -- -- -- --

Chad E. Steelberg(1).................. -- -- -- --

John A. Tanner........................ 225,000(2) -- $3,073,500 $ 0

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

(1) All of Mr. Steelberg's outstanding options terminated on November 20, 1998,
according to the terms of the settlement agreement and release dated the
same date. See "--Employment Agreements and Severance Agreements."

(2) The options are subject to AdForce's right of repurchase, which lapsed with
respect to 25% of the shares upon Mr. Tanner's completion of 12 months of
service from the vesting start date and an additional 2.08% every month
after that date. As of December 31, 1998, AdForce's right of repurchase had
lapsed with respect to 60,930 shares.

EMPLOYEE BENEFIT PLANS

1997 STOCK PLAN. In April 1997, our board of directors adopted the 1997
plan and in June 1997 our stockholders approved it. The board of directors
reserved 1,200,000 shares of our common stock for issuance under the 1997 plan.
It increased this number to 2,400,000 in July 1997 and 4,000,000 in December
1997. As of March 31, 1999, options to purchase 1,626,117 shares of our common
stock had been exercised, of which 52,216 shares were repurchased by AdForce,
options to purchase 1,564,161 shares of our common stock were outstanding under
the 1997 plan with a weighted average exercise price of $0.95 and 861,938 shares
of our common stock were available for future grants. Following the closing of
this offering, no additional options will be granted under the 1997 plan.
Options granted under the 1997 plan are subject to terms substantially similar
to those described below with respect to options to be granted under the 1999
plan. However, options granted under the 1997 plan become fully vested if not
assumed or substituted by the successor corporation in connection with a merger
or asset sale.

STARPOINT SOFTWARE, INC. 1996 STOCK PLAN. In connection with AdForce's
acquisition of StarPoint Software, Inc., AdForce assumed all options outstanding
under the StarPoint plan at the closing of the acquisition. These assumed
options will remain effective until exercised for AdForce's common stock or
until they terminate or expire. Options granted under the StarPoint plan are
subject to terms substantially similar to those described below with respect to
options to be granted under the 1999 plan. However, options granted under the
StarPoint plan become fully vested if not assumed or substituted by the
successor corporation in connection with a merger or asset sale. No options will
be granted in the future under the StarPoint plan. As of March 31, 1999, options
to purchase 17,116 shares of common stock had been exercised, and options to
purchase 6,598 shares of common stock were outstanding under the StarPoint plan.

1999 EQUITY INCENTIVE PLAN. In February 1999, our board of directors
adopted, and in March 1999 our stockholders approved, our 1999 plan. We reserved
2,000,000 shares for issuance under

the 1999 plan. Our 1999 plan will become effective on the effective date of this
offering and will serve as the successor to our 1997 plan.

Options granted under the 1997 plan and the StarPoint plan before their
termination will remain outstanding according to their terms, but no further
options will be granted under the 1997 plan or the StarPoint plan after the
effective date of this offering. In some cases, shares granted or issued under
the 1997 plan or the 1999 plan may again become available for grant or issuance
under the 1999 plan. Our 1999 plan will terminate in February 2009, unless
sooner terminated in accordance with its terms. Our compensation committee
administers our 1999 plan and has the authority to construe and interpret our
1999 plan and any agreement made under it, grant awards and make all other
determinations necessary for the administration of our 1999 plan.

Our 1999 plan provides for the grant of both incentive stock options
that qualify under Section 422 of the Internal Revenue Code, and nonqualified
stock options, as well as stock awards and stock bonuses. We can grant incentive
stock options only to employees. We can grant other awards to employees,
officers, directors, consultants, independent contractors and advisors. However,
consultants, independent contractors and advisors must render actual services
not in connection with the offer and sale of securities in a capital-raising
transaction. The exercise price of incentive stock options must be at least
equal to the fair market value of our common stock on the date of grant. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant. The maximum term
of options granted under our 1999 plan is ten years. Options granted under our
1999 plan generally expire three months after the termination of the optionee's
service. However, in the case of death or disability, the options generally may
be exercised up to 12 months following the date of death or termination of
service. Options will generally terminate immediately upon termination for
cause. If AdForce dissolves or liquidates or a change in control transaction
occurs, outstanding awards may be assumed or substituted by the successor
corporation, if any. Our compensation committee has the discretion to accelerate
the vesting of any award upon the occurrence of any of these events.

See "Director Compensation" for a description of our directors plan.

1999 EMPLOYEE STOCK PURCHASE PLAN. In February 1999, our board of
directors adopted, and in March 1999 our stockholders approved, our purchase
plan. We reserved a total of 300,000 shares of common stock for issuance under
our purchase plan. On each January 1, the total number of shares reserved for
issuance will be increased automatically by the number of shares purchased under
our purchase plan in the preceding calendar year. The total number of shares
issued over the term of our purchase plan may not exceed 3,000,000 shares. Our
compensation committee administers our purchase plan and has the authority to
construe and interpret it. Our purchase plan will become effective on the
effective date of this offering.

Employees generally will be eligible to participate in our purchase plan
if they are employed for more than 20 hours per week and more than five months
in a calendar year. Under our purchase plan, we permit employees to acquire
shares of our common stock through payroll deductions. Employees may select a
rate of payroll deduction between 2% and 10% of their W-2 cash compensation and
are subject to maximum purchase limitations described in our purchase plan.
Participation in our purchase plan will end automatically upon termination of
employment for any reason. Each offering period under our purchase plan will be
for two years and consist of four six-month purchase periods. The first offering
period is expected to begin on the day after the effective date of this
offering. The first purchase period may be more or less than six months long.
Offering periods and purchase periods after the date of this offering will begin
on February 1 and August 1. The purchase price under our purchase plan will be
85% of the lesser of the fair market value of our common stock on the first day
of the applicable offering period or the last day of each purchase period. Our
purchase plan will terminate in February 2009, unless earlier terminated. Our
board of directors has the authority to amend, terminate or extend the term of
our purchase plan. However, stockholder approval is required to increase the
number of shares that may be

issued or to change the terms of eligibility. Our board of directors is also
able to make amendments to our purchase plan if the financial accounting
treatment for our purchase plan is different than the financial accounting
treatment in effect on the date that it adopted our purchase plan.

401(k) PLAN. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code. All employees who are 21 years
old are eligible to participate and may enter the 401(k) plan as of the first
day of any month. Participants may make pre-tax contributions to the 401(k) plan
of up to 15% of their eligible earnings, subject to a statutorily prescribed
annual limit. We may make matching contributions on a discretionary basis to the
401(k) plan, but have not done so to date. Each participant is fully vested in
his or her contributions, any of our matching contributions, and the investment
earnings on either. Contributions by the participants or AdForce to the 401(k)
plan, and the income earned on these contributions, are generally not taxable to
the participants until withdrawn. Contributions by AdForce, if any, will
generally be deductible by AdForce when made. Participant and AdForce
contributions are held in trust as required by law. Individual participants may
direct the 401(k) plan's trustee to invest their accounts in authorized
investment alternatives.

EMPLOYMENT AGREEMENTS AND SEVERANCE AGREEMENTS

AdForce and Mr. Berger are parties to a letter agreement dated June 27,
1997 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Berger an annual salary of $250,000 and to grant him an immediately
exercisable option under the 1997 plan to purchase 900,000 shares of AdForce's
common stock at an exercise price of $0.125 per share. Mr. Berger exercised this
option in full on June 30, 1997 and paid the purchase price of the option,
$112,500, by issuing a promissory note to AdForce that is secured by a pledge of
the common stock purchased and forgivable in four annual installments, provided
Mr. Berger remains an employee. On June 30, 1998, AdForce's repurchase right
with respect to the 900,000 shares began to lapse. One quarter of the option
shares vested on that date and the remaining option shares began to vest monthly
after that date over the next 36 months of service. The agreement provided for
full vesting if (1) AdForce merges or consolidates with or into another entity
where more than 50% of the combined voting power of the surviving corporation's
securities outstanding immediately after the transaction is owned by persons who
were not stockholders of AdForce immediately before that transaction or (2) the
sale, transfer or other disposition of all or substantially all of AdForce's
assets, each a change of control, and in either case the option is not assumed
by the successor corporation. Finally, the agreement provided that, if (1) a
change of control occurs, (2) Mr. Berger's option is assumed and (3) his
employment is involuntarily terminated or Mr. Berger resigns for good reason
within 24 months of the change of control, Mr. Berger's option will become
vested and AdForce's repurchase right will lapse with respect to an additional
number of shares equal to the number of shares that would have vested if Mr.
Berger served for an additional 12 months.

In November 1998, AdForce and Mr. Berger entered into a letter agreement
regarding salary continuation and option vesting. Under the letter agreement, if
Mr. Berger's employment with AdForce is involuntarily terminated by AdForce
other than for cause or if Mr. Berger resigns for good reason, Mr. Berger will
receive salary continuation at his current rate of salary and continuation of
vesting of his options or restricted stock vesting for a period of twelve months
following termination. Under the letter agreement, cause is defined to include
failure to follow the written directions of the board of directors, dishonesty,
gross misconduct, fraud, or conviction for a felony, and good reason is defined
to include demotion, salary reduction or relocation.

In April 1999, AdForce granted Mr. Berger an immediately exercisable
option to purchase 100,000 shares of AdForce's common stock at an exercise price
of $8.50 per share. AdForce's repurchase right will begin to lapse and 25% of
the shares will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service.

AdForce and Mr. Rao are parties to a letter agreement dated December 11,
1998 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Rao an annual salary of $215,000 and a performance bonus of $50,000,
and granted Mr. Rao an option to purchase 360,000 shares of common stock at an
exercise price of $1.50 per share. AdForce's repurchase right will begin to
lapse and 33% of the shares subject to the option will vest after one year of
service; the balance of the shares will vest monthly over the next 24 months of
service.

AdForce and Mr. Tanner are parties to an employment agreement dated
December 9, 1998 governing his employment with AdForce. Under the agreement,
which has a term of two years, AdForce agreed to pay Mr. Tanner a base salary of
$175,000 and an incentive bonus under AdForce's incentive bonus plan. The
agreement provides for an additional one year of vesting of Mr. Tanner's
existing options (1) if AdForce merges with or is acquired by another company
and is not the surviving entity, (2) if AdForce sells all or substantially all
of its assets or stock or (3) if any other reorganization or business
combination involving AdForce results in 50% or more of AdForce's outstanding
voting stock being transferred to different holders. Finally, if AdForce
terminates Mr. Tanner's employment before the end of the term of the agreement
other than for cause, death or disability, or if Mr. Tanner terminates his
employment for good reason, Mr. Tanner will receive a severance amount equal to
his then-current base salary for 12 months following the date of termination,
plus benefits and any earned bonuses. In April 1999, AdForce granted Mr. Tanner
an immediately exercisable option to purchase 25,000 shares of AdForce's common
stock at an exercise price of $8.50 per share. AdForce's repurchase right will
begin to lapse and 25% of the shares subject to this option will vest after one
year of service; the balance of the shares will vest monthly over the next 36
months of service.

AdForce and Mr. Cravens are parties to a letter agreement dated January
21, 1999 governing his employment with AdForce. Under the agreement, AdForce
agreed to pay Mr. Cravens an annual salary of $185,000 and a $25,000 signing
bonus, and granted Mr. Cravens an immediately exercisable option to purchase
175,000 shares of AdForce's common stock at an exercise price of $1.50 per
share. AdForce's repurchase right will lapse and 25% of the shares subject to
the option will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service. In April 1999, AdForce granted
Mr. Cravens an immediately exercisable option to purchase 25,000 shares of
AdForce's common stock at an exercise price of $8.50 per share. AdForce's
repurchase right will begin to lapse and 25% of the shares subject to this
option will vest after one year of service; the balance of the shares will vest
monthly over the next 36 months of service.

AdForce and Mr. Glaves are parties to a letter agreement dated December
28, 1998, as revised on December 31, 1998, governing his employment with
AdForce. Under the agreement, AdForce agreed to pay Mr. Glaves an annual salary
of $150,000 and a maximum quarterly performance bonus of $25,000, with the first
quarter's payment guaranteed, and granted him an immediately exercisable option
to purchase 175,000 shares of AdForce's common stock at an exercise price of
$1.50 per share. AdForce's repurchase right will lapse and 12.5% of the shares
subject to the option will vest after six months of service; the balance of the
shares will vest monthly over the next 42 months of service. In April 1999,
AdForce granted Mr. Glaves an immediately exercisable option to purchase 25,000
shares of AdForce's common stock at an exercise price of $8.50 per share.
AdForce's repurchase right will begin to lapse and 25% of the shares subject to
this option will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service.

AdForce and Mr. Jackson are parties to a letter agreement dated July 22,
1998 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Jackson an annual salary of $150,000, and granted him an immediately
exercisable option to purchase 180,000 shares of AdForce's common stock at an
exercise price of $1.50 per share. AdForce's repurchase right will lapse and 25%
of the shares subject to the option will vest after one year of service; the
balance of the shares will vest monthly over the next 36 months. The vesting of
Mr. Jackson's options will accelerate in the same manner as Mr. Berger's upon
the changes in control described on the preceding page. In April 1999, AdForce

increased Mr. Jackson's annual salary to $175,000 and granted him an immediately
exercisable option to purchase 20,000 shares of AdForce's common stock at an
exercise price of $8.50 per share. AdForce's repurchase right will begin to
lapse and 25% of the shares subject to this option will vest after one year of
service; the balance of the shares will vest monthly over the next 36 months of
service.

AdForce and Mr. Steelberg are parties to a settlement agreement and
release dated November 20, 1998 relating to the termination of Mr. Steelberg's
employment with AdForce. The agreement provided that, instead of amounts
otherwise payable to Mr. Steelberg, AdForce would pay him $225,000, that all
outstanding shares of common stock held by Mr. Steelberg on the date of the
agreement would be deemed fully vested, and that all unexercised options to
purchase common stock would terminate. However, certain agreements between the
parties remain enforceable. The agreement also provided for a mutual release of
claims.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY

Our certificate of incorporation limits the liability of our directors
to the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages for
breach of fiduciary duty as a director, except for liability:

- for any breach of the director's duty of loyalty to the corporation or
its stockholders;

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

- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or

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

As permitted by Delaware law, our bylaws provide that:

- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, provided that each indemnified officer and
director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to AdForce's best
interests;

- we may indemnify our other employees and agents to the same extent
that we indemnify our officers and directors, unless otherwise
required by law, our certificate of incorporation, our bylaws or any
agreements;

- we must advance expenses, as incurred, to our directors and officers
in connection with a legal proceeding to the fullest extent permitted
by Delaware law, subject to very limited exceptions; and

- the rights conferred in our bylaws are not exclusive.

In addition to the indemnification required in our certificate of
incorporation and bylaws, before the completion of this offering, we intend to
enter into indemnity agreements with each of our current directors and officers.
These agreements provide for the indemnification of our officers and directors
for all expenses and liabilities incurred in connection with any action or
proceeding brought against them by reason of the fact that they are or were
agents of AdForce. In addition, we intend to obtain directors' and officers'
insurance to cover our directors, officers and some of our employees for certain
liabilities. We believe that these indemnification provisions and agreements and
this insurance are necessary to attract and retain qualified directors and
officers.

The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary

duty. They may also reduce the likelihood of derivative litigation against
directors and officers, even though an action, if successful, might benefit us
and other stockholders. Furthermore, a stockholder's investment may be adversely
affected to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions.

At present, there is no pending litigation or proceeding involving any
of our directors, officers or employees regarding which indemnification by
AdForce is sought, nor are we aware of any threatened litigation that may result
in claims for indemnification.

RELATED PARTY TRANSACTIONS

We have never been a party to, and we have no plans to be a party to,
any transaction or series of similar transactions in which the amount involved
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our common stock had or will have an interest other than as described
under "Management" and the transactions described below. The numbers of shares
of preferred stock and the per share prices of shares of preferred stock
described below are reported on an as-if-converted to common stock basis.

LOANS AND SECURITIES ISSUANCES

In April 1996, three of our founders, Chad Steelberg, Gary Steelberg and
Ryan Steelberg, assigned ownership rights in computer software valued at $8,600
to AdForce in exchange for the issuance of 430,000 shares of common stock,
860,000 shares of common stock and 430,000 shares of common stock. Our fourth
founder, Washington Holdings, L.P., a Nevada limited partnership, acquired
2,000,000 shares of common stock for a purchase price of $10,000. Dirk Wray, one
of our directors, is a general partner of Washington Holdings.

In April 1996, AdForce acquired for a purchase price of $110,000 all of
the assets, properties and rights, including technology and other intellectual
property of Iron Mountain Global Information Systems, Inc., a California
corporation. Chad Steelberg, our former president, was also the president of
Iron Mountain Global Information Systems.

In April 1996, Washington Holdings, L.P. loaned AdForce $670,000 at an
annual interest rate of 10%. The loan was secured by assets of AdForce.

In June 1996, the Kuwait Investment Projects Company K.S.C., a Kuwait
company and a parent of IBL Corporation, loaned AdForce $1.0 million.

In July 1996, IBL Corporation, a principal stockholder of AdForce,
loaned AdForce $997,500 at an annual interest rate of 11.03%. In connection with
the loan, AdForce granted IBL a warrant to purchase 123,400 shares of common
stock.

In December 1996, we sold 1,200,914 shares of Series A preferred stock
to two investors. IBL Corporation purchased 797,950 shares of Series A preferred
stock in exchange for the cancellation of $997,500 owed by us and the
termination of a warrant to purchase 123,400 shares of common stock. In
addition, Washington Holdings, a Nevada limited partnership, purchased 402,964
shares of Series A preferred stock in exchange for the cancellation of $506,000
of indebtedness and the repayment of $119,000 owed by us. We also used $305,000
to repay indebtedness to Aurelius, Ltd., a British Virgin Island corporation.
Dirk Wray, one of our directors, is a representative of Aurelius, Ltd.

Also in December 1996, we sold 2,054,636 shares of Series B preferred
stock to six investors. Hummer Winblad Venture Partners II L.P., Hummer Winblad
Technology Fund, II, L.P. and Hummer Winblad Technology Fund II-A, L.P.
purchased 957,542, 33,912 and 5,984 shares of Series B preferred stock for an
aggregate purchase price of $1,251,785, or $1.255 per share. The Hummer Winblad
group of funds is one of our principal stockholders, and Mark P. Gorenberg, one
of our directors, is a partner at

Hummer Winblad Venture Partners, which is the general partner of these funds. In
addition, 21st Century Internet Fund, L.P. purchased 997,438 shares of Series B
preferred stock for a purchase price of $1,251,785, or $1.255 per share. 21st
Century Internet Fund, L.P. is one of our principal stockholders, and J. Neil
Weintraut, one of our directors, is a founder and managing member of 21st
Century Internet Managing Partners, LLC, which is the general partner of this
fund.

Also in December 1996, as a condition of the purchase of Series B
preferred stock and as a condition to the repayment of indebtedness of AdForce
with the proceeds of the sale, AdForce entered into agreements with some of its
founders. Under these agreements, AdForce repurchased 7,886 shares of common
stock and 1,605,014 shares of common stock from Chad Steelberg, our former
President, and Washington Holdings, L.P., a principal stockholder, respectively.
Also, Chad Steelberg and Ryan Steelberg granted AdForce repurchase rights with
respect to shares owned by them. Finally, Washington Holders, L.P. acknowledged
transfer restrictions and granted Messrs. Gorenberg and Weintraut an irrevocable
proxy to elect to convert 402,964 shares of Series A preferred stock to common
stock in the event of a liquidation event resulting in proceeds to holders of
Series A preferred stock in excess of $1.255 per share.

In June 1997, as part of his employment with AdForce, AdForce loaned
Charles W. Berger, our Chief Executive Officer, $112,500 to be used by Mr.
Berger to exercise his option to purchase 900,000 shares of common stock. The
loan, which was evidenced by a promissory note, is due in June 30, 2001 and
accrues interest at the annual rate of 6.8%, compounded annually. The promissory
note is secured by the shares of common stock acquired by Mr. Berger upon
exercise of his option grant. However, Mr. Berger remains personally liable for
the payment of the promissory note, and Mr. Berger's assets, in addition to the
shares of common stock, may be applied to satisfy Mr. Berger's obligations under
the promissory note. The note and related interest are being forgiven ratably
over a period of four years of service/employment. At December 31, 1998, AdForce
forgave $42,188, and there remained $70,312 outstanding under the loan. See
"Management--Employment Agreements and Severance Agreements."

In July 1997, we sold 1,733,616 shares of Series C preferred stock to
six investors. Hummer Winblad Venture Partners II, L.P., Hummer Winblad
Technology Fund II, L.P. and Hummer Winblad Technology Fund II-A, L.P.,
purchased 142,072, 5,032 and 888 shares of Series C preferred stock for an
aggregate purchase price of $350,001, or $2.365 per share. 360 Capital Partners,
L.P. also purchased 1,268,500 shares of Series C preferred stock for a purchase
price of $3,000,002. 360 Capital Partners, L.P. is one of our principal
stockholders. In addition, IBL Corporation purchased 169,134 shares of Series C
preferred stock for a purchase price of $400,002. Finally, 21st Century Internet
Fund, L.P. purchased 147,990 shares of Series C preferred stock for a purchase
price of $349,996.

In November 1997, we sold 816,384 shares of Series C preferred stock to
two investors. Convergence Ventures I, L.P. purchased 784,672 shares of Series C
preferred stock for a purchase price of $1,855,749. In February 1998, we sold
60,994 shares of Series C preferred stock to Convergence Ventures I, L.P. for a
purchase price of $144,251 and 42,284 shares of Series C preferred stock to
Convergence Entrepreneurs Fund I, L.P. for a purchase price of $100,002. The
Convergence group of funds is one of our principal stockholders, and Eric Di
Benedetto, one of our directors, is a general partner of Convergence Partners,
L.P., which is the general partner of these funds.

In March 1998, Hummer Winblad Venture Fund II, L.P., Hummer Winblad
Technology Fund II, L.P. and Hummer Winblad Technology Fund II-A, L.P. loaned
AdForce $480,000, $17,000 and $3,000. Each loan had an annual interest rate of
8%.

In April 1998, we sold 1,457,532 shares of Series D preferred stock to
19 investors. Convergence Ventures I, L.P. and Convergence Entrepreneurs Fund I,
L.P. purchased 145,666 and 6,554 shares of Series D preferred stock for an
aggregate purchase price of $1,045,000, or $6.865 per share. Hummer Winblad
Technology Fund II-A, L.P., Hummer Winblad Technology Fund II, L.P. and Hummer
Winblad Venture Fund II, L.P. also acquired 442, 2,506 and 70,774 shares of
Series D preferred stock by converting

notes of $3,000, $17,000 and $480,000 and accrued interest. In addition, IBL
Corporation purchased 72,832 shares of Series D preferred stock for a purchase
price of $499,992.

In July 1998, in consideration of the holders of our Series D preferred
stock agreeing to amendments to our then effective articles of incorporation
that, if not amended, would have triggered some anti-dilution protections
benefiting the holders of Series D preferred stock, we issued to the holders of
our Series D preferred stock warrants to purchase up to 72,860 shares of Series
D preferred stock at an exercise price of $6.865 per share. The warrants are
exercisable on or before July 14, 2003. The Convergence group of funds, the
Hummer Winblad group of funds and IBL Corporation each received warrants to
purchase a number of shares equal to five percent of the number of shares of
Series D preferred stock that they held. See "Principal Stockholders."

Also in July 1998, we sold 1,456,664 shares of Series E preferred stock
to America Online, Inc. for a purchase price of $9,999,998, or $6.865 per share.
America Online is one of our principal stockholders and has a right to appoint
one person to our board of directors that will continue following this offering.
In connection with the sale of Series E preferred stock to America Online, we
also issued to America Online a warrant to purchase up to 1,019,662 shares of
Series E preferred stock at an exercise price of $6.865 per share. The warrant
is exercisable on or before July 14, 2003.

COMMERCIAL AGREEMENTS

In August 1998, AdForce entered into a services agreement with 2CAN
Media, which has been acquired by Adsmart. Two of AdForce's founders, Chad
Steelberg and Ryan Steelberg, worked for 2CAN Media, and now work for Adsmart.
Chad Steelberg and Ryan Steelberg originally developed some of our core
technologies. In the services agreement, 2CAN Media agreed to use our Internet
advertising administration system as its exclusive advertising serving
technology. As of December 31, 1998, the agreement has generated $260,000 in net
revenue for AdForce.

In connection with the July 1998 sale of Series E preferred stock to
America Online, AdForce also entered into a license agreement and a demographic
data agreement with America Online.

LICENSE AGREEMENT. Under the license agreement, we licensed our
technology to America Online and its affiliates to be used internally by America
Online and on sites associated with America Online. The licensed technology
includes future enhancements to our technology and is warranted to perform
according to its specifications. The license is fully paid, nonexclusive,
perpetual, worldwide and nontransferable except for some assignments and
includes source code. We can terminate the license only in the event of a
material, uncorrected breach of the license agreement or demographic data
agreement by America Online. For the duration of the license, if requested, we
will provide technical support, development services and ad serving services on
a cost or cost plus basis if America Online is not in default. We will provide
these services at cost if America Online provides us access to demographic data
under the demographic data agreement and America Online is not in breach of the
demographic data agreement. Otherwise, we can mark up the cost of our services
by percentages specified in the license agreement. To our knowledge, we would
not agree to provide these services on these terms to any other party. Under the
license agreement, America Online will use commercially reasonable efforts to
encourage others associated with America Online to use our technology, and we
will use commercially reasonable efforts to encourage our customers to use
America Online in the sale of interactive advertising. In either case,
commission or revenue sharing obligations can arise. To date, America Online has
not used our technology on its sites and has not requested any services from us.

DEMOGRAPHIC DATA AGREEMENT. Under the demographic data agreement,
America Online may authorize us to use demographic information about America
Online users in connection with the targeting and delivery of ads to these
users. AdForce and America Online will establish a timetable and procedures for
the implementation of access to the data subject to America Online's
determination that targeted advertising has become a generally accepted practice
on the Internet. If we receive demographic

information from America Online, the demographic information will not identify
the user by name or address, and will only be able to be used for serving
targeted ads to America Online users. We cannot use the demographic data to
serve ads from advertisers or Web sites that America Online finds objectionable,
or from advertisers or Web sites on a list provided by America Online. America
Online may add names to this list at will, but expenditures of these advertisers
and revenues of these sites cannot exceed 25% of available advertising dollars
on the Internet. America Online reserves the right to limit or discontinue
access to demographic data in the event of adverse publicity, regulation, legal
claims or changes to America Online advertising and privacy policies. If we
receive access to the demographic data, we will pay America Online quarterly
fees based on the greater of a specified percentage of the consideration charged
by us for targeted advertising or a specified percentage of the incremental
revenue charged by us for the targeting feature. The fees we pay will total at
least $10.0 million for the first three years after we are granted access to the
demographic data. The demographic data agreement will expire on the earlier of
July 14, 2002 or three years after we have access to the demographic data.
America Online can elect to renew the demographic data agreement on the same
terms and conditions on a year-to-year basis with 90 days' notice, subject to
establishing mutually agreeable minimum annual fees. America Online can elect to
terminate the demographic data agreement upon payment of a fee to us if a third
party offers more favorable terms for access to the demographic data and we do
not match those terms. The demographic data agreement cannot be assigned or
transferred in connection with a change in control without the consent of
AdForce and America Online. To date, America Online has not determined that the
targeting of advertising has become a generally accepted practice, so we have
not had access to the demographic data. There is currently no final
implementation schedule or procedure for this access.

AdForce entered into a license agreement in February 1999 with Netscape,
similar to the license agreement with America Online described above. Under the
terms of the license agreement, upon the merger of Netscape and America Online,
which was completed in March 1999, we licensed our technology to Netscape and
its affiliates to be used internally by Netscape and on sites associated with
Netscape. The licensed technology includes future enhancements to our technology
and is warranted to perform according to its specifications. The license is
fully paid, nonexclusive, perpetual, worldwide and nontransferable, except for
some assignments, and includes source code. We can terminate the license of the
technology only in the event of a material, uncorrected breach by Netscape of
the license agreement or the demographic data agreement, if AdForce and Netscape
elect to enter a demographic data agreement. At this time, AdForce and Netscape
have not entered a demographic data agreement. We will provide technical support
and development services in connection with Netscape's use of the technology and
we will provide ad servicing services, all on a cost or cost plus basis if
Netscape is not in default. We will provide these services at cost if Netscape
provides us access to demographic data under the demographic data agreement and
Netscape is not in breach of the demographic data agreement. Otherwise, we can
mark up the cost of our services by percentages specified in the license
agreement. Under the license agreement, Netscape will use commercially
reasonable efforts to encourage others associated with Netscape to use our
technology. Under this arrangement, commission or revenue sharing obligations
can arise. The agreement to provide technical support and development services
runs for the duration of the license. The agreement to provide ad servicing
services automatically terminates on November 22, 1999, and is renewable for a
one-year term upon written agreement of AdForce and Netscape. To our knowledge,
we would not agree to provide any of the services under this agreement to any
other party under these same terms.

We believe that the transactions described above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties.

PRINCIPAL STOCKHOLDERS

The following table shows certain information with respect to beneficial
ownership of our common stock as of March 31, 1999 by (1) each stockholder known
by us to be the beneficial owner of more than 5% of our common stock; (2) each
of our directors; (3) each of our officers named in the Summary Compensation
Table above; and (4) all executive officers and directors as a group.

Beneficial ownership is determined in accordance with the rules of the
SEC and represents sole or shared voting or sole or shared investment power with
respect to securities. Unless otherwise indicated below, the persons and
entities named in the following table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable. Shares of common stock subject to options or warrants
that are currently exercisable or exercisable within 60 days of March 31, 1999
are deemed to be outstanding and to be beneficially owned by the person holding
the options or warrants for the purpose of computing the percentage ownership of
that person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.

The following table assumes that the underwriters' over-allotment option
to purchase up to 675,000 shares from AdForce is not exercised.

PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------------------ ---------------- ----------- -----------

America Online, Inc.(1)............................... 2,476,326 15.8% 12.3%
360 Capital Partners, L.P.(2)......................... 1,268,500 8.6 6.6
Mark P. Gorenberg(3)
Funds affiliated with Hummer Winblad................ 1,222,836 8.3 6.4
Chad Steelberg(4)..................................... 1,163,620 7.9 6.1
J. Neil Weintraut(5)
21(st) Century Internet Fund, L.P................... 1,145,428 7.8 6.0
Eric Di Benedetto(6)
Funds affiliated with Convergence Ventures.......... 1,047,778 7.1 5.5
IBL Corporation(7).................................... 1,043,556 7.1 5.4
Charles W. Berger(8).................................. 900,000 6.1 4.7
Dirk A. Wray(9)....................................... 649,952 4.4 3.4
John A. Tanner(10).................................... 225,000 1.5 1.2
All executive officers and directors as a group (10
persons)(11)......................................... 6,080,994 38.5 30.0

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

(1) Represents 1,456,664 shares held of record by America Online, Inc. and
1,019,662 shares subject to a warrant held by America Online, Inc. that is
currently exercisable. The address of America Online, Inc. is 22000 AOL
Way, Dulles, Virginia 20166.

(2) The address of 360 Capital Partners, L.P. is 360 East 22(nd) Street,
Lombard, Illinois 60148.

(3) Represents (a) 1,099,614 shares held of record by Hummer Winblad Venture
Partners II, L.P., (b) 70,774 shares held of record by Hummer Winblad
Venture Fund II, L.P., (c) 41,450 shares held of record by Hummer Winblad
Technology Fund II, L.P., (d) 7,314 shares held of record by Hummer Winblad
Technology Fund II-A, L.P, (e) 3,538 shares subject to a warrant held by
Hummer Winblad Venture Fund II, L.P. that is currently exercisable, (f) 124
shares subject to a warrant held by Hummer Winblad Technology Fund II, L.P.
that is currently exercisable, and (g) 22 shares subject to a warrant held
by Hummer Winblad Technology Fund II-A, L.P. that is currently exercisable.
Mr. Gorenberg, one of our directors, is a partner of Hummer Winblad Venture
Partners, which is the

general partner of the above funds. The address of Mr. Gorenberg and each
entity is 2 South Park, 2(nd) Floor, San Francisco, California 94107. Mr.
Gorenberg disclaims beneficial ownership of the shares held by the above
funds except to the extent of his pecuniary interest in the above funds.

(4) Includes 1,019,620 shares held of record by Mr. Steelberg and 144,000
shares for which Mr. Steelberg has sole voting power. The address of Mr.
Steelberg is c/o The Busch Firm, 2532 Dupont, Irvine, California 92618.

(5) Represents shares held by 21(st) Century Internet Fund, L.P. Mr. Weintraut,
one of our directors, is a founder and managing member of 21st Century
Internet Management Partners, LLC, a general partner of this fund. The
address of Mr. Weintraut and 21(st) Century Internet Fund, L.P. is 2 South
Park, 2(nd) Floor, San Francisco, California 94107. Mr. Weintraut disclaims
beneficial ownership of the shares held by the above fund except to the
extent of his pecuniary interest arising from his interest in the above
fund.

(6) Represents (a) 991,332 shares held of record by Convergence Ventures I,
L.P., (b) 48,838 shares held of record by Convergence Entrepreneurs Fund I,
L.P., (c) 7,282 shares subject to a warrant held by Convergence Ventures I,
L.P. that is currently exercisable, and (d) 326 shares subject to a warrant
held by Convergence Entrepreneurs Fund I, L.P. that is currently
exercisable. Mr. Di Benedetto, one of our directors, is a general partner
of Convergence Partners, L.P., which is the general partner of the above
funds. The address of each entity is 3000 Sand Hill Road, Building 2, Suite
235, Menlo Park, California 94025. Mr. Di Benedetto disclaims beneficial
ownership of the shares held by the above fund except to the extent of his
pecuniary interest arising from his interest in the above funds.

(7) Represents 1,039,916 shares held of record by IBL Corporation and 3,640
shares subject to a warrant held by IBL Corporation that is currently
exercisable. The address of IBL Corporation is 136 Heber Avenue, Suite 304,
Park City, Utah 84060.

(8) Includes 468,750 shares that are subject to a repurchase right which lapses
at the rate of 2.08% per month until June 30, 2001. Mr. Berger is our chief
executive officer, president and chairman of our board of directors.

(9) Includes 530,952 shares held of record by Washington Holdings, a Nevada
limited partnership, and 119,000 shares for which Mr. Wray has sole voting
power. Mr. Wray, one of our directors, is a general partner of Washington
Holdings. Mr. Wray disclaims beneficial ownership of the shares held by
Washington Holdings except to the extent of his pecuniary interest arising
from his interest in Washington Holdings.

(10) Includes 225,000 shares subject to options exercisable within 60 days of
March 31, 1999 of which 140,625 remain subject to a repurchase right which
lapses at the rate of 2.08% per month until November 3, 2001. Mr. Tanner
is our executive vice president and chief financial officer.

(11) Represents 4,954,702 shares held of record by current executive officers
and directors as a group and 1,126,292 shares subject to options or
warrants exercisable within 60 days of March 31, 1999 held by current
executive officers and directors as a group.

DESCRIPTION OF CAPITAL STOCK

Immediately following the closing of this offering, our authorized
capital stock will consist of 100,000,000 shares of common stock, and 5,000,000
shares of preferred stock. As of March 31, 1999, assuming the conversion of all
outstanding preferred stock into common stock, there were outstanding 14,669,429
shares of common stock held of record by 167 stockholders, options to purchase
2,280,759 shares of common stock and warrants to purchase 1,294,686 shares of
common stock.

COMMON STOCK

Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available for dividends at
times and in amounts as our board of directors may from time to time determine.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not authorized by our certificate of incorporation, which means
that the holders of a majority of the shares voted can elect all of the
directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon a
liquidation, dissolution or winding-up of AdForce, the assets legally available
for distribution to stockholders would be distributed ratably among the holders
of the common stock and any participating preferred stock outstanding at that
time after payment of liquidation preferences, if any, on any outstanding
preferred stock and payment of other claims of creditors. Each outstanding share
of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be upon payment for those shares, duly and
validly issued, fully paid and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, each outstanding share of preferred
stock will be converted into two shares of common stock. See note 8 of the notes
to the financial statements for a description of the preferred stock currently
outstanding. Following the offering, our board of directors will be authorized,
without any further vote or action by the stockholders and subject to
limitations prescribed by Delaware law, to issue up to 5,000,000 shares of
preferred stock in one or more series, to establish from time to time the number
of shares to be included in each series, to fix the rights, preferences and
privileges of the shares of each series and any qualifications, limitations or
restrictions on those shares, and to increase or decrease the number of shares
of each series. Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of AdForce and might adversely
affect the market price of the common stock and the voting and other rights of
the holders of common stock. We have no current plan to issue any shares of
preferred stock.

REGISTRATION RIGHTS

After this offering, the holders of approximately 10,532,696 shares of
common stock and warrants to acquire common stock will be entitled to rights to
register of those shares. As a result of an investors' rights agreement dated as
of July 15, 1998 between AdForce and certain of our stockholders, the
stockholders, holding an aggregate of 9,244,152 shares of our common stock
issuable upon conversion of our Series A preferred stock, Series B preferred
stock, Series C preferred stock, Series D preferred stock and Series E preferred
stock, have rights to register their shares that they may exercise at any time
after 180 days following the closing of this offering. Under the investors'
rights agreement, holders of: (1) at least 30% of the voting power of the
outstanding Series B preferred stock, (2) 30% of the voting power of the
outstanding Series C preferred stock, (3) a majority of the voting power of the
outstanding Series D

preferred stock or (4) a majority of the voting power of the outstanding Series
E preferred stock may demand, by written request, that we file a registration
statement under the Securities Act covering all or a portion of their preferred
stock, provided that, in the case of a registration statement on a form other
than a Form S-3, the registration statement has an aggregate proposed offering
price to the public, net of underwriters' discounts and commissions, of at least
$7,500,000 or, in the case of a registration on a Form S-3, there is a
reasonably anticipated aggregate offering price to the public of at least
$1,000,000, or $3,000,000 in the case of Series E preferred stock. These
stockholders may not demand more than three Form S-3 registrations in total or
more than two in any one year. These registration rights are subject to
AdForce's right to delay the filing of a registration statement not more than
once in a 12-month period, for not more than 90 days, after receiving the
registration demand in the case of a registration on a form other than a Form
S-3, and 60 days in the case of a registration on a Form S-3.

In addition, the stockholders who are parties to the investors' rights
agreement, and holders of rights to acquire 100,176 shares of common stock, have
piggyback registration rights. If AdForce proposes to register any of its common
stock under the Securities Act, other than under the investors' demand
registration rights noted above, these stockholders may require AdForce to
include all or a portion of their stock in the registration; provided, however,
that the managing underwriter, if any, of the offering has rights to limit the
amount of stock held by those investors included in a registration to 30% of the
aggregate shares included in the offering.

All registration expenses incurred in connection with the above
registrations will be borne by AdForce. Each selling stockholder will pay all
underwriting discounts and selling commissions applicable to the sale of that
stockholder's stock.

Demand and piggyback registration rights under the investors' rights
agreement will terminate with respect to a stockholder when (1) that stockholder
owns less than 1% of the outstanding securities of AdForce, (2) that stockholder
is able to sell all its shares in a three-month period under Rule 144 of the
Securities Act and (3) AdForce is subject to the reporting requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

ANTI-TAKEOVER PROVISIONS

DELAWARE LAW

Upon the closing of this offering, we will be subject to the provisions
of Section 203 of the Delaware General Corporation Law regulating corporate
takeovers. Section 203 prevents some Delaware corporations, including those
whose securities are listed on the Nasdaq National Market, from engaging, under
some circumstances, in a business combination with any interested stockholder
for three years following the date that that stockholder became an interested
stockholder of AdForce. For purposes of Section 203, a business combination
includes a merger or consolidation involving AdForce and the interested
stockholders and the sale of more than 10% of our assets. In general, Section
203 defines an interested stockholder as any entity or person owning 15% or more
of our outstanding voting stock and any entity or person affiliated with or
controlled by or controlling that entity or person.

A Delaware corporation may opt out of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not opted out of the provisions of Section 203. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts with respect to
us and, accordingly, may discourage attempts to acquire us.

CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

Our certificate of incorporation and bylaws provide for the division of
our board of directors into three classes as nearly equal in size as reasonably
possible with staggered three-year terms. Our stockholders are unable to fill
any vacancy on our board of directors. Any action required or permitted to be
taken by our stockholders at an annual meeting or a special meeting of the
stockholders may only be taken if it is properly brought before that meeting and
may not be taken by written consent. Our stockholders are limited in their
ability to remove any director or the entire board of directors without cause.
Our bylaws provide that special meetings of the stockholders may be called at
any time by the board of directors, and must be called upon the request of the
chairman of the board of directors, the chief executive officer, the president,
stockholders that are entitled to cast not less than a majority of the total
number of votes entitled to be cast by all stockholders of that special meeting,
or by a majority of the members of the board of directors. These provisions of
our certificate of incorporation and bylaws are intended to enhance the
likelihood of continuity and stability in the composition of the board of
directors and to discourage transactions that may involve an actual or
threatened change of control of AdForce. These provisions are designed to reduce
the vulnerability of AdForce to an unsolicited acquisition proposal and,
accordingly, could discourage potential acquisition proposals and could delay or
prevent a change in control of AdForce. These provisions are also intended to
discourage tactics that may be used in proxy fights but could, however, have the
effect of discouraging others from making tender offers for our shares and,
consequently, may also inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts. These charges may
also have the effect of preventing changes in our management. See "Risk
Factors--Provisions in Our Charter Documents May Deter Acquisition Bids for
AdForce, Which Could Adversely Affect the Market Price of Your Shares."

TRANSFER AGENT AND REGISTRAR

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

SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after this offering. Future sales of substantial amounts of common
stock, including shares issued upon exercise of outstanding options or warrants,
in the public market after this offering could adversely affect the prevailing
market price of our common stock and could impair our ability to raise equity
capital in the future. In addition, since few shares will be available for sale
immediately after this offering due to the contractual and legal restrictions on
resale described below, sales of substantial amounts of our common stock in the
public market after the restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding 19,169,429
shares of common stock based on shares outstanding at March 31, 1999, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants. Of this amount, 5,207,368 shares, including the
4,500,000 shares sold in this offering, will be freely tradable in the public
market without restriction or further registration under the Securities Act,
unless those shares are purchased by any of our affiliates. An affiliate of
AdForce is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
AdForce. Our current affiliates include the individuals and entities listed
under "Principal Stockholders" as well as our other executive officers. The
remaining 13,962,061 shares held by existing stockholders are subject to various
resale restrictions. Of these shares, 12,512,441 shares are subject to lock-up
agreements with the underwriters, under which all of our directors and officers
and most of our stockholders have agreed not to transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock, for a period of 180 days
after the date of this prospectus. Hambrecht & Quist LLC may release the shares
subject to the lock-up agreements in whole or in part at any time with or
without notice. Hambrecht & Quist LLC has no current plans to do so. An
additional 1,449,620 shares are subject to a 180-day lockup through agreements
directly with us that we have agreed to enforce if requested by the
underwriters. Beginning 180 days after the date of this prospectus, the
13,962,061 shares subject to various resale restrictions will be eligible for
sale in the public market under Rule 144 or Rule 701, although 6,411,366 shares
will be subject to volume limitations. The remaining shares subject to various
resale restrictions will become eligible for sale, subject to volume
limitations, on October 28, 1999.

RULE 144

In general, under Rule 144, beginning 90 days after the date of this
prospectus, an affiliate of AdForce who has beneficially owned restricted shares
for at least one year but less than two years, would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, equal to
approximately 191,694 shares immediately after this offering; or

- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice of sale with the SEC.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

RULE 144(K)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except one of our affiliates, is
entitled to

sell those shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.

RULE 701

In general, under Rule 701 of the Securities Act, any of our employees,
officers, directors, consultants or advisors who purchased shares from us in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period contained in Rule 144. However, all
shares issued pursuant to Rule 701 are subject to lock-up agreements and will
only become eligible for sale at the earlier of the expiration of the 180-day
lock-up agreements or obtaining the prior written consent of Hambrecht & Quist
LLC or the other representatives of the underwriters more than 90 days after
this offering.

REGISTRATION RIGHTS

Upon completion of this offering, the holders of 10,532,696 shares of
our common stock and rights to acquire common stock, or their transferees, will
be entitled to rights to register their shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." After registration, these
shares could be sold without restriction under the Securities Act.

STOCK OPTIONS

Promptly following this offering, we will file a registration statement
under the Securities Act covering all shares of common stock subject to
outstanding options or reserved for issuance under our 1999 plan, our directors
plan or our stock purchase plan. Based on the number of shares subject to
options outstanding at March 31, 1999 and currently reserved for issuance under
these plans, this registration statement would cover approximately 5,642,697
shares. The registration statement will automatically become effective upon
filing. Accordingly, shares registered under the registration statement will,
subject to Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the 180-day lock-up
agreements expire.

UNDERWRITING

Subject to the terms and conditions contained in the underwriting
agreement dated , 1999, the underwriters named below, for whom Hambrecht &
Quist LLC, Lehman Brothers Inc., Volpe Brown Whelan & Company, LLC and Charles
Schwab & Co., Inc. are acting as representatives, have agreed to purchase from
AdForce the following respective numbers of shares of common stock.

NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- -----------

Hambrecht & Quist LLC...........................................
Lehman Brothers Inc.............................................
Volpe Brown Whelan & Company, LLC...............................
Charles Schwab & Co., Inc.......................................

-----------
Total........................................................... 4,500,000
-----------
-----------

The underwriting agreement provides that the obligations of the
underwriters are subject to specified conditions, including the absence of any
material adverse change in AdForce's business and the receipt of certificates,
opinions and letters from AdForce, its counsel and its independent auditors. The
underwriters are committed to purchase all of the shares of common stock offered
by us if they purchase any shares.

The underwriters propose to offer the shares of common stock directly to
the public initially at the initial public offering price shown on the cover
page of this prospectus and to dealers selected by the underwriters at that
price less a concession not in excess of $ per share. The underwriters may
allow and those dealers may reallow a concession not in excess of $ per
share to other dealers. After the initial public offering of the shares, the
offering price and other selling terms may be changed by the underwriters.

We have granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to 675,000 additional
shares of common stock at the initial public offering price, less the
underwriting discounts shown on the cover page of this prospectus. To the extent
that the underwriters exercise this option, each of the underwriters will have a
firm commitment to purchase approximately the same percentage of those
additional shares which the number of shares of common stock to be purchased by
it shown in the above table bears to the total number of shares of common stock
offered by us. We will be obligated pursuant to this option to sell shares to
the underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered by us.

The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

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

AdForce and its officers, directors and certain other stockholders, who
will own in the aggregate 12,512,441 shares of common stock after the offering,
have agreed that they will not, without the prior

written consent of Hambrecht & Quist LLC, offer, sell or dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock owned by
them for a period of 180 days following the date of this prospectus. AdForce has
agreed that it will not, without the prior written consent of Hambrecht & Quist
LLC, offer, sell, grant any option to purchase or dispose of any shares of
common stock or any securities exchangeable for or convertible into shares of
common stock for a period of 180 days following the date of this prospectus,
except that AdForce may issue, and grant options to purchase, shares of common
stock under its stock and employee stock purchase plans and under currently
outstanding options. Sales of these shares in the future could adversely affect
the market price of the common stock.

Of the 4,500,000 shares of common stock to be sold in this offering, the
underwriters have reserved for sale, at the price to public shown on the cover
page of this prospectus, up to 393,750 shares as follows: (1) at our request, up
to 258,750 shares for our directors, officers and business associates and (2) up
to an additional 135,000 shares for preferred stockholders in connection with a
preexisting contractual right between AdForce and those preferred stockholders.
As a result, the number of shares of common stock available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. The underwriters will offer to the general public any reserved shares
that are not so purchased on the same basis as the other shares to be sold in
this offering.

Before this offering, you could not buy or sell our common stock on a
public market. The initial public offering price for the common stock will be
negotiated by AdForce and the underwriters. Among the factors to be considered
in determining the initial public offering price will be prevailing market and
economic conditions, revenues and earnings of AdForce, market valuations of
other companies engaged in activities similar to AdForce, estimates of the
business potential and prospects of AdForce, and the present state of AdForce's
business operations and AdForce's management. The estimated initial public
offering price range shown on the cover of this preliminary prospectus is
subject to change as a result of changes in these factors.

Some of the persons participating in this offering may over-allot or
effect transactions that stabilize, maintain or otherwise affect the market
price of the common stock at levels above those that might otherwise prevail in
the open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the common stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting syndicate
or the effecting of any purchase to reduce a short position created in
connection with the offering. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member in connection with the offering when
shares of common stock sold by the syndicate member are purchased in a syndicate
covering transaction. Stabilizing transactions may be effected on the Nasdaq
National Market, in the over-the-counter market, or otherwise. Stabilizing
transactions, if commenced, may be discontinued at any time.

H&Q Imgis Investors, L.P. and Hambrecht & Quist California purchased
101,968 and 43,700 shares of Series D preferred stock for an aggregate purchase
price of $1,000,011, or $6.865 per share, as part of an equity financing on the
same terms as all other participants in the financing purchased their shares. In
addition, in July 1998, we issued to H&Q Imgis Investors, L.P., a warrant to
purchase up to 5,048 shares of Series D preferred stock at an exercise price of
$6.865 per share, in consideration of agreeing to amendments to our then
effective articles of incorporation. Interests of H&Q Imgis Investors, L.P. and
Hambrecht & Quist California are beneficially owned in part by persons
affiliated with Hambrecht & Quist LLC.

LEGAL MATTERS

Fenwick & West LLP, Palo Alto, California, will pass upon the validity
of the shares of common stock offered by us. Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California, will pass upon legal matters
in connection with this offering for the underwriters. A partnership comprised
of partners of Fenwick & West LLP owns 3,640 shares of our common stock. A
partnership comprised of partners of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP owns 31,712 shares of our common stock.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1997 and 1998, and for the period from
January 16, 1996 (inception) through December 31, 1996 and for each of the two
years in the period ended December 31, 1998, as stated in their report. We have
included our financial statements and schedule in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited StarPoint
Software, Inc.'s financial statements at May 31, 1997, and for the period from
August 8, 1996 (inception) through May 31, 1997, as stated in their report. We
have included StarPoint Software's financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered by us. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information in
the registration statement or the exhibits and schedule that are part of the
registration statement. For further information with respect to AdForce and the
common stock, please see the registration statement and the exhibits and
schedule that are part of the registration statement. You may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov.

Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, as required by the Securities Exchange Act, we will file periodic reports,
proxy statements and other information with the SEC. These periodic reports,
proxy statements and other information will be available for inspection and
copying at the SEC's public reference rooms and the Web site of the SEC referred
to above.

INDEX TO FINANCIAL STATEMENTS

PAGE
-----

ADFORCE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Balance Sheets..................................................................... F-3
Statements of Operations........................................................... F-4
Statements of Stockholders' Equity................................................. F-5
Statements of Cash Flows........................................................... F-6
Notes to Financial Statements...................................................... F-7

STARPOINT SOFTWARE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-26
Balance Sheets..................................................................... F-27
Statements of Operations........................................................... F-28
Statements of Shareholders' Equity (Net Capital Deficiency)........................ F-29
Statements of Cash Flows........................................................... F-30
Notes to Financial Statements...................................................... F-31

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders

AdForce, Inc.

We have audited the accompanying balance sheets of AdForce, Inc. as of
December 31, 1997 and 1998, and the related statements of operations, and
stockholders' equity, and cash flows for the period from January 16, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AdForce, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from January 16, 1996 (inception) to December 31, 1996 and for
the years ended December 31, 1997 and 1998, in conformity with generally
accepted accounting principles.

/s/ ERNST & YOUNG LLP

San Jose, California
February 5, 1999,
except for Note 11,
as to which the date is April 30, 1999

F-2

ADFORCE, INC.

BALANCE SHEETS

(DOLLARS IN THOUSANDS)

DECEMBER 31,
--------------------
1997 1998
--------- ---------
MARCH 31, PRO FORMA
----------- STOCKHOLDERS'
1999 EQUITY AT MARCH
----------- 31, 1999
-----------------
(UNAUDITED)
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents......................................... $ 1,680 $ 10,045 $ 9,727
Accounts receivable, net of allowances of $131, $1,035, and $1,187
at December 31, 1997 and 1998 and March 31, 1999,
respectively.................................................... 239 1,160 1,348
Prepaid expenses and other current assets......................... 404 575 676
--------- --------- -----------
Total current assets................................................ 2,323 11,780 11,751
Property and equipment, net......................................... 1,946 4,208 7,219
Intangible assets, net.............................................. -- 3,602 3,364
Other non-current assets............................................ -- 285 1,005
--------- --------- -----------
Total assets........................................................ $ 4,269 $ 19,875 23,339
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 374 $ 1,078 $ 2,608
Accrued compensation and related benefits......................... 85 458 715
Deferred revenue.................................................. -- 10 2,369
Other accrued liabilities......................................... 192 799 679
Current portion of capital lease obligations...................... 499 1,460 2,336
--------- --------- -----------
Total current liabilities........................................... 1,150 3,805 8,707
Long-term portion of capital lease obligations...................... 1,744 3,089 5,183
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value: 6,238,163 shares
authorized:
Series A, 602,000 shares designated, 600,457 shares issued and
outstanding as of December 31, 1997 and 1998, and March 31,
1999, and none pro forma, aggregate liquidation preference at
December 31, 1998 and March 31, 1999 of $1,507................ 1 1 1 $ --
Series B, 1,100,000 shares designated, 1,027,318 shares issued
and outstanding as of December 31, 1997 and 1998, and March
31, 1999, and none pro forma, aggregate liquidation preference
at December 31, 1998 and March 31, 1999 of $2,579............. 1 1 1 --
Series C, 1,725,000 shares designated, 1,275,000, 1,646,948, and
1,646,948 shares issued and outstanding as of December 31,
1997 and 1998, and March 31, 1999, respectively, and none pro
forma, aggregate liquidation preference at December 31, 1998
and March 31, 1999 of $7,790.................................. 1 1 1 --
Series D, 786,500 shares designated, 730,504 shares issued and
outstanding as of December 31, 1998 and March 31, 1999 and
none pro forma, aggregate liquidation preference at December
31, 1998 and March 31, 1999 of $10,030........................ -- 1 1 --
Series E, 1,238,163 shares designated, 728,332 shares issued and
outstanding as of December 31, 1998 and March 31, 1999 and
none pro forma, aggregate liquidation preference at December
31, 1998 and March 31, 1999 of $10,000........................ -- 1 1 --
Common stock, $0.001 par value: 25,000,000 shares authorized:
3,270,330, 5,016,603, and 5,202,311 shares issued and
outstanding as of December 31, 1997 and 1998 and March 31, 1999,
respectively, and 14,669,429 shares issued and outstanding pro
forma 3 5 5 15
Additional paid-in capital........................................ 10,623 39,879 44,234 44,229
Deferred stock compensation....................................... -- (2,662) (5,713) (5,713)
Note receivable from stockholder.................................. (98) (70) (63) (63)
Accumulated deficit............................................... (9,156) (24,176) (29,019) (29,019)
--------- --------- ----------- -------
Total stockholders' equity.......................................... 1,375 12,981 9,449 $ 9,449
--------- --------- ----------- -------
--------- --------- ----------- -------
Total liabilities and stockholders' equity.......................... $ 4,269 $ 19,875 $ 23,339
--------- --------- -----------
--------- --------- -----------

SEE ACCOMPANYING NOTES.

F-3

ADFORCE, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(UNAUDITED)

Net revenue............................. $ -- $ 320 $ 4,286 $ 414 $ 3,220
Cost of revenue:
Data center operations................ -- 1,508 4,439 709 1,915
Amortization of intangible assets and
deferred stock compensation......... -- -- 620 101 239
------- --------- --------- --------- ---------
Total cost of revenue................. -- 1,508 5,059 810 2,154
------- --------- --------- --------- ---------
Gross profit (loss)..................... -- (1,188) (773) (396) 1,066
Operating expenses:
Research and development.............. 1,561 2,236 4,665 818 2,244
Marketing and selling................. 1,485 1,054 4,863 613 1,773
General and administrative............ 337 1,118 1,839 390 615
Amortization of intangible assets and
deferred stock compensation......... -- -- 2,729 163 1,204
------- --------- --------- --------- ---------
Total operating expenses................ 3,383 4,408 14,096 1,984 5,836
------- --------- --------- --------- ---------
Loss from operations.................... (3,383) (5,596) (14,869) (2,380) (4,770)
Interest income......................... -- 21 365 6 99
Interest expense........................ (69) (129) (516) (109) (172)
------- --------- --------- --------- ---------
Net loss................................ $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted net loss per share.... $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,465 1,639 2,844 2,079 3,966
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Pro forma basic and diluted net loss per
share................................. $ (1.38) $ (0.36)
--------- ---------
--------- ---------
Weighted average shares used in
computing pro forma basic and diluted
net loss per share.................... 10,877 13,402
--------- ---------
--------- ---------

SEE ACCOMPANYING NOTES.

F-4

ADFORCE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------

Issuance of common stock to founders in partial consideration for intellectual
property rights assigned to the Company...................................... -- $ -- 1,720,000 $ 2
Issuance of common stock....................................................... -- -- 2,003,000 2
Repurchase of common stock..................................................... -- -- (1,612,900) (2)
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ 600,457 1 -- --
Issuance of Series B convertible preferred stock............................... 110,000 -- -- --
Conversion of Series B convertible preferred stock to common stock............. (110,000) -- 220,000 --
Issuance of Series B convertible preferred stock, net of issuance costs of
$17.......................................................................... 1,027,318 1 -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1996.................................................... 1,627,775 2 2,330,100 2
Issuance of common stock....................................................... -- -- 940,230 1
Forgiveness of stockholder note receivable..................................... -- -- -- --
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... 1,275,000 1 -- --
Issuance of warrants........................................................... -- -- -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1997.................................................... 2,902,775 3 3,270,330 3
Issuance of common stock....................................................... -- -- 868,439 1
Deferred stock compensation related to certain options granted to employees.... -- -- -- --
Amortization of deferred stock compensation.................................... -- -- -- --
Compensation related to acceleration of vesting of founders' stock............. -- -- -- --
Issuance of Series C convertible preferred stock and common stock in
acquisition.................................................................. 309,738 -- 877,834 1
Issuance of Series C convertible preferred stock, net of issuance costs of
$26.......................................................................... 62,210 -- -- --
Issuance of Series D convertible preferred stock, net of issuance costs of
$74.......................................................................... 730,504 1 -- --
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... 728,332 1 -- --
Forgiveness of stockholder note receivable..................................... -- -- -- --
Issuance of warrants........................................................... -- -- -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1998.................................................... 4,733,559 5 5,016,603 5
Issuance of common stock (unaudited)........................................... -- -- 185,708 --
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. -- -- -- --
Amortization of deferred compensation (unaudited).............................. -- -- -- --
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. -- -- -- --
Forgiveness of stockholder note receivable (unaudited)......................... -- -- -- --
Issuance of warrants (unaudited)............................................... -- -- -- --
Net loss (unaudited)........................................................... -- -- -- --
--------- ----- --------- -----
Balances at March 31, 1999 (unaudited)........................................... 4,733,559 $ 5 5,202,311 $ 5
--------- ----- --------- -----
--------- ----- --------- -----

NOTE
DEFERRED RECEIVABLE
ADDITIONAL STOCK FROM
PAID-IN CAPITAL COMPENSATION STOCKHOLDER
--------------- ------------- -------------

Issuance of common stock to founders in partial consideration for intellectual
property rights assigned to the Company...................................... $ 6 $ -- $ --
Issuance of common stock....................................................... 8 -- --
Repurchase of common stock..................................................... (6) -- --
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ 1,408 -- --
Issuance of Series B convertible preferred stock............................... 550 -- --
Conversion of Series B convertible preferred stock to common stock............. -- -- --
Issuance of Series B convertible preferred stock, net of issuance costs of
$17.......................................................................... 2,560 -- --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1996.................................................... 4,526 -- --
Issuance of common stock....................................................... 116 -- (112)
Forgiveness of stockholder note receivable..................................... -- -- 14
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... 5,958 -- --
Issuance of warrants........................................................... 23 -- --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1997.................................................... 10,623 -- (98)
Issuance of common stock....................................................... 90 -- --
Deferred stock compensation related to certain options granted to employees.... 3,714 (3,714) --
Amortization of deferred stock compensation.................................... -- 1,052 --
Compensation related to acceleration of vesting of founders' stock............. 1,407 -- --
Issuance of Series C convertible preferred stock and common stock in
acquisition.................................................................. 1,684 -- --
Issuance of Series C convertible preferred stock, net of issuance costs of
$26.......................................................................... 269 -- --
Issuance of Series D convertible preferred stock, net of issuance costs of
$74.......................................................................... 9,954 -- --
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... 9,887 -- --
Forgiveness of stockholder note receivable..................................... -- -- 28
Issuance of warrants........................................................... 2,251 --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1998.................................................... 39,879 (2,662) (70)
Issuance of common stock (unaudited)........................................... 92 -- --
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. 4,139 (4,139) --
Amortization of deferred compensation (unaudited).............................. -- 1,088 --
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. 124 -- --
Forgiveness of stockholder note receivable (unaudited)......................... -- -- 7
Issuance of warrants (unaudited)............................................... -- -- --
Net loss (unaudited)........................................................... -- -- --
------- ------------- -------------
Balances at March 31, 1999 (unaudited)........................................... $ 44,234 $ (5,713) $ (63)
------- ------------- -------------
------- ------------- -------------

TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
Issuance of common stock to founders in partial consideration for intellectual
property rights assigned to the Company...................................... $ -- $ 8
Issuance of common stock....................................................... -- 10
Repurchase of common stock..................................................... -- (8)
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ -- 1,409
Issuance of Series B convertible preferred stock............................... -- 550
Conversion of Series B convertible preferred stock to common stock............. -- --
Issuance of Series B convertible preferred stock, net of issuance costs of
$17.......................................................................... -- 2,561
Net loss....................................................................... (3,452) (3,452)
------------- -------------
Balances at December 31, 1996.................................................... (3,452) 1,078
Issuance of common stock....................................................... -- 5
Forgiveness of stockholder note receivable..................................... -- 14
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... -- 5,959
Issuance of warrants........................................................... -- 23
Net loss....................................................................... (5,704) (5,704)
------------- -------------
Balances at December 31, 1997.................................................... (9,156) 1,375
Issuance of common stock....................................................... -- 91
Deferred stock compensation related to certain options granted to employees.... -- --
Amortization of deferred stock compensation.................................... -- 1,052
Compensation related to acceleration of vesting of founders' stock............. -- 1,407
Issuance of Series C convertible preferred stock and common stock in
acquisition.................................................................. -- 1,685
Issuance of Series C convertible preferred stock, net of issuance costs of
$26.......................................................................... -- 269
Issuance of Series D convertible preferred stock, net of issuance costs of
$74.......................................................................... -- 9,955
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... -- 9,888
Forgiveness of stockholder note receivable..................................... -- 28
Issuance of warrants........................................................... 2,251
Net loss....................................................................... (15,020) (15,020)
------------- -------------
Balances at December 31, 1998.................................................... (24,176) 12,981
Issuance of common stock (unaudited)........................................... -- 92
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. -- --
Amortization of deferred compensation (unaudited).............................. -- 1,088
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. -- 124
Forgiveness of stockholder note receivable (unaudited)......................... -- 7
Issuance of warrants (unaudited)............................................... -- --
Net loss (unaudited)........................................................... (4,843) (4,843)
------------- -------------
Balances at March 31, 1999 (unaudited)........................................... $ (29,019) $ 9,449
------------- -------------
------------- -------------

SEE ACCOMPANYING NOTES.

F-5

ADFORCE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
Reconciliation of net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization.................... 158 797 3,006 568 940
Amortization of deferred stock compensation and
other compensation charges..................... -- -- 2,459 9 1,212
Loss on sale of assets........................... -- -- 281 -- 15
Acquired in-process technology................... 319 -- 100 -- --
Other non-cash charges........................... -- 14 51 7 7
Changes in operating assets and liabilities:
Accounts receivable............................ -- (239) (908) (210) (188)
Prepaid expenses and other current assets and
other non-current assets..................... (75) (329) (449) 155 (821)
Accounts payable............................... 566 (192) 239 (290) 1,530
Accrued compensation and related benefits...... 61 24 61 77 257
Deferred revenue............................... -- -- 10 -- 2,359
Other accrued liabilities...................... 150 42 577 388 (120)
------- --------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................. (2,273) (5,587) (9,593) (1,779) 348
------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of technology and operating rights... (106) -- -- -- --
Proceeds from sale of assets..................... -- -- 105 -- --
Capital expenditures............................. (1,248) (163) (1,291) (158) (343)
------- --------- --------- --------- ---------
Net cash used in investing activities........ (1,354) (163) (1,186) (158) (343)
------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback transaction......... -- 1,033 -- -- --
Principal payments on capital lease
obligations.................................... -- (248) (923) (113) (415)
Proceeds from issuance of common stock, net...... 2 5 86 27 92
Proceeds from issuance of preferred stock, net... 3,014 5,959 19,594 269 --
Proceeds from issuance of notes payable.......... 1,757 -- 500 500 --
Repayment of notes payable....................... (465) -- (113) (113) --
------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................. 4,308 6,749 19,144 570 (323)
------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 681 999 8,365 (1,367) (318)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... -- 681 1,680 1,680 10,045
------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ 681 $ 1,680 $ 10,045 $ 313 $ 9,727
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for interest............. $ 69 $ 126 $ 457 $ 70 $ 116
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING/FINANCING ACTIVITIES
Property and equipment acquired under capital
leases........................................... $ -- $ 1,458 $ 3,389 $ 1,114 $ 3,370
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Conversion of Series B convertible preferred stock
into common stock................................ $ 550 $ -- $ -- $ -- $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Conversion of notes payable into Series A
convertible preferred stock...................... $ 1,409 $ -- $ -- $ -- $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Conversion of notes payable and accrued interest
into Series D convertible preferred stock........ $ -- $ -- $ 506 $ -- $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Issuance of Series C convertible preferred stock,
common stock, and stock options for purchase of
business......................................... $ -- $ -- $ 1,685 $ 1,685 $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------

SEE ACCOMPANYING NOTES.

F-6

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Imgis, Inc. was incorporated in the state of California on January 16,
1996. AdForce is a provider of centralized, outsourced ad management and
delivery services on the Internet. AdForce's services offer sophisticated
campaign design, inventory management, targeting, ad delivery, tracking,
measuring and reporting capabilities.

AdForce has incurred operating losses to date and had an accumulated
deficit of $24,176,000 and $29,019,000 at December 31, 1998 and March 31, 1999,
respectively. AdForce's activities have been primarily financed through private
placements of equity securities and capital lease financings. AdForce may need
to raise additional capital through the issuance of debt or equity securities
and capital lease financings. Such financing may not be available on terms
satisfactory to AdForce, if at all. If adequate funds are not available, AdForce
may be required to reduce its level of spending.

INTERIM FINANCIAL INFORMATION

The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that AdForce's management
considers necessary for a fair presentation of AdForce's operating results and
cash flows for such period. Results for the three month period ended March 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year of 1999 or for any future period.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

AdForce sells and grants credit for its services to its customers
without requiring collateral or third-party guarantees. To date, all of
AdForce's customers are participants in the Internet industry, including ad
agencies, Web sites, and ad rep firms. Few companies in the Internet industry
have a demonstrated history of profitability, and, accordingly, granting
unsecured credit to such customers carries with it a significant risk of loss.
AdForce monitors its exposure for credit losses and maintains appropriate
allowances. During 1996, AdForce was still in the development stage and had no
revenues. During 1997, two customers accounted for approximately 79% and 13% of
net revenue. One customer accounted for approximately 85% of AdForce's net
accounts receivable at December 31, 1997. During 1998, three customers accounted
for 40%, 16% and 11% of net revenue. Two customers each accounted for
approximately 31% of AdForce's net accounts receivable at December 31, 1998.
During the three months ended March 31, 1999 four customers accounted for 23%,
21%, 20%, and 12% of net revenue. Three of these customers accounted for
approximately 39%, 33%, and 12% of AdForce's net accounts receivable at March
31, 1999.

CASH AND CASH EQUIVALENTS

AdForce considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998 and

F-7

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
March 31, 1999, cash equivalents consisted primarily of investments in money
market accounts and commercial paper, and their cost approximated fair value.
AdForce places its cash and cash equivalents in high-quality U.S. financial
institutions and, to date, has not experienced any losses on any of its
investments.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards ("FAS") No. 107,
"DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS," requires that fair
values be disclosed for most of AdForce's financial instruments. The carrying
amounts of cash and cash equivalents, accounts receivable, note receivable from
stockholder, current liabilities, and capital lease obligations are considered
to be representative of their respective fair values.

INTANGIBLE ASSETS, NET

Intangible assets consist primarily of purchased technology and other
intangibles related to an acquisition accounted for using the purchase method
and the value of the warrant issued to a data vendor. Amortization of the
purchased technology and other intangibles related to the acquisition is
provided on a straight-line basis over the respective useful lives of the
assets, which range from two to three years. Purchased in-process research and
development without an alternative future use was expensed when acquired.
Amortization of the warrant value will be provided on a straight-line basis over
a three year period, beginning upon the earlier of July 14, 1999 or the
commencement of activity under the related agreement.

As of December 31, 1998 and March 31, 1999, the Company has accumulated
amortization related to intangible assets of $849,000 and $1,087,000,
respectively.

AdForce identifies and records impairment losses on intangible assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.

DEPRECIATION AND AMORTIZATION

AdForce records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Equipment acquired under capital
leases is amortized on a straight-line basis over the shorter of its lease term
or estimated useful life, generally three to five years.

ADVERTISING COSTS

Advertising costs are charged to expense when incurred. No advertising
was incurred for the period from January 16, 1996 (inception) to December 31,
1996. Advertising expense was $93,000, $125,000, and $270,000 for the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1999,
respectively.

F-8

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

To date, substantially all of AdForce's revenues have been generated
from the provision of Internet advertising management and delivery services for
its customers. AdForce recognizes revenues from these services based on the
number of ads delivered. Revenue is recognized at the time the service is
delivered, provided AdForce does not have any significant remaining obligations
and collection of the resulting receivable is probable. Prepaid amounts for
advertising management and delivery services are recorded as deferred revenue
until the related services are delivered.

STOCK-BASED COMPENSATION

AdForce has elected to follow Accounting Principles Board Opinion No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 7, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (FAS 123), requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB Opinion No.
25, when the exercise price of AdForce's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See pro forma disclosures of applying FAS 123 included in
Note 7.

RESEARCH AND DEVELOPMENT COSTS

Costs incurred in the development of new software (and substantial
enhancements to existing software) to be used in connection with AdForce's
services are expensed to operations as incurred until technological feasibility
of such software has been established, at which time any additional costs would
be capitalized in accordance with FAS No. 86. Because AdForce believes that its
present process for developing software is completed essentially concurrently
with the establishment of technological feasibility, no research and development
costs have been capitalized to date.

NET LOSS PER SHARE

Basic and diluted net loss per share are presented in conformity with
FAS No. 128, "EARNINGS PER SHARE" ("FAS 128"), for all periods presented.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of AdForce's initial
public offering must be included in the calculation of basic and diluted net
loss per share as if they had been outstanding for all periods presented. To
date, AdForce has not had any issuances or grants for nominal consideration. In
accordance with FAS 128, basic and diluted net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period, less shares subject to repurchase.

PRO FORMA NET LOSS PER SHARE AND PRO FORMA STOCKHOLDERS' EQUITY

Pro forma net loss per share has been computed as described above and
also gives effect, under Securities and Exchange Commission guidance, to the
conversion of convertible preferred stock not included above that will
automatically convert upon completion of AdForce's initial public offering
(using the as converted method). If the offering contemplated by this prospectus
is consummated, all of the

F-9

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
convertible preferred stock outstanding as of March 31, 1999 will automatically
be converted into an aggregate of 9,467,118 shares of common stock. Pro forma
stockholders' equity at March 31, 1999, as adjusted for the conversion of
convertible preferred stock, is disclosed on the balance sheet.

Historical and pro forma basic and diluted net loss per share are as
follows (in thousands, except per share amounts):

THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- --------- --------- --------- ---------
(UNAUDITED)

Historical:
Net loss................................ $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted shares:
Weighted average shares of common stock
outstanding........................... 3,665 2,836 4,443 3,720 5,108
Less weighted average shares subject to
repurchase............................ (1,200) (1,197) (1,599) (1,641) (1,142)
------- --------- --------- --------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net per loss share........ 2,465 1,639 2,844 2,079 3,966
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted net loss per share.... $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Pro forma:
Net loss................................ $ (15,020) $ (4,843)
--------- ---------
--------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,844 3,966
Adjusted to reflect the assumed
conversion of convertible preferred
stock from the date of issuance....... 8,033 9,436
--------- ---------
Weighted average shares used in
computing pro forma basic and diluted
net loss per share.................... 10,877 13,402
--------- ---------
--------- ---------
Pro forma basic and diluted net loss per
share................................. $ (1.38) $ (0.36)
--------- ---------
--------- ---------

If AdForce had reported net income, diluted net income per share would
have included the shares used in the computation of pro forma net loss per share
as well as approximately 1,953,414, 3,217,546, and 3,575,445 common equivalent
shares related to outstanding options and warrants to purchase common stock not
included above for the years ended December 31, 1997 and 1998 and for the three
months ended March 31, 1999, respectively. The common equivalent shares from
options and warrants would be determined on a weighted average basis using the
treasury stock method.

F-10

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE LOSS

In June 1997, the Financial Accounting Standards Board issued FAS No.
130, "REPORTING COMPREHENSIVE INCOME" ("FAS 130"). FAS 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements and is effective for fiscal
years beginning after December 15, 1997. AdForce adopted FAS 130 in the year
ended December 31, 1998. There was no impact on AdForce's financial statements
as a result of the adoption of FAS 130, as there is no difference between
AdForce's net loss reported and the comprehensive net loss under FAS 130 for the
periods presented.

SEGMENT INFORMATION

In June 1997, the Financial Accounting Standards Board issued FAS No.
131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION" ("FAS
131"). FAS 131 changes the way companies report selected segment information in
annual financial statements and requires companies to report selected segment
information in interim financial reports to stockholders. FAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. AdForce adopted FAS 131 in the year ended
December 31, 1998. AdForce operates solely in one segment, the provision of
Internet advertising management and delivery services, and therefore there is no
impact on AdForce's financial statements of adopting FAS 131. For the year ended
December 31, 1998, revenues from customers outside the United States were
$375,000. The majority of this revenue was from customers in Europe.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." SOP No. 98-1 requires entities to
capitalize certain costs related to internal-use software once certain criteria
have been met. AdForce implemented SOP No. 98-1 on January 1, 1999. The adoption
of SOP No. 98-1 did not have a material impact on its financial position or
results of operations.

In April 1998, the AICPA issued SOP No. 98-5, "REPORTING ON THE COSTS OF
START-UP ACTIVITIES." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. AdForce implemented SOP No. 98-5 on January 1, 1999. The adoption of
SOP No. 98-5 did not have a material impact on its financial position or results
of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No.
133 establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
AdForce will be required to implement SFAS No. 133 for the year ending December
31, 2000. Because AdForce does not currently hold any derivative instruments and
does not engage in hedging activities, AdForce does not expect that the adoption
of SFAS No. 133 will have a material impact on its financial position or results
of operations.

F-11

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

2. BUSINESS COMBINATION

In February 1998, AdForce acquired StarPoint Software, Inc.
("StarPoint"), a company that developed software to serve Internet advertising,
for (i) 309,738 shares of Series C preferred stock with a fair value of
$1,465,000 based on the price at which the Series C preferred stock was sold by
the Company in November 1997, (ii) 877,834 shares of common stock and options to
purchase 48,056 shares of common stock with an aggregate fair value of $220,000
based on the deemed fair value of the Company's common stock at the time of
issuance, (iii) $113,000 of debt and (iv) $162,000 in acquisition costs in a
transaction that was accounted for as a purchase. The deemed fair value of the
common stock was determined by the Board of Directors after consideration of the
relevant factors, including the current prices of the Company's preferred stock,
the current status of the Company's operations and key operating factors.

The purchase consideration was allocated to the acquired assets and
assumed liabilities based on fair values as follows (in thousands):

Current assets.............................................. $ 19
Property and equipment...................................... 77
Liabilities assumed......................................... (645)
Purchased in-process technology............................. 100
Purchased technology........................................ 1,669
Non-competition agreement................................... 540
Assembled workforce......................................... 200
--------
$ 1,960
--------
--------

AdForce determined that $100,000 of the purchase price represented
purchased in-process technology that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
expensed at the time of the acquisition. The value assigned to purchased
in-process technology was determined by identifying research projects in areas
for which technological feasibility had not been achieved and assessing the
completion date of the research and development effort. The state of completion
was determined by estimating the costs and time incurred to date relative to the
costs and time to be incurred to develop the purchased in-process technology
into commercially viable products, estimating the resulting net cash flows only
from the percentage of research and development efforts completed at the date of
acquisition, and discounting the net cash flows back to their present value. The
discount rate of 40% included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology
projects.

The value of the purchased technology of $1,669,000 was determined by
discounting expected future cash flows of the existing developed technologies
taking into account the characteristics and applications of the technology, the
size of existing markets and growth rates of existing and future markets, as
well as an evaluation of past and anticipated service-life cycles. The discount
rate of 35% included a factor that took into account the uncertainty surrounding
the successful delivery of the purchased technology.

F-12

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

2. BUSINESS COMBINATION (CONTINUED)
The following (unaudited) pro forma summary represents the consolidated
results of operations as if the acquisition of StarPoint had occurred at the
beginning of the period presented and is not intended to be indicative of future
results (in thousands except per share amounts).

YEAR ENDED
DECEMBER 31, 1997
-------------------

Pro forma net revenue................................... $ 437
Pro forma net loss...................................... $ (8,219)
Pro forma basic and diluted net loss per share.......... $ (3.27)
Number of shares used in pro forma basic and diluted per
share calculation..................................... 2,517

The pro forma disclosures for the year ended December 31, 1998 have been
omitted because they are not materially different from the reported amounts as
the results of operations of StarPoint have been included since February 13,
1998. In-process research and development charges of $100,000 were excluded from
the pro forma net loss and pro forma net loss per share figures for the year
ended December 31, 1997. The number of shares used in the above pro forma per
share calculation assumes that the common stock issued to StarPoint on February
13, 1998 was issued and outstanding for the entire year of 1997. The pro forma
results are not necessarily indicative of what actually would have occurred if
the acquisition had been effected at the beginning of the period presented and
are not intended to be a projection of future results.

3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

DECEMBER 31,
--------------------
1997 1998
--------- --------- MARCH 31,
-----------
1999
-----------
(UNAUDITED)

Computer hardware and software.................. $ 2,648 $ 6,475 $ 9,727
Office furniture and equipment.................. 155 345 576
Leasehold improvements.......................... 76 152 363
--------- --------- -----------
2,879 6,972 10,666
Less accumulated depreciation and
amortization.................................. 933 2,764 3,447
--------- --------- -----------
$ 1,946 $ 4,208 $ 7,219
--------- --------- -----------
--------- --------- -----------

As of December 31, 1997 and 1998 and March 31, 1999, property and
equipment included amounts acquired under capital leases of $2,491,000,
$5,140,000 and $8,510,000, respectively, with related accumulated amortization
of $740,000, $1,714,000, and $2,202,000, respectively. This includes property
and equipment with a net book value of $589,000 and $447,000 at December 31,
1998 and March 31, 1999, respectively, that was acquired in 1996 and financed in
1997 through a sale-leaseback transaction.

F-13

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

4. RELATED PARTIES

Two of AdForce's founders and current stockholders hold executive
management positions with one of AdForce's customers. Net revenue recognized
from sales to this customer was $260,000 during the year ended December 31,
1998.

5. LICENSE AGREEMENT AND DEMOGRAPHIC DATA AGREEMENT

In July 1998, AdForce entered into a License Agreement and a Demographic
Data Agreement with America Online, Inc. In addition, AdForce sold 728,332
shares of Series E convertible preferred stock to America Online for a purchase
price of $10,000,000. In connection with the sale of Series E convertible
preferred stock to America Online, AdForce also issued to America Online a
warrant to purchase up to 509,831 shares of Series E convertible preferred stock
at an exercise price of $13.73 per share. The warrant is exercisable at any time
on or before July 14, 2003 (See Note 8). AdForce determined the fair value of
the warrants to be $3,686,000 using the Black-Scholes method. Approximately
$1,669,000 of the value of the warrant was attributable to the Series E
preferred stock agreement and approximately $2,019,000 of the value of the
warrant was attributable to the Demographic Data Agreement. AdForce determined
the allocation of the warrant value between the Series E preferred stock
agreement and the Demographic Data Agreement primarily based on the decrease to
the conversion rate (benefit to the Company and its other equity holders) of the
Series D preferred stock as a result of the sale and issuance of the Series E
preferred stock and warrant. The amount related to the Demographic Data
Agreement will be amortized to cost of revenue over the three year term of the
agreement beginning upon the earlier of commencement of activities under the
agreement or July 14, 1999.

Under the License Agreement, AdForce licensed its technology to America
Online and its affiliates to be used internally by America Online and on sites
associated with America Online. The licensed technology includes future
enhancements to AdForce's technology and is warranted to perform according to
its specifications. The license is fully paid, nonexclusive, perpetual,
worldwide and nontransferable except for certain assignments and includes source
code. AdForce can terminate the license only in the event of a material,
uncorrected breach of the License Agreement or Demographic Data Agreement by
America Online. For the duration of the license, if requested, AdForce will
provide technical support, development services and ad serving services on a
cost or cost plus basis if America Online is not in default. AdForce will
provide these services at cost if America Online provides AdForce access to
demographic data under the Demographic Data Agreement and America Online is not
in breach of the Demographic Data Agreement. Otherwise, AdForce can mark up the
cost of our services by certain percentages. Under the License Agreement,
America Online will use commercially reasonable efforts to encourage others
associated with America Online to use AdForce's technology, and AdForce will use
commercially reasonable efforts to encourage its customers to use America Online
in the sale of interactive advertising.

Under the Demographic Data Agreement, America Online may authorize
AdForce to use demographic information about America Online users in connection
with the targeting and delivery of ads to these users. After AdForce has access
to the demographic data, AdForce will pay America Online quarterly fees based on
the greater of a certain percentage of the consideration charged for targeted
advertising or a certain percentage of the incremental revenue charged for the
targeting feature. Such fees will total at least $10,000,000 for the first three
years after America Online provides access to the

F-14

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

5. LICENSE AGREEMENT AND DEMOGRAPHIC DATA AGREEMENT (CONTINUED)
demographic data. The term of the Demographic Data Agreement will expire on the
earlier of July 14, 2002 or three years after AdForce has access to the
demographic data. America Online can elect to renew the Demographic Data
Agreement on a year-to-year basis with 90 days' notice on the same terms and
conditions, subject to establishing mutually agreeable minimum annual fees.
America Online can elect to terminate the Demographic Data Agreement upon
payment of a fee to AdForce in the event a third party offers more favorable
terms for access to the demographic data and AdForce does not match such terms.
AdForce has proposed a preliminary implementation schedule that is subject to
America Online's approval. To date, however, AdForce has not had access to the
demographic data and there is no final implementation schedule or procedure for
such access. AdForce has no anticipated time frame for gaining access to the
Demographic Data Agreement.

6. COMMITMENTS

AdForce leases its operating and administrative facilities and certain
equipment under non-cancelable operating lease agreements that expire in April
2004. Rent expense was approximately $81,000, $210,000, $536,000, and $322,000
for the period from January 16, 1996 (inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the three months ended March 31,
1999, respectively.

During the years ended December 31, 1997 and 1998, AdForce executed five
lease-line agreements for a total of $8,000,000 in lease-line credit
availability. At December 31, 1998, related lease obligations bore interest at
an effective rate of 7.9% to 9.75% and were secured by the related property and
equipment. Approximately $2,110,000 and $169,000 in unused lease-line credit
remained available under these lease agreements at December 31, 1998 and March
31, 1999, respectively.

As of December 31, 1998, minimum lease payments under all noncancelable
lease agreements were as follows (in thousands):

CAPITAL OPERATING
LEASES LEASES
----------- -----------

1999.................................................... $ 1,943 $ 918
2000.................................................... 2,010 846
2001.................................................... 1,415 846
2002.................................................... 223 522
2003.................................................... -- 448
Thereafter.............................................. -- 60
----------- -----------
Total minimum lease payments............................ 5,591 $ 3,640
-----------
-----------
Less amount representing interest....................... 1,042
-----------
Present value of minimum lease payments................. 4,549
Less current portion of captial lease obligations....... 1,460
-----------
Long-term portion of capital lease obligations.......... $ 3,089
-----------
-----------

F-15

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

6. COMMITMENTS (CONTINUED)
In February 1999, AdForce executed a lease-line agreement for a total of
$4,000,000 in lease-line credit availability. Obligations under the lease-line
will be secured by the related equipment and will be payable over a 42 month
period. A total of $1.4 million in borrowings were drawn under this arrangement
during the three month period ended March 31, 1999. Approximately $2.6 million
in unused lease-line credit remained available under this lease agreement at
March 31, 1999.

In February 1999, AdForce executed a noncancellable operating lease for
a facility in Cupertino, California that expires in April 2003. Future minimum
lease payments under the noncancellable lease agreement is as follows (in
thousands):

1999............................................................. $ 835
2000............................................................. 1,213
2001............................................................. 1,261
2002............................................................. 1,312
2003............................................................. 417
---------
Total minimum lease payments..................................... $ 5,038
---------
---------

7. BORROWING ARRANGEMENTS

During 1998, AdForce received funding from a private investor secured by
notes payable totaling $500,000. The notes payable plus accrued interest were
converted into 36,861 shares of Series D convertible preferred stock at a rate
of $13.73 per share during the year ended December 31, 1998.

During the period from January 16, 1996 (inception) to December 31,
1996, AdForce received funding from three investors secured by notes payable
totaling $1,757,000. During the period from January 16, 1996 (inception) to
December 31, 1996, $1,506,000 of these notes payable plus accrued interest were
converted into Series A convertible preferred stock at a rate of $2.51 per
share. The remaining notes payable plus accrued interest of $465,000 were repaid
to the related note holders during the period from January 16, 1996 (inception)
to December 31, 1996.

8. STOCKHOLDERS' EQUITY

GENERAL

In February 1998, AdForce's stockholders approved certain modifications
to AdForce's capital structure, including a two-for-one stock split of AdForce's
common stock, and a modification of the conversion ratio of all shares of
AdForce's preferred stock to common stock. All shares of preferred stock are now
convertible into two shares of common stock. In addition, the stockholders
approved the addition of 1,600,000 shares of common stock to the pool of shares
available for stock option grants under the 1997 Stock Plan. All common share
and per share amounts presented have been adjusted retroactively to reflect the
stock split.

F-16

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK

Each share of convertible preferred stock is convertible into common
stock at the conversion ratio in effect at the time of conversion (two-for-one
at December 31, 1998) and is subject to appropriate adjustment for common stock
splits, stock dividends, and similar transactions. Conversion is automatic upon
the closing of an initial public offering of common stock in which, with respect
to the Series A, B, and C convertible preferred stock, the aggregate gross
proceeds to AdForce are at least $15,000,000 and the minimum offering price is
at least equal to $6.275 per share, and, with respect to the Series D and E
convertible preferred stock, the aggregate proceeds (gross with respect to
Series D and net with respect to Series E) to AdForce are at least $20,000,000
and the minimum offering price is at least equal to $125,000,000 divided by the
number of shares of AdForce's common stock outstanding immediately prior to the
offering, assuming conversion of all convertible securities and the exercise of
all options and warrants. In addition, the Series A, B, and C convertible
preferred stock is convertible upon the written consent or agreement of the
holders of a majority of the respective series of preferred stock.

Each holder of convertible preferred stock is entitled to a number of
votes equal to the number of shares of common stock into which such convertible
preferred stock is convertible.

Each holder of convertible preferred stock is entitled to receive, when
and as declared by the Board of Directors, noncumulative dividends at the annual
rate of $0.20, $0.20, $0.38, $1.10, and $1.10 per share for Series A, B, C, D,
and E convertible preferred stock, respectively, payable in preference and
priority to any payment of any dividend on common stock.

In the event of liquidation, the holders of convertible preferred stock
would be entitled to a liquidation preference equal to $2.51 per share for all
Series B convertible preferred stock, $4.73 per share for all Series C
convertible preferred stock and $13.73 per share for all Series D and E
convertible preferred stock, plus any declared but unpaid dividends on such
share, and if assets remain in the corporation that are legally available for
distribution, the holders of the Series B, C, D, and E convertible preferred
stock would receive from the remaining assets of the corporation available for
distribution to stockholders that portion of such assets equal to their pro rata
share of such assets based on the number of shares of common stock held by all
stockholders of the corporation, assuming the conversion to common stock of all
shares of Series A, B, C, D, and E convertible preferred stock. Then, and only
then, would the holders of Series A convertible preferred stock receive $2.51
per share, plus all declared but unpaid dividends. Any remaining assets would
then be distributed on a pro rata basis among the holders of Series A
convertible preferred stock and the holders of common stock.

COMMON STOCK

At December 31, 1998, AdForce had reserved 10,755,662 shares of its
common stock for issuance upon conversion of the outstanding shares of its
Series A, B, C, D, and E convertible preferred stock and shares of preferred
stock issuable upon the exercise of outstanding warrants, and 2,631,770 shares
of common stock for issuance upon exercise of options outstanding and available
under the 1997 Stock Plan and shares of common stock issuable upon the exercise
of outstanding warrants.

A total of 1,449,620 shares of common stock issued to two of AdForce's
founders in 1996 are subject to certain repurchase rights, held by AdForce, upon
the termination of employment of the

F-17

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)
respective founders. Such repurchase rights lapsed immediately with respect to
25% of the shares and lapse ratably with respect to the remaining shares over 36
months beginning in June 1996. During 1998, the founders ceased their employment
with AdForce. AdForce elected not to exercise its repurchase right with respect
to the remaining 256,195 shares subject to repurchase at that time. Compensation
expense of $1,407,000 was recorded in 1998 related to such shares based on the
difference between the exercise price and the fair value of such shares at the
time the founders ceased employment with AdForce.

At December 31, 1998, 562,500 shares of common stock held by an officer
were subject to repurchase by AdForce at their original purchase price of $0.125
per share. Such repurchase rights lapse ratably over the 48-month vesting period
of the underlying options to purchase common stock.

A total of 800,000 shares of common stock issued in conjunction with
AdForce's acquisition of StarPoint to three of StarPoint's founders, who are now
employees of AdForce, were subject to certain repurchase rights held by AdForce.
At December 31, 1998, 266,667 of these shares of common stock remained subject
to repurchase. The repurchase rights lapsed as to 22/48 of the shares on the
date of acquisition, as to 9/48 of the shares after the employees had completed
nine months of continuous employment at AdForce and as to 1/48 of these shares
each month thereafter.

NOTE RECEIVABLE FROM STOCKHOLDER

During 1997, AdForce received a note receivable from a stockholder of
AdForce upon his exercise of an option to purchase 900,000 shares of common
stock. As of December 31, 1998, 562,500 of the shares issued were subject to
repurchase by AdForce at the original exercise price. The repurchase rights
lapse ratably over the 48 month vesting period of the underlying option. The
note bears interest at 6.8% and is secured by the related stock. The note and
related interest is being forgiven ratably over a period of four years of
service/employment. The Company is recording compensation expense related to the
forgiveness of the note as the note is forgiven.

F-18

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS

In association with certain transactions, AdForce issued warrants to
third parties for the purchase of AdForce's common stock and convertible
preferred stock. The warrants that remained outstanding at December 31, 1998
were as follows:

NATURE OF SHARES
RELATED DATE OF UNDER EXERCISE EXPIRATION OF
PARTY CLASS OF STOCK TRANSACTION ISSUANCE WARRANT PRICE EXERCISABILITY
- --------------- --------------- --------------- --------------- ----------- ------------- --------------- FAIR VALUE
---------------
(IN THOUSANDS)

Vendor Common stock Recruiting April 1997 6,142 $1.26 - $2.37 October 15, $ --
services 2007

Vendor Series B Capital lease March 1997 27,889 $2.51 December 31, $ 31
convertible agreement 2002
preferred
stock

Vendors Series C Capital lease December 1997 59,197 $4.73 December 31, $ 108
convertible agreements 2002 through
preferred December 2,
stock 2007

Vendor Series D Capital lease September 1998 10,925 $13.73 September 29, $ 67
convertible agreement 2008
preferred
stock

Private Series D Series D July 1998 36,430 $13.73 July 14, 2003 $ 267
Investors convertible convertible
preferred preferred
stock stock
agreement

Private Series E Series E July 1998 509,831 $13.73 July 14, 2003 $ 3,686
Investor/ convertible convertible
Vendor preferred preferred
stock stock
agreement and
Demographic
Data
Agreement

F-19

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

Warrants to purchase 6,142 shares of common stock, included above,
expire on the earlier of October 15, 2007 or the filing by AdForce of an initial
public offering. Warrants to purchase 36,998 and 10,925 shares of Series C and
Series D convertible preferred stock, included above, expire on the later of
December 2, 2007 and September 29, 2008, respectively, or five years subsequent
to the filing by AdForce of an initial public offering. Warrants to purchase
36,430 shares of Series D convertible preferred stock and 509,831 shares of
Series E convertible preferred stock, included above, expire on the later of
July 14, 2003 or the closing of any merger, tender offer, or other transaction
in which all of the holders of AdForce's outstanding common stock and preferred
stock (if any) receive only cash or cash and other securities payable only in
cash. Warrants to purchase 400,000 shares of common stock issued to a
demographic data vendor in April 1997, with a fair value of $48,000 and a ten
year life, were exercised for total consideration of $2,000 during 1998 but are
subject to certain repurchase rights held by AdForce. These repurchase rights
lapsed as to 25% of the shares in April 1997 and 2.08% of the shares each month
thereafter. As of December 31, 1998, 133,360 shares acquired pursuant to this
warrant exercise remained subject to AdForce's repurchase right.

The value of the warrants granted to third parties, excluding the value
attributable to equity investments of approximately $1.9 million, is being
charged to the related expense over the term of the respective agreements.
AdForce recognized expenses of $23,000 and $56,000 during the years ended
December 31, 1997 and 1998, respectively, related to the estimated fair market
value of these warrants. The value of each of the warrants has been determined
using the Black-Sholes method, with an expected dividend yield of zero, a
risk-free interest rate of 5%, and a volatility factor of 20%, except for the
warrant to purchase shares of Series D and Series E preferred stock issued to
private investors for which a volatility factor of 55% was used. The lives used
to value each of the warrants was based on the term of each warrant as set forth
in the preceding table or described in the preceding paragraph.

STOCK OPTION PLANS

AdForce has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("FAS 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No 25, when the exercise price of AdForce's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

During 1997, AdForce adopted the 1997 Stock Plan (the "Plan"). Under the
Plan, options to purchase common stock may be granted at no less than 85% of the
fair value of the underlying common stock on the date of the grant, as
determined by the Board of Directors. Options generally have a maximum term of
10 years and are exercisable immediately, but vest over a 48-month period. Under
the Plan, an optionee may exercise part or all of the options prior to the
stated vesting date. However, unvested shares are subject to repurchase, at
AdForce's option, upon a stockholder's termination of employment for any reason.
As of December 31, 1998, 763,088 of the shares issued upon exercise of stock
options, including the options exercised by an officer of AdForce that are
discussed under "NOTE RECEIVABLE FROM SALE OF COMMON STOCK," were subject to
repurchase by AdForce at the exercise price.

F-20

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the acquisition by AdForce of StarPoint as described
in Note 2, AdForce assumed all options outstanding under the StarPoint Software,
Inc. 1996 Stock Plan ("StarPoint Plan"). These options vest over a 48-month
period with 9/48 of the underlying shares vesting after the employee had
completed nine months of continuous employment at AdForce and 1/48 of the
underlying shares vesting each month thereafter.

A summary of activity under the Plan, the StarPoint Plan and non-plan
options is as follows:

SHARES WEIGHTED
AVAILABLE FOR OPTIONS PRICE PER AVERAGE
GRANT OUTSTANDING SHARE EXERCISE PRICE
------------- ------------ ------------- ---------------

Shares authorized...................... 2,400,000 -- -- --
Options granted........................ (2,360,098) 2,360,098 $0.125-$0.250 $ 0.159
Options exercised...................... -- (937,830) $0.125 $ 0.125
Options canceled....................... 49,168 (49,168) $0.153 $ 0.153
------------- ------------ -------------
Balances at December 31, 1997............ 89,070 1,373,100 $0.125-$0.250 $ 0.183
Shares authorized...................... 1,600,000 -- -- --
Options granted........................ (1,485,085) 1,485,085 $0.250-$1.500 $ 1.048
Options assumed under Starpoint Plan... -- 48,056 $0.090-$0.360 $ 0.264
Options repurchased.................... 52,216 -- $0.125-$0.250 $ 0.204
Options exercised...................... -- (519,695) $0.090-$1.500 $ 0.188
Options canceled....................... 446,567 (463,686) $0.090-$1.500 $ 0.562
------------- ------------ -------------
Balances at December 31, 1998............ 702,768 1,922,860 $0.125-$1.500 $ 0.760
Shares authorized (unaudited).......... 710,000 -- -- --
Options granted (unaudited)............ (816,000) 816,000 $1.500-$7.500 $ 1.787
Options exercised (unaudited).......... -- (185,708) $0.125-$1.500 $ 0.495
Options canceled (unaudited)........... 265,170 (272,393) $0.125-$7.500 $ 0.993
------------- ------------ -------------
Balances at March 31, 1999 (unaudited)... 861,938 2,280,759 $0.125-$7.500 $ 1.121
------------- ------------ -------------
------------- ------------ -------------

The following table summarizes information concerning outstanding
options at December 31, 1998:

OPTIONS OUTSTANDING
-------------------------------------------
WEIGHTED WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE NUMBERS OF CONTRACTUAL LIFE EXERCISE
PRICES SHARES (IN YEARS) PRICE
- -------------- ----------- ----------------- -----------

$0.125 -
$0.250 1,016,950 8.88 $ 0.228
$0.700 162,250 9.42 $ 0.700
$1.500 743,660 9.32 $ 1.500
----------- --- -----------
$0.125 -
$1.500 1,922,860 9.10 $ 0.760
----------- --- -----------
----------- --- -----------

F-21

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)
All outstanding options to purchase common stock of AdForce were
exercisable at December 31, 1998. As of December 31, 1998, options to purchase
314,101 shares of common stock were vested.

In connection with the grant of certain options to employees during the
year ended December 31, 1998 and the three months ended March 31, 1999, AdForce
recorded deferred stock compensation of approximately $3,714,000 and $4,139,000,
respectively, between the exercise prices of those options at their respective
dates of grant and the deemed fair values for accounting purposes of the shares
of common stock subject to such options. Such amounts are included as a
reduction of stockholders' equity and are being amortized on a graded vesting
method. The compensation expense of $1,052,000 and $1,088,000 during 1998 and
the three months ended March 31, 1999, respectively, relate to options awarded
to employees in all operating expense categories, as well as employees in data
center operations. These amounts have not been separately allocated between
operating expense categories. In April 1999, the Company granted options to
purchase approximately 620,600 shares of common stock with an exercise price of
$8.50 per share and expects to record additional deferred compensation of
approximately $1.6 million related to these grants for the difference between
the exercise price and the current deemed fair value.

Pro forma information regarding net loss is required by FAS 123,
computed as if AdForce had accounted for its employee stock options granted or
otherwise modified under the fair value-based accounting method of that
statement. The value for these options was estimated at the date of grant using
the minimum value method with the following weighted average assumptions:

1997 1998
--------- ----------------

Expected dividend yield........................................... 0.00% 0.00%
Weighted average risk-free interest rate.......................... 5.00% 4.45% - 5.63%
Weighted average expected life.................................... 4 years 5 years

The weighted average fair value of options granted during 1997, 1998 and
the three months ended March 31, 1999 with an exercise price equal to the fair
value of AdForce's common stock on the date of grant was $0.06, $0.06, and
$1.63, respectively. The weighted-average fair value of options granted during
1998 and during the three month period ended March 31, 1999 with an exercise
price below the deemed fair value of AdForce's common stock on the date of grant
was $3.70 and $6.31, respectively.

1997 1998
--------- --------- THREE MONTHS
ENDED MARCH 31,
1999
----------------
(UNAUDITED)

Pro forma net loss.................................... ($ 5,720) ($ 15,095) $ (4,887)
--------- --------- -------
--------- --------- -------
Pro forma basic and diluted net loss per share........ ($ 1.39) $ (0.36)
--------- -------
--------- -------

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Future pro
forma net income (loss) results may be materially different from actual future
amounts reported.

F-22

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

1999 EQUITY INCENTIVE PLAN

In February 1999, the Board of Directors adopted the 1999 Equity
Incentive Plan and reserved 2,000,000 shares for issuance thereunder, subject to
stockholder approval. The 1999 Equity Incentive Plan will become effective on
the effective date of the initial public offering and will serve as the
successor to the Plan. Options granted under the Plan before its termination
will remain outstanding according to their terms, but no further options will be
granted under the Plan after the effective date of the initial public offering.
The 1999 Equity Incentive Plan will terminate in February 2009, unless sooner
terminated in accordance with its terms. The 1999 Equity Incentive Plan
authorizes the award of incentive stock options and nonqualified stock options,
restricted stock awards and stock bonuses.

1999 EMPLOYEE STOCK PURCHASE PLAN

In February 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan and reserved a total of 300,000 shares of common stock for
issuance thereunder, subject to stockholder approval. On each January 1, the
aggregate number of shares reserved for issuance under the 1999 Employee Stock
Purchase Plan will be increased automatically by the number of shares purchased
under the 1999 Employee Stock Purchase Plan in the preceding calendar year. The
aggregate number of shares issued over the term of the 1999 Employee Stock
Purchase Plan may not exceed 3,000,000 shares. The 1999 Employee Stock Purchase
Plan will become effective on the effective date of the initial public offering.
Employees generally will be eligible to participate in the 1999 Employee Stock
Purchase Plan if they are customarily employed by AdForce or its parent or any
subsidiaries that AdForce designates for more than 20 hours per week and more
than five months in a calendar year. Under the 1999 Employee Stock Purchase
Plan, eligible employees will be permitted to acquire shares of AdForce's common
stock through payroll deductions. Eligible employees may select a rate of
payroll deduction between 2% and 10% of their compensation and are subject to
certain maximum purchase limitations described in the 1999 Employee Stock
Purchase Plan. Each offering period under the 1999 Employee Stock Purchase Plan
will be for two years and consist of six-month purchase periods. The first
offering period is expected to begin on the first business day on which price
quotations for AdForce's common stock are available on the Nasdaq National
Market. Offering periods and purchase periods thereafter will begin on February
1 and August 1. The purchase price for AdForce's common stock purchased under
the 1999 Employee Stock Purchase Plan is 85% of the lesser of the fair market
value of AdForce's common stock on the first day of the applicable offering
period or the last day of each purchase period. The 1999 Employee Stock Purchase
Plan will terminate in February 1999, unless earlier terminated pursuant to the
terms of the 1999 Employee Stock Purchase Plan. The Board of Directors will have
the authority to amend, terminate, or extend the term of the 1999 Employee Stock
Purchase Plan.

1999 DIRECTORS STOCK OPTION PLAN

In February 1999, the Board of Directors adopted the 1999 Directors
Stock Option Plan and reserved a total of 200,000 shares of common stock for
issuance under the 1999 Directors Stock Option Plan, subject to stockholder
approval. Members of the Board of Directors who are not employees of AdForce, or
any parent, subsidiary or affiliate of AdForce, are eligible to participate in
the 1999 Directors Stock Option Plan. Option grants under the 1999 Directors
Stock Option Plan are automatic and nondiscretionary, and the exercise price of
the options is the fair market value of the common stock on the

F-23

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)
date of grant. Each eligible director who first becomes a member of the Board of
Directors on or after the effective date of the initial public offering will
initially be granted an option to purchase 10,000 shares of common stock on the
date he or she becomes a member of the Board of Directors. Each eligible
director who first becomes a member of the Board of Directors prior to the
effective date of the initial public offering will receive an initial grant
immediately following the first annual meeting of stockholders of AdForce after
the effective date of the initial public offering, provided that he or she is
elected a member of the Board of Directors at the first annual meeting of
stockholders. Immediately following each annual meeting of stockholders of
AdForce, each eligible director will automatically be granted an additional
option to purchase 5,000 shares of common stock if he or she has served
continuously as a member of the Board of Directors for a period of at least one
year since the date of his or her initial grant under this Plan. The options
have ten-year terms. They will terminate seven months following the date the
director ceases to be a director or a consultant to AdForce, or twelve months if
the termination is due to death or disability. All options granted under the
1999 Directors Stock Option Plan will vest as to 25% of the shares on the first
anniversary of the date of grant and as to 2.08333% of the shares each month
thereafter, provided the optionee continues as a member of the Board of
Directors or as a consultant to AdForce. In the event of a merger or other
transaction in which AdForce is not the surviving corporation, all options
issued under the 1999 Directors Stock Option Plan will accelerate and become
exercisable in full prior to the consummation of the transaction.

9. ACQUISITION OF TECHNOLOGY AND OPERATING RIGHTS

In January 1996, AdForce assumed the assets and liabilities of Iron
Mountain Global Information Systems, Inc. in exchange for a combination of
1,720,000 shares of common stock in AdForce valued at $0.005 per share, the
assumption of notes payable of $214,000 and an agreement to make a cash payment
of $106,000 to an investor in Iron Mountain Global Information Systems, Inc. The
net assets acquired included in-process software technology for use in the
business of Internet ad-serving. However, this technology was initially
developed for online real estate advertising and inquiry and subsequently proved
to be unusable for AdForce's current Internet advertising processes. This
software technology was abandoned during 1996 in favor of the development of new
software technology to satisfy projected market needs. Accordingly, the entire
value assigned to the acquired technology of $319,000 was expensed to Research
and Development during the period from January 16, 1996 (inception) to December
31, 1996.

10. INCOME TAXES

The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the U.S. federal statutory rate of
34% is due to net operating losses not being benefitted. Accordingly, there is
no provision for income taxes for the period from January 16, 1996 (inception)
to December 31, 1996 and the years ended December 31, 1997 and 1998.

F-24

ADFORCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

10. INCOME TAXES (CONTINUED)
Significant components of AdForce's deferred tax assets and liabilities
are as follows (in thousands):

DECEMBER 31,
--------------------
1997 1998
--------- ---------

Deferred tax assets:
Net operating loss carryforwards......................... $ 3,275 $ 6,989
Tax credit carryforwards................................. 221 380
Other--net............................................... 204 1,214
--------- ---------
Total deferred tax assets.................................. 3,700 8,583
Valuation allowance........................................ (3,700) (7,962)
--------- ---------
Net deferred tax assets.................................... $ -- $ 621
--------- ---------
Deferred tax liability:
Acquired intangibles..................................... -- 621
--------- ---------
Net deferred tax assets and liabilities.................... $ -- $ --
--------- ---------
--------- ---------

FASB Statement No. 109 provides for the recognition of deferred tax
assets if realization of such assets is more likely than not. Based upon the
weight of available evidence, which includes AdForce's historical operating
performance and the reported cumulative net losses in all prior years, AdForce
has provided a full valuation allowance against its net deferred tax assets.

The valuation allowance increased by approximately $1,300,000 and
$2,400,000 during the period from January 16, 1996 (inception) to December 31,
1996 and the year ended December 31, 1997, respectively.

As of December 31, 1998, AdForce had federal and state net operating
loss carryforwards of approximately $17,000,000. AdForce also had federal and
state research and development tax credit carryforwards of approximately
$250,000 and $130,000, respectively. The net operating loss and tax credit
carryforwards, if not utilized, will expire at various dates beginning in 2004.

Utilization of the net operating loss and tax credit carryforwards may
be subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in expiration of net operating loss
and tax credit carryforwards before utilization.

11. SUBSEQUENT EVENTS

Effective on April 30, 1999, AdForce's stockholders approved its
reincorporation in the state of Delaware. In conjunction with the
reincorporation in Delaware, the Company changed the number of authorized shares
of preferred stock to 5,451,663 and the number of authorized shares of common
stock to 40,000,000. The par value of the Company's preferred and common stock
has been retroactively reflected in the accompanying financial statements.

F-25

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
AdForce, Inc.

We have audited the accompanying balance sheet of StarPoint Software,
Inc. as of May 31, 1997, and the related statements of operations, shareholders'
equity (net capital deficiency), and cash flows for the period from August 8,
1996 (inception) through May 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of StarPoint, Software,
Inc. at May 31, 1997, and the results of its operations and its cash flows for
the period from August 8, 1996 (inception) through May 31, 1997, in conformity
with generally accepted accounting principles.

/s/ Ernst & Young LLP

San Jose, California
October 29, 1998

F-26

STARPOINT SOFTWARE, INC.
BALANCE SHEETS

MAY 31, NOVEMBER 30,
1997 1997
---------- -------------
(UNAUDITED)

ASSETS
Current assets:
Cash........................................................... $ 60,251 $ 42,515
Accounts receivable............................................ 47,500 12,600
Prepaid expenses and other current assets...................... 12,278 6,139
---------- -------------
Total current assets............................................. 120,029 61,254

Property and equipment, net...................................... 95,138 85,818
---------- -------------
Total assets..................................................... $ 215,167 $ 147,072
---------- -------------
---------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable............................................... $ 113,854 $ 128,273
Accrued compensation and related benefits...................... 172,415 336,313
Other accrued liabilities...................................... 45,483 235,548
Deferred revenue............................................... 42,500 13,333
Convertible promissory notes payable........................... 827,562 1,038,482
---------- -------------
Total current liabilities........................................ 1,201,814 1,751,949

Commitments

Shareholders' equity (net capital deficiency):
Convertible preferred stock, $0.0001 par value per share
issuable in series:
Authorized shares--5,000,000...............................
Series B convertible preferred stock:
Designated shares--1,500,000
Issued and outstanding shares--none........................ -- --
Common stock, $0.0001 par value:
Authorized shares--15,000,000
Issued and outstanding shares--2,544,918 at May 31, 1997 and
2,858,512 at November 30, 1997............................. 254 286
Additional paid-in capital..................................... 79,761 126,622
Accumulated deficit............................................ (1,066,662) (1,731,785)
---------- -------------
Total shareholders' equity (net capital deficiency).............. (986,647) (1,604,877)
---------- -------------
Total liabilities and shareholders' equity (net capital
deficiency).................................................... $ 215,167 $ 147,072
---------- -------------
---------- -------------

SEE ACCOMPANYING NOTES.

F-27

STARPOINT SOFTWARE, INC.
STATEMENTS OF OPERATIONS

PERIOD FROM PERIOD FROM
AUGUST 8, 1996 AUGUST 8, 1996
(INCEPTION) (INCEPTION) SIX MONTHS ENDED
THROUGH MAY 31, THROUGH NOVEMBER NOVEMBER 30,
1997 30, 1996 1997
---------------- ---------------- ----------------
(UNAUDITED)

Revenues:
Net revenue............................................. $ 5,000 $ -- $ 110,267
Cost of sales........................................... -- -- 23,530
---------------- -------- --------
Gross margin.............................................. 5,000 -- 86,737

Operating expenses:
Research and development................................ 592,152 128,404 394,606
Marketing and selling................................... 224,821 -- 77,699
General and administrative.............................. 214,469 34,007 229,757
---------------- -------- --------
Total operating expenses.................................. 1,031,442 162,411 702,062
---------------- -------- --------
Loss from operations...................................... (1,026,442) (162,411) (615,325)

Interest expense, net..................................... (40,220) -- (49,798)
---------------- -------- --------
Net loss.................................................. $ (1,066,662) $ (162,411) $ (665,123)
---------------- -------- --------
---------------- -------- --------

SEE ACCOMPANYING NOTES.

F-28

STARPOINT SOFTWARE, INC.

STATEMENT OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

TOTAL
SHAREHOLDERS'
COMMON STOCK ADDITIONAL EQUITY
---------------------- PAID-IN ACCUMULATED (NET CAPITAL
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY)
--------- ----------- ----------- ------------ ------------

Issuance of common stock to
founders....................... 2,470,000 $ 247 $ 24,453 $ -- $ 24,700
Issuance of common stock....... 74,918 7 5,428 -- 5,435
Issuance of stock purchase
warrants..................... -- -- 49,880 -- 49,880
Net loss....................... -- -- -- (1,066,662) (1,066,662)
--------- --- ----------- ------------ ------------
Balance at May 31, 1997.......... 2,544,918 254 79,761 (1,066,662) (986,647)
Issuance of common stock
(unaudited).................. 313,594 32 36,756 -- 36,788
Issuance of stock purchase
warrants (unaudited)......... -- -- 10,105 -- 10,105
Net loss (unaudited)........... -- -- -- (665,123) (665,123)
--------- --- ----------- ------------ ------------
Balance at November 30, 1997
(unaudited).................... 2,858,512 $ 286 $ 126,622 $(1,731,785) $(1,604,877)
--------- --- ----------- ------------ ------------
--------- --- ----------- ------------ ------------

SEE ACCOMPANYING NOTES.

F-29

STARPOINT SOFTWARE, INC.

STATEMENTS OF CASH FLOWS

PERIOD FROM PERIOD FROM
AUGUST 8, 1996 AUGUST 8, 1996
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
MAY 31, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1997
---------------- --------------------- ---------------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (1,066,662) $ (162,411) $ (665,123)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization................. 19,294 336 15,559
Amortization of discount on convertible notes
payable..................................... 17,442 -- 27,925
Changes in operating assets and liabilities:
Accounts receivable......................... (47,500) -- 34,900
Prepaid expenses and other current assets... (12,278) (12,278) 6,139
Accounts payable............................ 113,854 376 14,419
Accrued compensation and related benefits... 172,415 95,339 163,898
Deferred revenue............................ 42,500 -- (29,167)
Other accrued liabilities................... 45,483 12,008 190,065
---------------- -------- --------
Net cash used in operating activities........... (715,452) (66,630) (241,385)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (114,432) (8,070) (6,239)
---------------- -------- --------
Net cash used in investing activities........... (114,432) (8,070) (6,239)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and
warrants, net................................. 80,015 27,600 46,893
Proceeds from issuance of convertible notes
payable....................................... 810,120 47,100 182,995
---------------- -------- --------
Net cash provided by financing activities....... 890,135 74,700 229,888
---------------- -------- --------
Net increase (decrease) in cash................. 60,251 -- (17,736)
Cash at beginning of period..................... -- -- 60,251
---------------- -------- --------
Cash at end of period........................... $ 60,251 $ -- $ 42,515
---------------- -------- --------
---------------- -------- --------

SEE ACCOMPANYING NOTES.

F-30

STARPOINT SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS

MAY 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

StarPoint Software Inc. ("StarPoint") was incorporated on August 8, 1996
to provide software products for serving Internet advertising. StarPoint has
developed technology that is used to electronically place advertisements on
Internet web pages using highly sophisticated targeting techniques. It has
deployed such technology as part of a marketed software offering that
facilitates the delivery of Internet ads for a variety of market segments,
including (i) advertisers; (ii) advertising agencies; (iii) advertising
representation firms; and (iv) Internet service providers, content providers
(i.e., "Web sites"), and search engines. StarPoint's principal activities to
date have been recruiting personnel, performing research and development, and
building a sales and marketing function. StarPoint was in the development stage
through May 1997, when it first began generating revenues.

INTERIM FINANCIAL STATEMENTS

The accompanying balance sheet as of November 30, 1997 and the
statements of operations and cash flows for the period from August 8, 1996
(inception) through November 30, 1996 and the six month period ended November
30, 1997 are unaudited. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring entries,
necessary for a fair statement of the financial position, result of operations,
and cash flows for the interim periods. The results of operations for the
six-month period ended November 30, 1997 are not necessarily indicative of
operating results to be expected for the full fiscal year.

USE OF ESTIMATES

CONCENTRATION OF CREDIT RISK

StarPoint markets, sells, and grants credit for its products to its
customers without requiring collateral or third-party guarantees. To date, all
of StarPoint's customers are participants in the Internet industry. Only a few
of all participants in the Internet industry have a demonstrated history of
profitability, and accordingly, unsecured credit granted to such customers
carries with it a greater risk of loss. StarPoint monitors its exposure for
credit losses and maintains appropriate allowances.

DEPRECIATION AND AMORTIZATION

StarPoint records property and equipment at cost and calculates
depreciation using an accelerated depreciation method over the estimated useful
life of the assets, generally three to seven years.

ADVERTISING COSTS

Advertising costs are charged to expense when incurred. Advertising
expense was $19,294 for the period from August 8, 1996 (inception) through May
31, 1997.

F-31

STARPOINT SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

StarPoint licenses software to end users under noncancelable license
agreements. Software license revenue is generally recognized at the time the
product has been shipped, provided StarPoint does not have any significant
remaining obligations and collection of the resulting receivable is probable.
Maintenance revenue is recognized ratably over the term of the related
agreement, which in most cases is one year. Revenue is recorded net of revenue
allowances.

STOCK-BASED COMPENSATION

StarPoint accounts for employee stock option grants in accordance with
Accounting Principals Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" (APB Opinion No. 25). StarPoint grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant and, accordingly, recognizes no compensation
expense for the employee stock option grants.

RESEARCH AND DEVELOPMENT COSTS

Costs incurred in the development of new software (and substantial
enhancements to existing software) used in the processes of StarPoint's Internet
advertisement serving services are expensed to operations as incurred until
technological feasibility of such software has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED" (FAS 86). Because StarPoint
believes that its present process for developing software is essentially
completed concurrently with the establishment of technological feasibility, no
costs have been capitalized to date.

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

MAY 31, 1997
-------------

Computer hardware and software................................ $ 101,172
Office furniture and equipment................................ 13,260
-------------
114,432
Less accumulated depreciation and amortization................ 19,294
-------------
$ 95,138
-------------
-------------

3. COMMITMENTS

StarPoint has leased its facility under a noncancelable operating lease
agreement which expires in November 1997. As of May 31, 1997, minimum lease
payments under the noncancelable lease agreement for the year ended May 31, 1998
were $37,125.

Rent expense was approximately $60,500 for the period from August 8,
1996 (inception) through May 31, 1997.

F-32

STARPOINT SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. CONVERTIBLE PROMISSORY NOTES PAYABLE

During the period from August 8, 1996 (inception) through May 31, 1997,
StarPoint received funding from investors secured by convertible promissory
notes payable totaling $860,000. The notes bear interest at 6.5% and mature on
demand or on the stated maturity date which is from November 29, 1997 to March
4, 1998. Prior to the maturity date, the promissory notes and accrued interest
will automatically convert into preferred stock upon the closing of an equity
financing of StarPoint's preferred stock for an aggregate consideration of at
least $1,500,000.

In connection with the convertible promissory notes issued, StarPoint
has issued warrants to purchase $172,000 of preferred stock at an exercise price
equal to the lower of $2.00 or the issuance price of the preferred stock at the
time of the financing. The warrants are exercisable at any time prior to
expiration and will expire at the earlier of: (i) five years, (ii) the merger or
consolidation of StarPoint into a third party pursuant to which StarPoint's
shareholders own less than 50% of the surviving entity, (iii) the sale of
substantially all of the assets of StarPoint, or (iv) the closing of an initial
public offering of common stock. StarPoint has allocated $49,880 of the proceeds
received from the issuance of the promissory notes to the value of the warrants.
The principal amounts of the convertible promissory notes were reduced by the
value assigned to the warrants, and such amount is being recognized as
additional interest expense over the life of the notes. StarPoint recognized
interest expense of $17,442 related to the estimated fair market value of the
warrants.

As of May 31, 1997, StarPoint has reserved 526,624 shares of preferred
stock for issuance upon conversion of the convertible promissory notes and
exercise of stock purchase warrants. No warrants were exercised in the period
from August 8, 1996 (inception) through May 31, 1997.

5. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

COMMON STOCK

As of May 31, 1997, StarPoint has reserved 741,000 shares of its common
stock for issuance upon exercise of options outstanding and available under the
1996 Stock Plan.

A total of 2,470,000 shares of common stock issued in 1996 to three of
StarPoint's founders and a consultant are subject to certain repurchase rights
held by StarPoint. Such repurchase rights lapse 10% immediately, 15% in August
1997, and the remainder ratably over 48 months beginning in September 1997. As
of May 31, 1997, 2,223,000 shares of common stock are subject to repurchase by
StarPoint at the original purchase price of $0.01 per share.

STOCK OPTION PLANS

StarPoint has elected to follow APB Opinion No. 25, and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion 25, when
the exercise price of StarPoint's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

During the period from August 8, 1996 (inception) through May 31, 1997,
StarPoint adopted the 1996 Stock Plan (the Plan). Under the Plan, up to 741,000
shares of StarPoint's common stock may be granted to directors, employees, and
certain consultants. Under the Plan, options to purchase common

F-33

STARPOINT SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
stock may be granted at no less than 100% of the fair value on the date of the
grant as determined by the Board of Directors. Options generally vest over a
48-month period and have a maximum term of ten years.

WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS PRICE PER EXERCISE
FOR GRANT OUTSTANDING SHARE PRICE
----------- ------------- ----------- -----------

Shares authorized............ 741,000 -- $ -- $ --
$ 0.03 -
Options granted.............. (174,000) 174,000 $0.12 $ 0.07
Options canceled............. 4,000 (4,000) $ 0.07 $ 0.07
----------- -------------
$ 0.03 -
Balance at May 31, 1997...... 571,000 170,000 $0.12 $ 0.07
----------- -------------
----------- -------------

All outstanding options to purchase common stock of StarPoint were
exercisable at May 31, 1997. As of May 31, 1997, options to purchase 7,292
shares of common stock were vested. The weighted average remaining contractual
life of those options is approximately 9.7 years.

Pro forma information regarding net income (loss) is required by FAS
123, which also requires that the information be determined as if StarPoint has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of FAS 123. The fair value of these options was
estimated at the date of grant using the minimum-value method option-pricing
model. The following weighted average assumptions were used for the period ended
May 31, 1997: (i) a risk-free interest rate of 5%, (ii) a dividend yield of
zero, and (iii) a weighted average expected life of the option of four years.
The weighted average fair value of options granted during 1997 was $0.03.

The effect of applying FAS 123 to StarPoint's stock option awards
resulted in a pro forma net loss of $1,066,915 for the period from August 8,
1996 (inception) through May 31, 1997.

6. INCOME TAXES

As of May 31, 1997, StarPoint had federal and state net operating loss
carryforwards of approximately $1,100,000. The net operating loss carryforwards
will expire at various dates beginning in 2005 through 2012, if not utilized.

Utilization of the net operating losses may, in the future, be subject
to a substantial annual limitation due to the "change in ownership" provisions
of the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses
before utilization.

As of May 31, 1997, StarPoint had deferred tax assets of approximately
$400,000. The net deferred tax asset has been fully offset by a valuation
allowance. The net valuation allowance increased by $400,000 during the period
from August 8, 1996 (inception) through May 31, 1997. Deferred tax assets
primarily relate to net operating loss carryforwards.

7. SUBSEQUENT EVENTS

In June and October 1997, StarPoint amended the terms of the convertible
promissory notes to allow the holders to convert the outstanding principal and
accrued interest into Series B preferred stock at a conversion price of $0.60
per share upon the earlier of the maturity date or a change in control.

F-34

STARPOINT SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. SUBSEQUENT EVENTS (CONTINUED)
In June, July, and October 1997, StarPoint received funding from
investors secured by convertible promissory notes payable totaling $192,500. The
notes bear interest at 6.5% and mature on demand or on the stated maturity date,
which is from June 13, 1998 to October 16, 1998. The promissory notes are
convertible into preferred stock at the then fair market value of such stock. In
connection with the convertible promissory notes issued, StarPoint has issued
warrants to purchase $96,250 of preferred stock at an exercise price equal to
the lower of $2.00 or the issuance price of the preferred stock at the time of
the financing.

In December 1997, StarPoint entered into a definitive agreement to merge
with AdForce, Inc. (formerly Imgis, Inc.), a company providing a comprehensive
service infrastructure that facilitates the planning, scheduling, targeting,
delivery, monitoring, analysis, reporting of, and accounting for advertising on
the Internet. The merger became effective on February 13, 1998 and was accounted
for as a purchase by AdForce, Inc. AdForce, Inc. assumed all assets and
liabilities of StarPoint, issued 877,834 shares of common stock in exchange for
all outstanding common stock of StarPoint, and issued 309,738 shares of Series C
preferred stock for all outstanding preferred stock of StarPoint.

F-35

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

4,500,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

HAMBRECHT & QUIST

LEHMAN BROTHERS

VOLPE BROWN WHELAN & COMPANY

CHARLES SCHWAB & CO., INC.

---------

, 1999

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.

NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.

UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses to be paid by the Registrant in connection with this
offering are as follows. All amounts other than the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
application fee are estimates.

Securities and Exchange Commission registration fee............. $ 21,580
NASD filing fee................................................. 8,663
Nasdaq National Market listing fee.............................. 95,000
Printing and engraving expenses................................. 150,000
Legal fees and expenses......................................... 450,000
Accounting fees and expenses.................................... 225,000
Blue sky fees and expenses...................................... 10,000
Transfer agent and registrar fees and expenses.................. 5,000
Road show expenses.............................................. 30,000
Miscellaneous................................................... 104,757
---------
Total......................................................... $1,100,000
---------
---------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law authorizes a court
to award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").

As permitted by the Delaware General Corporation Law, the Registrant's
Second Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, provided that any indemnified officer and director acted in
good faith and in a manner which such officer and director reasonably believed
to be in or not opposed to the Registrant's best interests, (ii) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (iii) the Registrant is required to advance expenses,
as incurred, to its directors and officers in connection with a legal proceeding
to the fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions and (iv) the rights conferred in the Bylaws
are not exclusive.

The Registrant intends to enter into Indemnification Agreements with
each of its current directors and officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's Second Amended and Restated Certificate of
Incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is

II-1

sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification.

Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Second Amended and Restated Certificate of Incorporation,
Bylaws and the Indemnification Agreements entered into between the Registrant
and each of its directors and officers may be sufficiently broad to permit
indemnification of the Registrant's directors and officers for liabilities
arising under the Securities Act.

The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.

See also the undertakings set out in response to Item 17.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

DOCUMENT EXHIBIT NUMBER
- ----------------------------------------------------------- ---------------

Underwriting Agreement (draft dated May 3, 1999)........... 1.1
Registrant's First Amended and Restated Certificate of
Incorporation............................................ 3.1
Registrant's Second Amended and Restated Certificate of
Incorporation to be effective upon the closing of the
offering................................................. 3.2
Registrant's Bylaws, as amended............................ 3.3
Form of Indemnity Agreement to be entered into between the
Registrant and its executive officers and directors...... 10.1

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following table sets forth information regarding all securities sold
by the Registrant, or its California predecessor, since its incorporation on
January 16, 1996. Reference to warrants below assume full exercise of all
warrants. All preferred stock numbers are presented on an as-converted to common
stock basis, and all common stock numbers have been adjusted retroactively to
reflect a two-for-one stock-split that occurred in February 1998.

AGGREGATE
NUMBER OF PURCHASE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES(1) SECURITIES PRICE FORM OF CONSIDERATION
- ----------------------- ------------------- ----------------------- --------- ----------- -----------------------

3 shareholders April 26, 1996 Common Stock 1,720,000 $ 8,600 Assignment of software
Washington Holdings,
L.P. April 26, 1996 Common Stock 2,000,000 10,000 Cash
5 investors May 30, 1996 Series B Preferred 220,000 550,000 Cash
Stock(2)
IBL Corporation July 15, 1996 Warrant to purchase -- -- --(3)
123,400 shares of
Common Stock
2 former employees August 7, 1996 Common Stock 3,000 15 Cash
AMGIT Marketing, Inc. December 2, 1996 Warrant to purchase -- -- --(4)
400,000 shares of
Common Stock
2 investors December 5, 1996 Series A Preferred 1,200,914 1,503,500(5) Cancellation of debt
Stock owed by AdForce
6 investors December 5, 1996 Series B Preferred 2,054,636 2,578,568 Cash
Stock

II-2

2 investors March 26, 1997 Warrant to purchase -- -- --(6)
55,778 shares of Series
B Preferred Stock
BridgeGate Group April 4, 1997 Warrant to purchase -- -- --(7)
6,142 shares of Common
Stock
Arun Swami June 4, 1997 Common Stock 2,400 300 Services rendered
6 investors July 2, 1997 Series C Preferred 1,733,616 4,100,001 Cash
Stock
2 investors November 25, 1997 Series C Preferred 816,384 1,930,748 Cash
Stock
Comdisco, Inc. December 2, 1997 Warrant to purchase -- -- --(8)
73,996 shares of Series
C Preferred Stock
2 investors December 17, 1997 Warrant to purchase -- -- --(9)
44,398 shares of Series
C Preferred Stock
Convergence Ventures I, February 3, 1998 Series C Preferred 60,994 144,251 Cash
L.P. Stock
Convergence February 3, 1998 Series C Preferred 42,284 100,002 Cash
Entrepreneurs Fund I, Stock
L.P.
9 shareholders February 13, 1998 Common Stock 877,834 -- Exchange for Common
Stock of StarPoint
Software, Inc.(10)
17 shareholders February 13, 1998 Series C Preferred 619,476 -- Exchange for Preferred
Stock Stock of StarPoint
Software, Inc.(10)
Comdisco, Inc. March 6, 1998 Series C Preferred 21,142 50,000 Cash
Stock
19 investors April 27, 1998 Series D Preferred 1,457,532 10,005,977 Cash and cancellation
Stock of debt owed by AdForce
19 investors July 15, 1998 Warrant to purchase -- -- --(11)
72,860 shares of Series
D Preferred Stock
America Online, Inc. July 15, 1998 Series E Preferred 1,456,664 9,999,998 Cash
Stock
America Online, Inc. July 15, 1998 Warrant to purchase -- -- --(12)
1,019,662 shares of
Series E Preferred
Stock
AMGIT Marketing, Inc. September 4, 1998 Exercise of warrant to 400,000 2,000 Cash
purchase Common Stock
Jane Anderson September 17, 1998 Option to purchase 960 -- -- --(13)
shares of Common Stock
Comdisco, Inc. September 29, 1998 Warrant to purchase -- -- --(14)
21,850 shares of

II-3

Jane Anderson October 28, 1998 Series D Preferred 2,604 17,876 Services rendered
Communications Stock
Ulrich Schmidt October 28, 1998 Series D Preferred 872 5,986 Cash
Stock
Officers, directors, January 16, 1996 to Exercise of options to 1,643,233 $ 307,118 Cash(15)
employees and other March 31, 1999 purchase Common Stock
eligible participants

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

* As part of the reincorporation of AdForce into Delaware, AdForce exchanged
6,160,711 shares of its Common Stock, 9,467,118 shares of its convertible
preferred stock, warrants to purchase 6,142 shares of its Common Stock and
warrants to purchase 1,288,544 shares of its convertible preferred stock for
6,160,711 shares of Common Stock, 9,467,118 shares of preferred stock,
warrants to purchase 6,142 shares of its Common Stock and warrants to
purchase 1,288,544 shares of preferred stock, respectively.

(1) Each share of Series A, Series B, Series C, Series D, and Series E
Preferred Stock will convert automatically into two shares of common stock,
respectively, upon the consummation of this offering.

(2) Converted to Common Stock on December 5, 1996 as a condition to the Series
B Preferred Stock financing.

(3) Issued to IBL Corporation as consideration for a loan and terminated on
December 5, 1996 as a condition to the Series B1 Preferred Stock financing.

(4) In connection with a joint venture with AMGIT Marketing, Inc. to develop
certain research and information products for database application services,
AdForce granted AMGIT a warrant to purchase 400,000 shares of Common Stock
in exchange for a 50% interest in a joint venture.

(5) Represents the cancellation of indebtedness owed by AdForce to IBL
Corporation in the amount of $997,500 and to Washington Holdings, L.P. in
the amount of $506,000.

(6) Issued to Venture Lending & Leasing Inc. and Robert Kingsbook as additional
consideration to establish a credit line for acquisition of equipment and
other corporate purposes.

(7) Issued to BridgeGate Group as additional consideration for consulting
services performed for AdForce.

(8) Issued to Comdisco, Inc. as additional consideration to establish a credit
line for equipment acquisitions.

(9) Issued to Venture Lending & Leasing Inc. and Robert Kingsbook as additional
consideration to establish a credit line for acquisition of equipment and
other corporate purposes.

(10) In connection with AdForce's acquisition of StarPoint, AdForce exchanged
877,834 shares of Common Stock for StarPoint's Common Stock and 619,476
shares (as converted to Common Stock basis) of Series C Preferred Stock for
StarPoint's Preferred Stock.

(11) Issued to the holders of the Series D Preferred Stock in connection with
the closing of the Series E Preferred Stock financing on July 15, 1998.

(12) Issued to America Online, Inc. in connection with AdForce's Series E
Preferred Stock financing on July 15, 1998.

(13) Issued to Jane Anderson as consideration for consulting services performed
for Adforce.

(14) Issued to Comdisco, Inc. as additional consideration for the extension of a
credit line for equipment acquisitions.

(15) With respect to the grant of stock options, exemption from registration
under the Securities Act was unnecessary in that none of such transactions
involved a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.

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

All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2) of
the Securities Act.

All other sales were made in reliance on Section 4(2) of the Securities
Act and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment and represented to the Registrant that the shares were
being acquired for investment.

II-4

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following exhibits are filed herewith:

DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- ---------

Underwriting Agreement (draft dated May 3, 1999).................................. 1.1*

Agreement and Plan of Reorganization by and between Imgis, Inc. and StarPoint
Software, Inc. dated December 19, 1997.......................................... 2.1*

Agreement and Plan of Merger by and between the Registrant and Imgis, Inc. dated
April 29, 1999.................................................................. 2.2*

Registrant's First Amended and Restated Certificate of Incorporation.............. 3.1*

Registrant's Second Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering...................................... 3.2*

Registrant's Restated Bylaws, as amended.......................................... 3.3*

Specimen Stock Certificate........................................................ 4.1*

Amended and Restated Investors' Rights Agreement by and between Imgis, Inc. and
certain investors dated as of July 15, 1998..................................... 4.2*

Amended and Restated Voting Agreement by and between Imgis, Inc. and certain
investors dated as of July 15, 1998............................................. 4.3*

Opinion of Fenwick & West LLP..................................................... 5.1*

Form of Indemnity Agreement to be entered into between the Registrant and its
executive officers and directors................................................ 10.1*

StarPoint Software, Inc. 1996 Stock Plan.......................................... 10.2*

Imgis, Inc. 1997 Stock Plan....................................................... 10.3*

Registrant's 1999 Equity Incentive Plan and associated documents.................. 10.4*

Registrant's 1999 Directors Stock Option Plan and associated documents............ 10.5*

Registrant's 1999 Employee Stock Purchase Plan and associated documents........... 10.6*

Sublease by and between Concentric Network Corporation and Imgis, Inc. dated
February 12, 1999............................................................... 10.7*

Standard Form Office Lease by and between De Anza Plaza II, LLC and Imgis, Inc.
dated May 29, 1998.............................................................. 10.8*

Lease between Imgis, Inc., and Two Town Center Associates dated December 20,
1996............................................................................ 10.9*

First Amendment to Lease between Imgis, Inc. and Two Town Center Associates dated
February 18, 1998............................................................... 10.10*

Second Amendment to Lease between Imgis, Inc. and Fifth Street Properties, LLC
dated February 18, 1999......................................................... 10.10.1*

Letter Agreement between Imgis, Inc. and Charles W. Berger dated June 27, 1997.... 10.11*

Letter Agreement between Imgis, Inc. (dba "AdForce") and Charles W. Berger dated
November 19, 1998............................................................... 10.12*

Letter Agreement between Imgis, Inc. (dba "AdForce") and Harish S. Rao dated
December 11, 1998............................................................... 10.13*

Employment Agreement between Imgis, Inc. (dba "AdForce") and John A. Tanner dated
December 9, 1998................................................................ 10.14*

Letter Agreement between Imgis, Inc. (dba "AdForce") and A. Dee Cravens dated
January 21, 1999................................................................ 10.15*

II-5

DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- ---------

Letter Agreement between Imgis, Inc. (dba "AdForce") and Anthony P. Glaves dated
December 28, 1998, as revised in December 31, 1998.............................. 10.16*

Letter Agreement between Imgis, Inc. and Rex S. Jackson dated July 22, 1998....... 10.17*

Settlement Agreement between Imgis, Inc. (dba "AdForce") and Chad Steelberg dated
November 20, 1998............................................................... 10.18*

Loan Agreement between Imgis, Inc. and Venture Lending & Leasing, Inc. dated March
26, 1997........................................................................ 10.19*

Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing,
Inc. dated December 16, 1997.................................................... 10.20*

Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing II,
Inc. dated December 16, 1997.................................................... 10.21*

Master Lease Agreement between Imgis, Inc. and Comdisco, Inc. dated December 2,
1997............................................................................ 10.22*

Service Agreement between Imgis, Inc. and GeoCities dated May 14, 1998............ 10.23*+

Software License and Support Agreement between StarPoint Software, Inc. and
GeoCities dated July 11, 1997................................................... 10.24*+

Intentionally Omitted............................................................. 10.25

Services Agreement between Imgis, Inc. and 2CAN Media dated August 25, 1998....... 10.26*+

Intentionally Omitted............................................................. 10.27

Demographic Data Agreement by and between America Online, Inc. and Imgis, Inc.
dated as of July 15, 1998....................................................... 10.28*+

License Agreement by and between America Online, Inc. and Imgis, Inc. dated as of
July 15, 1998................................................................... 10.29*+

Service Agreement between Imgis, Inc. (dba "AdForce") and 24/7 Media, Inc. dated
January 1, 1999................................................................. 10.30+*

License Agreement by and between Imgis, Inc. and Netscape Communications
Corporation dated February 1, 1999.............................................. 10.31+*

Consent of Fenwick & West LLP (included in Exhibit 5.1)........................... 23.1*

Consent of Ernst & Young LLP, independent auditors................................ 23.2*

Power of Attorney (see Page II-5 of this Registration Statement).................. 24.1*

Financial Data Schedule........................................................... 27.1*

Consent of Bart Faber and Doug Hickey dated April 28, 1999........................ 99.1

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

* Previously filed.

** To be supplied by amendment.

+ Confidential treatment has been requested.

(b) The following financial data schedule is filed herewith:

Schedule II-- Valuation and Qualifying Accounts.

All other financial statement schedules are omitted because the
information called for is not required or is shown either in the financial
statements or the notes thereto.

II-6

ITEM 17. UNDERTAKINGS.

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

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cupertino, State
of California, on the 6th day of May 1999.

ADFORCE, INC.

By: /s/ JOHN A. TANNER
-----------------------------------------
John A. Tanner
Executive Vice President
and Chief Financial Officer

Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

PRINCIPAL EXECUTIVE OFFICER:

*/s/ CHARLES W. BERGER Chief Executive Officer, May 6, 1999
- ---------------------------- President and Chairman of
Charles W. Berger the Board

PRINCIPAL FINANCIAL OFFICER
AND
PRINCIPAL ACCOUNTING OFFICER:

/s/ JOHN A. TANNER Executive Vice President May 6, 1999
- ---------------------------- and Chief Financial
John A. Tanner Officer

ADDITIONAL DIRECTORS:

*/s/ ERIC DI BENEDETTO Director May 6, 1999
- ----------------------------
Eric Di Benedetto

*/s/ MARK P. GORENBERG Director May 6, 1999
- ----------------------------
Mark P. Gorenberg

*/s/ J. NEIL WEINTRAUT Director May 6, 1999
- ----------------------------
J. Neil Weintraut

*/s/ DIRK A. WRAY Director May 6, 1999
- ----------------------------
Dirk A. Wray

*By: /s/ JOHN A. TANNER
-------------------------
John A. Tanner
ATTORNEY-IN-FACT

II-8

ADFORCE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997 AND DECEMBER 31, 1998
(IN THOUSANDS)

AMOUNTS
CHARGED TO
BALANCE AT REVENUE,
BEGINNING OF COSTS, OR WRITE-OFFS AND BALANCE AT
YEAR EXPENSES RECOVERIES END OF YEAR
------------- ----------- --------------- -----------

1997
Allowance for Doubtful Accounts.............................. $ -- $ 131 $ -- $ 131
1998
Allowance for Doubtful Accounts.............................. $ 131 $ 1,355 $ 451 $ 1,035

S-1

EXHIBIT INDEX

EXHIBIT
EXHIBIT TITLE NUMBER
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