EUNIVERSE INC - 10-K Annual Report

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 2000
________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

(MARK ONE)

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, 2000

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER -

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eUNIVERSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEVADA 06-1556248
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

101 NORTH PLAINS INDUSTRIAL ROAD, WALLINGFORD, CONNECTICUT 06492
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 265-6412

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
-------------------

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

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

As of July 10, 2000, there were 17,789,106 shares of the Registrant's common
stock outstanding. The aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq Small Cap Market on July 10, 2000) was approximately
$28,744,700. Shares of the Registrant's common stock held by each executive
officer and director and by each entity that owns 5% or more of the Registrant's
outstanding common stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
-------------------

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Registrant's definitive Proxy Statement for the 2000
Annual Meeting of Stockholders to be held on September 15, 2000 are incorporated
by reference in Part III of this Form 10-K to the extent stated herein.

________________________________________________________________________________

eUNIVERSE, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2000

TABLE OF CONTENTS

PAGE
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PART I.
Item 1. Business.................................................... 1
Factors Affecting eUniverse's Business, Operating Results,
and Financial Condition..................................... 17
Item 2. Facilities.................................................. 22
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
Executive Officers of eUniverse............................. 24

PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 26
Item 6. Selected Financial Data..................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 30
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 38
Item 8. Financial Statements and Supplementary Data................. 38
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 38

PART III.
Item 10. Directors and Executive Officers of the Registrants......... 39
Item 11. Executive Compensation...................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 39
Item 13. Certain Relationships and Related Transactions.............. 39

PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 40
Signatures

PART I

Information contained in this Annual Report on Form 10-K ('Form 10-K') for
eUniverse, Inc. contains projections or other 'forward-looking statements'
regarding future events or the future financial performance of eUniverse.
Sentences or phrases that use such words as 'believes,' 'anticipates,' 'should,'
'plans,' 'may,' 'hopes,' 'can,' 'will,' 'expects,' 'is designed to,' 'with the
intent,' 'potential' and others indicate forward-looking statements, but their
absence does not mean that a statement is not forward-looking. We wish to
caution you that these statements are only predictions and that actual events or
results may differ materially. These statements are not guarantees of future
performance and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those contained in our projections or
forward-looking statements, including, among others, potential fluctuations in
quarterly results, rapid technological and market change, acquisition strategy,
risks associated with Internet infrastructure, volatility of stock price,
financial risk management, and future growth subject to risks. Factors that
might cause such a difference include, but are not limited to, those discussed
in the section entitled 'Factors Affecting eUniverse's Business, Operating
Results, and Financial Condition' beginning on page 17 of this Form 10-K. Unless
required by law, the Company undertakes no obligation to revise of these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

ITEM 1. BUSINESS.

OVERVIEW

eUniverse operates a network of entertainment-related web sites focused on
music, filmed and interactive entertainment. eUniverse's web properties include
CD Universe, an online retailer of music products and accessories; Video
Universe, an online retailer of video cassettes, DVDs and laser discs; and Games
Universe, an online retailer of single and multiplayer computer games. We do not
offer and do not intend to offer online gambling or other activities associated
with gambling.

eUniverse also provides a unique library of proprietary community building
software technologies, named LivePlace. LivePlace combines group browsing, chat,
instant messaging and a host of other advanced features to introduce social
interaction to the web browsing and shopping experience.

Historically, we primarily have generated revenue from merchandise sales. We
have implemented a program to generate advertising revenue through paid
third-party advertising on eUniverse's web sites and licensing revenue from
licensing our LivePlace software to third parties. We also intend to diversify
our retail offerings to include a greater selection of products, such as online
downloads of content, clothing, sports items and accessories.

MUSIC ENTERTAINMENT

The online store (www.cduniverse.com) of eUniverse's wholly owned
subsidiary, CD Universe, Inc., currently offers Internet customers a selection
of over 240,000 individual CD titles as well as proprietary content and
features. Recently, we established a Japanese version of the CD Universe web
site that markets and sells CDs and related products to Japanese customers.

FILMED ENTERTAINMENT

eUniverse's Video Universe online store (www.videouniverse.com) offers
Internet users a selection of over 40,000 movie titles in videocassette, DVD and
laser disc formats. Additionally, the online store (www.dvdwave.com) of
eUniverse's wholly owned subsidiary, Falcon Ventures Corporation, offers a
selection of over 5,000 DVD titles. This store has recently been combined with
the CD Universe DVD store.

INTERACTIVE ENTERTAINMENT

eUniverse's Games Universe site (www.gamesuniverse.com) sells interactive
computer games and links users to eUniverse's online interactive gaming sites
operated by our subsidiaries, which include

1

Case's Ladder (www.casesladder.com), an online portal to a variety of games that
provides competitive rankings for online game players and allows game players to
compete against one another in a variety of tournaments and leagues, Gamer's
Alliance (www.gagames.net), a network of online gaming editorial web sites
devoted to interactive PC games, and The Big Network (www.bignetwork.com), a
site offering classic board and card games (e.g., chess, checkers, backgammon,
spades). eUniverse also operates other entertainment web sites, including:

Pokemonvillage.com, an online community for enthusiasts of Pokemon,
computer/video games, and other collectibles;

Funone.com, a web site that provides online greetings, cartoons, joke
lists and gags. Subscribers can receive weekly jokes and send fun electronic
greetings to their friends.

Forumnation.com, a youth focused web site allowing the users to discuss
a variety of subjects, such as music, comics, and games that are of interest
to them; and

ReverseAuction.com, a site that allows the owners of Pokemon cards,
comics, and other collectibles to meet and auction their items.

EXPANSION

eUniverse intends to continue to leverage its online retailing expertise
into other e-commerce areas by expanding its current product offerings through
acquisitions of content-oriented web sites that have experienced high growth in
unique monthly visitors and attractive demographics that cater to specific
communities of interest in the music, video and games businesses.

Concurrently with its acquisition strategy, eUniverse is actively adding to
and improving upon the existing content and functionality of its web sites.

GENERAL DEVELOPMENT OF BUSINESS

Entertainment Universe, Inc. was founded in February 1999 by Brad D.
Greenspan for the purpose of developing and acquiring entertainment-related
Internet businesses. Motorcycle Centers of America, Inc., was a Nevada
corporation with no significant operations or revenue since 1995, whose shares
were publicly traded on the OTC Bulletin Board. In March 1999, Entertainment
Universe and Motorcycle Centers entered into a letter of intent to undertake a
reorganization under which the holders of Entertainment Universe common stock
would exchange their Entertainment Universe shares for shares of Motorcycle
Centers common stock on a one-to-one basis. On April 14, 1999, the
reorganization was completed. As a result of the reorganization, Entertainment
Universe shareholders owned 92% of Motorcycle Center's shares of common stock
and Entertainment Universe became a wholly owned subsidiary of Motorcycle
Centers. The reorganization was an arms length transaction between unrelated
parties. The fair market value of the Motorcycle Centers shares issued to the
Entertainment Universe shareholders was $897,835, based upon negotiations
between the parties.

Also on April 14, 1999 but immediately prior to the closing of the
reorganization, Entertainment Universe sold 1,795,024 shares of Series A
Convertible Preferred Stock in a private offering under Regulation D of the
Securities Act of 1933, raising $6,462,086, before offering costs were deducted.
In connection with the reorganization, the holders of the Entertainment Universe
Series A Convertible Preferred Stock exchanged their shares, on a one-to-one
basis, for shares of Motorcycle Centers convertible preferred stock which have
equivalent rights and preferences.

Entertainment Universe used $1,915,000 of the preferred stock offering
proceeds (plus 2,425,000 shares of common stock with a fair market value of
$7,275,000) to acquire CD Universe. The consideration paid was based upon
negotiations between the parties. This was an arms length transaction between
unrelated parties. CD Universe is a Connecticut corporation engaged in the
business of selling audio CDs and videotapes over the Internet. Concurrently
with the closing of the reorganization, Entertainment Universe distributed its
asset, the capital stock of CD Universe, to its sole shareholder, Motorcycle
Centers. Motorcycle Centers, the parent entity following the reorganization,
changed its name to eUniverse, Inc.

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The following chart summarizes our corporate organizational structure
immediately following the reorganization:

92% 8%
Former shareholders of Former shareholders of
Entertainment Universe, Inc. Motorcycle Centers of America, Inc.

eUniverse, Inc.
(formerly, Motorcycle Centers
of America, Inc.)

100%
Entertainment 100%
Universe, Inc. CD Universe, Inc.

As neither Motorcycle Centers nor Entertainment Universe had any significant
operations prior to the acquisition of CD Universe, CD Universe is considered to
be the predecessor entity and its historical financial statements have been
included in this Form 10-K.

RECENT TRANSACTIONS

ACQUISITION OF ASSETS OF GREEN WILLOW INTERNATIONAL CORP. D/B/A MEGADVD.COM

In an arms length transaction between unrelated parties, as of May 17, 1999,
eUniverse acquired all of the assets of Green Willow International Corp.,
consisting primarily of the megadvd.com web site, in exchange for 4,605 shares
of eUniverse common stock valued at $11.40 per share, which was the market price
of the stock on the issue date. The consideration paid was based upon
negotiations between the parties to determine the valuation of Green Willow and
the shares issued. After the closing, Mr. Steve Martin and Ms. Korri Kolesa, the
shareholders of Green Willow, became and remain currently employed by eUniverse.

The MegaDVD.com web site is devoted to the retail sale of DVDs.

ACQUISITION OF CASE'S LADDER, INC.

In an arms length transaction between unrelated parties, on May 31, 1999,
eUniverse acquired all of the outstanding shares of common stock of Case's
Ladder, Inc. in exchange for 700,000 shares of eUniverse common stock with a
fair market value of $10.00 per share. The consideration paid was based upon
negotiations between the parties to determine the valuation of the shares
exchanged pursuant to a Stock Purchase Agreement (the 'Case's Ladder
Agreement'). The other parties to the agreement are Case's Ladder, Inc. and its
shareholders -- Frank Westall (Chief Executive Officer and Chairman of Case's
Ladder) and Edward Hilts (Chief Operating Officer and Chief Financial Officer of
Case's Ladder). Frank Westall, Edward Hilts and Jeremy Rusnak were employed by
Case's Ladder and, in connection with their employment, they were granted
options to purchase 600,000 shares of eUniverse's common stock, in the
aggregate, at a price of $10 per share on June 15, 1999. These options expire on
June 15, 2009 and 1/12 of the options vest over three years on December 16,
March 16, June 16 and September 16 of each year. Both Messrs. Westall and Hilts
terminated their employment with eUniverse on February 1, 2000 and June 15,
2000, respectively.

The Case's Ladder web site serves primarily as an online game portal,
providing competitive rankings for online gamers in a number of online games and
allowing gamers to compete against one another in a variety of tournaments and
leagues. The Case's Ladder web site currently has over 1.1 million registered
users. Based on a customer survey, approximately 75% of registered users on the

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Case's Ladder web site are between the ages of 18 and 50 with the majority of
those visitors having an annual income over $50,000. Case's Ladder currently
derives revenue only from membership fees and advertising. eUniverse believes
that the users of the Case's Ladder web site represent favorable demographics
and expand the customer base for our existing products. With the acquisition of
Case's Ladder, we also diversified our product offerings into the computer games
area.

ACQUISITION OF GAMER'S ALLIANCE, INC.

In an arms length transaction between unrelated parties, as of June 30,
1999, eUniverse acquired all of the outstanding shares of Gamer's Alliance, Inc.
stock in exchange for 78,125 shares of eUniverse's common stock with a fair
market value of $1,000,000. eUniverse may make additional payments to the
sellers of up to an aggregate of 97,656 additional shares of eUniverse's common
stock over a period of five calendar quarters through June 30, 2000, contingent
upon Gamer's Alliance achieving specified milestones with respect to revenue,
the number of unique site visitors and other factors. The consideration paid was
based upon negotiations between the parties to determine the valuation of the
Gamer's Alliance shares. Three members of management of Gamer's Alliance --
Adam Goldenberg (President), Matthew Rowell, and Anthony Wyss -- remain
employed by Gamer's Alliance under employment agreements.

Gamer's Alliance has been online since January 1997, and operates a network
of gaming-related sites on the Internet. On a monthly basis, Gamer's Alliance
receives over 750,000 unique visitors and generates over 10 million banner
impressions. It owns and operates a network of more than 50 web sites, including
GA-games, GA-Source (a gaming news site which provides game previews, product
reviews and interviews), and GA-Sports (a network of news on computer sports
gaming).

ACQUISITION OF THE BIG NETWORK, INC.

As of August 31, 1999, eUniverse acquired 80% of the outstanding capital
stock of The Big Network, Inc. in exchange for 1,440,000 shares of eUniverse
common stock, with a fair market value of $8,820,000. As of May 18, 2000,
eUniverse had acquired all of the remaining outstanding Big Network shares in
exchange for 360,000 shares of eUniverse, with a fair market value of
$2,205,000. Each of these stock exchanges were arms length transactions between
unrelated parties. The consideration paid was based upon negotiations between
the parties to determine the value of the Big Network and eUniverse shares.
Subsequent to the closing, shareholders and principal officers of Big
Network -- Stephen Sellers and John Hanke -- became Vice Presidents of
eUniverse. On January 6, 2000, Mr. Hanke resigned his position to pursue other
business opportunities.

The Big Network site provides a full suite of classic board and card games,
including spades, checkers, chess, backgammon, reversi and morph, allowing
thousands of simultaneous players to meet, chat and play parlor games in a
friendly setting. The site's gaming system is based on a sophisticated Java
client-server architecture designed to support over 10,000 users. Big Network
currently hosts over 210,000 registered members and generates almost three
million advertising impressions per month.

As of May 15, 2000, former shareholders of Big Network who hold a total of
1,665,155 shares of eUniverse common stock entered into an agreement with
eUniverse which provides eUniverse with the right to purchase a minimum of
500,000 shares of eUniverse common stock, on a pro rata basis, from all of the
former shareholders of Big Network who, as of the closing of such agreement, are
shareholders of eUniverse and counter-signatories to such agreement. The closing
was scheduled to occur on or before May 26, 2000. eUniverse is in default under
this agreement due to failure to close by the scheduled closing date.

ACQUISITION OF FUNONE.COM

In an arms length transaction between unrelated parties, as of October 1,
1999, eUniverse acquired funone.com from Don Burgess in exchange for 8,733
shares of eUniverse common stock with a value of $50,000. After the closing, Mr.
Don Burgess became and remains employed by eUniverse. eUniverse will make
contingent payments to Mr. Burgess of up to $350,000 in additional shares of
eUniverse's common stock, based upon the average closing price of eUniverse's
common stock for the last five days

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of each month, over the period of six calendar months from the closing,
contingent upon funone.com achieving specified milestones with respect to unique
site visitors.

The funone.com web site provides online greetings, cartoons, joke lists and
gags. Subscribers can receive weekly jokes and send fun electronic greetings to
their friends.

ACQUISITION OF POKEMONVILLAGE AND QUAKE CITY GAMING NETWORK

As of February 1, 2000, in an arms length transaction between unrelated
parties, eUniverse completed its acquisition of the Pokemonvillage.com and Quake
City Gaming Network from D. Scott Smith. The purchase price of this transaction
was $250,000 payable in shares of eUniverse common stock, based upon
negotiations between the parties. After the closing, Mr. Scott became and
remains employed by eUniverse. Under Mr. Smith's employment agreement with
eUniverse, additional payments of up to $190,000 in cash and up to an aggregate
value of $450,000 in stock options, based upon the fair market price of
eUniverse's common stock price at the date of grant, may be payable upon
achievement of targeted numbers of banner advertisements displayed on the web
pages of the Pokemonvillage.com and its related web sites through
August 1, 2001.

Domain names included in this transaction include Pokemonvillage.com,
Forumnation.com, and Reverseauction.com. Pokemonvillage.com, with over 370,000
unique visitors in December 1999, as reported by Media Matrix, is one of the
largest online communities for enthusiasts of Pokemon, computer/video games, and
other collectibles. Forumnation.com is youth focused web site allowing the users
to discuss a variety of subjects such as music, comics, and games that are of
interest to them. ReverseAuction.com site allows the owners of Pokemon cards,
comics, and other collectibles to meet and auction off their items.

ACQUISITION OF FALCON VENTURES CORPORATION

In an arms length transaction between unrelated parties, as of February 2,
2000, eUniverse acquired all of the outstanding capital stock of Falcon Ventures
Corporation from Take-Two Interactive Software, Inc. in exchange for 310,000
shares of eUniverse's common stock. The consideration paid was based upon
negotiations between the parties to determine the value of Falcon Ventures'
shares and the shares issued by eUniverse.

Falcon Ventures is an online retailer of DVD movies, music CDs and VHS
movies through its web site at dvdwave.com. Falcon Ventures has significant
liabilities of $500,000 in accounts payable.

ACQUISITION OF JUSTSAYWOW

As of March 1, 2000, eUniverse acquired Justsaywow.com from Christian Walter
in exchange for $200,000 cash and 11,696 shares of eUniverse common stock with a
value of $100,000, based upon negotiations between the parties. This was an arms
length transaction between unrelated parties. After the closing, Mr. Walter
became and remains employed by eUniverse. Under Mr. Walter's employment
agreement with eUniverse, eUniverse will make contingent payments to
Mr. Walter, over the period of 12 calendar months from the closing, contingent
upon justsaywow.com achieving specified milestones with respect to the number of
page view requests received by the Justsaywow.com web site. The contingent
payments will be made in shares of eUniverse's common stock and have an
aggregate total value of up to $200,000, based upon the fair market value of
eUniverse's common stock at the time of issuance.

Justsaywow.com is a web site that provides fun and humorous electronic
greetings with animated graphics.

ACQUISITION OF DUSTCLOUD MEDIA

On April 14, 2000, eUniverse acquired all of the assets of Dustcloud Media,
which does business on the Internet through the web site Dustcloud.com.
eUniverse acquired all of the assets of Dustcloud Media from Erik MacKinnon and
Dan Barnes in exchange for a principal payment of 23,668 shares of eUniverse
common stock, valued at $150,000, and up to an additional $150,000 in contingent
payments

5

of eUniverse common stock, over the period of 12 months after the closing,
contingent upon Dustcloud.com achieving specified milestones with respect to the
number of page view requests received by the Dustcloud.com web site. The
contingent payments will be made in additional shares of eUniverse's common
stock based upon the fair market value of the stock at the time the performance
objectives are met. After the closing, Messrs. MacKinnon and Barnes were and are
engaged as independent contractors to perform development, editorial and
web-master related services for the Dustcloud.com web site.

Dustcloud.com is a web site that enables users to search the Internet for
celebrity images and movie clips and trailers, while also providing a community
filled with current movie reviews, popular images, and other forms of
entertainment focused content.

The following chart summarizes eUniverse's current corporate organizational
structure:

54.6%
Directors and Executive Officers of 45.4%
eUniverse as a group Other Non-Affiliated Shareholders

eUniverse, Inc.(1)

100% 100% 100% 100% 100% 100%
Entertainment CD Universe, Case's Ladder, Gamer's The Big Falcon Ventures
Universe, Inc.(2) Inc. Inc. Alliance, Inc. Network, Inc. Corporation

Notes:

(1) eUniverse operates the assets of funone, pokemonvillage, Quake City Gaming
Network, Justsaywow and Dustcloud Media.

(2) Currently inactive.

DESCRIPTION OF THE BUSINESS

eUniverse's current emphasis is on acquiring businesses in the field of
entertainment, primarily games (including board, card, computer, arcade and
console video games), music and movies, with the following key characteristics:
(1) strategic content, management or technology, (2) product offerings
compatible with the Generation X and Y demographics of eUniverse's sites, and
(3) the ability to leverage eUniverse's strategic advantages such as order
fulfillment, hardware capacity and economies of scale. eUniverse's strategy is
based on the acquisition and/or development of Internet-based businesses in
several sectors of the entertainment industry, and utilizing their synergies to
generate cross traffic and increased revenues. This strategy includes the
integration of a worldwide distribution of Internet-based entertainment
programming. eUniverse is presently exploring expansion into Internet-based
entertainment in a form that is similar to television and radio programming. Its
long-term strategic plans include taking advantage of a world-wide distribution
network comprised of the installed base of personal computers and televisions,
making use of existing and emerging technologies to deliver this targeted
programming.

At the present time, eUniverse is primarily engaged in the retail sale of
music and video products and accessories, including audio CDs, videotapes and
DVDs via the Internet and the maintenance and operation of interactive games
sites. eUniverse, does not offer and does not intend to offer online gambling or
other activities associated with gambling. CD Universe, currently a subsidiary
of eUniverse, has been in the music and video sales business since April 1997.
The Big Network, Inc., also currently a subsidiary of eUniverse, has been in the
interactive games business since early 1998. Neither eUniverse nor any of its
subsidiaries has ever made a profit in any fiscal quarter.

6

eUniverse's CD Universe online store (www.cduniverse.com) currently offers
customers a selection of over 240,000 audio CD titles as well as proprietary
content and features. eUniverse's CD Universe web site currently has over
290,000 registered users, attracts almost 1,000,000 unique visitors per month
and processes over 20,000 orders each month. eUniverse has used its experience
in online retailing to enter other e-commerce areas, such as online games, by
acquiring community-based web sites that have experienced high growth in unique
visitors each month, selling advertising space on their web pages, and enhancing
the retail capabilities of these sites in order to diversify its product
offerings.

eUniverse sells interactive games through one of eUniverse's web sites,
GamesUniverse.com, an online retailer of single- and multiplayer games, with
links to eUniverse subsidiaries as follows: (1) Case's Ladder, which offers
online ranking and tournament offerings for people who play games on the
Internet; (2) Gamer's Alliance, which owns a network of online gaming editorial
web sites; and (3) The Big Network, which provides multiplayer classic games
(e.g., chess, checkers, backgammon, spades) and a suite of multiplayer
Java-based parlor games. eUniverse also provides a unique library of proprietary
community-building software technologies, named LivePlace. LivePlace combines
group browsing, chat, instant messaging and a host of other advanced features to
introduce social interaction to browsing the web and the shopping experience.
Additions to eUniverse's games will include other classic board and card games
(e.g., Battleship, Hearts) and other online strategy, role-playing or action
games.

Additionally, eUniverse plans to build upon its affiliate network of
third-party entertainment and retail web sites, which would license the
LivePlace community-building software. eUniverse currently licenses its
LivePlace software to five businesses in exchange for a portion of advertising
revenues. eUniverse believes that its plans to superimpose LivePlace on these
affiliate sites will generate additional traffic and e-commerce sales for
eUniverse's network.

eUniverse's acquisition of Cases Ladder, Gamer's Alliance, Big Network,
Falcon Ventures and the web sites of megadvd.com, funone.com,
pokemonvillage.com, forumnation.com, reverseauction.com, justsaywow.com and
dustcloud.com, represents steps towards its goal of using strategic acquisitions
as well as internal growth to develop a diverse but synergistic portfolio of
Internet-based entertainment offerings for a world-wide customer base. (See
'BUSINESS -- Recent Transactions')

Prior to becoming part of eUniverse, CD Universe only generated revenue from
merchandise sales. In contemplation of eUniverse's plans to use its site traffic
to generate advertising revenues, eUniverse implemented a program to accept paid
third-party advertising. This program began generating advertising revenues in
the quarter ended June 30, 1999.

eUniverse plans to enhance its position as an online music destination by
providing digital music distribution and proprietary content on its CD Universe
site. Using the Internet as a distribution medium in conjunction with audio
compression and delivery technologies, eUniverse plans to enable a growing
number of artists to distribute and to promote their music broadly and to enable
customers to conveniently access an expanding music catalog. In recent years,
with the proliferation of multimedia PCs, consumers have increasingly used their
computers to play music. The recent introduction of compression formats such as
MP3 has led to the widespread use of the Internet for the transmission of music.

eUniverse has a customer base of over 1.5 million registered members based
on its own records. This customer base may allow eUniverse to attract artists
who are interested in broadly distributing and promoting their music. eUniverse
currently creates its own proprietary content for the CD Universe site,
including the Big Bang newsletter, a personalized newsletter for customers, and
CD University, a content-driven area that provides information about specific
music genres.

WEB SITES OF eUNIVERSE

MUSIC

CD UNIVERSE

The CD Universe online store is designed to be informative, and to allow
customers to discover, learn about and purchase CDs, videos and other music and
video-related products. The store is

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designed to be intuitive and easy to use and to enable customers to complete the
ordering process with a minimum amount of effort. Customers enter the CD
Universe store through its web site, cduniverse.com, and in addition to ordering
music and video products, can conduct searches, browse among top sellers and
other featured titles, read reviews, listen to music samples, register for a
personalized newsletter, participate in promotions and check order status.

The CD Universe web site provides a search engine that enables customers to
navigate the store to find CDs or other products of interest. Customers can
search for CDs based on artist, album title, song title, record label or musical
genre. Upon clicking on an album title, the site visitor is provided with
information about the artist and the specific album, a list of tracks on the
album, sound samples and a list of reviews.

eUniverse believes that effective use of content encourages purchases by
customers who may be browsing the site without a specific title in mind. The CD
Universe web site provides sound samples, information about specific artists,
albums and types of music, ratings, articles on music topics and other
information. To help customers browse and discover CDs, the web site has eight
music spaces organized by genre. These include rock, jazz, R & B, classical,
country, Christian, world music and miscellaneous. The main page of each space
features links to more specific genre pages that list new releases as well as
alphabetical listings of the artists and albums available within that genre. In
addition to these regular online store content features, CD Universe's web site
offers several other features to encourage customers to learn about and discover
CDs that might be of interest to the customer. The web site's CD University
feature provides links to genre-specific areas where customers are provided with
information about specific musical offerings and biographies of featured
musicians in that genre. CD University currently offers links for classical,
jazz and blues and is in the process of adding more musical genres to this area.
In addition, the CD Universe web site has a feature called RockOnTV, provided by
RockOnTV.com, where customers can read a listing of music and musician-related
programs available on TV during that week. Once a CD has been selected,
customers are prompted to click on the price to add products to their virtual
shopping carts. Customers can add and remove products from their shopping carts
as they browse, prior to finalizing their purchase. The shopping cart page
displays each item that has been placed in the cart, including title, price and
availability. To execute orders, customers can choose from a secure or standard
purchasing mode depending on the capabilities of the customer's web browser.
After choosing a purchasing mode, the customer is prompted to enter his or her
name and password or to create an account on CD Universe's web site that can be
used to make repeat purchases.

FILMED ENTERTAINMENT

VIDEO UNIVERSE

eUniverse's Video Universe online store (www.videouniverse.com) offers
customers a selection of over 40,000 movie titles in videocassette, DVD and
laser disc formats. The Video Universe web site was expanded to include DVD
titles with the acquisition of MegaDVD.com web site (www.megadvd.com).
MegaDVD.com was founded in June 1997 and, when acquired by eUniverse, had a
customer base of 3,000 registered users. The acquisition of the assets of Green
Willow provided eUniverse with additional management resources and expertise
necessary to effectively promote its online video store. The domain name
www.MegaDVD.com takes customers to eUniverse's Video Universe online store.

The Video Universe online store operates in conjunction with the CD Universe
store and allows customers the ability to purchase products from either site
using a common shopping cart.

FALCON VENTURES CORPORATION

With the acquisition of Falcon Ventures Corporation, we acquired the
dvdwave.com web site, which offers customers a selection of over 5,000 movie
titles in DVD format and also offers music CD and VHS videos.

8

INTERACTIVE ENTERTAINMENT

GAMES UNIVERSE

Through its Games Universe online store (www.gamesuniverse.com) eUniverse
sells to customers a selection of single- and multi-player games and provides
links to eUniverse's other web sites, featuring the web sites of eUniverse's
subsidiaries that provide other online games. eUniverse does not offer and does
not intend to offer online gambling or other activities associated with
gambling.

CASE'S LADDER

Case's Ladder is an online gaming portal, which provides competitive
rankings for online gamers and allows gamers to compete against one another in a
variety of tournaments and leagues. Approximately 1.1 million users are
registered with Case's Ladder interactive entertainment communities on the
Internet. Case's Ladder primarily derives revenues from membership fees and
advertising. According to a survey of Case's Ladder's registered users,
approximately 75% of registered users on the Case's Ladder web site are between
the ages of 18 and 50, with the majority of those visitors having an annual
income over $50,000. In addition, 46% of Case's Ladder's users have purchased
products or services over the Internet. eUniverse continues to use Case's
Ladder's audience to expand eUniverse's customer base and to diversify its
retail offerings into new business areas such as computer games.

GAMER'S ALLIANCE

Launched in 1996, Gamer's Alliance is a network of interactive entertainment
community sites on the Internet that receives over 1.2 million unique monthly
visitors and 20 million impressions per month. Gamer's Alliance has aggregated a
collection of sites covering several platforms, game genres and topics. The
Gamer's Alliance Network spans over 50 sites, including GA-Source, GA-Sports,
GA-Strategy, GA-RPG and Dreamcast.net, owned and operated by eUniverse.
GA-Source is an interactive game site on the web that incorporates daily gaming
news, interviews, game previews and product reviews. GA-Sports is a
web-community site focused on PC sports games. Other Gamer's Alliance properties
include:

Dreamcast.net, a site dedicated to the Sega Dreamcast console platform;

GA-Strategy, a site dedicated to PC strategy games; and

GA-RPG, a hub site focused on daily role playing games gaming news.

The acquisition of Gamer's Alliance provides eUniverse with a valuable source of
proprietary content that can be offered to Case's Ladder's users.

The Gamer's Alliance content development team consists of gaming enthusiasts
from around the world. This content development approach has been effective in
attracting a viewership of avid gamers. Furthermore, the Gamer's Alliance
network of sites seeks to encourage customer loyalty by allowing visitors to
become actively involved in content creation through forums and chat services.

BIG NETWORK

The Big Network site provides a full suite of classic board and card games,
including spades, checkers, chess, backgammon, reversi and morph, allowing
thousands of players simultaneously to meet, chat and play parlor games in a
friendly setting. The site's gaming system is based on a sophisticated Java
client-server architecture designed to support very large numbers of users. The
Big Network currently hosts over 210,000 registered members and generates almost
three million advertising impressions per month.

The Big Network operates an entertainment and community site at
www.bignetwork.com. The site offers multiplayer classic games (e.g., chess,
checkers, spades), as well as other forms of entertainment and information to
its members and users. The Big Network also developed LivePlace, a software
program written in the JAVA programming language that provides users with an
overview of activity around them on the site, and allows them to follow public
conversation and send private messages to

9

other users. LivePlace also uses proprietary technology to map users to their
web location and to control the browser window to allow for co-navigation of the
web. A map view allows users to see where other users are, across the eUniverse
site and its associated network. Users can move instantly to any other location
within the network.

eUniverse's Big Network site includes Play4Prizes, a game show channel where
players can win cash and prizes. No purchase is necessary to play the games or
to win prizes. Play4Prizes' games are sponsored by advertisers and used as a
promotional vehicle for the advertisers' products and services. Play4Prizes
caters to a predominantly female audience. In addition, the Big Network
publishes the Daily Post, a collection of eight daily e-mail newsletters
providing news, facts and trivia on a variety of topics such as cinema, sports,
star gazing, cooking recipes, jokes and holidays. The Big Network reaches over
85,000 people daily through its Daily Post e-mail newsletters.

eUniverse plans to continue to take advantage of the audience of its newly
acquired interactive entertainment sites by pursuing e-commerce and
merchandising opportunities in the interactive entertainment arena. These
opportunities include online retailing of interactive entertainment products and
the exclusive online distribution of titles developed by smaller game
developers.

COMMUNITY-BUILDING TECHNOLOGIES

With the acquisition of the Big Network, Inc., we acquired LiveSuite, a
suite of multi-user, Internet-based software modules. The core module of
LiveSuite, LivePlace, takes the form of a Java applet that allows users to chat,
send instant messages, set up friends lists and co-browse a site. LiveSuite
modules work together using a shared technology core to provide instant
messaging, co-browsing, online sales assistance and game-playing through a
pop-up window that appears on the user's computer screen. LivePlace is designed
to integrate into any existing web site quickly and easily. Its components can
be deployed individually or as an integrated solution that combines
entertainment, community and commerce through a common user interface.

eUniverse plans to build an affiliate network of third-party entertainment
and retail web sites that would license eUniverse's LivePlace community-building
software to third parties for a portion of the affiliate's advertisement
revenues. eUniverse believes the implementation of LivePlace, which places a
link on these affiliate sites to eUniverse's web site, will allow eUniverse to
generate additional traffic and e-commerce sales for eUniverse's network.

eUniverse believes that its strategic assets include customer loyalty,
proprietary content and user-friendly technology, and that these assets will
enable it to grow web site traffic, retain customers, expand revenue
opportunities and attract strategic acquisition candidates. eUniverse also plans
to develop strategic relationships with traditional media partners that will
enable it to build awareness of its sites and e-commerce services and increase
traffic to its sites.

10

DOMAIN NAMES, PATENTS AND TRADEMARKS

The Domain names of eUniverse's web sites constitute important intellectual
property for eUniverse. Domain names registered to eUniverse include the
following:

euniverse.com
cduniverse.com
videouniverse.com
gamesuniverse.com
gagames.com
megadvd.com
casesladder.com
aoe2.net
cavenews.com
dknation.com
ga-rpg.com
gasource.com
Bignetwork.com
Play4prizes.com
Liveplace.com
Livestore.com
Livesuite.com
goldenbearsden.net
nfscheats.com
nfs4.com
wcw-meyhem.com
gp500.net

gasource.net
ga-source.com
ga-source.net
ga-strategy.com
highheatbaseball.com
messiahpress.com
metalgear.net
myth2.com
ionrpg.com
ga-sports.com
coursedepot.com
grandprix2.com
highheatbaseball.com
maddencentral.com
simracingnews.net
the-fastlane.com
nflfever.com
Live-store.com
Shop-Live.com
Shop-Live.net
funone.com
Gamelets.com

pokemonvillage.com
nhl2k.com
sanitybycain.com
ta-k.com
voodoo3.net
wrestling-games.com
experience3d.com
frontofficefootball.com
frontofficefootball.net
frontofficefootball.org
3dracing.net
rallychamp.com
afflicted.net
ctimes.net
indy3d.net
prey.net
war3.com
eqrealms.com
acrealms.com
mygamelobby.com
Big-network.com
online-alchemy.com

dvdwave.com
dvdwave.net
dvdwave.co.uk
dvdmoviereviews.net
dvdmoviereviews.org
sfbayads.com
quakecity.net
forumnation.com
clansite.com
reserveauction.com
flymp3.com
digimonvillage.com
dragonballvillage.com
justsaywow.com
moviestorm.com
dustcloud.com
justpigs.com
sailorvillage.com
nintendovillage.com
consolevillage.com
rpgvillage.com
xboyvillage.com
gameboyvillage.com

At the present time, eUniverse does not own any patents. eUniverse has filed
service mark registrations with the US Patent and Trademark Office for
'eUniverse', 'Games Universe', 'CD Universe', 'Video Universe', 'Gamer's
Alliance', 'Play4Prizes', 'funone.com', 'LiveSuite', 'LivePlace', 'Music
Universe', 'Movie Universe', 'DVD Universe', 'Software Universe', 'Book
Universe', 'MegaDVD' and 'dvdwave.com'. eUniverse is in the process of filing a
service mark application for 'dvdmoviereviews.com'. eUniverse believes that it
presently has, or is capable of acquiring, ownership and/or control of the
intellectual property rights, which are necessary to conduct its operations and
to carry out its strategic plans.

OPERATIONS AND TECHNOLOGY

eUniverse maintains a technology center, with in-house technical staff, at
each of its main business units: CD Universe, Case's Ladder, Gamer's Alliance
and Big Network.

CD UNIVERSE

CD Universe has developed proprietary technologies and systems that provide
for reliable online retailing in a secure and easy-to-use format. Using a
combination of proprietary solutions and commercially available, licensed
technologies, eUniverse has deployed systems for online content dissemination,
online transaction processing, customer service, market analysis and electronic
data interchange.

CD Universe uses Microsoft SQL Server 7.0 as its database management
technology. Web pages are served by Microsoft's Internet Information Server and
use Microsoft's Active Server Page technology. The web pages themselves are
designed, programmed, tested, implemented, and maintained by on-staff designers
and programmers. The system is flexible enough to allow new product lines to be
integrated. Computer games were added in August 1999. A 'server farm' of
redundant web servers was brought on-line in August 1999 to provide extremely
high site availability to our customers. The site is monitored twenty-four hours
a day, seven days a week, by an outside company that provides alerts to on-call
technicians in the event that the site is not operating correctly.
CD Universe's on-site data center is connected via a point-to-point digital
transmission link to its Internet service provider, Internet Media Corporation.
This service is provided under a two-year contract.

CD Universe uses Secure Socket Layers (SSL) for secure electronic
transactions over the Internet and uses proprietary Electronic Data Interchange
interfaces and private networks to ensure the security

11

of customer order information and credit card transactions shared with its
vendors and credit card processor.

FULFILLMENT

CD Universe has developed proprietary software to manage its onsite
fulfillment operation. This software allows CD Universe to order product from
multiple vendors, receive product into its warehouse, pick and pack individual
customer orders, and electronically manifest the product for shipping. This
system allows eUniverse to aggregate product from multiple vendors into a single
shipment to its customers. Partially filled shipments can be held for a
customer-selectable number of days to reduce the number of shipments needed to
fill a single order, thus saving the customer shipping charges.

CUSTOMER SERVICE

CD Universe has developed proprietary software for use by its in-house
customer service department to access real time order information.

CASE'S LADDER

Case's Ladder utilizes multiple servers running the RedHat Linux operating
system, MySQL database backend, the Apache web server, Perl programming
language, and other software. Proprietary software developed in-house allows
staff to easily manage the over one hundred and fifty gaming leagues we operate,
handling over 3,500 online tournaments each month. In addition, a proprietary
technical support system allows staff members to have real-time access to
queries with full logging of requests, ensuring top of the line customer
service. Servers are co-located with Exodus Communications, Inc. under a yearly
contract. Utilizing a network connection, Case's Ladder is tied into a private
nationwide network that feeds into every major Internet network in the United
States. High performance hosting, custom applications, and the proven software
packages listed above have given Case's Ladder the ability to have its services
available to the public with reliability above 99%.

GAMER'S ALLIANCE

Gamer's Alliance utilizes Linux operating system distribution Red Hat 6.0 to
power the majority of its PC web servers. NT Server 4.0 is used for web
applications requiring a Windows based operating system. A new backup system has
been implemented to protect mission critical data from hardware and software
failure, and other unpredictable circumstances. Bandwidth is rented from
Valuenet Inc. Gamer's Alliance has internally developed several Internet-based
applications that increase the efficiency of administrating servers and updating
web sites. Among these programs is a database driven content system for Linux
and NT which allow web site content to be stored into databases, such as mySQL
and Microsoft Access, and then be dynamically recalled based upon specific user
preferences. This allows users to customize certain Gamer's Alliance web sites
to only display news, previews, reviews, interviews and other information that
meet certain criteria such as type of content or date added. These user
preferences are then stored as text in the user's computer through an Internet
mechanism known as a 'cookie' for use in later viewing sessions.

BIG NETWORK

BigNetwork.com is built on several servers running the Sun Solaris operating
system and an Oracle database. The servers are co-located at Exodus in Santa
Clara, California. Exodus provides unlimited bandwidth and redundant power and
network connectivity as well as advanced fire suppression and other emergency
provisions. Connectivity cost is approximately $4,500 per month. Key hardware is
a Sun Enterprise Server 450, a Sparc 20, and several Intel Pentium II class
machines, also running Solaris.

The Big Network multiplayer gaming system and the LivePlace instant
messaging system are built on a highly scalable proprietary Java client-server
system. The system is capable of supporting thousands of simultaneous users
using relatively small amounts of server-side computer processing units

12

and bandwidth per user. Because the server is written in Java software
programming language, it is portable and can run on any machine capable of
supporting Java, including Solaris on Sun or Intel hardware and Windows NT.

FALCON VENTURES

DVDWave.com sells digital videodisks, videotapes, and audio compact disks to
retail purchasers over the Internet. Customers create an e-account with their
personal information before ordering and do not need to re-enter this
information for any subsequent orders. Once created orders are sent to a
fulfillment house, which compiles a daily list of product shipped out. This list
is used by DVDWave to update the status of orders on the site, and customers are
billed for items only after they have appeared on this list. A list of returned
product is also compiled, and any necessary refunds are processed accordingly.

SALES AND MARKETING

At the present time, eUniverse receives and processes over 25,000 orders in
a typical month, with an average order size of about $35-40, exclusive of
shipping charges.

eUniverse makes use of strategic partnerships and proprietary content to
attract and retain traffic on its web sites. CD Universe's 'Partner Program'
increases its market presence by allowing 'partner' web sites ('eUniverse
Partners') to offer CDs to their audience, for which CD Universe provides
fulfillment. The eUniverse Partner site provides a hyperlink to the CD Universe
web site that leads the consumer to more information about a specific artist or
title. This hyperlink automatically connects the customer to the CD Universe
online store where the eUniverse Partner's customer may place an order to
purchase a CD. In this manner, the eUniverse Partner can offer enhanced services
and product recommendations, while avoiding ordering and fulfillment costs.
eUniverse Partners receive a commission of 7% to 15% on sales of eUniverse's
products that originate from the eUniverse Partner's web site.

eUniverse recently entered into a strategic partnership with LinkShare
Corporation to dramatically expand the scope of its partner program. LinkShare
offers affiliate, marketing programs to companies doing business on the
Internet. As part of the partnership, LinkShare will introduce eUniverse's
online retailing sites to its network of over 65,000 partner sites. LinkShare
operates a network on the Internet, servicing clients such as Dell Computers,
Cyberian Outpost, Borders, 1-800-FLOWERS, Virtual Vineyards, Omaha Steaks and
others. eUniverse also plans to develop strategic partnerships with other media
partners that will enable it to build greater awareness of its sites and expand
traffic and e-commerce activity on its network.

COMPETITION

The online commerce market is new, rapidly evolving and intensely
competitive, and eUniverse expects that competition will further intensify in
the future. Barriers to entry are minimal, and current and new competitors can
launch new sites at a relatively low cost. With respect to recorded music sales,
eUniverse currently competes with numerous Internet retailers, including music
retail chains, record labels, independent retailers with web sites on the
Internet and online stores retailing music and video titles such as CDnow,
Amazon.com., Buy.com, Blockbuster.com and ColumbiaHouse.com. CD Universe is
substantially smaller than these online stores. In addition, eUniverse competes
with traditional music retailers, as well as megastores, mass merchandisers,
consumer electronics stores and music clubs.

With respect to online sales of video and DVD products, there are numerous
competitors. The larger competitors include those same music retailers listed
above and also include DVDExpress.com, Reel.com, DVDempire.com, Amazon.com and
Buy.com.

The primary competitive factors in providing music, video, DVD and other
entertainment products and services via the Internet are name recognition,
variety of value-added services, ease of use, price, quality of service,
availability of customer support and technical expertise. eUniverse's prospects
for achieving its business objectives will depend heavily upon its ability to
provide high quality, entertaining

13

content, along with user-friendly web site features and value-added Internet
services. Other factors that will affect eUniverse's prospects for success
include its ability to attract experienced and qualified personnel, particularly
in the areas of management, sales and marketing, and web site design. If
eUniverse is unable to compete successfully in its retailing businesses, there
will be a material adverse impact on its business, results of operations and
financial condition due to decrease in revenue. In addition, the competition for
advertising revenues, both on Internet web sites and in more traditional media,
is intense. If eUniverse fails to attract and retain significant sources of
revenue from paid advertisements and sponsorships on its web sites, eUniverse's
business, results of operations and financial condition will be materially
adversely affected by such decreased revenue.

Many of eUniverse's current and potential competitors in the area of online
music, video, DVD and other entertainment retailing, such as Amazon.com, have
longer operating histories, significantly greater financial, technical and
marketing resources, greater name recognition and larger existing customer bases
than eUniverse. These competitors may be able to respond more quickly than
eUniverse to new or emerging technologies and changes in the economy or the
marketplace affecting the products and services that eUniverse offers. In
addition, some of eUniverse's competitors can be expected to devote greater
resources, both human and financial, to the development, promotion and sale of
music, video and other entertainment products and services. Accordingly, there
can be no assurance that eUniverse will be able to compete successfully and
achieve its objectives with respect to growth in revenue and profit.

Within eUniverse's interactive segment, Case's Ladder was virtually alone in
the arena of providing player ranking and ladders. However, recently, other game
networks such as MSN Zone and Yahoo!, who previously provided online game
playing formats, have begun their own ranking services.

In the interactive entertainment field, competition among 'news and content'
gaming websites can be divided into two main categories: networks and individual
gaming sites. On the network level companies compete to build either the
largest, high quality, or thorough network in order generate the most
advertising revenue possible. On the individual gaming site front, Webmasters
attempt to create the most popular individual website (by unique visitors,
banner impressions, content, graphical quality, etc.) that covers a specific
segment of the computer/console gaming industry.

While numerous small gaming networks exist, those generating less than 2-3
million page views per month, there are mainly five large gaming networks that
indirectly compete with Gamer's Alliance, Inc. in some fashion: IGN, UGO, Game
Fan, Future Games Network, and Game Spy Industries. Based on estimations on the
amount of page impressions per month of the competition, Gamer's Alliance, Inc.
is significantly smaller than both UGO and IGN, similar in size to Game Fan and
Game Spy Industries, and larger than Future Games.

Gamer's Alliance differs from the competition in its approach of developing
most new sites internally. This strategy allows Gamer's Alliance to enter new
gaming segments quickly with a high quality website.

The following table sets forth the total revenue of eUniverse from the sale
of products in the last three fiscal years, expressed by product category:

REVENUE BY PRODUCT CATEGORY

CD UNIVERSE YEAR YEAR
YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1998 1999 1999
---- ---- ----
(IN THOUSANDS)

Music................................... $5,685 $8,387 $ 6,962
Videos & Games.......................... -- 464 1,902
Services................................ -- -- 2,070
------ ------ -------
Total............................... $5,685 $8,851 $10,934
------ ------ -------
------ ------ -------

14

EMPLOYEES

eUniverse currently employs 5 officers, 102 full-time associates and up to 6
part-time staffers. Of eUniverse's 102 full-time associates, 57 are in
marketing, 33 are in programming, and 12 are in administration. The part-time
staffers work in the packing and customer service areas.

eUNIVERSE'S STRATEGY AND PLANS

eUniverse plans to implement the following strategies in its efforts to
become a leading provider of content, commerce and community services on the
Internet.

EXPAND EXISTING ONLINE RETAIL BUSINESS INTO OTHER E-COMMERCE ACTIVITIES

eUniverse plans to use its technology and fulfillment expertise to expand
into other e-commerce activities, such as eUniverse's recent expansion into
games. In addition, eUniverse plans to use information obtained through customer
tracking technology and user customization of certain services on its web sites
to provide its customers with targeted complementary e-commerce offerings.

ACQUIRE COMPLEMENTARY ENTERTAINMENT-RELATED WEB SITES

eUniverse plans to acquire music, movie, and interactive
entertainment-related web sites that are complementary to its existing network.
These sites will have several of the following key characteristics such as: (1)
strategic content, management or technology, (2) product offerings compatible
with the Generation X and Y demographics of eUniverse's sites, and (3) the
ability to gain from eUniverse's strategic advantages, such as order
fulfillment, hardware capacity and economies of scale. eUniverse plans to
acquire web sites that have experienced high growth in unique monthly visitors
and add its retail capabilities and fulfillment expertise to sell additional
products to the acquired sites' audiences. eUniverse believes that it can
leverage its core technology expertise, existing web site traffic, management
experience, fulfillment, systems and warehousing capabilities to continue to
grow through strategic acquisitions.

PROVIDE ORIGINAL, COMPELLING AND TARGETED SITES

eUniverse's web sites focus on commerce, community and interactivity and
address what eUniverse believes are among the most popular areas of interest on
the Internet including music, film and interactive entertainment. These
entertainment-related web sites offer eUniverse an opportunity to deliver
premium advertising and e-commerce services to an attractive demographic of
Generation X and Generation Y consumers. eUniverse plans to enhance its online
stores by adding additional editorial content, increasing the time its customers
spend on its web sites as well as the likelihood and frequency of subsequent
visits and purchases. Examples of eUniverse's editorial content include reviews,
biographies of entertainers, news, photos and other editorial programming.
eUniverse plans to license compelling third-party editorial content in addition
to its internally developed content in order to enhance the overall user
experience on eUniverse's web sites.

USE COMMUNITY-BUILDING TECHNOLOGIES TO EXTEND REACH TO OTHER ENTERTAINMENT AND
RETAIL SITES

eUniverse licenses its LiveSuite community-building software to a partner
network of currently five third-party entertainment and retail web sites in
exchange for a portion of advertising revenues. LiveSuite's Java-based user
interface creates a pop-up window containing eUniverse information on user's
desktops when they are visiting a licensee's site. eUniverse intends to continue
to use this network of LiveSuite licensor sites to increase traffic to its
network of music, filmed entertainment and interactive entertainment sites.

DIVERSIFY REVENUE STREAMS ACROSS ADVERTISING, E-COMMERCE AND DIRECT MARKETING

Historically, eUniverse's revenue stream has been from music and video
sales. eUniverse plans to leverage its user base to generate revenues from other
revenue streams from advertising, e-commerce

15

and direct marketing. For example, eUniverse believes that the traffic flow
generated on its web sites provides an attractive platform for measurable,
targeted, cost-effective and interactive advertising on the Internet and that
eUniverse can increase revenues from advertising, sponsorships and promotions.
eUniverse plans to use both in-house and third party representatives to sell its
advertising inventory and promotional opportunities. eUniverse also plans to
provide customized solutions to advertisers through its LivePlace applet,
newsletters and multiple community sites, helping them exploit the capabilities
of the Internet as an advertising medium. In addition, eUniverse plans to expand
its e-commerce initiatives through additional storefronts, such as the addition
of Games Universe, the introduction and promotion of interactive entertainment
software, collectable products and other entertainment-related merchandise on
its retail sites.

INCREASE MARKET PENETRATION THROUGH STRATEGIC PARTNERSHIPS

eUniverse intends to increase market penetration through strategic
partnerships that expand awareness of eUniverse's network of web sites.
eUniverse plans to develop strategic relationships with traditional media
partners to build awareness of its sites and expand traffic and e-commerce
activity on its network. The combination of fulfillment expertise,
visitor-tracking technology, flexible software and customer preference
information make eUniverse an attractive partner for Internet-based businesses.
eUniverse offers Internet-based partners the opportunity to establish links from
titles and artists on their web site to the corresponding area within the CD
Universe site. eUniverse believes that the combination of its capability in
order fulfillment, visitor-tracking technology, flexible software and customer
preference information makes a partnership with eUniverse attractive for other
Internet-based businesses.

EXPAND WEB PRESENCE

eUniverse has been able to successfully increase site traffic, and thereby
increase sales. eUniverse has entered into arrangements with other web sites as
part of its partner programs. It will continue to seek cost-effective ways to
increase traffic at its web sites and has discussions underway with potential
strategic partners, which may increase traffic at the CD Universe web site.
eUniverse plans to expand its international presence, and as part of that effort
CD Universe has recently introduced a localized version of the CD Universe site
for the Japanese market, marketed directly to Japanese consumers through a
revenue sharing partnership with US-style.com. In addition, eUniverse continues
to develop proprietary content to attract and retain traffic. eUniverse plans to
offer new products, services and incentives to attract and retain traffic and to
increase the size of profit margins on online purchases.

PROVIDE INNOVATIVE AND EASY-TO-USE WEB SITES

eUniverse plans to make its customer experience informative, efficient and
intuitive by constantly improving its store format and features. For example,
eUniverse's CD Universe store incorporates 'point and click' options, supported
by technical enhancements, including easy-to-use search capabilities (by artist,
album, title, song title or record label), personalized music suggestions, and
order tracking and confirmation. The CD Universe store also promotes music
learning and discovery by enabling visitors to create customized versions of CDs
and through its Big Bang newsletter. Site visitors are prompted to register and
choose from a checklist of options and musical preferences. Each registrant may
select the genre or genres he or she is interested in as well as the content he
or she desires to receive (i.e., press releases, charts, reviews, tour info and
CD Universe news). These features are designed to make shopping at the store
entertaining and informative and encourage purchases and repeat visits.

16

FACTORS AFFECTING EUNIVERSE'S BUSINESS, OPERATING RESULTS,
AND FINANCIAL CONDITION

RISKS RELATED TO OUR BUSINESS

Our prospects for financial success are difficult to forecast because we
have a limited operating history. If we fail to meet the expectations of our
investors and of public market analysts, the market price of our common stock
may decline. Given that eUniverse's business, as currently operated, commenced
in April 1997, when the operations of our predecessor, CD Universe, began, we
have a limited operating history upon which an evaluation of eUniverse and its
prospects can be based. Neither eUniverse nor any of its subsidiaries has ever
made a profit in any fiscal quarter. Our prospects for financial success must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in new, unproven and rapidly evolving markets, such as
the Internet market. To address these risks, eUniverse must, among other things,
expand its customer base, respond effectively to competitive developments,
continue to attract, retain and motivate qualified employees and continue to
upgrade its technologies. If eUniverse is not successful in further developing
and expanding its music, video and interactive entertainment business, including
sales of advertising on its web sites and development of related business
opportunities, its ability to achieve profitability may not be realized and our
market price may decline.

If we are unable to maintain our strategic partnerships, traffic to our web
site may be reduced and our revenues could decrease. additionally, if our
network infrastructure is not sufficient to service our customers, we could lose
customers and our revenues could be reduced. Although eUniverse's ability to
generate additional revenue from Internet commerce may depend on increased site
traffic, purchases and advertising that eUniverse expects to generate through
strategic partnerships, there can be no assurance that its existing
relationships will be maintained through their initial terms or that additional
third-party partnerships will be available to eUniverse on acceptable commercial
terms or at all. The inability to enter into new, and to maintain any one or
more of its existing, strategic partnerships, such as with Linkshare (see 'Sales
and Marketing'), could result in decreased traffic to our web sites and our
product and service sales revenue could decrease. Even if we can maintain our
strategic partnerships, there can be no assurance that our infrastructure of
hardware and software will be sufficient to handle the potential increased
traffic and sales volume from these partnerships.

If we are unable to expand our web presence internationally, we may see an
increase in operating expenses and no increase in revenues. eUniverse's web
sites are accessible throughout the world. If eUniverse is not able to
successfully market, sell and distribute its products in international markets
due to a variety of legal, contractual and practical considerations and the
risks inherent in doing business on a global level, such as unexpected changes
in regulatory requirements (such as those that may prohibit access to our web
sites), export restrictions, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, difficulties in protecting
intellectual property rights, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates and potentially adverse tax consequences, eUniverse's business, prospects,
financial condition and results of operations from successful international
operations will not be realized and our gross profits will not increase.

Because we may not successfully identify and acquire other suitable existing
internet-based businesses and web sites, our operating expense could increase
while our revenues could be reduced. eUniverse's growth and future profitability
may depend in part upon its ability to identify companies that are suitable
acquisition candidates, to acquire those companies upon appropriate terms and to
effectively integrate and expand their operations within its own infrastructure.
We may not be able to identify additional candidates that are suitable for
acquisition or to consummate desired acquisitions on favorable terms.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the assimilation of the operations and personnel of
the acquired companies, adverse short-term effects on eUniverse's operating
results and the potential inability to integrate financial and management
reporting systems. A significant portion of eUniverse's capital resources could
be used for these acquisitions. Accordingly, eUniverse may require additional
debt or equity financing for future acquisitions, which may not be available on
terms favorable to eUniverse, if at all. Moreover, eUniverse may not be able to
successfully integrate an acquired business into eUniverse's business or to
operate an

17

acquired business profitably. If we are not able to integrate and expand the
operations of acquired companies, without excessive costs, delays or other
adverse developments, our revenues could decrease.

If we are unable to use new technologies effectively or adapt our web sites,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards, customers may not visit our web
sites or purchase products from us, which could result in a decrease in our
revenues. To remain competitive, eUniverse must continue to enhance and improve
the responsiveness, functionality and features of its web sites and develop new
features to meet customer needs. The Internet is characterized by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service introductions and the emergence of new industry
standards and practices that could render eUniverse's existing web network and
sites, technology and systems obsolete. eUniverse's success will depend, in
part, on its ability to license leading technologies useful in its business,
enhance its existing products and services, develop new products, services and
technology that address the needs of its customers, and respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis.

If we are unable to protect our trademarks and proprietary rights, our
reputation and brand could be impaired and we could lose customers. eUniverse
regards its trademarks, trade secrets and similar intellectual property as
valuable to its business, and relies on trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with its
employees, partners and others to protect its proprietary rights. There can be
no assurance that the steps taken by eUniverse will be adequate to prevent
misappropriation or infringement of its proprietary property. eUniverse does not
have any of its trademarks or service marks registered with the United States
Patent and Trademark Office. While eUniverse is currently applying for
registration of a number of its trademarks and service marks, we may not be able
to successfully prosecute our applications for these trademarks. See
'Business -- Domain Names, Patents, and Trademarks.'

We could lose one or more of the key members of our management team, which
could impair our business operations. We depend on the continued service of our
executive officers and key technical and marketing personnel, including, in
particular, Brad D. Greenspan, our Chairman, and Leland N. Silvas, our President
and Chief Executive Officer, William R. Wagner, our Chief Financial Officer,
James Haiduck, our Vice President of Sales and Stephen D. Sellers, our Vice
President of Business Affairs and Business Development. eUniverse has employment
agreements with Messrs. Silvas, Wagner, Haiduck and Sellers. However, these
employment agreements do not assure the services of these employees. Despite
employment agreements with these members of management, eUniverse's employees
may voluntarily terminate their employment with eUniverse at any time.
eUniverse's success also depends on its ability to attract and retain additional
qualified employees. Competition for qualified personnel is intense and there
are a limited number of persons with knowledge of and experience in commercial
application of the Internet and retail sales of music and entertainment related
products. There can be no assurance that eUniverse will be able to attract and
retain highly qualified personnel to fill critical managerial and operational
positions.

Our future operating results may fluctuate. If we are unable to meet the
expectations of investors and public market analysts, the market price of our
common stock may decrease. eUniverse expects to experience fluctuations in
future quarterly and long-term operating results that may be caused by a variety
of factors, many of which are outside eUniverse's control. Factors that may
affect eUniverse's quarterly operating results include, without limitation,

eUniverse's ability to retain existing customers, attract new customers at
a steady rate and maintain customer satisfaction,

the announcement or introduction of new or enhanced web sites, products and
strategic partnerships by eUniverse and its competitors,

the mix of products sold by eUniverse,

seasonality of the recorded music industry (namely, the fact that sales of
recorded music traditionally peak during the Christmas season),

seasonality of advertising sales,

eUniverse promotions and sales programs,

price competition or higher recorded music prices in the industry,

18

the level of use of the Internet and increasing consumer acceptance of the
Internet for the purchase of consumer products, such as those offered by
eUniverse,

eUniverse's ability to upgrade and develop its systems and infrastructure
in a timely and effective manner,

the amount and timing of operating costs and capital expenditures relating
to expansion of eUniverse's business, operations and infrastructure and the
implementation of marketing programs, key agreements and strategic
partnerships, and general economic conditions and economic conditions
specific to the Internet, online commerce, and the recorded music and
prerecorded videocassette industries.

Our revenues and gross profits may be reduced if we are unable to fulfill
our customers' orders. eUniverse currently accepts orders only over the
Internet. Product orders received by CD Universe are accepted, verified, batched
and electronically sent on a daily basis to our suppliers, including Valley
Media, Inc. of Woodland Hills, California, eUniverse's primary supplier.
Shipments from our suppliers are received at eUniverse's fulfillment center in
Wallingford, Connecticut. Employees break down bulk shipments into the
individual orders to be sent to customers. This arrangement allows eUniverse to
offer customers a wide variety of CD and video titles while maintaining
virtually no inventory. It also reduces product returns by allowing eUniverse to
only order products for which it has received orders. eUniverse typically fills
over 80% of its orders by the next business day, and approximately 90% of its
orders within one week. eUniverse believes that the speed of order fulfillment
is an important factor to its customers, and accordingly has a significant
impact on its ability to increase revenues from retail sales.

At the present time, Valley Media supplies approximately 80% of the music
and video products and accessories sold by CD Universe. There is no written
agreement between eUniverse and Valley Media. We may not be able to maintain a
relationship with Valley Media or to find an alternative supplier that will
provide products and services on terms satisfactory to eUniverse should our
relationship with Valley Media terminate. Therefore, an unanticipated
termination of eUniverse's relationship with Valley Media, particularly during
the fourth quarter of the calendar year, in which a high percentage of recorded
music and video product sales is made, could cause our revenues to decline for
the quarter in which the termination occurred, even if eUniverse were able to
establish a relationship with an alternative supplier. To date, Valley Media has
satisfied eUniverse's requirements on a timely basis. However, to the extent
that Valley Media is unable to continue to satisfy eUniverse's increasing
product requirements, these constraints may result in decreased revenue and have
a material adverse effect on eUniverse's business, results of operations and
financial condition.

Competition in online commerce is intense. If we are unable to compete
successfully against current and future competitors, our revenues could decline.
The online commerce market is new, rapidly evolving and intensely competitive,
and eUniverse expects that competition will further intensify in the future.
Barriers to entry are minimal, and current and new competitors can launch new
sites at a relatively low cost. With respect to recorded music sales, eUniverse
currently competes with numerous Internet retailers, including music retail
chains, record labels, independent retailers with web sites on the Internet and
online stores retailing music and video titles, such as CDnow and Amazon.com. In
addition, eUniverse competes with traditional music retailers, as well as
megastores, mass merchandisers, consumer electronics stores and music clubs.

The primary competitive factors in providing music, video and other
entertainment products and services via the Internet are name recognition,
variety of value-added services, ease of use, price, quality of service,
availability of customer support and technical expertise. eUniverse's prospects
for achieving its business objectives will depend heavily upon its ability to
provide high quality, entertaining content, along with user-friendly web site
features and value-added Internet services. Other factors that will affect
eUniverse's prospects for success include its ability to attract experienced and
qualified personnel, particularly in the areas of management, sales and
marketing, and web site design. If eUniverse is unable to compete successfully
in its retailing businesses, there will be a material adverse impact on its
business, results of operations and financial condition due to decreased
revenue. In addition, the competition for advertising revenues, both on Internet
web sites and in more traditional media, is intense. If eUniverse fails to
attract and retain significant sources of revenue from paid advertisements

19

and sponsorships on its web sites, eUniverse's business, results of operations
and financial condition will be materially adversely affected by the decreased
revenue.

Many of eUniverse's current and potential competitors in the area of online
music, video and other entertainment retailing, such as CDNow.com and
Amazon.com, have longer operating histories, significantly greater financial,
technical and marketing resources, greater name recognition and larger existing
customer bases than eUniverse. These competitors may be able to respond more
quickly than eUniverse to new or emerging technologies and changes in the
economy or the marketplace affecting the products and services that eUniverse
offers. In addition, some of eUniverse's competitors can be expected to devote
greater resources, both human and financial, to the development, promotion and
sale of music, video and other entertainment products and services. Accordingly,
there can be no assurance that eUniverse will be able to compete successfully
and achieve its objectives with respect to growth in revenue and profit. See
'Marketing and Sales -- Competition'.

RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE

The Year 2000 issue (Y2K) is the result of computer programs written using
two digits rather than four to define the applicable year. Any of eUniverse's
computer and telecommunications programs that have date sensitive software may
recognize a date using '00' as the year 1900 instead of 2000. This could result
in system failure or miscalculations causing disruptions in operations,
including the ability to process transactions, send invoices, or engage in
similar normal business activities.

During 2000, we may experience a Y2K issue, which could negatively affect
our operating results or financial condition because our costs to remedy the
issue would increase. We believe, however, that our most reasonably likely
worst-case scenario would relate to problems with the systems of third parties
rather than with our internal systems, including disruption of product delivery
from wholesalers, inability to charge purchases to credit cards, temporary power
outages, delayed transportation of products by third parties, and lost or
delayed customer purchases due to non-compliant personal computers. We are
limited in our abilities to address the Y2K issue as it relates to third parties
and are relying solely on the assurances of these third parties as to their Year
2000 preparedness.

RISKS RELATED TO THE INTERNET INDUSTRY

Our future results and growth may not be realized if the use of the internet
does not continue to increase. Our market, users of the global computer network
known as the Internet, is new and rapidly evolving. Our business could suffer if
Internet usage does not continue to grow. Internet usage may be inhibited for a
number of reasons, including:

inadequate network infrastructure;

security concerns;

inconsistent quality of service;

lack of availability of cost-effective and high-speed service; and

changes in government regulation of the Internet.

If Internet usage grows, the Internet infrastructure might not be able to
support the demands placed on it by this growth or its performance and
reliability may decline. In addition, future outages and other interruptions
occurring throughout the Internet could lead to decreased use of our network of
web sites and would therefore harm our business.

We could be sued for information retrieved from the internet. Due to the
fact that material may be downloaded from web sites and may be subsequently
distributed to others, there is a potential that claims will be made against
eUniverse under legal theories, such as defamation, negligence, copyright or
trademark infringement or other theories based on the nature and content of the
material. These claims have been brought, and sometimes successfully pressed,
against on-line services in the past. In addition, we could be exposed to
liability with respect to the material that may be accessible through our
products and web sites, including claims asserting that, by providing hypertext
links to web sites operated by third parties, we are liable for wrongful actions
by those third parties through the web sites. Although eUniverse carries general
liability insurance, its insurance may not cover potential claims of this type,
or the level of coverage may not be adequate to fully protect eUniverse against
all liability that may be imposed. Any costs or imposition of liability or legal
defense expenses that are not covered

20

by insurance or in excess of insurance coverage could reduce our working capital
and have a material adverse effect on eUniverse's business, results of
operations and financial condition. Also, the legal effectiveness of our terms
and conditions of use is uncertain. We currently are not aware of any claims
that can be expected to have a material adverse impact on our financial
condition or our ability to conduct our business.

Government regulation and legal uncertainties could increase our costs and
risks to doing business on the internet. There are currently few laws or
regulations that specifically regulate communications or commerce on the
Internet. However, laws and regulations may be adopted in the future that
address issues, such as user privacy, pricing, taxation and the characteristics
and quality of products and services. For example, the Communications Decency
Act of 1996 prohibits obscene and other unlawful information and content from
being transmitted over the Internet. Several other nations have taken actions to
restrict the free flow of material deemed to be objectionable on the Internet.
On October 21, 1998, President Clinton signed the Internet Tax Freedom Act
placing a three year moratorium, beginning October 1, 1998 through October 21,
2001, on Internet access taxes, multiple taxes on electronic commerce, and
discriminatory taxes on electronic commerce. In addition, local telephone
carriers have argued before the Federal Communications Commission that Internet
service providers and online service providers should be required to pay fees
for access to local telephone networks in a manner similar to long distance
telephone carriers. Although the FCC has informally stated that it has no
intention of assessing per-minute charges on Internet traffic or changing the
way consumers obtain and pay for access to the Internet, if the efforts of the
local telephone carriers are successful, costs for Internet access and usage
could increase sharply. Moreover, it may take years to determine the extent to
which existing laws relating to issues, such as property ownership, libel,
taxation and personal privacy are applicable to the Internet. Any new laws or
regulations relating to access to or use of the Internet could harm our
business.

If we are unable to protect our domain names, our reputation and brand could
be impaired and we could lose customers. We own the Internet domain names
'euniverse.com,' 'cduniverse.com', 'videouniverse.com', 'gamesuniverse.com',
'casesladder.com' and 'gagames.com' as well as numerous other domain names in
the United States. See 'Domain Names, Patents and Trademarks'. National and
international Internet regulatory bodies generally regulate the registration of
domain names. The regulation of domain names in the United States and in other
countries is subject to change. Regulatory bodies could establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we might not acquire or
maintain the 'euniverse.com,' 'cduniverse.com', 'videouniverse.com',
'gamesuniverse.com', 'casesladder.com', 'gagames.com' or comparable domain names
in all the countries in which we conduct business, which could harm our
business. Furthermore, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear
and still evolving. Therefore, we might be unable to prevent third parties from
acquiring domain names that infringe or otherwise decrease the value of our
trademarks and other proprietary rights.

We may be not able to keep pace with rapid technological changes in the
internet industry, which could cause us to lose customers and revenue. Rapid
technological developments, evolving industry standards and user demands, and
frequent new product introductions and enhancements characterize the market for
Internet products and services. These market characteristics are exacerbated by
the emerging nature of the market and the fact that many companies are expected
to introduce new Internet products and services in the near future. Our future
success will depend on our ability to continually improve our content offerings
and services. In addition, the widespread adoption of developing
multimedia-enabling technologies could require fundamental and costly changes in
our technology and could fundamentally affect the nature, viability and
measurability of Internet-based advertising, which could harm our business.

Our computer network security measures could be circumvented resulting in
loss of customer data. eUniverse accepts credit cards, personal checks or money
orders as payment for customer orders. The CD Universe web site enables
customers to store their credit card information in a personal account, thereby
avoiding the need to re-enter this information when making future purchases.
Customers are offered several shipping options, including overnight delivery.
eUniverse confirms each order by e-mail communication to the customer promptly
after the order is placed, and subsequently confirms shipment

21

of the order by e-mail. In addition, the CD Universe web site includes a feature
that enables customers to check on the status of their order. Use of the
Internet by consumers is at an early stage of development, and market acceptance
of the Internet as a medium for commerce is still by no means certain.
eUniverse's future success will depend on its ability to significantly increase
revenues, which will require the development and widespread acceptance of the
Internet as a medium for commerce, particularly as a channel of retail
distribution. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as
reliable network backbones, or complementary services, such as high-speed modems
and security procedures for financial transactions. The viability of the
Internet may prove uncertain due to delays in the development and adoption of
new standards and protocols to handle increased levels of Internet activity or
due to increased government regulation. If use of the Internet for the purposes
envisioned by eUniverse does not continue to grow, or if the necessary Internet
infrastructure is not further developed and maintained, eUniverse's business,
results of operations and financial condition could be materially adversely
affected due to decrease or loss of traffic.

Despite eUniverse's implementation of network security measures, its
infrastructure is potentially vulnerable to computer break-ins and similar
disruptive problems caused by individuals with a variety of objectives.
eUniverse learned on Saturday January 8, 2000 that customer data stolen from CD
Universe was posted on the Internet and immediately notified the FBI, which
caused the site to be shut down the same day. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Theft of Customer
Data from CD Universe'.

Consumer concern over Internet security has been, and could continue to be,
an impediment to the expansion of commercial activities that require consumers
to transmit their credit card information and other personal information over
the Internet. In addition, computer viruses, break-ins or other security
problems could lead to misappropriation of proprietary information and
interruptions, delays or cessation in service to eUniverse's customers. Until
more comprehensive and reliable security technologies are developed and
implemented, the security and privacy concerns of existing and potential
customers may inhibit the growth of the Internet as a merchandising medium.

ITEM 2. FACILITIES

eUniverse currently leases a 19,500 sq. ft. office, warehouse and order
fulfillment center in Wallingford, Connecticut at a monthly rent of $9,750.
eUniverse's lease with respect to this facility expires in March 2002 and
eUniverse has the right and option to extend the lease for an additional five
year term. eUniverse believes that the Wallingford Facility will be adequate to
meet its office space and order fulfillment needs for the foreseeable future.

eUniverse leases approximately 500 sq. feet of office space, through its
Gamer's Alliance subsidiary, on a month-to-month basis in Bridgeton, Missouri,
at a monthly rent of $475.

Big Network leases 2,300 sq. ft. of office space in San Francisco,
California, for its technological research and development, business development
and sales and marketing divisions. The terms of the agreement provide for
monthly payments of $5,350 initially, increasing to $5,650 in the final year of
the term. eUniverse's lease with respect to this facility expires on June 30,
2002, and has no provisions for renewal. eUniverse believes that the San
Francisco Facility will be adequate to meet eUniverse's research and
development, business development and sales and marketing needs for the
foreseeable future.

eUniverse leases office space in Los Angeles, California of approximately
9,950 sq. ft. for its Gamer's Alliance technical, marketing and editorial
personnel along with personnel for its funpages sites. The lease terms provide
for monthly payments of $17,482. eUniverse's lease with respect to this facility
expires on December 30, 2004 and has no provisions for renewal.

The following table summarizes our current properties:

SIZE MONTHLY
LOCATION (SQ. FT.) RENT
-------- --------- ----

Wallingford, Connecticut.................................. 13,500 $ 9,750
Bridgeton, Missouri....................................... 500 475
San Francisco, California................................. 2,300 5,300
Los Angeles, California................................... 9,950 17,482

22

ITEM 3. LEGAL PROCEEDINGS

On December 9, 1999, The Isosceles Fund Limited, a Bahamian corporation,
filed suit in the Superior Court of California against eUniverse, Brad
Greenspan, Gerard Klauer Mattison & Co., Inc. ('GKM') and ten unnamed
individuals. Isosceles seeks damages based on (1) breach of an alleged
subscription agreement between Isosceles and eUniverse to purchase common stock
of eUniverse, (2) breach of an implied covenant of good faith and fair dealing
in connection with the alleged subscription agreement, and (3) intentional
interference with the alleged subscription agreement by GKM and ten unnamed
individuals. With respect to each count of the cause of action, Isosceles has
claimed damages of $1,750,000. Isosceles has also requested that the court award
exemplary and punitive damages, interest, costs of suit and other relief as the
court may deem fair, just, equitable and proper. eUniverse believes the
allegations in the complaint are without merit and will defend the suit
vigorously.

On January 28, 2000, ARTO, a California partnership, filed suit in the
Superior Court of the State of California for the County of Alameda against
eUniverse and various unnamed defendants. ARTO, which has had no direct dealings
with eUniverse, was formed as a California partnership to sponsor the litigation
in the public interest, acting as a private attorney general pursuant to Bus. &
Prof. Code 'SS'17204. ARTO seeks damages based on alleged sales by eUniverse in
violation of Bus. & Prof. Code 'SS'17200 et seq. and Civ. Code 'SS'SS'1749.5 and
1770(a)(14). The products sold which are the subject of this lawsuit consist of
gift certificates sold by CD Universe, Inc. worth approximately $2,100.
eUniverse believes the allegations in the complaint are without merit and will
defend the suit vigorously.

On April 25, 2000, an individual named Aubrey Mayhew and several affiliated
entities filed suit in the United States District Court for the Middle District
of Tennessee at Nashville against CD Universe, Inc. and numerous other
defendants. The plaintiffs seek damages for an alleged copyright infringement by
CD Universe with respect to the sale of an album which contains a song allegedly
owned by plaintiffs. No copies of the album were ever actually sold by CD
Universe. CD Universe believes the allegations in the complaint are without
merit and will defend the suit vigorously.

Prior to the acquisition of CD Universe, Inc. by eUniverse, two lawsuits
were filed in Germany against CD Universe, one by Sony Music Entertainment
(Germany), GmbH and the other by Warner Music Germany, GmbH. Sony Music claims
in its suit that CD Universe offered the sale of music in territories to which
the producer of such music granted an exclusive right to Sony Music (other than
the United States and Canada). A default judgment of 10,356.50 DM (approximately
U.S. $4,832) was entered by the local court in Germany against CD Universe in
the Sony Music case. The local court in Germany has entered an Order for Costs
of 2,752.40 (approximately U.S. $1,284) against CD Universe in the Warner Music
case. CD Universe has not received any documentation describing the subject
matter of the Warner Music case. CD Universe believes that even if judgments are
perfected in these cases, the amounts will not be material to its business.

eUniverse is not a party to any other pending legal proceedings that in the
opinion of management of eUniverse would have a material adverse effect on
eUniverse's results of operations or consolidated financial condition.

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

As of February 2, 2000, eUniverse received the requisite consent of at least
75% of the shares of our Series A Convertible Preferred Stock and at least 75%
of the holders of our Series A Convertible Preferred Stock (the 'Preferred
Stockholders') to (1) modify the terms of our Certificate of Designation of
Series A Convertible Preferred Stock to clarify that we are not required to
notify the Preferred Stockholders at least thirty days prior to acquiring the
stock or assets of another company and that this type of transaction does not
constitute a liquidation event so long as eUniverse is the surviving entity in
such a transaction; (2) modify the terms of the Registration Rights Agreement
and the Regulation D Subscription Agreement between eUniverse and each of the
Preferred Stockholders to remove our obligation to file a Registration Statement
to register the shares of its common stock issuable upon conversion of preferred
stock; provided that the registration obligation will be reinstated in the event
that eUniverse has not raised additional capital contributions or proceeds from
debt issuances of at least $5 million within 6 months of December 1999, of which
at least $3 million shall have been raised within 4 months of December 1999 (the
'Minimum Proceeds'); and (3) to delay the conversion of their shares of
preferred stock to shares of common stock until August 15, 2000; provided

23

that eUniverse raises the Minimum Proceeds. However, each Preferred Stockholder
may convert and sell up to 20% of its shares of preferred stock during any 30
day period beginning April 15, 2000 in the event that eUniverse's common stock
average weekly Closing Bid Price is greater than $12.00 per share during such
period.

In consideration for the Preferred Stockholders' consent to items 1 through
3 above, eUniverse issued to each of the Preferred Stockholders (a) a warrant to
purchase a number of shares of common stock equal to 10% of the number of shares
of preferred stock beneficially owned by the Preferred Stockholder at an
exercise price of $6.00 per share; and (b) a warrant to purchase a number of
shares of common stock equal to 10% of the number of shares of preferred stock
beneficially owned by the Preferred Stockholder at an exercise price of $8.00
per share.

EXECUTIVE OFFICERS OF EUNIVERSE

The executive officers of eUniverse and their ages as of May 31, 2000 are as
follows:

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

Brad D. Greenspan(1).............. 26 Chairman of the Board of Directors
Leland N. Silvas(1)(2)............ 46 President, Chief Executive Officer and Director
Charles Beilman................... 40 Vice President, Special Projects and Director
William R. Wagner................. 53 Vice President, Chief Financial Officer and
Secretary
James Haiduck..................... 36 Vice President, Sales
Stephen D. Sellers................ 40 Vice President, Business Affairs

- ---------

(1) Member of the Compensation Committee.

(2) Leland N. Silvas provided notice of his intent to terminate his contract
with eUniverse as President and Chief Executive Officer on June 6, 2000,
effective as of July 21, 2000.

Brad D. Greenspan, Chairman of the Board of Directors of eUniverse since
April 14, 1999. In 1997, Mr. Greenspan founded Palisades Capital, Inc., a
private Beverly Hills merchant bank, and served as its President until March
1999. Mr. Greenspan received a BA degree in political science/business from UCLA
in 1997.

Leland N. Silvas, President and Chief Executive Officer of eUniverse since
April 1999. Mr. Silvas is a principal member of Label-add, LLC, a
Connecticut-based advertising and direct marketing company, and was employed
there until being recruited by eUniverse, Inc. in 1999. Mr. Silvas was President
and Chief Operating Officer of McPhersons global housewares division from 1994
to 1998. From 1992 to 1994, Mr. Silvas was a board member for Partners In
Computing, a New York City-based software solutions company. He currently sits
on the advisory board to the Adept Group, a computer consulting company based in
New York City, and is a board member of ADV MARKETING, a marketing and
consulting company, and 1-800-adagency, an ad agency.

Charles Beilman, Vice President, Special Projects and Director of eUniverse
since October 25, 1999. Between April 14, 1999 and October 25, 1999, Mr. Beilman
was Chief Operating Officer, Chief Technical Officer and Director of eUniverse.
Mr. Beilman founded CD Universe, Inc. in April 1997 and was its sole shareholder
and Chief Executive Officer until the sale of CD Universe, Inc. to eUniverse in
April 1999. Since 1985, Mr. Beilman has served as President and Director of Trak
Systems, Inc., which supplies proprietary inventory control computer systems to
retail music stores throughout the United States and Canada.

William R. Wagner, Vice President, Chief Financial Officer and Secretary of
eUniverse since April 6, 1999. Prior to joining eUniverse, Mr. Wagner was Chief
Financial Officer of Heritage Marketing and Incentives, Inc., a
Massachusetts-based marketing incentives company. From 1995 to 1997, he was
Chief Financial Officer of ServiceSoft Corporation, a Massachusetts Internet
software company, and from 1990 to 1994, he was Chief Financial Officer of
General Scanning, Inc., a pioneer in laser technology and systems.

James Haiduck, Vice President of Sales since August 1999. Prior to joining
eUniverse, Mr. Haiduck was Vice President of OEM Sales for The Learning Company,
a division of Mattel. His 13 years of sales experience in the
technology/software industry covered the original equipment manufacturer (OEM),
retail, corporate, and direct channels. Having established relationships with
nearly every major OEM or

24

value-added reseller in the US, including HP, Compaq, IBM, Canon, and Gateway,
Mr. Haiduck was responsible for more than $200 million in licensing revenue over
the last 10 years.

Stephen D. Sellers, Vice President, Business Affairs and Business
Development since September 1999. Mr. Sellers became a Director of eUniverse in
December 1999, however he resigned as Director in May 2000 so he could devote
his time to other activities. Prior to joining eUniverse with the acquisition of
the Big Network, Mr. Sellers was CEO and co-founder of The Big Network. Previous
to that, he was co-founder and CEO of Archetype Interactive where he assembled a
diverse team of creative talent to create Meridian 59, the first graphical
Internet multiplayer game. After the acquisition of Archetype by the 3DO
Company, he worked as head of Internet Business Development. He has advised
startup businesses in a variety of technology markets. He holds an MBA from the
University of California, Berkley and a BA from Stanford University.

25

PART II

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

(a) 1. MARKET INFORMATION

From April 20, 2000 to present, our common stock has been listed on the
Nasdaq Small Cap Market under the symbol EUNI.

From April 30, 1999 to April 19, 2000, the common stock of eUniverse was
traded on the OTC Electronic Bulletin Board under the symbol EUNI.

The market price data provided in the following table includes data for
eUniverse, Motorcycle Centers and NABCO, Inc. Prior to April 23, 1998, the
market prices listed below are for NABCO, Inc., traded under the symbol NBCO. On
April 23, 1998, NABCO merged with Motorcycle Centers. The market prices provided
in the table between April 23, 1998 to April 14, 1999 are for Motorcycle
Centers, traded under the symbol MCAM. After the reorganization of Entertainment
Universe and Motorcycle Centers on April 14, 1999, eUniverse began trading on
the OTC under the symbol MCAMD. The name was changed to eUniverse, Inc. on
April 22, 1999 and eUniverse began trading under the symbol EUNI on April 30,
1999. The market price data prior to April 14, 1999 only provides the market
price of NBCO and MCAM. However, the historical information provided in other
sections of this Form 10-K pertains to Entertainment Universe and its acquired
subsidiaries, including CD Universe. As a result, the market information
provided below does not relate to the historical information provided in other
sections hereof prior to April 14, 1999.

The chart below sets forth the range of reported high and low bid quotations
for the common stock of eUniverse for each full quarterly period from
October 31, 1997 through March 31, 2000. The source of the quotations is Prophet
Financial Systems. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions. The closing price for the common stock of eUniverse on July 12,
2000 was $5.625.

RANGE OF HIGH AND
QUARTERLY PERIOD ENDING LOW BID QUOTATIONS
----------------------- ------------------

March 31, 2000 (EUNI)..................................... $ 3.875 - 13.000
December 31, 1999 (EUNI).................................. $ 3.937 - 6.500
September 30, 1999 (EUNI)................................. $ 5.00 - 9.875
June 30, 1999 (MCAM/EUNI)(5).............................. $ 1.875 - 14.00
March 31, 1999 (MCAM)..................................... $ 5.00 - 18.00(1)(3)
December 31, 1998 (MCAM).................................. $ 0.62 - 25.00(1)
September 30, 1998 (MCAM)................................. $ 2.00 - 5.00(1)
June 30, 1998 (NBCO/MCAM)(4).............................. $ 50.00 - 95.00(1)
March 30, 1998 (NBCO)..................................... $ 65.00 - 90.00(1)
December 31, 1997 (NBCO).................................. $1,300.00 - 1,600.00(2)(3)

- ---------

(1) Quotes reflect a 1 for 20 reverse split of eUniverse's common stock
effective March 31, 1999.

(2) Quotes reflect a 1 for 20 reverse split of eUniverse's common stock
effective August 1, 1997.

(3) The stock split occurred prior to the operation of eUniverse's current
business that commenced upon Motorcycle Centers' reorganization with
Entertainment Universe in April 1999.

(4) NABCO merged with Motorcycle Centers on April 23, 1998. Accordingly, in this
quarter, the market price data from April 1 to April 23, 1998 is for NABCO
and from April 24 to June 30, 1998 is for Motorcycle Centers.

(5) The reorganization of Motorcycle Centers and Entertainment Universe closed
on April 14, 1999. Thereafter, Motorcycle Centers changed its name to
eUniverse, Inc. on April 26, 1999 and its symbol to EUNI as of April 30,
1999.

26

2. RECENT SALES OF UNREGISTERED SECURITIES

1. On April 1, 1999, EUI issued 354,000 shares to approximately 10
persons in consideration of public relations, legal and related services
with a fair market value of $229,500 provided to the Company in connection
with various activities, including the Preferred Stock Offering and Merger
with MCA.

2. On April 14, 1999, EUI acquired from Charles Beilman, the sole
shareholder of CD Universe, Inc., one hundred percent of the capital stock
of CD Universe, Inc. for a total consideration of $1,915,000 in cash plus
2,425,000 shares of Common Stock with a fair market value of $7,275,000.
Charles Beilman is the Chief Operating Officer, Chief Technical Officer and
a Director of the Company. See 'CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.'

3. On April 14, 1999, EUI sold 1,795,024 shares of its Series A 6%
Convertible Preferred Stock in a private offering pursuant to Section 4(2)
of the Securities Act and Rule 506 of Regulation D adopted under the
Securities Act. The EUI Preferred Stock was sold to a group of approximately
40 purchasers, including Lehman Brothers, Eisenberg Partners and principals
of Gerard Klauer Mattison & Co., Inc., all of whom were accredited investors
as defined in Rule 501 of Regulation D. The aggregate offering price for the
Preferred Stock was $6,462,086. In connection with the Reorganization, the
holders of the EUI Preferred Stock exchanged their shares, on a one-to-one
basis, for shares of the Company's Preferred Stock having equivalent rights
and preferences, as set forth in the Designation of Preferred Stock.
Proceeds from this sale were used to acquired CD Universe, Inc. and for
general corporate purposes.

4. On April 14, 1999, EUI merged with and into MCA pursuant to an
Agreement and Plan of Reorganization dated April 9, 1999 (the 'Merger
Agreement'). As contemplated in the Merger Agreement, all of the outstanding
common shares of EUI (12,829,000) were acquired by MCA, and the shareholders
of EUI were issued shares of MCA equal to approximately 92% of the shares of
MCA outstanding after the transaction. In connection with the merger into
MCA, each share of EUI Preferred Stock was exchanged for a share of
preferred stock of MCA having identical rights and preferences, and MCA
changed its name to eUniverse, Inc.

5. On April 14, 1999, as part of its compensation for acting as
exclusive placement agent for the sale of the EUI Preferred Stock, Gerard
Klauer Mattison & Co., Inc. ('GKM') received warrants to purchase 400,000
shares of Common Stock at an exercise price of $2.74 per share, which became
exercisable on April 14, 1999 and expire April 14, 2004. GKM also received
warrants to purchase an additional 271,835 shares of common stock of the
Company at an exercise price of $2.75 per share, which become exercisable on
April 14, 2000 and expire April 14, 2004. GKM's services to the Company had
a fair market value of $1,214,567.

Prior to April 14, 1999, MCA issued and sold unregistered securities in the
amounts, at the times, and for the aggregate amounts of consideration listed as
follows:

1. In October and November, 1997, the Company sold 47,500 shares of its
common stock for $9,500 under Rule 504 of Regulation D under the Securities
Act to ten unaffiliated individuals.

2. On April 2, 1998 the Company sold 18,750 shares of its common stock
for $3,750 under Rule 504 to five individuals.

3. On March 29 and March 31, 1999, the Company issued 78,000 shares of
its common stock to various shareholders in exchange for services rendered
in anticipation of the reorganization. The transaction was valued at the
cost of the services rendered of $393,720.

4. On March 31, 1999, the Company issued 2,000,000 shares of its common
stock to A. Jay Boisdrenghein in exchange for services. The transaction was
valued at the cost of the services rendered of $12,480,000.

5. On April 6, 1999, MCA sold 897,835 shares of MCA common stock
pursuant to Rule 504 for $897,835 to purchasers of the EUI Preferred Stock.
These shares were exchanged for shares of freely tradable common stock of
the Company as the result of the merger with MCA and name change to
eUniverse, Inc. described above.

27

Subsequent to the Reorganization, the Company issued and sold unregistered
securities in the amounts, at the times, and for the aggregate amounts of
consideration listed as follows:

1. As of May 17, 1999, the Company purchased all the assets of Green
Willow International Corp. for a total of 4,605 shares of Common Stock
having a value of $52,500.

2. As of June 1, 1999, the Company purchased all of the outstanding
shares of the Common Stock of Case's Ladder for a total of 700,000 shares of
restricted Common Stock of the Company with a fair market value of
$7,000,000.

3. On June 15, 1999, the Company issued 25,000 shares of restricted
common stock to employees of CD Universe under the 1999 Stock Awards Plan
valued at the fair market value of $237,500. The awards vested on April 14,
2000, subject to the continued employment of such employees. As of April 14,
2000, 10,360 shares vested and the remaining 14,640 were cancelled.

4. As of July 1, 1999, eUniverse purchased all the outstanding capital
stock of Gamer's Alliance, Inc. in exchange for 78,125 shares of Common
Stock valued at an aggregate price of $1,000,000.

5. As of August 31, 1999, eUniverse purchased 80% of the outstanding
capital stock of The Big Network, Inc. in exchange for 1,440,000 shares of
common stock valued at $8,820,000. After August 31, 1999 and as of May 18,
2000, eUniverse has acquired all of the remaining outstanding Big Network
shares in exchange for 360,000 shares of eUniverse, with a fair market value
of $2,171,925. As of the date of this prospectus, eUniverse owns 100% of the
outstanding capital stock of Big Network.

6. As of October 1, 1999, eUniverse purchased all of the assets of
Funone.com in exchange for 8,733 shares of common stock valued at $50,000.

7. Effective as of December 10, 1999, as compensation for consulting
services for the following twelve months, eUniverse issued to Michael Zaroff
warrants to purchase 60,000 shares of common stock at an exercise price of
$6.00 per share, which were exercisable immediately and expire on
December 31, 2000. These warrants have a value of $118,000 based on the
Black-Scholes valuation model.

8. Effective as of December 10, 1999, as compensation for consulting
services for the following twelve months, eUniverse issued to Bob
Agriogianis warrants to purchase 60,000 shares of common stock at an
exercise price of $6.00 per share, which were exercisable immediately and
expire on December 31, 2000. These warrants have a value of $118,000 based
on the Black-Scholes valuation model.

9. Effective as of January 15, 2000, as compensation for consulting
services for one month, eUniverse issued to Mark Bergman warrants to
purchase 20,000 shares of common stock at an exercise price of $4.75 per
share, and warrants to purchase 20,000 shares of common stock at an exercise
price of $5.75 per share, which were exercisable immediately and expire on
January 31, 2001. These warrants have a value of $39,000 based on the
Black-Scholes valuation model.

10. As of February 1, 2000, eUniverse purchased all of the assets of
Pokemonvillage.com and Quake City Gaming Network in exchange for 43,630
shares of common stock valued at $417,610.

11. As of February 2, 2000, eUniverse purchased all of the outstanding
stock of Falcon Ventures Corporation in exchange for 310,000 shares of
common stock valued at $1,782,500.

12. As of February 2, 2000, eUniverse sold 400,000 shares of common
stock to Take-Two Interactive Software, Inc. in exchange for $2,000,000 in
cash. Proceeds from this sale are being used for general corporate purposes.

13. eUniverse amended the terms of its Series A 6% Convertible Preferred
Stock, $.10 par value, with the consent of the requisite number of holders
of the preferred stock and eUniverse issued, in the aggregate, 182,344
warrants to purchase shares of common stock at an exercise price of $6.00 to
$8.00 per share, as consideration for such consents. These warrants become
exercisable on February 2, 2000, and expire one year after the date of
issuance.

28

14. As of June 26, 2000 there were 17,782,963 shares of common stock
outstanding, which were held by 405 shareholders of record.

15. To date, eUniverse has paid no cash dividends and has no intention
to pay cash dividends on its common stock in the foreseeable future.

16. As of March 1, 2000, eUniverse acquired all the assets of
Justsaywow.com in exchange for $200,000 cash and 11,696 shares of eUniverse
common stock with a value of $100,000.

(b) USE OF PROCEEDS. Proceeds from the above sales were used for general
corporate purposes. Shares were issued as consideration in the acquisition of
other businesses and assets. Such business and assets are being used in
eUniverse's current business operations.

eUniverse believes that the Rule 504 offers and sales described above were
exempt from registration pursuant to Rule 504 of Regulation D under the
Securities Act because those offers and sales met all the conditions of Rule 504
as then in effect, including the dollar limitation, and eUniverse was not at the
time of such transactions within any of the categories of issuers prohibited
from using Rule 504.

Except for the Rule 504 offerings described above, the foregoing sales of
common stock were made in reliance upon the exemptions from registration set
forth in Section 4(2) of the Securities Act of 1933 and/or Rule 506 of
Regulation D promulgated thereunder for transactions not involving a public
offering. No underwriters were engaged in connection with the foregoing sales of
securities. These sales were made without general solicitation or advertising.
Each purchaser was an 'accredited investor' or a sophisticated investor with
access to all relevant information necessary to evaluate the investment who
represented to the Registrant that the shares were being acquired for
investment.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data are derived from our audited financial
statements presented as of March 31, 2000, 1999 and 1998. Prior to
incorporating, CD Universe operated as a division of Prime Software, Inc., a
related party. Therefore, the results presented for the years ended March 31,
1999 and 1998 are those of CD Universe, Inc., the financial predecessor of
eUniverse. The results presented for the year ended March 31, 1997 are those of
the CD Universe division of Prime Software, Inc. The historical results are not
necessarily indicative of results to be expected for any future period. The
effect of the merger along with other acquisitions is presented separately in
pro forma statements. The data below should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the consolidated financial statements and the related notes to
the financial statement included elsewhere in this Form 10-K.

29

eUNIVERSE, INC.
STATEMENT OF OPERATIONS

YEARS ENDED MARCH 31,
--------------------------------------
2000 1999 1998
---- | ---- ----
| CD UNIVERSE
|
Revenue................................................. $ 10,934,198 | $8,851,247 $5,685,211
Cost of goods sold...................................... 8,293,133 | 7,507,751 4,709,528
------------ | ---------- ----------
Gross profit............................................ 2,641,065 | 1,343,496 975,683
Operating expenses: |
Marketing and sales (excludes stock-based |
compensation of $ 379,006, $0 and $0, |
respectively)..................................... 3,942,416 | 1,145,648 1,111,698
Product development (excludes stock-based |
compensation of $37,326, $0 and $0, |
respectively)..................................... 2,222,176 | 282,270 --
General and administrative (excludes stock-based |
compensation of $164,598, $0 and $0, |
respectively)..................................... 4,589,737 | 319,614 --
Amortization of goodwill and other intangibles...... 2,440,080 | 1,168 --
Stock-based compensation............................ 580,930 | -- --
------------ | ---------- ----------
Total operating expenses................................ 13,775,339 | 1,748,700 1,111,698
------------ | ---------- ----------
Operating loss.................................. (11,134,274)| (405,204) (136,015)
------------ | ---------- ----------
Non-operating income (expense): |
Interest and dividend income........................ 62,518 | 465 --
Interest expense.................................... -- | (2,424) (15,797)
Loss allocated to minority interest................. 4,110 | -- --
Other............................................... -- | -- --
Income taxes........................................ -- | -- --
------------ | ---------- ----------
Net income (loss)............................... $(11,067,646)| $ (407,163) $ (151,812)
------------ | ---------- ----------
------------ | ---------- ----------
Basic income (loss) per common share.................... $ (0.70)| N/A N/A
------------ | ---------- ----------
------------ | ---------- ----------
Basic weighted average common shares outstanding........ 15,765,108 | N/A N/A

BALANCE SHEET DATA

CD UNIVERSE
DIVISION OF
CD UNIVERSE PRIME
------------------------------- SOFTWARE
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1997
-------------- | -------------- -------------- | --------------
| |
Cash and cash equivalents............. $ 2,323,087 | $ 11,335 $ 267,214 | $19,558
Working capital (deficit)............. (787,006) | (783,204) (309,854) | 25,586
Total assets.......................... 37,778,444 | 520,346 494,164 | 32,086
Total shareholders' equity............ 30,738,514 | (556,976) (150,812) | 32,086

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

The following discussion should be read in conjunction with our financial
statements and the accompanying notes. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this Form 10-K, particularly in 'Factors Affecting eUniverse's Business,
Operating Results, and Financial Condition.'

OVERVIEW

We commenced our current business of online retailing of music, video and
games and operating online interactive entertainment web sites on April 14,
1999, when we reorganized with Motorcycle

30

Centers. Simultaneously with the reorganization, we acquired CD Universe, Inc.,
an online retailer of music CDs, which has been in operation since April 7,
1997. CD Universe is our predecessor for accounting and financial reporting
purposes.

Since April 1999, we have grown rapidly, mainly due to our acquisitions of
Case's Ladder, Gamer's Alliance, The Big Network and Falcon Ventures
Corporation, and several web sites, including funone.com, pokemonvillage.com,
and justsaywow.com. We use the purchase method accounting for our acquisitions.

Because of the early stage of our operations, we believe that
period-to-period comparisons of our operating results are not meaningful and
should not be relied upon as an indication of our future performance. We report
our results on an accrual basis and recognize revenue when we ship products to
our customers. Our net sales are received primarily from customer credit card
payments within three days of our shipments and concurrent billings.

Our fiscal year ends on March 31st of each year. We incurred net losses of
$11.1 million for the year ended March 31, 2000. These losses resulted from
advertising costs, the costs of additional infrastructure, amortization of
intangibles from our acquisitions, other costs incurred for the development of
our web sites and acquisition of other web sites and a lack of commensurate net
sales. Because of our aggressive expansion plans, we expect to incur significant
operating losses for the foreseeable future. Although we have experienced
revenue growth in recent periods, this growth may not be sustainable and these
recent periods should not be considered indicative of future performance. We may
never achieve substantially increased net sales or profitability, or if we
achieve substantially increased net sales, they may not be sustained.

RESULTS OF OPERATIONS

The following table sets forth the results of operations for eUniverse for
the periods indicated:

PERCENT OF NET
YEARS ENDED MARCH 31, SALES
---------------------------- ---------------
2000 1999 % CHANGE 2000 1999
---- ---- -------- ---- ----
(IN THOUSANDS) (%) (%)

Net sales:
Products, net................................. $ 8,864 $8,851 --% 81% 100%
Services, net................................. 2,070 0 100 19 --
-------- ------ ----- ---- ---
Total net sales........................... 10,934 8,851 24 100 100
Cost of revenues:
Products...................................... 8,153 7,508 9 75 85
Services...................................... 140 0 n/a 1 --
-------- ------ ----- ---- ---
Total cost of revenues.................... 8,293 7,508 10 76 85
Gross profit:
Products...................................... 711 1,343 (47) 927 15
Services...................................... 1,930 0 100 795 --
-------- ------ ----- ---- ---
Total gross profit........................ 2,641 1,343 97 24 15
Operating expenses:
Marketing and sales........................... 3,942 1,146 244 36 13
Product development........................... 2,222 281 688 20 3
General and administrative.................... 4,589 320 1,334 42 4
Amortization of intangibles................... 2,440 1 100 22 --
Stock-based compensation...................... 581 -- 100 5 --
-------- ------ ----- ---- ---
Total operating expenses.................. 13,774 1,749 688 126 20
-------- ------ ----- ---- ---
Operating loss.................................... (11,134) (405) 2,649 (102) (5)
Non-operating income (expense):
Interest and dividend income.................. 67 (2) n/a 1 --
Income taxes.................................. 0 0 n/a 0 --
-------- ------ ----- ---- ---
Net income/(loss)................................. $(11,067) $ (407) 2,619% (101)% (5)%
-------- ------ ----- ---- ---
-------- ------ ----- ---- ---

31

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

NET SALES

Net product sales represent the gross revenue received from sales of music,
video, games and other products sold by eUniverse, less sales returns, and
outbound shipping and handling charges. Net service sales represent revenue
generated from sales of membership, sponsorship and advertising on our web
sites. Total net sales increased nearly 24%, or $2.1 million, from $8.9 million
for the year all due to increases in service sales. Advertising, sponsorship and
membership net sales grew to 19% of total sales and has a positive effect on
gross margins. Comparatively, there were no such sales in 1999. Of these sales,
95% are attributable to our subsidiaries and web sites acquired during the year.
Advertising and service net sales include barter advertising, where we exchange
banner and other ad impressions on our sites in exchange for similar quantities
and values on our partner's sites. Barter advertising represented 2% of net
sales for fiscal year 2000, as compared to no barter in fiscal year 1999.
Through the acquisitions and through internal growth, we have expanded the
service sales rapidly during the year and expect those sales to increase even
more as a proportion of total sales.

GROSS PROFIT

Gross profit is calculated as net sales less the cost of net sales, which
consists of the cost of merchandise sold to customers and inbound and outbound
shipping costs for products and costs associated with advertising on the
eUniverse network for services. Gross profit totaled $2.6 million for the fiscal
year 2000, compared to $1.3 million for the fiscal year 1999. For the fiscal
year 2000, advertising, sponsorship and membership net sales represented 73% of
the gross margin and product net sales represented 27% of the gross margin.
Gross profits for product sales were $630,000 lower for the fiscal year 2000, as
compared to the fiscal year 1999, due to increased promotional discounts.
However, for the fiscal year 2000, total gross profits were $1.3 million higher
than total gross profits for the comparable period the prior year due to the
inclusion of service net sales, which represented $1.9 million of gross profits
for the fiscal year 2000, and more than offset the decline in product sales.

eUniverse over time intends to expand its product sales operations by
promoting new or complementary products or sales formats and by expanding the
breadth and depth of its product or services offerings. Gross margins
attributable to new business areas may be lower than those associated with
eUniverse's existing business activities. However, eUniverse over time intends
to continue to focus on increasing advertising revenue, particularly for Case's
Ladder, Gamer's Alliance and Big Network, and improving gross margins.

MARKETING AND SALES

Marketing and sales expenses consist primarily of fulfillment, advertising,
public relations and promotional expenditures, and all related payroll and
related expenses for personnel engaged in marketing, selling and fulfillment
activities. Fulfillment costs include the cost of operating and staffing the
distribution and customer service center. Marketing and sales expenses totaled
$3.9 million for the fiscal year 2000, compared to $1.1 million for the fiscal
year 1999. For the fiscal year 2000, marketing and sales costs of our acquired
subsidiaries accounted for $969,000 of the $2.8 million increase over the
comparable period in the prior year. The $969,000 increase in marketing and
sales costs attributable to our acquired subsidiaries consists of $358,000 in
payroll, $187,000 in advertising and promotion and $214,000 in consulting and
other services and $210,000 facilities and related expenses. In marketing and
sales costs for our product segment for the fiscal year 2000, there were
increases of $616,000 for payroll, $422,000 in processing and fulfillment costs
and $401,000 in advertising, as compared to the fiscal year 1999.

PRODUCT DEVELOPMENT

Product development expenses consist of payroll and related expenses for
developing and maintaining eUniverse's web sites and supporting technology.
Product development expenses totaled $2.2 million for the fiscal year 2000,
compared to $282,000 for the fiscal year 1999. For the fiscal year

32

2000, costs attributable to the acquired companies were $1,139,000, consisting
of product development payroll costs of $651,000, contractor services costs of
$298,000 and facilities costs of $191,000. In the product segment, payroll
increased by $331,000 and contractor services increased by $456,000 for the
fiscal year 2000 as compared to the comparable period in the prior year.
eUniverse intends to create a tighter structure among its web sites and design
new sites, both of which will increase expenses.

GENERAL AND ADMINISTRATIVE

General and administrative ('G&A') expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses. G&A expenses totaled
$4.6 million for the fiscal year 2000, compared to $320,000 for the fiscal year
1999. For the fiscal year 2000, increases in G&A costs are primarily
attributable to increased infrastructure costs associated with eUniverse's
expansion efforts and increased costs to support its efforts to become
registered with the SEC. These increases included $1,182,000 in payroll,
$1,076,000 in accounting and legal and $1,020,000 in professional services.
eUniverse expects G&A costs to continue to increase commensurate with its
expansion plans.

AMORTIZATION OF INTANGIBLES

Amortized expenses on intangible assets totaled $2.4 million for the fiscal
year 2000, compared to $1,168 amortized expenses for the fiscal year 1999. The
amortized expenses on intangible assets for the fiscal year 2000 reflect the
acquisitions of CD Universe, Case's Ladder, Gamer's Alliance, Big Network,
Falcon Ventures Corporation and the assets of pokemonvillage.com and Quake City
Gaming Network. eUniverse expects the costs of acquired companies and web sites
to increase in fiscal year 2001, because eUniverse will record a full year's
amortization expense relating to the acquisitions made in fiscal year 2000. It
is likely that eUniverse will continue to expand its business through
acquisitions and investments, which would cause amortization costs to increase.

STOCK-BASED COMPENSATION

Stock-based compensation is comprised of the portion of acquisition related
consideration conditioned on the continued tenure of key employees, which must
be classified as compensation expense under generally accepted accounting
principles. Stock-based compensation expenses totaled $581,000 for the fiscal
year 2000, compared to no stock-based compensation expenses for the fiscal year
1999. The expenses for the fiscal year 2000 are attributable to stock
compensation provided in connection with the acquisitions of MegaDvd.com and
Funone.com and awards under the 1999 Stock Awards Plan to CD Universe employees.

NON-OPERATING INCOME

Non-operating income totaled $67,000 for the fiscal year 2000, compared to
no non-operating income for the fiscal year 1999. Interest income increased due
to higher cash balances resulting from eUniverse's financing activities,
principally the April 1999 sale of $6.46 million in Series A 6% Convertible
Preferred Stock and $1.0 million in common stock. Loss allocated to minority
interest for the fiscal year 2000 represents the minority shareholders of Big
Network's share of their losses for the year-to-date period, limited by their
investment.

INCOME TAXES

eUniverse has not generated any taxable income to date and therefore did not
pay any federal income taxes in the years ended March 31, 2000 or 1999.
Utilization of eUniverse's net operating loss carryforwards, which begin to
expire in 2011, may be subject to certain limitations under Section 382 of the
Internal Revenue Code of 1986, as amended. Due to uncertainties regarding
realizability of the deferred tax assets, eUniverse has provided a valuation
allowance on the deferred tax asset in an amount necessary to reduce the net
deferred tax asset to zero.

33

NET LOSS

Net loss totaled $11.1 million for the fiscal year 2000, compared to
$407,000 for the fiscal year 1999. The increase in net loss is attributable to
an increase in expenses as described above and lack of a commensurate increase
in net sales.

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

For the years ended March 31, 1999 and 1998, the results discussed are those
are solely of the operations of CD Universe, our predecessor company. The
following table sets forth the results of operations for CD Universe for the
periods indicated:

YEAR ENDED MARCH 31,
--------------------------
1999 1998 % CHANGE
---- ---- --------
(IN THOUSANDS)

Net product sales................................. $8,851 $5,685 56%
Gross Profit...................................... 1,343 976 33%
Operating expenses:
Marketing and sales........................... 1,146 1,112 3%
Product development........................... 281 -- N/A
General and administrative.................... 320 -- N/A
Net Income/(Loss)................................. $ (407) $ (152) 168%

NET SALES

Net sales include the selling price of music and video products sold by
eUniverse, net of returns, as well as outbound shipping and handling charges.

Net sales totaled $8.8 million for the year ended March 31, 1999, compared
to $5.7 million for the year ended March 31, 1998. Net sales increased by 56% as
a result of increased purchases of music online and through eUniverse's
increased marketing with its marketing partners and favorable reviews by third
parties.

GROSS PROFIT

Gross profit is calculated as net sales less the cost of net sales, which
consists of the cost of merchandise sold to customers and inbound and outbound
shipping costs.

Gross profit totaled $1.3 million for the year ended March 31, 1999,
compared to $976,000 for the year ended March 31, 1998. Gross profit increased
in absolute dollars but decreased as a percentage of net sales from 17.2% to
14.7%, reflecting a downward change in product pricing needed for CD Universe to
remain competitive with other Internet-based CD retailers.

MARKETING AND SALES

Marketing and sales expenses consist primarily of fulfillment costs,
advertising, public relations and promotional expenditures, and all related
payroll and related expenses for personnel engaged in marketing, selling and
fulfillment activities. Fulfillment costs include the cost of operating and
staffing the distribution and customer service center.

Marketing and sales expenses totaled $1.2 million for the year ended March
31, 1999, compared to $812,000 for the year ended March 31, 1998. Marketing and
sales expenses increased due to several factors. An increase in marketing and
sales expenses of $201,000 was directly related to costs of fulfilling customer
demand and fees for credit card processing, which vary directly with product
sales. The remaining $170,000 increase was due in equal parts to increases in
eUniverse's advertising and promotional expenditures and in payroll related
costs. For the year ended March 31, 1999, marketing and sales expense
represented 13.3% of product sales, 1% down from 14.3% for the year ended March
31, 1998 because of an increase in net sales.

34

PRODUCT DEVELOPMENT

Product development expenses consist of payroll and related expenses for
developing and maintaining eUniverse's websites and supporting technology.

Product development expenses totaled $333,000 for the year ended March 31,
1999, compared to $148,000 for the year ended March 31, 1998. Product
development expenses increased in the year ended March 31, 1999, as compared to
the year ended March 31, 1998, due to increased sales activity, which required
continuous web site development. In the year ended March 31, 1999, payroll
related expense increased by $40,000 and expenses for contracted services for
programming work increased by $90,000. Other increases of $55,000 consisted of
minor increases in several product development expense categories such as
Internet fees, software and supplies. For the year ended March 31, 1999, product
development expenses represented 3.8% of product sales, up from 2.6% for the
year ended March 31, 1998 because of the increased sales activity described
above.

GENERAL AND ADMINISTRATIVE

General and administrative ('G&A') expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses.

G&A expenses totaled $193,000 for the year ended March 31, 1999, compared to
$151,000 for the year ended March 31, 1998. G&A costs increases were
attributable to increased payroll-related costs associated with CD Universe's
expansion. For the year ended March 31, 1999, G&A costs represented 2.1% of
product sales, down from 2.6% for the year ended March 31, 1998 because of an
increase in net sales.

NET LOSS

Net loss totaled $407,000 for the year ended March 31, 1999, compared to
$152,000 for the year ended March 31, 1998. The increase in net loss was due to
expenses described above that increased more than net sales and gross profit.

LIQUIDITY AND CAPITAL RESOURCES

For the years ended March 31, 1999 and 1998 net cash used in operating
activities was $10,000 compared to cash generated of $393,000, respectively. In
1999, net operating cash flows were primarily attributable to net losses offset
by increases in accounts payable due to growth in product sales. In 1998, the
cash generated was due to growth in accounts payable of $535,000, which offset
operating losses.

Net cash used in investing activities was $114,000 and $236,000 for the
years ended March 31, 1999 and 1998, respectively, and consisted of purchases of
fixed assets. Net cash used in financing activities of $132,000 for the year
ended March 31, 1999 resulted from repayments of loans from affiliates, the
source of the financing cash for the prior year.

As of March 31, 1999, eUniverse's principal commitments included obligations
for leases amounting to approximately $117,000 annually for the next 3 years and
a note payable to an officer of $105,000. At March 31, 1999, eUniverse had cash
resources of $11,000 as compared to $267,000 at the same point in 1998.
eUniverse, formerly known as Motorcycle Centers of America, Inc., was under
agreement to be acquired by Entertainment Universe at March 31, 1999, which was
consummated on April 14, 1999.

Since April 14, 1999, eUniverse has satisfied its cash requirements
primarily through private placements of equity securities (including the $6.3
million net proceeds raised in April of 1999) and cash flow from sales of music
CDs and videos and advertising.

Net cash used in operating activities was $3.2 million for the year ended
March 31, 2000. Negative net operating cash flows were primarily attributable to
net losses, acquisition related costs, increases in non-cash current assets,
offset by increases in current liabilities and by increases in non-cash charges
for depreciation and amortization.

35

Net cash used in investing activities was $2.6 million for the year ended
March 31, 2000. During the year, $0.7 million was used for acquisitions,
consisting of $1.9 million in cash paid for the CD Universe acquisition, less
$1.2 million received from acquisitions. Purchases of fixed assets amounted to
$0.9 million and other asset changes were $0.9 million.

Net cash provided by financing activities of $8.2 million for the year ended
March 31, 2000 resulted from net proceeds of $8.4 million resulting from the
sale of 1.8 million shares of preferred stock and 1,297,835 shares of common
stock. The remaining amount came from repayments of advances to an officer and
affiliates offset by advances to employees made in conjunction with
acquisitions.

As of March 31, 2000, eUniverse's principal commitments include obligations
for leases amounting to about $180,000, annually. Continued acquisitions and
investments may also require future capital expenditures.

The Company currently has low balances of cash reserves and working capital
surplus to fund its operations and its ability to meet its obligations in the
ordinary course of business is dependent upon its ability to raise additional
financing through public or private equity financings, establish profitable
operations, enter into collaborative or other arrangements with corporate
sources, or secure other sources of financing to fund operations. Since
March 31, 2000 the Company received short term loans of $1.73 million from new
investors. The cash was used principally to finance working capital
requirements. Management intends to raise additional working capital through
additional equity and/or debt financings in the upcoming year and has entered
into a letter of intent to sell 2,500,000 shares of common stock for $15,000,000
(see Note 16). The company believes it will close this transaction in the near
future, however, there can be no assurance that such financing can be
successfully completed on terms acceptable to the Company.

The matters discussed above raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. The Company has a limited operating history and its prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. These risks include the failure to obtain and ship products sold to
consumers, the rejection of the Company's services by Internet consumers or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its websites, as well as other risks and uncertainties. In the event
that the Company does not successfully implement its plan for additional
funding, certain assets may not be recoverable.

In addition, eUniverse will, from time to time, consider the acquisition of
or investment in complementary businesses, products, services and technologies,
which might impact eUniverse's liquidity requirements or require eUniverse to
issue additional equity. There can be no assurance that financing will be
available in amounts or on terms acceptable to eUniverse, if at all.

THEFT OF CUSTOMER DATA FROM CD UNIVERSE

eUniverse was contacted by a person claiming to possess CD Universe customer
information and demanding compensation in return for not posting the information
on the Internet. The FBI was immediately contacted and an investigation was
initiated. eUniverse learned on Saturday, January 8, 2000, that customer data
was posted on the Internet and immediately notified the FBI, which caused the
site to be shut down the same day. We cooperated with the FBI and other law
enforcement officials to discover the extent to which our data may have been
compromised and to identify the extortionist and limit any damage to eUniverse's
customers.

CD Universe has approximately 300,000 registered customers. Apart from
claims made by the perpetrator and the minimal information on card data
released, we cannot yet determine when or how the data was taken or the extent
of the theft. For the purpose of our response to the theft, we assumed that all
customers may have been affected and took the steps identified below to mitigate
our customers' exposure and inconvenience.

Upon learning on January 8, 2000 that customer data had been posted on the
Internet, eUniverse took several steps to secure its customer data. We notified
the credit card issuers of the theft and provided them with the data they need
to take corrective actions with their card members. We have also

36

sent e-mail messages to our customers to notify them of the risk that their
credit card data may have been stolen and advise them that they should closely
monitor their accounts. We also suggested that they might wish to have their
cards reissued for additional protection. Similar information and suggestions
were given to customers who call our support staff.

A major technology security firm was retained to review eUniverse's security
procedures. Since the extortionist claimed that certain third party software may
have been utilized in connection with the theft, eUniverse discontinued use of
that software for credit card processing and implemented a new software system.

Information regarding this theft of data has been widely disseminated in the
national press. The publicity generated by the press coverage may cause customer
concerns regarding the security of their credit card data. There may be a loss
of confidence and loyalty in CD Universe directly and there may be a broader
loss of confidence and loyalty in eUniverse, its e-commerce business and its
brand identity. More generally, e-commerce as a whole could be adversely
affected. eUniverse cannot yet predict the impact, if any, on its sales and
operating results.

eUniverse may be required to defend against lawsuits related to the theft of
data. At this time, eUniverse is unable to determine the extent of any such
effect on sales or exposure to lawsuits or any associated liability. Such
lawsuits could include suits by eUniverse's shareholders, customers and credit
card processor and by credit card issuers and third-party merchants that accept
the fraudulently obtained credit card information. eUniverse has maintained
directors and officers' liability insurance and general liability insurance but
is unable to determine whether such insurance would adequately cover any
liability or expenses associated with potential lawsuits.

YEAR 2000 READINESS DISCLOSURE

Prior to the rollover to the Year 2000, eUniverse determined through testing
that its computer equipment at its Wallingford, Connecticut facility and its
other locations was Y2K compliant or took the steps required to update any
portions that were not compliant. All mission critical third party software
applications at all divisions and subsidiaries were independently tested
(operating systems, web servers, database systems, programming languages) and
determined to be Year 2000 compliant before the Year 2000. All internally
developed software at all divisions is believed to be Year 2000 compliant, and a
full audit using commercially available development tools that are designed to
detect Year 2000 issues has been completed and any problems detected have been
repaired.

eUniverse conducted an analysis to determine the extent to which others have
Year 2000 issues. These include CD Universe's major suppliers' systems,
including the systems of credit card processors, telecommunications providers,
product distributors and companies with whom CD Universe has marketing
agreements. CD Universe's primary distributor for music and video products,
Valley Media, indicated that it was in compliance before the Year 2000. CD
Universe is currently unable to predict the extent to which the Year 2000 issue
will affect Valley's suppliers, and the extent to which Valley would be
vulnerable to its suppliers' failure to resolve any Year 2000 issues on a timely
basis. The failure of a major supplier subject to the Year 2000 issue to convert
its systems on a timely basis or a conversion that is incompatible with CD
Universe's systems could have a material adverse effect on CD Universe. In
addition, 97% of the purchases from CD Universe's online store are made with
credit cards, and our operations may be materially adversely affected to the
extent customers are unable to use their credit cards due to Year 2000 issues
that are not rectified by their credit card providers.

During December 1999, we sent letters to our major suppliers requesting
their status related to the Year 2000 issue. We received responses related to
our telephone and security systems. We telephonically contacted those suppliers
who had not responded to confirm their readiness for Year 2000 during the final
week of 1999. Prior to beginning operations for the new year, we contacted our
primary and secondary suppliers to confirm their ability to service us. None
expected that there would be any problems. Additionally, we have developed
alternative sources of supply for all lines of products sold.

eUniverse also conducted an analysis to determine the extent to which any
non-information technology systems, e.g., any equipment with embedded chips, are
Year 2000 compliant. We determined that the Year 2000 issue would not affect
non-information technology systems.

37

YEAR 2000 IMPACTS EXPERIENCED

From the time of the rollover to the Year 2000 up to the date of this Form
10-K, none of our operations have experienced any significant disruptions to
their systems operations. Prior to transacting new business with our primary and
secondary suppliers we confirmed with them that they had not experienced any
problems that would prevent their servicing of our business. In our operations
two minor issues were noted; several of the servers for Case's Ladder operated
with incorrect clock dates, and the email interface for the Big Network Daily
Post experienced minor errors. For Case's Ladder no disruption occurred and the
issue was resolved with a software fix. In the case of Big Network, revisions to
the software were required at a cost of less than $3,000. No disruptions have
occurred at CD Universe or Gamer's Alliance.

YEAR 2000 CONTINGENCY PLAN

eUniverse intends to use existing non-Year 2000 specific contingency plans
to address any situations that it believes would arise if eUniverse or third
parties fail to be Year 2000 compliant. These plans consist principally of
having teams of problem resolution staffers on call during non-working hours to
respond to site downtime issues or failures. There is a risk that existing
contingency plans would be inadequate to deal with serious and sustained Year
2000 adverse affects.

YEAR 2000 COSTS

eUniverse has not expended or committed any significant amount of cash
resources on Year 2000 compliance and does not expect to expend any significant
amount of cash resources on Year 2000 compliance in the future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

eUniverse places its cash and cash equivalents in banks with high quality
standards. Cash investments consist of high quality overnight investments that
bear immaterial exposure to interest rate fluctuations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial statements required pursuant to this item are included in Part IV,
Item 14 of this Form 10-K and are presented beginning on page F-2. The
supplementary financial information required by this item is included under the
subsection entitled 'Quarterly Results of Operations/Supplementary Financial
Information,' beginning on page F-22.

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

Not applicable.

38

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.

See the information set forth in the sections entitled 'Item 1. -- Election
of Directors' and 'Compliance with Section 16(a) of the Exchange Act' in
eUniverse's Proxy Statement for the 2000 Annual Meeting of Stockholders to be
filed with the SEC at least ten days before such statement is mailed to
stockholders (the '2000 Proxy Statement'), which is incorporated herein by
reference, and the information set forth in the section entitled 'Executive
Officers of eUniverse' at the end of Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

See the information set forth in the sections entitled 'Item 1. -- Election
of Directors -- Director Compensation' and 'Executive Officer Compensation' in
the 2000 Proxy Statement, which is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

See the information set forth in the section entitled 'Share Ownership by
Principal Stockholders and Management' in the 2000 Proxy Statement, which is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

See the information set forth in this section entitled 'Certain
Relationships and Related Transactions' in the 2000 Proxy Statement, which is
incorporated herein by reference.

39

PART IV

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

(a) 1. FINANCIAL STATEMENTS.

The following consolidated financial statements, and the related notes
thereto, of eUniverse and the Report of Independent Auditors are filed as part
of this Form 10-K.

INDEX TO FINANCIAL STATEMENTS

eUniverse, Inc. Financials.................................. F-1 - F-21
CD Universe, Inc. Financials................................ F-22 - F-33

2. FINANCIAL STATEMENT SCHEDULES.

Schedules not included herein are omitted because they are inapplicable or
not required or because the required information is given in the consolidated
financial statements and notes thereto.

Separate financial statements of 50% or less owned subsidiaries accounted
for by the equity method are not summarized herein and have been omitted
because, in the aggregate, they would not constitute a significant subsidiary.

3. EXHIBITS.

The Exhibits listed on the accompanying index to exhibits immediately
following the signatures to this Form 10-K are filed as a part of, or
incorporated by reference into, this Form 10-K.

(b) REPORTS ON FORM 8-K.

1. A Current Report on Form 8-K was filed with the SEC by eUniverse on
April 14, 2000 to report the acquisition of the JustSayWow web site.

2. A Current Report on Form 8-K was filed with the SEC by eUniverse on
June 28, 2000 to report the pro forma financials of Dustcloud Media, the
acquisition of which was reported in eUniverse's registration statement on Form
S-1 filed with the SEC on April 17, 2000 (Registration No. 333-33084).

40

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
eUNIVERSE, INC.

We have audited the accompanying consolidated balance sheet of eUniverse,
Inc. and Subsidiaries as of March 31, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
eUniverse, Inc. and Subsidiaries as of March 31, 2000, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 15 to the financial statements, the Company has suffered recurring losses
from operations and its limited capital resources raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 15. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Our audit referred to above included an audit of the financial statement
schedule listed under item 14(a)(2). In our opinion, this financial statement
schedule presents fairly, in all material respects, in relation to the financial
statements taken as a whole, the information required to be stated therein.

MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants

New York, New York
May 26, 2000

F-1

eUNIVERSE, INC.
BALANCE SHEETS

| CD UNIVERSE CD UNIVERSE
MARCH 31, | MARCH 31, MARCH 31,
2000 | 1999 1998
---- | ---- ----
|
ASSETS |
Current Assets: |
Cash and cash equivalents.......................... $ 2,323,087 | $ 11,335 $ 267,214
Accounts receivable, net of allowances for doubtful |
accounts of 78,214 and $0, respectively.......... 994,364 | 92,938 --
Inventory.......................................... 431,714 | 22,647 23,877
Due from Officers.................................. -- | 157,569 1,000
Due from employees................................. 153,200 | -- --
Prepaid expenses and other current assets.......... 2,350,559 | 9,629 43,031
----------- | ---------- ---------
Total Current Assets........................... 6,252,924 | 294,118 335,122
Furniture and equipment, less accumulated depreciation |
of $270,188, $83,052, and $36,900, respectively...... 1,190,071 | 225,718 158,362
Goodwill, net of amortization of $2,287,420............ 29,114,844 | -- --
Other intangibles, net of amortization of $153,319, |
$340, and $170, respectively......................... 911,212 | 510 680
Other Assets........................................... 309,393 | -- --
----------- | ---------- ---------
Total assets................................... $37,778,444 | $ 520,346 $ 494,164
----------- | ---------- ---------
----------- | ---------- ---------
|
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) |
Current liabilities: |
Accounts payable................................... $ 2,273,672 | $ 828,718 $ 435,015
Accrued liabilities................................ 2,104,688 | 113,604 99,566
Deferred Revenue................................... 2,653,412 |
Due to affiliates.................................. -- | 30,000 110,395
Due to officer..................................... -- | 105,000 --
Short-term portion of lease obligations............ 8,158 | -- --
----------- | ---------- ---------
Total Current Liabilities...................... 7,039,930 | 1,077,322 644,976
----------- | ---------- ---------
Long-term liabilities |
Shareholders' equity (deficit): |
Preferred stock, $.10 par value; 40,000,000 shares |
authorized; 1,795,024 and -0- shares issued and |
outstanding, respectively........................ 179,502 | -- --
Common stock, $.001 par value; 250,000,000 shares |
authorized; 17,630,422 issued and outstanding.... 17,630 | 1,000 1,000
Additional paid-in capital......................... 41,609,028 | -- --
Retained deficit................................... (11,067,646)| (557,976) (151,812)
----------- | ---------- ---------
Total shareholders' equity..................... 30,738,514 | (556,976) (150,812)
----------- | ---------- ---------
Total liabilities and shareholders' equity..... $37,778,444 | $ 520,346 $ 494,164
----------- | ---------- ---------
----------- | ---------- ---------

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

F-2

eUNIVERSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED MARCH 31,
------------------------------------------
2000 | 1999 1998
---- | ---- ----
| CD UNIVERSE CD UNIVERSE
|
Revenue: |
Products........................................ $ 8,864,461 | $8,851,247 $ 5,685,211
Services........................................ 2,069,737 | -- --
------------ | ---------- -------------
Total revenue............................... 10,934,198 | 8,851,247 5,685,211
Cost of goods sold: |
Products........................................ 8,153,179 | 7,507,751 4,709,528
Services........................................ 139,954 | -- --
------------ | ---------- -------------
Total cost of goods sold.................... 8,293,133 | 7,507,751 4,709,528
Gross profit: |
Products........................................ 711,282 | 1,343,496 975,683
Services........................................ 1,929,783 | -- --
------------ | ---------- -------------
Total gross profit.......................... 2,641,065 | 1,343,496 975,683
------------ | ---------- -------------
Operating expenses: |
Marketing and sales (excludes stock-based |
compensation of $379,006, $0, and $0, |
respectively)................................. 3,942,416 | 1,145,648 1,111,698
Product development (excludes stock-based |
compensation of $37,326, $0, and $0, |
respectively)................................. 2,222,176 | 282,270 --
General and administrative (excludes stock-based |
compensation of $164,598, $0, and $0 |
respectively.................................. 4,589,737 | 319,614 --
Amortization of goodwill and other |
intangibles................................... 2,440,080 | 1,168 --
Stock-based compensation........................ 580,930 | -- --
------------ | ---------- -------------
Total operating expenses.................... 13,775,339 | 1,748,700 1,111,698
------------ | ---------- -------------
Operating loss.......................... (11,134,274)| (405,204) (136,015)
Nonoperating income (expense): |
Interest income................................. 62,518 | 465 --
Interest expense................................ -- | (2,424) (15,797)
Loss allocated to minority interest............. 4,110 | -- --
------------ | ---------- -------------
Loss before income taxes.................... (11,067,646)| (407,163) (151,812)
Income taxes........................................ -- | -- --
Net loss................................ $(11,067,646)| $ (407,163) $ (151,812)
------------ | ---------- -------------
------------ | ---------- -------------
Basic and diluted loss per common share............. $ (0.70)| N/A N/A
------------ | ---------- -------------
------------ | ---------- -------------
|
Basic weighted average common shares outstanding.... 15,765,108 | N/A N/A
------------ | ---------- -------------
------------ | ---------- -------------

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

F-3

eUNIVERSE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- ---------------------- PAID-IN RETAINED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT TOTAL
------ --------- ------ --------- ------- ------- -----

Share issued to acquire option to
purchase CD Universe................ -- $ -- 8,061,000 $8,061 $ 247,039 -- $ 255,100
Shares issued for merger related
services............................ -- -- 1,539,000 1,539 47,145 -- 48,684
Shares issued pursuant to Rule 506 of
Regulation D........................ -- -- 250,000 250 249,750 -- 250,000
Shares issued pursuant to employment
agreement........................... -- -- 200,000 200 6,036 -- 6,236
--------- -------- ---------- ------ ----------- ------------ ------------
Balance, March 31, 1999.............. -- -- 10,050,000 10,050 549,970 -- --
Sale of Preferred Stock.............. 1,795,024 179,502 6,282,584 6,462,086
Cost of offerings and issuance....... -- -- (2,184,449) (2,184,449)
Shares issued in acquisition of
eUniverse.com Website............... -- -- 15,000 15 59,985 60,000
Shares issued in acquisition of
CD Universe, Inc. .................. -- -- 2,425,000 2,425 7,272,575 7,275,000
Shares issued for services........... -- -- 392,436 392 500,206 500,598
Shares retained by former MCA
Shareholders........................ -- -- 1,220,993 1,221 857,256 858,477
Shares issued in acquisition of Mega
DVD................................. -- -- 4,605 4 52,496 52,500
Shares issued in acquisition of Cases
Ladder, Inc. ....................... -- -- 700,000 700 6,999,300 7,000,000
Stock options issued in connection
with acquisition of Cases Ladder,
Inc. ............................... -- -- -- -- 1,111,100 1,111,100
Stock options issued in connection
with services performed............. -- -- -- -- 67,248 67,248
Fair Value of the warrants issued.... -- -- -- -- 1,921,217 1,921,217
Shares issued in acquisition of
Gamers Alliance, Inc. .............. -- -- 78,125 78 999,922 1,000,000
Additional Shares issued in
acquisition of Gamers Alliance,
Inc. ............................... -- -- 8,789 9 85,684 85,693
Shares issued to employees as
compensation expense................ -- -- 42,506 42 269,561 269,603
Amortization of variable stock
options issued to employees......... -- -- -- -- 207,010 207,010
Shares issued in acquisition of The
Big Network, Inc.................... -- -- 1,440,000 1,440 8,818,560 8,820,000
Shares issued in acquisition of
FunOne.com.......................... -- -- 8,733 9 49,991 50,000
Shares issued in acquisition of
Falcon Ventures Corp................ -- -- 310,000 310 1,782,190 1,782,500
Shares issued in acquisition of
PokemonVillage.com.................. -- -- 43,630 44 379,456 379,500
Shares issued in acquisition of
JustSayWow.com...................... -- -- 11,976 12 99,988 100,000
Additional Shares issued in
acquisition of Gamers Alliance,
Inc................................. -- -- 8,789 9 51,626 51,635
Additional Shares issued in
acquisition of The Big Network,
Inc................................. -- -- 269,840 270 1,652,500 1,652,770
Shares issued to Take2 Corporation... -- -- 600,000 600 3,599,400 3,600,000
Stock options issued in connection
with affiliate agreements........... -- -- -- -- 123,652 123,652
Net loss for the twelve months ended
March 31, 2000...................... -- -- -- -- -- (11,067,646) (11,067,646)
--------- -------- ---------- ------ ----------- ------------ ------------
1,795,024 179,502 17,630,422 17,630 41,609,028 (11,067,646) 30,738,514
--------- -------- ---------- ------ ----------- ------------ ------------
--------- -------- ---------- ------ ----------- ------------ ------------

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

F-4

eUNIVERSE, INC.
STATEMENTS OF CASH FLOWS

YEAR ENDED
MARCH 31,
----------------------------------------
2000 | 1999 1998
---- | ---- ----
| CD UNIVERSE CD UNIVERSE
|
Operating Activities: |
Net income (loss).................................. $(11,067,646)| $(406,164) $(151,812)
Transactions not requiring cash: |
Depreciation................................... 143,955 | 46,322 37,070
Amortization................................... 2,440,038 | -- --
Write off of excess of purchase price over cost |
assigned to assets acquired.................. -- | -- 40,000
Bad Debt Reserve............................... 59,039 | -- --
Common stock issued to employees............... 373,920 | -- --
Amortization of variable stock option issued to |
employees.................................... 207,010 | -- --
Common stock issued to outside consultants..... 228,598 | -- --
Stock options and warrants issued to outside |
consultants and affiliates................... 338,606 |
Loss allocated to minority interest............ (4,110)| -- --
Changes in current assets.......................... (1,763,158)| (58,306) (66,908)
Changes in current liabilities..................... 5,809,149 | 407,741 534,581
------------ | --------- ---------
Net Cash Used in Investing Activities...... (3,234,599)| (10,407) 392,931
------------ | --------- ---------
Investing Activities: |
Acquisitions....................................... (2,015,000)| -- --
Proceeds through acquisitions...................... 330,983 | -- --
Proceeds through reverse acquisition............... 858,477 | -- --
Changes in other assets............................ (907,115)| -- (40,850)
Purchases of fixed assets.......................... (899,287)| (113,508) (195,262)
------------ | --------- ---------
Net Cash Used in Investing Activities...... (2,631,942)| (113,508) (236,112)
------------ | --------- ---------
Financing Activities: |
Proceeds from issuance of preferred stock.......... 5,875,204 | -- --
Proceeds from issuance of common stock............. 2,505,000 | -- 1,000
Payment to repurchase common stock................. (20,000)| -- --
Financing costs.................................... (6,672)| -- --
Cash retained by affiliates........................ -- | -- (19,558)
Advance from officer............................... -- | 150,000 --
Repayment of advances from officer................. (105,000)| (45,000) --
Loan from affiliates............................... -- | 30,000 110,395
Repayment of loan from affiliates.................. (74,808)| (110,395) --
Advance to officer................................. -- | (156,569) (1,000)
Receipt of advances to officer..................... 157,769 |
Advances to Employees.............................. (153,200)| -- --
------------ | --------- ---------
Net Cash Provided by Financing |
Activities............................... 8,178,293 | (131,964) 90,837
------------ | --------- ---------
Change in Cash and Cash Equivalents.................... 2,311,752 | (255,879) 247,656
Cash and cash equivalents, beginning of period......... 11,335 | 267,214 19,558
------------ | --------- ---------
Cash and Cash Equivalents at End of Period............. $ 2,323,087 | $ 11,335 $ 267,214
------------ | --------- ---------
------------ | --------- ---------
Cash Paid During the Year For: |
Interest Expense................................... $ -- | $ 2,424 $ 15,797
------------ | --------- ---------
------------ | --------- ---------
Income taxes....................................... $ -- | $ -- $ --
------------ | --------- ---------
------------ | --------- ---------

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

F-5

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000

(1) ORGANIZATION AND LINE OF BUSINESS

eUniverse, Inc. (the 'Company') is a Nevada Corporation engaged in
developing and operating a network of web sites providing entertainment-oriented
products and services. At present the Company is engaged in sales of audio CDs,
videotapes (VHS), and digital videodisks ('DVDs') over the Internet, providing
online games, offering advertising on its network of web sites, and, to a
limited extent, website development for third parties. The Company conducts
operations from facilities located in Wallingford, CT, San Francisco and Los
Angeles, CA and Mount Vernon, WA. The financial statements being presented
include the accounts of eUniverse, Inc. and its wholly owned subsidiaries. These
subsidiaries are Entertainment Universe, Inc. acquired on April 14, 1999, CD
Universe, Inc. acquired on April 14, 1999, Cases Ladder, Inc. acquired on May
31, 1999, Gamer's Alliance, Inc. acquired on June 30, 1999, and Falcon Ventures
Corporation acquired on February 2, 2000. These financial statements also
include the accounts of The Big Network, Inc., 95% of which was acquired as of
August 31, 1999. All significant inter-company transactions and balances have
been eliminated in consolidation.

(2) BUSINESS DEVELOPMENTS

The Company was founded in February 1999 and incorporated as Entertainment
Universe, Inc. ('EUI'). EUI was formed as a holding company to acquire various
operating companies. On April 14, 1999, EUI acquired Motorcycle Centers of
America, Inc. ('MCA'), a publicly traded company, through a reverse acquisition.
In connection with that acquisition, EUI shareholders exchanged all of EUI's
common stock for 12,829,000 shares of MCA's $.001 par value restricted common
stock. EUI shareholders also exchanged all of their preferred shares for
1,795,024 shares of MCA's Series A 6% Convertible Preferred Stock. As a result,
EUI (the accounting acquirer) became a wholly owned subsidiary of MCA (the legal
acquirer). The former shareholders of EUI owned approximately 91.6 percent of
MCA after the reverse acquisition. Subsequent to this, MCA changed its name to
eUniverse, Inc.

(3) ACCOUNTING POLICIES

USE OF ESTIMATES

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

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of its products. Revenue
includes shipping and handling charges. The Company also maintains a partner
program whereby partners provide links on their web-sites that bring customers
to the CD Universe web-site. Revenue generated from these linked sites is
recognized upon shipment of the products. The partner receives a commission of
5% to 15% of sales of the Company's products that originate from the site,
recognized as a selling expense concurrent with the sale. Barter transactions
are recorded at the lower of the estimated fair value of advertisements received
or the estimated fair value of the advertisements given. Barter revenue and the
related advertising is recorded based on impressions delivered and received with
the difference recorded as an advance or prepaid. During the year ended March
31, 2000, the Company recorded $266,000 as bartered advertising revenue.
Additionally, the Company derives revenue from the sale of advertisements.
Advertising, membership and sponsorship revenue is recognized as earned. Returns
are provided for based on reasonable estimates of future returns.

F-6

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

ADVERTISING AFFILIATES AGREEMENTS

The Company has entered into advertising affiliate agreements under which
minimum advertising revenues are guaranteed to the affiliates in return for
obtaining the exclusive right to sell Sponsorships by the Company on the
affiliates' web sites. 'Sponsorship' is defined by these agreements as
advertising such as banners, buttons and pop-up windows of third parties on the
affiliates web sites.

The fees payable to the affiliates are accrued as cost of advertising
revenue in the period that such revenue is earned.

ROYALTY PAYMENTS

The Company has agreements to share revenue with individuals independent of
the Company. The Company is required to pay royalties for the use of computer
games based on a percentage of advertising revenue generated from the Company's
usage of the games on its web-sites. As the Company generates advertising
revenue, a corresponding liability is accrued as a royalty expense, which is
recorded as a cost of revenue (see Note 11).

COMPARATIVE PERIODS

Since EUI, the accounting acquirer, has no operating history, financial
statements are presented using CD Universe's historical data, as EUI's
predecessor.

CONCENTRATION OF CREDIT RISK

The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceeded FDIC insured levels at
various times during the year.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.

INVENTORY

Inventory consists of compact discs, videos and packaging materials.
Inventory is valued at the lower of cost or market using the first-in, first-out
method.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the assets.
Maintenance and repairs are charged to expense as incurred.

Estimated useful lives are as follows:

Leasehold improvements.................................... Life of the lease
Computer equipment........................................ 5 years
Telephone equipment....................................... 5 years
Computer software......................................... 5 years
Furniture, fixtures and other............................. 10 years

F-7

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

INTANGIBLE ASSETS

Intangible assets consist of goodwill, customer lists, and domain names.
Excess cost over the fair value of net assets acquired (or goodwill) generally
is amortized on a straight-line basis over 10 years. Customer lists and domain
names are being amortized on a straight-line basis over a period of 3 and 10
years, respectively. The carrying values of intangible assets are reviewed if
the facts and circumstances suggest that they may be impaired. Negative
operating results and negative cash flows from operations, among other factors,
could be indicative of the impairment of intangible assets. If this review
indicates that intangible assets will not be recoverable, the Company's carrying
value of intangible assets would be reduced.

ORGANIZATION COSTS

In accordance with American Institutes of Certified Public Accountants'
Statement of Position 98-5 'Reporting on the Costs of Start-Up Activities', the
Company expenses, as incurred, costs related to organizational and start-up
activities.

INCOME TAXES

Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amounts of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed by
Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for
Income Taxes.' As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable,
receivable from employees, accounts payable and accrued expenses approximate
fair value due to the relatively short maturity of these instruments.

COMPREHENSIVE INCOME

The Company has adopted Statement of Financial Accounting Standard No. 130,
'Reporting Comprehensive Income' ('FAS 130'). FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There are no differences between the
Company's net loss and its total comprehensive loss for the years ended March
31, 2000, 1999, and 1998.

LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangibles to be held and used
are reviewed for impairment whenever events or changes in circumstances indicate
that the related carrying amount may not be recoverable. When required,
impairment losses on assets to be held and used are recognized based on the fair
value of the assets and long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.

F-8

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

STOCK-BASED COMPENSATION

The Company has adopted the intrinsic value method of accounting for
stock-based compensation in accordance with Accounting Principles Board Opinion
('APB') No. 25, 'Accounting for Stock Issued to Employees' and related
interpretations.

ADVERTISING COSTS

Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of
direct-response advertising, if any, are capitalized and amortized over the
period during which future benefits are expected to be received. During the
years ended March 31, 2000, 1999, and 1998 advertising expense amounted to
$708,029, $67,051, and $128,432, respectively.

EARNINGS PER SHARE

The computation of basic earnings per share ('EPS') is computed by dividing
income available to common stockholders by the weighted average number of
outstanding common shares during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The computation
of diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an anti-dilutive effect.

Securities that could potentially dilute basis earnings per share in the
future that were not included in the computation of diluted earnings per share
because their effect would have been anti-dilutive are as follows:

MARCH 31,
---------------------------------
2000 1999 1998
---- ---- ----

Warrants.................................... 1,026,677 -- --
Options..................................... 4,037,594 -- --
--------- --------- ---------
Total....................................... 5,064,271 -- --
--------- --------- ---------
--------- --------- ---------

(4) BUSINESS COMBINATIONS AND INVESTMENTS

During the year ended March 31, 2000, the Company completed the following
acquisitions: CD Universe, Inc., Cases Ladder, Inc., Gamers Alliance, Inc., The
Big Network, Inc., and Falcon Ventures Corporation. All acquisitions were
recorded using the purchase method of accounting under the provisions of APB
Opinion No. 16. In addition, the Company acquired websites including
eUniverse.com, MegaDVD.com, FunOne.com, Pokemonvillage.com and Justsaywow.com
during the year ended March 31, 2000.

On April 14, 1999, the Company completed its acquisition of CD Universe,
Inc., a company engaged primarily in selling compact audio disks, video disks,
and video tapes to retail purchasers over the internet. According to the terms
of this acquisition, the Company acquired all of the capital stock of CD
Universe, Inc. for a total consideration of $1,915,000 in cash plus 2,425,000
shares of common stock of the company valued at $3.00 per share (fair value on
acquisition date). This was an arm's length transaction between independent and
unrelated parties. The Company also incurred direct costs related to the
acquisition totaling $60,215, which has been added to the acquisition price.

On May 31, 1999, the Company completed its acquisition of Cases Ladder,
Inc., a company primarily engaged in providing online computer gaming with
competitive rankings, tournaments and leagues among its more than 1.1 million
registered members. The purchase price of this acquisition was 700,000 shares of
the Company's common stock, valued at $10.00 per share (market price on
acquisition date), issued in exchange for all the issued and outstanding shares
of Cases Ladder, Inc. This was an

F-9

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

arm's length transaction between independent and unrelated parties. The Company
also incurred direct costs related to the acquisition totaling $1,112,150, which
have been added to the acquisition price. Of this amount, $1,111,100 is
attributable to 400,000 options issued (subsequently repriced) for services
rendered. The options vest quarterly over three years and had an exercise price
of $9.50 per share. These options were cancelled on September 15, 1999 and
options were reissued for 340,000 shares at an exercise price of $6.00 per
share. These options vest as follows: 113,333 vest on September 16, 2000 and
28,333 vest each 3 months thereafter. The Black-Scholes option-pricing model
with a risk free interest rate of 5.86%, an annualized volatility of 78%, no
expected dividend yield and an exercise term of three years was used to estimate
the fair value of these options.

On June 30, 1999, the Company completed its purchase of Gamers' Alliance,
Inc. Gamers' Alliance operates and maintains one of the largest networks of
computer gaming related sites on the Internet with more than 50 gaming related
web sites. The purchase price of this acquisition was 78,125 shares of the
Company's common stock, valued at $12.80 per share (market price on acquisition
date), issued in exchange for all the issued and outstanding shares of Gamers'
Alliance, Inc. Pursuant to the term of the agreement, the purchase price may
increase to 175,781 shares of common stock based on achievement of earnings
performance targets through June 30, 2000. As of March 31, 2000, 8,789
additional shares valued at $9.75 per share and 8,789 additional shares valued
at $5.87 per share have been issued. In addition, purchase price adjustments
equaling additional shares of 11,719 shares valued at $4.00 per share and 48,828
shares valued at $7.25 per share have been accrued pending issuance. These
additional shares are valued at market price at quarter end when they are
earned. The Company also incurred direct costs related to the acquisition
totaling $26,877, which have been added to the acquisition price.

Effective as of August 31, 1999, the Company completed its acquisition of 95
percent of the outstanding capital stock of The Big Network, Inc. (94.8% of the
common and 91.8% of the preferred), a company providing a suite of classic board
and card games, such as spades, checkers, chess, and backgammon, allowing
simultaneous play by its members. The Big Network has also developed LivePlace,
a Java applet that provides users with an overview of activities around the
site, allows them to follow public conversation, send private messages to other
users, and co-navigate the web. The purchase price of this acquisition was
1,709,840 shares of the Company's common stock, valued at $6.125 per share (the
market price on the acquisition date), issued in exchange for 95 percent of the
issued and outstanding shares of The Big Network, Inc. This was an arm's length
transaction between independent and unrelated parties. The Company also incurred
direct costs related to the acquisition totaling $100,524, which have been added
to the acquisition price.

The Company has completed its acquisition of the remaining 5 percent of
capital stock of The Big Network, Inc. on June 2, 2000, by issuing an additional
90,160 shares of its common stock valued at $6.125 (market price at the original
acquisition date).

On February 1, 2000, in an arms length transaction between unrelated third
parties, eUniverse completed its acquisition of the Pokemonvillage.com and Quake
City Gaming Network from D. Scott Smith. The purchase price of this transaction
was 43,630 share of the Company's common stock, valued at $8.698 per share (fair
market value on the date of acquisition). After the closing, Mr. Scott became
and remains employed by eUniverse. Under Mr. Scott's employment agreement with
eUniverse, additional payments of up to $190,000 in cash and up to an aggregate
value of $450,000 in stock options, based upon a fair market exercise price at
the date of grant, may be payable upon achievement of targeted numbers of banner
advertisements displayed on the web pages of the Pokemonvillage.com and its
related web sites through August 1, 2001. Pokemonvillage.com, with over 370,000
unique visitors in December 1999, as reported by Media Matrix, is one of the
largest online communities for enthusiasts of Pokemon, computer/video games, and
other collectibles. The Company incurred direct costs related to the acquisition
totaling $5,194, which have been added to the acquisition price.

F-10

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

On February 2, 2000, the Company completed its acquisition of Falcon
Ventures Corporation, an online retailer of DVD and VHS movies as well as music
CDs. The purchase price of this acquisition was 310,000 shares of the Company's
common stock valued at $5.75 per share (market value on agreement date). This
was an arm's length transaction between independent and unrelated parties. The
Company also incurred direct costs related to the acquisition totaling $31,951,
which have been added to the acquisition price.

As of March 1, 2000, eUniverse acquired Justsaywow.com from Christian Walter
in exchange for $200,000 cash ($100,000 upon closing and $100,000 in ten equal
installments beginning May, 2000) and 11,696 shares of eUniverse common stock
with a value of $100,000. This was an arms length transaction between unrelated
parties. Justsaywow.com is a web site that provides fun and humorous electronic
greetings with animated graphics. After the closing, Mr. Walter became and
remains employed by eUniverse. Under Mr. Walter's employment agreement with
eUniverse, eUniverse will make contingent payments to Mr. Walter, over the
period of six calendar months from the closing, contingent upon Justsaywow.com
achieving specified milestones with respect to the number of page view requests
received by the Justsaywow.com web site. The contingent payments will be made in
shares of eUniverse's common stock and have an aggregate total value of up to
$200,000, based upon the fair market value of eUniverse's common stock at the
time of issuance. The Company incurred direct costs related to the acquisition
totaling $3,357, which have been added to the acquisition price.

The estimated fair value of assets acquired and liabilities assumed is
summarized as follows:

CD CASES GAMER'S THE BIG FALCON
UNIVERSE LADDER ALLIANCE NETWORK VENTURES
-------- ------ -------- ------- --------

Cash.............................. $ 11,335 $ 20,286 $ 5,503 $ 99,204 $ 194,655
Accounts receivable............... 92,938 59,218 52,664 17,000 57,898
Inventory......................... 22,647 -- -- -- 196,303
Fixed assets...................... 225,718 33,916 20,240 71,685 72,786
Related party receivables......... 157,569 -- -- -- --
Customer list..................... 250,000 100,000 -- -- 50,000
Domain names...................... 100,000 75,000 90,000 24,000 20,000
Other assets...................... 10,139 10,254 -- 13,075 27,250
Accounts payable.................. (942,321) (75,379) (35,284) (82,403) (409,404)
Other liabilities................. (30,000) -- (29,528) (36,373) --
Notes payable, officers........... (105,000) -- -- -- --
Minority interest................. -- -- -- (4,110) --
Goodwill.......................... 9,457,190 7,888,855 1,461,489 10,466,716 1,604,963
---------- ---------- ---------- ----------- ----------
$9,250,215 $8,112,150 $1,565,084 $10,568,794 $1,814,451
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------

POKEMON JUSTSAY
VILLAGE WOW
---------- ----------
Cash.............................. $ -- $ --
Accounts receivable............... -- --
Inventory......................... -- --
Fixed assets...................... -- --
Related party receivables......... -- --
Domain names...................... 90,000 75,000
Other assets...................... -- --
Accounts payable.................. -- --
Other liabilities................. -- --
Notes payable, officers........... -- --
Minority interest................. -- --
Goodwill.......................... 294,694 228,357
---------- ----------
$ 384,694 $ 303,357
---------- ----------
---------- ----------

F-11

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

Total goodwill recorded through the acquisitions is $31,402,264 and is being
amortized on a straight-line basis over ten years.

The operations of the acquired entities have been included in the statement
of operations from the dates of acquisition, with the exception of CD Universe,
which is included from the beginning of the period.

PRO FORMA INFORMATION

Pro forma information as if the acquisitions had occurred at the beginning
of the periods presented is as follows:

PRO FORMA
YEAR ENDING
MARCH 31,
---------------------------
2000 1999
---- ----

Revenue.......................................... $ 11,936,390 $ 9,540,730
Net loss......................................... (13,133,092) (10,434,496)
Loss per share................................... (.77) (.63)

(5) OTHER NON-CASH FINANCIAL ACTIVITIES

Stock issued in connection with acquisitions:

Acquisition of The Big Network.............................. $10,472,770
Acquisition of CD Universe.................................. 7,275,000
Acquisition Cases Ladder.................................... 7,000,000
Acquisition Gamer's Alliance................................ 1,137,328
Acquisition Falcon Ventures................................. 1,782,500
Acquisition of eUniverse.com website(1)..................... 60,000
Acquisition of MegaDVD.com(1)............................... 52,500
Acquisition of FunOne.com(1)................................ 50,000
Acquisition of Pokemonvillage.com........................... 379,500
Acquisition of Justsaywow.com............................... 100,000
Stock issued in connection with the preferred stock
offering, 319,000 shares(2)............................... 159,500
Stock issued in connection with services performed, 20,000
shares(2)................................................. 10,000
Stock issued in connection with services performed, 53,436
shares(2)................................................. 331,098
Stock issued to employees, 42,506 shares.................... 269,603
Stock options issued in connection with the acquisition of
Cases Ladder shares....................................... 1,111,100
Stock options issued in connection with services performed
and to be performed....................................... 67,248
Stock options issued in connection with affiliate
agreements................................................ 123,652
Warrants issued in connection with placement agent
services.................................................. 1,214,567
Warrants issued in connection with services performed and to
be performed.............................................. 312,878
Warrants issued in connection with affiliate agreements..... 93,989
Warrants issued to preferred shareholders................... 299,783
Amortization of variable stock options issued to
employees................................................. 207,010
Shares issued to Take 2 Corporation in connection with
future promotional services, 200,000 shares............... 1,600,000

(footnotes on next page)

F-12

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

(footnotes from previous page)

(1) The purchase of the eUniverse.com website was accomplished through issuance
of 15,000 shares of common stock priced at $4.00 per share for a total of
$60,000 (fair value of the site at the date of purchase). Acquisition of the
MegaDVD.com website was accomplished through issuance of 4,605 shares of
common stock priced at $11.40 per share (market price of the stock on issue
date). Acquisition of the FunOne.com website was accomplished on October 1,
1999, through issuance of 8,733 shares of common stock valued at $5.73 per
share (market price on closing date).

(2) Issuance of 339,000 shares of common stock valued at $.50 per share (fair
value of the services performed) for various consulting services such as
financial and legal services performed during March and April of 1999 in
relation to the Company's stock offering completed in April 1999, and public
relations services performed subsequent to the reorganization in April 1999.
Moreover, 53,436 shares were issued during the year ended March 31, 2000 for
various public relations and other consulting services.

(6) DUE FROM EMPLOYEES AND AFFILIATES

Due from employees and affiliates consists of three notes in the amounts of
$85,000, $25,000, and $40,000 due from two former vice presidents of Cases
Ladder, Inc. and the former principal of Green Willow (MegaDVD.com)
respectively. Two of the individuals are currently employees of eUniverse, Inc.
and the other is serving under contract as an outside consultant. The notes
accrue interest at the rate of 6% after first year.

(7) FIXED ASSETS

Fixed assets, at cost, consist of the following:

MARCH 31, 2000 MARCH 31, 1999
-------------- --------------

Furniture and fixture....................................... $ 59,672 $ 29,069
Computers and equipment..................................... 1,098,907 238,622
Purchased software.......................................... 253,137 1,079
Leasehold improvements...................................... 48,543 40,000
---------- --------
1,460,259 308,770
Less accumulated depreciation and amortization.............. 270,188 83,052
---------- --------
Fixed assets, Net....................................... $1,190,071 $225,718
---------- --------
---------- --------

Accumulated amortization of purchased software as of March 31, 2000, is
$35,523. Depreciation expense for the reporting periods were as follows:

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

Depreciation expense........................................ $143,955 $46,152 $36,900

F-13

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

(8) OTHER INTANGIBLES

Other Intangibles consist primarily of the purchase price of web sites
acquired:

MARCH 31, 2000 MARCH 31, 1999
-------------- --------------

Domain Name -- eUniverse.Com................................ $ 60,000 --$
Domain Names -- CD Universe, Inc............................ 100,000 --
Domain Names -- Cases Ladder, Inc........................... 75,000 --
Domain Names -- Gamer's Alliance, Inc....................... 90,000 --
Domain Names -- The Big Network, Inc........................ 28,500 --
Domain Names -- Falcon Ventures Corp........................ 20,000 --
JustSayWow.com.............................................. 75,000 --
Pokemonvillage.com.......................................... 90,000 --
MegaDVD.com................................................. 60,200 --
FunOne.com.................................................. 58,758 --
Customer list -- CD Universe, Inc........................... 250,000 --
Customer list -- Cases Ladder, Inc.......................... 100,000 --
Customer list -- Falcon Ventures Corp....................... 50,000 --
Other....................................................... 7,073 850
---------- ----
1,064,531 850
Less accumulated amortization............................... 153,319 340
---------- ----
Other Intangible, Net....................................... $ 911,212 $510
---------- ----
---------- ----

The above Web sites and customer lists are valued at their fair value based
on management's judgment and are being amortized on a straight-line basis over
the period of ten years and three years, respectively. Amortization expense for
goodwill and intangible assets for the year ending March 31, 2000 was
$2,440,038.

(9) INCOME TAXES

The components of the provision for income taxes for the year ended
March 31, 2000 and 1999 are as follows:

2000 1999 1998
---- ---- ----

Current tax expense
U.S. Federal........................................ $-- $-- $--
State and local..................................... -- -- --
---- ---- ----
Total current................................... -- -- --
---- ---- ----
Deferred tax expense
U.S. Federal........................................ -- -- --
State and local..................................... -- -- --
---- ---- ----
Total deferred.................................. -- -- --
---- ---- ----
Total tax provision from continuing
operations.................................... $-- $-- $--
---- ---- ----
---- ---- ----

F-14

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

The reconciliation of the effective income tax rate to the Federal statutory
rate is as follows:

2000 1999 1998
---- ---- ----

Federal income tax rate............................. (34.0)% (34.0)% (34.0)%
Deferred tax charge (credit)........................ -- -- --
----- ----- -----
Effect on valuation allowance................... 34.0% 34.0% 34.0%
State income tax, net of Federal benefit........ -- -- --
----- ----- -----
Effective income tax rate....................... 0.0% 0.0% 0.0%
----- ----- -----
----- ----- -----

At March 31, 2000, the Company had net carry forward loses of approximately
$9,600,000, which expire in 2020. A valuation allowance equal to the tax benefit
for deferred taxes has been established due to the uncertainty of realizing the
benefit of the tax carry forward.

Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and amount used for income tax purposes. Significant
components of the Company's deferred tax assets (liabilities are as follows:

MARCH 31,
-----------------------
2000 1999
---- ----

Non-current deferred tax assets (liabilities):
Stock compensation............................... $ (93,500) $ --
Amortization expense............................. (12,500) --
Loss carry forward............................... 3,258,000 176,800
----------- ---------
3,152,000 176,800
Less: Valuation allowance............................ (3,152,000) (176,800)
----------- ---------
Net deferred tax assets (liabilities)................ $ -- $ --
----------- ---------
----------- ---------

(10) MAJOR VENDORS

Traditionally, the Company has purchased approximately 80% of its
merchandise from one vendor. The Company is in the process of diversifying its
sources for product procurement. As of March 31, 2000, five major vendors were
owed a total of $1,372,000, distributed almost evenly, which are being paid
through May 2000.

(11) COMMITMENTS AND CONTINGENCIES

a) The Company has entered into several agreements to share revenues with
individuals independent of the company. These individuals have provided the
Company with computer games, which the Company has been operating on its web
sites. The individuals have granted the Company usage of the computer games for
up to a 25% royalty of advertising revenue generated from the usage of the game
on the Company's web sites. For the year ended March 31, 2000, the Company has
no material liabilities or expenses due under these agreements.

b) The Company leases office space under non-cancelable operating lease
agreements that expire within the next three years. Future minimum lease
payments under these non cancelable operating leases are as follows:

MARCH 31,
---------

2001...................................................... $364,605
2002...................................................... $285,440
2003...................................................... $ 51,730

F-15

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

Rent expense for the reporting periods were as follows:

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

Rent expense............................ $198,525 $82,000 $45,938

c) On September 23, 1999, a former employee of The Big Network, Inc.
('TBN'), filed suit in the Superior Court of California against The Big Network,
Inc., the Company and various unnamed individuals seeking an unspecified amount
of compensatory and punitive damages based on (i) alleged breach of an
employment agreement with TBN, (ii) alleged breach of an oral agreement among
various principals of TBN prior to its merger with the Company relating to
salary and stock options and (iii) alleged breach of an implied covenant of good
faith and fair dealing and fraud in connection with salary, stock options and
proposed terms of employment with the Company following the acquisition of TBN.
The Company believed the allegations in the complaint are without merit and
defended the suit vigorously. In the event that there is any liability in
connection with this lawsuit, the Company has a right of indemnification from
the former shareholders of TBN. On December 20, 1999, the parties reached an
agreement in mediation providing for the former employee of TBN to receive the
equivalent of an additional 55,000 shares of TBN stock. This settlement does not
affect the aggregate number of shares to be issued by the Company (1,800,000) in
exchange for all of the outstanding stock of TBN.

d) On December 9, 1999, The Isosceles Fund Limited, a Bahamian corporation
('Isosceles'), filed suit in the Superior Court of California against the
Company, Brad Greenspan (the Company's chairman), Gerard Klauer Mattison & Co.,
Inc. ('GKM') and ten unnamed individuals seeking damages based on (i) breach of
an alleged subscription agreement between Isosceles and the Company to purchase
common stock of eUniverse, (ii) breach of an implied covenant of good faith and
fair dealing in connection with the alleged subscription agreement, and
(iii) intentional interference with the alleged subscription agreement by GKM
and ten unnamed individuals. With respect to each count of the cause of action,
Isosceles has claimed damages of $1,750,000. Isosceles has also requested that
the court award exemplary and punitive damages, interest, costs of suit and such
other relief as the court may deem fair, just, equitable and proper. The Company
believes the allegations in the complaint are without merit and will defend the
suit vigorously.

e) In December, 1999, The Company was contacted by a person claiming to
possess CD Universe customer information and demanding compensation in return
for not posting the information on the Internet. The FBI was immediately
contacted and an investigation was initiated. The Company learned on Saturday
January 8, 2000 that customer data was posted on the Internet and immediately
notified the FBI, which caused the site to be shut down the same day.

This information has been widely disseminated in the national press. The
publicity generated by the press coverage may cause customer concerns regarding
the security of their credit card data, which could affect future sales of CD
Universe products and consequently its revenues and operating results. The
Company may also be required to defend against lawsuits arising in connection
with the theft of data. At this time, the Company is unable to determine the
extent of any such effect on sales or exposure to lawsuits or any associated
liability.

f) On April 25, 2000 an individual named Aubrey Mayhew and several
affiliated entities filed suit in the United States District Court for the
Middle District of Tennessee at Nashville against CD Universe, Inc. and numerous
other defendants. The plaintiffs seek unspecified damages for an alleged
copyright infringement by CD Universe with respect to the sale of an album which
contains a song allegedly owned by plaintiffs. No copies of the album were ever
actually sold by CD Universe. CD Universe believes the allegations in the
complaint are without merit and will defend the suit vigorously.

F-16

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

(12) EQUITY COMPENSATION PLAN

On June 15, 1999, the Company issued 25,000 shares of common stock as
compensation to key employees of CD Universe, Inc. for their involvement in the
Company's activities. These shares have a vesting date of April 14, 2000 and are
valued at $9.50 per share (market price on issue date). As of March 31, 2000,
employees holding 10,360 of such stock certificates remain employed by the
company and the total expense associated with these shares is included in the
financial statements. Additionally 5,438 shares valued at $25,500 and 26,708
shares valued at $145,683 have been issued to the principals of MegaDVD.com and
FunOne.com, respectively as compensation for achieving performance targets.
These individuals are currently employed by the Company and the fair value of
these shares are recorded as stock based compensation in the financial
statements. Moreover, 14,653 additional shares totaling $104,317 are to be
issued related to the performance of FunOne.com during the year ended March 31,
2000. The related compensation expense of these additional shares has been
accrued during the year ended March 31, 2000.

During the year ended March 31, 2000, the Company entered into an agreement
with Equitable Life Assurance Society of the United States (Equitable) to
provide its employees with a Profit Sharing (401K) Plan. The highlights of this
plan other than limits specified by law are:

1. Matching contribution by the Company of 100% of the first 3% of gross
salary contribution by the employees plus an additional 50% of the next 2%.
For the year ended March 31, 2000, the Company's matching contribution
expense was $21,054.

2. 100% immediate vesting of the Company's matching contributions.

Under the Company's 1999 Stock Award Plan, stock options may be granted to
officers, directors, employees and consultants. An aggregate of 5,000,000 shares
of common stock have been reserved for issuance under the Plan. For the year
ended March 31, 2000 the plan's activities were as follows:

STOCK OPTIONS

WEIGHTED
NUMBER OF EXERCISE AVERAGE
SHARES PRICE PRICE
------ ----- -----

Outstanding at 3-31-1999.................................. -- -- --
Granted................................................... 5,314,570 $3.00 - 13.00 $6.92
Cancelled................................................. (2,919,176) 6.00 - 13.00 8.51
Reissued.................................................. 1,642,200 6.00 6.00
Exercised................................................. --
Forfeited................................................. --
---------- --------------- -----
Outstanding at 3-31-2000.................................. 4,037,594 $3.00 - 13.00 $5.39
---------- --------------- -----
Options exercisable at 3-31-2000.......................... 544,999 $3.00 - 13.00 $4.65
---------- --------------- -----

Weighted average remaining life of the options is 31 months.

The Company uses the intrinsic value method (APB Opinion 25) to account for
its stock options granted to officers, directors, and employees. Under this
method, compensation expense is recorded over the vesting period based on the
difference between the exercise price and quoted market price on the date the
options are granted. Since the company has granted all its stock options at an
exercise price equal to or above the quoted market value on the measurement
date, no compensation expense related to issuance of stock option to employees
has been recorded.

Pursuant to FASB Interpretation No. 44, the Company accounts for its
repriced options as a variable plan. Compensation is measured as the difference
between the fair market value and the exercise price of the option at the
reporting period, recognized in the financial statements over the service
period.

On September 15, 1999, the Company cancelled 1,932,000 options, which had
been granted to employees on June 15, 1999 with a weighted average exercise
price of $9.67 and reissued 1,642,200

F-17

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

(85 percent) options with a weighted average exercise price of $6.00 and a
vesting period of three years to the same employees. Compensation expense
related to these options of $207,010 has been recorded in the March 31, 2000
financial statements.

The following table presents the amount of stock-based compensation that
would have been recorded under the following income statement categories if the
stock-based compensation had not been separately stated in the financial
statements.

YEAR ENDED
MARCH 31,
-------------------
2000 1999
---- ----

Marketing and Sales..................................... $379,006 $ --
Product Development..................................... 37,326 --
General and Administrative.............................. 164,598 --
-------- --------
Total stock based compensation...................... $580,930 $ --
-------- --------
-------- --------

Had the Company chosen the fair value method of accounting for transactions
involving stock option issuance (SFAS No. 123), the Company would have recorded
an additional $1,824,051 in compensation cost for the year ended March 31, 2000
as presented by the pro forma statement below:

YEAR ENDED
MARCH 31, 2000
--------------

Net loss as reported........................................ $(11,067,646)
------------
Pro forma net loss.......................................... $(12,600,623)
------------
Net loss per common share................................... $ (0.70)
------------
Pro forma loss per share.................................... $ (0.80)
------------

The Black-Scholes option-pricing model with a risk free interest rate
ranging from 5.017% to 6.434%, a weighted average volatility of 66.54%, zero
dividend yield and an expected life of three years for the options was used.

In addition to the stock options granted to the employees, the Company has
granted 340,000 options with exercise price of $6.00 to an outside consultant
for the services performed related to the acquisition of Cases Ladder, Inc.
These options were valued $1,111,100 using the Black-Scholes option pricing
model and have been included as part of the acquisition cost. Moreover, 30,000
options with exercise prices ranging from $6.00 to $13.00 valued at $67,248 have
been granted to a number of firms for investor relation and consulting services
and 78,000 options with exercise price of $7.00 valued at $123,652 have been
granted to advertising affiliates. These options have been recorded pursuant to
SFAS 123 based on the fair market value of the equity instruments issued.

WARRANTS:

NUMBER
OF SHARES EXERCISE PRICE
--------- --------------

Outstanding at 3-31-1999............................. -- --
Granted.............................................. 1,026,677 $ 2.74 - 10.00
Exercised............................................ --
Forfeited............................................ --
--------- ---------------
Outstanding at 3-31-2000............................. 1,026,677 $ 2.74 - 10.00
--------- ---------------
Warrants exercisable at 3-31-2000.................... 400,000 $ 2.74
--------- ---------------

671,865 warrants were issued as part of compensation to Gerard Klauer
Mattison & Co., Inc., the Company's exclusive placement agents. 400,000 of these
warrants have the exercise price of $2.74 per share and became exercisable on
April 14, 1999 and expire on April 14, 2004. The remaining 271,865 have an
exercise price of $2.75 per share will become exercisable on April 14, 2000 and
expire on

F-18

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

April 14, 2004. Additionally, 175,000 warrants with exercise prices ranging from
$4.75-$10.00 have been issued to an advertising affiliate and firms performing
investor relation services for the Company. Moreover, 89,921 warrants with an
exercise price of $6.00 and 89,921 warrants with an exercise price of $8.00 have
been issued to preferred shareholders in consideration of foregoing certain
terms and conditions their agreements. These warrants have been recorded in the
financial statements valued at $1,921,217. The Black-Scholes option-pricing
model with a risk free interest rate of 4.5%-6.125%, a weighted average
volatility of 83.30%, no expected dividend yield, and exercise terms of 1-5
years was used to estimate the fair value of the warrants issued.

(13) PREFERRED STOCK

On April 14, 1999 EUI sold 1,795,024 shares of its Series A 6% Convertible
Preferred Stock in a private offering pursuant to Regulation D of the Securities
Act of 1933 for the aggregate price of $6,462,086. Holders of the company's have
the right to convert such stock into shares of the Company's common stock at any
time after October 15, 1999 at a one-to-one ratio unless market price of the
company's common stock is below $3.60, in which case the conversion ratio would
be adjusted accordingly.

The shares of preferred stock have a liquidation preference of $3.60 per
share, which increases at a rate of 6% per annum. Each share of preferred stock
may be converted to common stock at an initial rate of one share of common stock
for each $3.60 of liquidation preference. If the common stock's market price at
the time of conversion is less than $3.60 per share, the conversion rate is
determined by reference to such lower price. Because of the variable conversion
rate and the 6% accretion factor, each share of preferred stock may be converted
into greater than one share of common stock. Prior to any conversion, the
conversion price is adjusted to account for any increase or decrease in the
number of outstanding shares of common stock by stock split, stock dividend, or
other similar event.

The Company does not pay dividends on the preferred stock and the holders of
such stock are not entitled to receive any dividends thereon. In the event of
the liquidation or dissolution of the Company, the holders of the preferred
stock will be entitled to receive, prior and in preference to any distribution
to the holders of the common stock and any other class of stock which has been
designated as junior in rank to the preferred stock, the liquidation preference
amount described above.

At any time after one year from the effective date of a registration
statement registering the common stock issued or to be issued upon conversion of
the preferred stock, if the closing bid price per share of the Company's common
stock is equal to or greater than $16.00, the company, at its option, may either
automatically convert the preferred stock to common stock or redeem the
preferred stock for cash in an amount per share equal to $3.60 plus accretion
thereon at a rate of 6% per year.

On December 21,1999, the Company approached the holders of its Series A
Preferred Stock to forgo three items in their purchase agreements in lieu of
being granted warrants to purchase common stock equaling 20% of the number of
shares owned by them (10% at an exercise price of $6.00 and 10% at an exercise
price of $8.00). The items to be modified are:

1. The Company will not be required to notify preferred shareholders at
least thirty days prior to acquiring the stock or assets of another company
so long as the Company is the surviving entity.

2. The Company will not be required to file a registration statement to
register the shares of its Common Stock issuable upon conversion of the
Preferred Stock in the event the Company is able to raise at least $5
million in additional capital or debt issuance within six months of which at
least $3 million ('Minimum Proceeds') had to be raised within 4 months.

3. The shareholders agree not to convert their Preferred Stock to Common
Stock until August 15, 2000, provided the Company raises the Minimum
Proceeds. However, 20% of such shares may be sold during any 30 day period
beginning April 15, 2000 in the event that the average weekly closing price
of the Company's Common Stock is greater than $12.00 per share.

F-19

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

As of March 31, 2000, the Company has received consent to the above conditions
from Preferred Shareholders holding 899,218 shares.

(14) SEGMENTED DISCLOSURES

The following table represents segmented reporting for the reporting period
ending March 31, 2000. There were no identifiable reportable segments during the
similar period last year.

PRODUCT SERVICES CORPORATE TOTAL
------- -------- --------- -----
(000'S)

Revenue................................ $ 8,864 $ 2,070 $ -- $ 10,934
Operating loss......................... (4,473) (3,517) (3,144) (11,134)
Interest income........................ 62 62
Minority interest...................... 4 4
------- ------- ------- --------
Pre tax loss........................... (4,473) (3,513) (3,082) (11,068)
Net loss............................... (4,473) (3,513) (3,082) (11,068)
Assets................................. 12,163 20,137 5,326 37,599
Depreciation and amortization.......... 1,026 1,538 20 2,584
Fixed assets additions................. 577 310 12 899

Significant reconciling items in the corporate columns are as follows:

Operating loss: Professional fees $879; Compensation $665; Consulting $342;
Investor and public relations $776; Stock based compensation
$369.
Assets: Cash $2,111; Prepaid Expense $1,891; Goodwill and other
Intangibles $790; Account receivable $643.

Management has chosen to organize the enterprise around differences in
products and services. Products include audio CDs, videotapes, and digital
videodisks. Services include advertising, membership and sponsorship revenue.
All revenues recorded are from external customers.

(15) GOING CONCERN ISSUE

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
sustained losses and negative cash flows from operations since its inception.
The Company currently has minimal cash reserves and working capital surplus to
fund its operations and its ability to meet its obligations in the ordinary
course of business is dependent upon its ability to raise additional financing
through public or private equity financings, establish profitable operations,
enter into collaborative or other arrangements with corporate sources, or secure
other sources of financing to fund operations. Since March 31, 2000 the Company
received short term loans of $1.73 million from new investors. The cash was used
principally to finance working capital requirements.

Management intends to raise working capital through additional equity and/or
debt financings in the upcoming year and has entered into a letter of intent to
sell 2,500,000 shares of common stock for $15,000,000 (see Note 16). The company
believes it will close this transaction in the near future, however, there can
be no assurance that such financing can be successfully completed on terms
acceptable to the Company. The matters discussed above raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. The Company has a limited operating history and its
prospects are subject to the risks, expenses and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for Internet
products and services. These risks include the failure to obtain and ship
products sold to consumers, the rejection of the Company's services by Internet
consumers or advertisers, the inability of the Company to maintain and increase
the levels of traffic on its websites, as well as other risks and uncertainties.
In the event that the

F-20

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

Company does not successfully implement its business plan and obtain additional
equity and/or debt financing, certain assets may not be recoverable.

(16) SUBSEQUENT EVENTS

Subsequent to March 31, 2000 the Company:

Acquired Dustcloud.com ('Dustcloud') for a purchase price of up to
$300,000. The Company issued 23,668 common shares totaling $150,000 at
closing. Additional consideration of up to $150,000 of common stock may be
paid over the next twelve months, based on the attainment of certain
performance goals. In consideration of their continued employment, the
Company also issued to each of Dustcloud two employees options to purchase
50,000 shares of common stock. The options have an exercise price of $6.50
and vest over three years.

Received $1,000,000 pursuant to a promissory note dated April 26, 2000. The
notes bears interest at the rate of 8% per year and is payable on July
26,2000. The note is secured by the personal guarantee of the Company's
Chairman.

Along with Lunatic Productions, Inc. ('Lunatic') formed moviemaker.com to
promote a film whose rights, title and interest in were owned by Lunatic.
Moviemaker will also promote other films and related merchandise sales
through a site on the internet. In consideration for the assignment of its
rights, Lunatic received 1,000,000 shares of moviemaker, representing a 20%
interest in the outstanding shares. The Company received 4,000,000 shares,
or the remaining 80%. In consideration for its interest, the Company will
pay the following:

1) Charges incurred by Lunatic to produce the film, not to exceed
$70,000.

2) Repayment of Lunatic's debt to three individuals totaling $54,000.

3) Charges to obtain copyright clearance of music and songs used in the
final version of the film.

4) Cost of remixing and delivery of the film.

Entered into a letter of intent to sell 2,500,000 shares of restricted
common stock for $15,000,000. The Company has committed to repurchase
2,450,000 shares ('the repurchase shares') of common stock from existing
shareholders other than the Company's chairman or his affiliates. If the
Company fails to purchase all or a portion of the repurchase shares prior
to the 14th calendar day following the closing, the shares purchased
pursuant to this agreement will be adjusted to 3,000,000 shares.

Entered into a letter of intent to sell 2,000,000 shares of restricted
common stock for a promissory note (the 'Note') in the original amount of
$12,000,000. The Company has committed to repurchase at least 2,450,000
shares of common stock from existing shareholders other than the Company's
chairman or his affiliates. If the Company fails to purchase all or a
portion of the repurchase shares prior to the 14th calendar day following
the closing, then the principal amount of the Note will be reduced to
$10,000,000. The Note is payable on the third anniversary of the closing
date and bears no interest. The purchaser of the shares is not entitled to
vote the shares until the Note is paid in full.

Entered into an agreement to sublease an office space located at 6300
Wilshire Boulevard, Los Angeles, CA from Seltel, Inc.. The agreement
commences April 15, 2000 and expires December 30, 2004. The rental rate is
$17,405 per month for the first two years, and $18,400 per month for the
third year through the expiration date.

F-21

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

QUARTERLY RESULTS OF OPERATIONS/SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)

The following table presents certain unaudited consolidated quarterly
results of operations for the eight quarters ended March 31, 2000. This
information is unaudited but reflects all adjustments that are, in the opinion
of the management, necessary for a fair presentation of consolidated results of
the operations. These adjustments, consisting of normal recurring adjustments
and accruals, were made on a basis consistent with the annual audited financial
statements and generally accepted accounting principles. The consolidated
quarterly data should be read in conjunction with audited financial statements
and notes to such statements presented elsewhere in this report. The results of
operations for any quarter are not necessarily indicative of the results for any
future period.

WEIGHTED WEIGHTED BASIC AND
INCOME AVERAGE AVERAGE DILUTED
(LOSS) NET COMMON COMMON NET LOSS
GROSS FROM INCOME SHARES SHARES PER
QUARTER ENDED REVENUES PROFIT OPERATIONS (LOSS) BASIC DILUTED COMMON SHARES
------------- -------- ------ ---------- ------ ----- ------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

March 31, 2000.......... $3,983 $919 $(4,749) $(4,756) 17,157 17,157 (0.28)
December 31, 1999....... 3,071 879 (3,025) (3,007) 16,272 16,272 (0.18)
September 30, 1999...... 1,845 468 (2,110) (2,062) 15,317 15,317 (0.13)
June 30, 1999........... 2,035 375 (1,250) (1,243) 12,222 12,222 (0.11)

March 31, 1999.......... $1,980 $270 $ (135) $ (137) N/A N/A N/A
December 31, 1998....... 2,572 362 (118) (118) N/A N/A N/A
September 30, 1998...... 2,181 387 (81) (81) N/A N/A N/A
June 30, 1998........... 2,118 324 (71) (71) N/A N/A N/A

F-22

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(UNAUDITED)

ADDITIONS
BALANCE AT ADDITIONS CHARGED TO
BEGINNING OF THROUGH COST AND BALANCE AT
DESCRIPTION PERIOD ACQUISITIONS EXPENSES DEDUCTIONS END OF PERIOD
- ----------- ------ ------------ -------- ---------- -------------

Allowance for doubtful accounts:
Year ended March 31, 2000...... -- $19,175 $69,539 $(10,500) $78,214
Year ended March 31, 1999...... -- -- -- -- --
Year ended March 31, 1998...... -- -- -- -- --

F-23

CD UNIVERSE, INC.
BALANCE SHEET
MARCH 31, 1999

1999 1998
---- ----

ASSETS
Current assets
Cash and cash equivalents............................... $ 11,335 $ 267,214
Accounts receivable, net of allowance for doubtful
accounts of $0........................................ 92,938 --
Inventory............................................... 22,647 23,877
Due from officer........................................ 157,569 1,000
Prepaid expenses and other current assets............... 9,629 43,031
---------- ----------
Total current assets................................ 294,118 335,122
Property and equipment, net of accumulated depreciation of
$83,052 and $36,900 respectively.......................... 225,718 158,362
Organization costs, net of accumulated amortization of $340
and $170 respectively..................................... 510 680
---------- ----------
Total assets........................................ $ 520,346 $ 494,164
---------- ----------
---------- ----------

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Accounts payable and accrued expenses................... $ 942,322 $ 534,581
Notes payable -- officer................................ 105,000 --
Due to affiliates (Note 5).............................. 30,000 110,395
---------- ----------
Total current liabilities........................... 1,077,322 644,976
---------- ----------
Commitments and contingencies (Note 9)...................... --
Stockholder's deficit
Common stock -- no par value; authorized 1,000 shares;
1,000 issued and outstanding.......................... 1,000 1,000
Accumulated deficit..................................... (557,976) (151,812)
---------- ----------
Total stockholder's deficit......................... (556,976) (150,812)
---------- ----------
Total liabilities and stockholder's deficit......... $ 520,346 $ 494,164
---------- ----------
---------- ----------

The accompanying notes are an integral part of the financial statements.

F-24

CD UNIVERSE, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,

DIVISION OF
PRIME SOFTWARE, INC.
1999 1998 1997
---- ---- --------------------

Revenue............................................. $8,851,713 $5,685,211 $ 1,675,815
Cost of goods sold.................................. 7,550,289 4,709,528 1,433,766
---------- ---------- --------------------
Gross profit........................................ 1,301,424 975,683 242,049
Selling, general and administrative expenses........ 1,708,601 1,111,698 434,203
---------- ---------- --------------------
Loss from operations................................ (407,177) (136,015) (192,154)
Other income........................................ 1,013 (15,797) --
---------- ---------- --------------------
Net loss............................................ (406,164) $ (151,812) $ (192,154)
---------- ---------- --------------------
---------- ---------- --------------------
Net loss per common share
Basic........................................... (406.16) $ (151.81) $ (192.15)
---------- ---------- --------------------
---------- ---------- --------------------
Diluted......................................... (406.16) $ (151.81) $ (192.15)
---------- ---------- --------------------
---------- ---------- --------------------

The accompanying notes are an integral part of the financial statements.

F-25

CD UNIVERSE, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT

COMMON STOCK TOTAL
--------------- ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT DEFICIT DEFICIT
------ ------ ----------- -------------

Balance at April 7, 1997............................. -- $-- $ -- $ --
Issuance of shares for cash.......................... 1,000 1,000 -- 1,000
Net loss for the year ended March 31, 1998........... -- -- (151,812) (151,812)
----- ------ --------- ---------
Balance at March 31, 1998............................ 1,000 1,000 (151,812) (150,812)
Net loss for the year ended March 31, 1999........... -- -- (406,164) (406,164)
----- ------ --------- ---------
Balance at March 31, 1999............................ 1,000 $1,000 $(557,976) $(556,976)
----- ------ --------- ---------
----- ------ --------- ---------

The accompanying notes are an integral part of the financial statements.

F-26

CD UNIVERSE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31

DIVISION OF
PRIME SOFTWARE, INC.
1999 1998 1997
---- ---- --------------------

Cash Flows From Operating Activities:
Net loss......................................... $(406,164) $(151,812) $(192,154)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization.................... 46,322 37,070 --
Write off of excess of purchase price over cost
assigned to assets acquired.................... -- 40,000 --
Changes in certain assets and liabilities:
(Increase) in accounts receivable............ (92,938) -- --
Decrease (increase) in inventory............. 1,230 (23,877) --
Decrease (increase) in prepaid expenses and
other current assets....................... 33,402 (43,031) (6,028)
Increase in accounts payable and accrued
expenses................................... 407,741 534,581 --
--------- --------- ---------
Total cash provided by (used in) operating
activities................................. (10,407) 392,931 (198,182)
--------- --------- ---------
Cash Flows From Investing Activities:
Increase in other assets......................... -- (40,850) --
Increase in property and equipment............... (113,508) (195,262) (6,500)
--------- --------- ---------
Total cash used in investing activities...... (113,508) (236,112) (6,500)
--------- --------- ---------
Cash Flows From Financing Activities:
Sale of common stock............................. -- 1,000 --
Cash retained by affiliate....................... -- (19,558) --
Increase in notes payable -- officer............. 150,000 -- --
Repayment of notes payable -- officer............ (45,000) -- --
Loans from affiliates............................ 30,000 110,395 224,240
Repayment of loans from affiliates............... (110,395) -- --
Loan to officer.................................. (156,569) (1,000) --
--------- --------- ---------
Total cash provided by (used in) financing
activities................................. (131,964) 90,837 224,240
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents........................................ (255,879) 247,656 19,558
Cash and cash equivalents -- beginning of year....... 267,214 19,558 --
--------- --------- ---------
Cash and cash equivalents -- end of year............. $ 11,335 $ 267,214 $ 19,558
--------- --------- ---------
--------- --------- ---------
Cash Paid During the Year For:
Interest expense................................. $ 286 $ -- $--
--------- --------- ---------
--------- --------- ---------
Income taxes..................................... $ -- $ -- $--
--------- --------- ---------
--------- --------- ---------

The accompanying notes are an integral part of the financial statements.

F-27

CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) ORGANIZATION AND LINE OF BUSINESS

CD Universe, Inc. was incorporated under the laws of the State of
Connecticut on April 7, 1997. The Company began operations as CD Universe
commencing April 1, 1997. The Company was sold to new management in April 1999.

Prior to incorporating, the Company operated as a division of Prime
Software, Inc., a related party. The statements of operations and cash flows for
the year ended March 31, 1997 reflects the activity of that division. Prime
Software, Inc.'s fiscal year end is March 31. For the initial year ended
March 31, 1997, the division of Prime Software had an accumulated deficit of
$192,154 and advances from the parent of $224,240.

The Company sells and distributes compact discs (CD's) and video recordings
to retail purchasers over the internet.

b) USE OF ESTIMATES

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

c) CONCENTRATION OF CREDIT RISK

The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceeded FDIC insured levels at
various times during the year.

d) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents

e) ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of credit card charges by customers.

f) INVENTORY

Inventory consists of compact discs, videos and packaging materials.
Inventory is valued at the lower of cost or market using the first-in, first-out
method.

g) PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the assets.
Maintenance and repairs are charged to expense as incurred.

Estimated useful lives are as follows:

Leasehold Improvements...................................... 3 years
Computer Equipment.......................................... 5 years
Telephone Equipment......................................... 5 years
Furniture, Fixtures and Other............................... 10 years

F-28

CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999

h) ORGANIZATION COSTS

Organization costs are being amortized over 5 years using the straight-line
method.

i) INCOME TAXES

Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed by
Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for
Income Taxes'. As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes.

j) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value due to the
relatively short maturity of these instruments.

k) LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangibles to he held and used
are reviewed for impairment whenever events or changes in circumstances indicate
that the related carrying amount may not be recoverable. When required,
impairment losses on assets to be held and used are recognized based on the fair
value of the assets and long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.

l) STOCK-BASED COMPENSATION

The Company has adopted the intrinsic value method of accounting for
stock-based compensation in accordance with Accounting Principles Board Opinion
('APB') No. 25, 'Accounting for Stock Issued to Employees' and related
interpretations.

m) REVENUE RECOGNITION

The Company recognizes revenue upon shipment of its products. The Company
maintains a partner program whereby partners provide links on their web-sites
that bring customers to the CD Universe web-site. Revenue generated from these
linked sites is recognized upon shipment of the CD's. The partner receives a
commission of 5% to 15% of sales of the Company's products that originate from
the site, recognized as an expense concurrent with the sale.

n) ADVERTISING COSTS

Advertising costs, except for costs associated with direct-response
advertising, are charged to operations incurred. The costs of direct-response
advertising, if any, are capitalized and amortized over the period during which
future benefits are expected to be received.

o) EARNINGS PER SHARE

During 1997, the Company adopted SFAS No. 128, 'Earnings Per Share', which
requires presentation of basic earnings per share ('Basic EPS') and diluted
earnings per share ('Diluted EPS').

F-29

CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999

The computation of basic EPS is computed by dividing income available to
common stockholders by the weighted average number of outstanding common shares
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period. The computation of diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would have
an anti-dilutive effect.

The shares used in the computation for the years ended March 31, 1999, 1998
and 1997 were as follows:

Basic....................................................... 1,000
-----
-----
Diluted..................................................... 1,000
-----
-----

p) COMPREHENSIVE INCOME

In June 1997, SFAS No. 130, 'Reporting Comprehensive Income', was issued.
This statement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. As of
March 31, 1999, 1998 and 1997, the Company had no items that represent other
comprehensive income and, therefore, has not included a schedule of
comprehensive income in the financial statements.

q) IMPACT OF YEAR 2000 ISSUE

During the year ended March 31, 1999, the Company conducted an assessment of
issues related to the Year 2000 and determined that it was necessary to modify
or replace portions of its software in order to ensure that its computer systems
will properly utilize dates beyond December 31, 1999. The Company expects to
complete any Year 2000 systems modifications and conversions by the middle of
1999. Currently, the Company does not expect that costs associated with becoming
Year 2000 compliant to be material. At this time, the Company cannot determine
the impact the Year 2000 will have on its key customers or suppliers. If the
Company's customers or suppliers do not convert their systems to become
Year 2000 compliant, the Company may be adversely impacted. The Company is
addressing these risks in order to reduce the impact on the Company.

r) RECENT ACCOUNTING PRONOUNCEMENTS

During 1998, the FASB issued SFAS No. 131, 'Disclosure About Segments of an
Enterprise and Related Information', which changes the way public companies
report information about segments. SFAS No. 131, which is based on the selected
segment information quarterly and entity-wide disclosures about products and
services, major customers and the material countries in which the entity holds
assets and reports revenue. This statement is effective for the Company's fiscal
year. The Company is in the process of evaluating the disclosure requirements
under this standard.

Additionally, during 1998, the America Institute of Certified Accountants'
Executive Committee issued Statement of Position Number 98-1 (SOP 98-1),
'Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use'. SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
Management believes that the Company is substantially in compliance with this
pronouncement and that its implementation will not have a material effect on the
Company's financial position, results of operations or cash flows.

F-30

CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999

NOTE 2 -- PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows at March 31,:

1999 1998
---- ----

Leasehold Improvements.................................. $ 40,000 $ --
Computer Equipment...................................... 215,543 155,273
Telephone Equipment..................................... 24,158 18,467
Furniture, Fixtures and Other........................... 29,069 21,522
-------- --------
308,770 195,262
Less: Accumulated Depreciation.......................... 83,052 36,900
-------- --------
Property and Equipment, net......................... $225,718 $158,362
-------- --------
-------- --------

Depreciation expense for the years ended March 31, 1999 and 1998 was $46,152
and $36,000, respectively.

NOTE 3 -- INCOME TAXES

The components of the provision for income taxes for the years ended
March 31, 1999, 1998 and 1997 are as follows:

Current Tax Expense 1999 1998 1997
U.S. Federal............................ $ -- $ -- $ --
State and Local......................... $ -- -- --
-------- -------- --------
Total Current....................... -- -- --
-------- -------- --------
Deferred Tax Expense
U.S. Federal............................ -- -- --
State and Local......................... -- -- --
-------- -------- --------
Total Deferred.......................... -- -- --
-------- -------- --------
Total Tax Provision from Continuing
Operations........................ $ -- $ -- $ --
-------- -------- --------
-------- -------- --------

The reconciliation of the effective income tax rate to the Federal statutory
rate is as follows:

1999 1998 1997
---- ---- ----

Federal Income Tax Rate........................... (34.0)% (34.0)% (34.0)%
Deferred Tax Charge (Credit)...................... -- -- --
Effect on Valuation Allowance..................... 34.0% 34.0% 34.0%
State Income Tax, Net of Federal Benefit.......... -- -- --
------ ----- -----
Effective Income Tax Rate......................... 0.0% 0.0% 0.0%
------ ----- -----
------ ----- -----

At March 31, 1999, the Company had net carryforward losses of approximately
$556,000 that can be utilized to offset future taxable income through 2014.
Utilization of these net carryforward losses is subject to the limitations of
Internal Revenue Code Section 382. The full realization of the tax benefit
associated with the carryforward depends predominantly upon the Company's
ability to generate taxable income during the carryforward period. A valuation
allowance equal to the tax benefit for deferred taxes has been established due
to the uncertainty of realizing the benefit of the tax carryforward.

F-31

CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999

Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant
components of the Company's deferred tax assets (liabilities) are as follows:

1999 1998
---- ----

Loss Carryforwards.................................... $ 189,000 $ 51,700
Less: Valuation Allowance............................. (189,000) (51,700)
--------- ---------
Net Deferred Tax Assets (Liabilities)................. $ -- $ --
--------- ---------
--------- ---------

NOTE 4 -- NOTE PAYABLE -- OFFICER

The Company is indebted to an officer at March 31, 1999 for $105,000. The
terms indicate interest is payable at 8% with loan principal and interest
payable upon demand.

Subsequent to March 31, 1999, the Note was paid down to $85,000. This amount
will be settled through a purchase price adjustment upon the acquisition of the
Company by Entertainment Universe, Inc.

NOTE 5 -- RELATED PARTY TRANSACTIONS

In prior years, certain of the Company's fixed asset acquisitions and
certain expenses were paid for through advances by an entity controlled by the
Company's president. These advances, totaling $110,395, were repaid during the
year ended March 31, 1999.

During the current fiscal year, the Company received advances from an entity
controlled by the Company's chairman. These advances totaled $30,000 and remain
outstanding at March 31, 1999. Terms of repayment and interest are being
negotiated.

NOTE 6 -- MAJOR VENDOR

The Company purchased approximately 90% of its merchandise from one vendor.
At March 31, 1999, the balance due to that vendor was approximately $600,000
which was paid in April 1999. The Company believes that the loss of this vendor
may have a material adverse effect on the Company.

NOTE 7 -- ADVERTISING COSTS

Advertising costs incurred and recorded as expense in the statement of
operations were $67,052, $128,432 and $110,717 for the years ended March 31,
1999, 1998 and 1997, respectively.

NOTE 8 -- ACQUISITION OF ASSETS

During the year ended March 31, 1998, the Company purchased various assets
from a related party. Due to the fact that the entities were under common
control, the assets have been valued at historical cost in the financial
statements. The excess of purchase prior over cost has been charged to expense
during the year ended March 31, 1998. This amount was $40,000.

NOTE 9 -- COMMITMENTS AND CONTINGENCIES

The Company leases office space under non-cancelable operating lease
agreements that expire within the next three years. Future minimum lease
payments under these non-cancelable operating leases are as follows:

F-32

CD UNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999

MARCH 31,
- ---------

2000.............................................. $117,000
2001.............................................. 117,000
2002.............................................. 107,250
--------
Total......................................... $341,250
--------
--------

Rent expense under the office lease for the years ending March 31, 1999,
1998 and 1997 was $82,000, $45,938 and $5,387, respectively.

On October 1, 1998, the Company entered into an agreement with Charles
Beilman. The agreement stipulates that Charles Beilman will serve as Chief
Operating Officer and Chief Technical Officer for an annual compensation of
$135,000 and the reimbursement of certain expenditures, as defined in the
related agreement. This agreement becomes effective when the Company is acquired
and its shares are publicly traded. Mr. Beilman's employment will continue for
at least three years from the date the Company goes public.

NOTE 10 -- SUBSEQUENT EVENTS

The Company was acquired by Entertainment Universe, Inc. in April 1999 as a
wholly owned subsidiary.

F-33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized, on July 14, 2000.

eUNIVERSE, INC.

By /s/ BRAD D. GREENSPAN
..................................

BRAD D. GREENSPAN
CHAIRMAN OF THE BOARD OF DIRECTORS
ACTING CHIEF EXECUTIVE OFFICER

Under the requirements of the Securities Act of 1934, this Form 10-K has
been signed on July 14, 2000 by the following persons on behalf of the
Registrant in the capacities indicated.

By /s/ WILLIAM R. WAGNER
...................................
WILLIAM R. WAGNER
CHIEF FINANCIAL OFFICER
(PRINCIPAL EXECUTIVE OFFICER,
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)

By /s/ BRAD D. GREENSPAN
..................................
BRAD D. GREENSPAN
CHAIRMAN OF THE BOARD OF DIRECTORS

By /s/ LELAND N. SILVAS
..................................
LELAND N. SILVAS
DIRECTOR

By
..................................
CHARLES BEILMAN
VICE PRESIDENT, SPECIAL PROJECTS
AND DIRECTOR

By /s/ GORDON LANDIES
..................................
GORDON LANDIES
DIRECTOR

By /s/ DAN MOSHER
..................................
DAN MOSHER
DIRECTOR

INDEX TO EXHIBITS

EXHIBIT
NUMBER EXHIBIT TITLE/DESCRIPTION
------ -------------------------

3.01 -- Articles of Incorporation of eUniverse.(1)
3.02 -- Amendment to Articles of Incorporation of eUniverse
regarding change of name.(1)
3.03 -- Certificate of Amendment of Articles of Incorporation
regarding issuance of Preferred Stock.(1)
3.04 -- Bylaws of eUniverse.(1)
3.05 -- Amendment to Bylaws.(1)
3.06 -- Designation of Preferred Stock of Motorcycle Centers of
America, Inc. dated April 7, 1999, as filed with the
Secretary of the State of Nevada, which defines the rights
and preferences of the Preferred Stock of eUniverse.(1)
3.06.01 -- First Amendment to Designation of Stock of eUniverse,
Inc. f/k/a Motorcycle Centers of America, Inc. and First
Amended and Restated Certificate of Designation of Series
A 6% Convertible Preferred Stock of eUniverse, Inc., dated
as of February 2, 2000.(6)
10.01 -- Stock Purchase Agreement by and between Palisades
Capital, Inc. and Charles Beilman, dated as of October 1,
1998 (the 'Stock Purchase Agreement').(1)
10.02 -- Amendment to Stock Purchase Agreement, dated December 29,
1998.(1)
10.03 -- Amendment No. 2 to Stock Purchase Agreement, dated
February 11, 1999.(1)
10.04 -- Amendment No. 3 to Stock Purchase Agreement, dated as of
March , 1999.(1)
10.05 -- Amendment Number 4 to Stock Purchase Agreement, dated as
of June 9, 1999.(1)
10.06 -- Agreement and Plan of Reorganization by and among
Motorcycle Centers of America, Inc., Entertainment
Universe, Inc. and the principal officers of Entertainment
Universe, Inc., dated April 9, 1999.(1)
10.07 -- Entertainment Universe, Inc. Regulation D Subscription
Agreement, dated as of April , 1999.(1)
10.08 -- Entertainment Universe, Inc. Registration Rights
Agreement, dated as of April 1999.(1)
10.09 -- Assignment and Assumption Agreement by and between
Entertainment Universe, Inc. and Motorcycle Centers of
America, Inc., dated as of April 14, 1999.(1)
10.10 -- Stock Purchase Agreement by and among Motorcycle Centers
of America, Inc. and the shareholders of Case's Ladder,
Inc., dated as of April 21, 1999.(1)
10.11 -- Contract of Employment by and between Entertainment
Universe, Inc. and William R. Wagner, dated March 25,
1999.(1)
10.12 -- Employment Agreement by and between eUniverse, Inc. and
Leland N. Silvas, dated as of April 14, 1999.(1)
10.13 -- Letter agreement between Entertainment Universe, Inc. and
E.P. Opportunity Fund, L.L.C. regarding appointment of a
director of Entertainment Universe, Inc., dated April 6,
1999.(1)
10.14 -- Modification and Restatement of Lease by and between
Vincenzo Verna Trustee d/b/a Harvest Associates and CD
Universe, Inc. for eUniverse's office space in
Wallingford, Connecticut, dated as of February 1, 1999.(1)
10.15 -- Agreement and Plan of Reorganization by and among
eUniverse, Inc., Gamer's Alliance, Inc., and Larry N.
Pevnick and Robin T. Pevnick, Ten Ent., and Stan
Goldenberg and Andrea R. Goldenberg, Ten Ent., dated as of
the 1st day of July, 1999.(6)
10.15.1 -- Second Amendment to Agreement and Plan of Reorganization
by and among eUniverse, Inc., Gamer's Alliance, Inc., and
Larry N. Pevnick and Robin T. Pevnick, Ten Ent., and Stan
Goldenberg and Andrea R. Goldenberg, Ten Ent., dated as of
the 12th day of November, 1999.(1)
10.16 -- Agreement and Plan of Reorganization by and among
eUniverse, Inc., The Big Network, Inc., Stephen D.
Sellers, John V. Hanke and Michael Sellers, dated July 30,
1999 (effective as of August 31, 1999).(6)
10.17 -- Letter Agreement by and among Brad D. Greenspan, Charles
Beilman, Stephen D. Sellers and John V. Hanke regarding
appointment of a director of eUniverse, Inc., dated as of
August 31, 1999.(6)
10.18 -- Employment Agreement by and between eUniverse, Inc. and
James Haiduck, dated as of June 17, 1999.(6)
10.19 -- Employment Agreement by and between eUniverse, Inc. and
Stephen D. Sellers, dated as of August 31, 1999.(6)
10.21 -- eUniverse, Inc. Registration Rights Agreement dated
July 30, 1999.(6)
10.22 -- Office Sublease by and between Golden Gate University and
The Big Network, Inc., dated July 9, 1999.(6)

EXHIBIT
NUMBER EXHIBIT TITLE/DESCRIPTION
------ -------------------------

10.23 -- Engagement Letter by and among Gerard Klauer Mattison &
Co., Inc. by Entertainment Universe, Inc. and Brad
Greenspan, dated February 24, 1999.(6)
10.24 -- Indemnification Agreement by Entertainment Universe, Inc.
and Brad Greenspan in favor of Gerard Klauer Mattison &
Co., Inc., dated February 24, 1999.(6)
10.25 -- eUniverse, Inc. 1999 Stock Awards Plan.(6)
10.26 -- Online Partner Agreement between CD Universe, Inc. and
Accessio.com Inc., regarding US-Style, dated November 5,
1998.(1)
10.27 -- Employment Agreement by and between eUniverse, Inc. and
Martin Hamilton, dated as of October 25, 1999. Mr. Martin
terminated his employment on March 2, 2000 to pursue other
business opportunities.(1)
10.28 -- Web Advertising Agreement by and between eUniverse, Inc.
and Mpath Interactive, Inc., dated as of August 13, 1999
and terminated as of February 1, 2000. Portions of
Exhibit 10.28 have been omitted pursuant to a request for
confidential treatment, which was granted by the SEC.(2)
10.29 -- eUniverse, Inc. Common Stock Purchase Warrant to Gerard
Klauer Mattison & Co., Inc., dated April 14, 1999.(1)
10.30 -- Asset Purchase Agreement by and between eUniverse, Inc.
and Scott Smith d/b/a Pokemonvillage.com and Quake City
Gaming Network, dated as of February 1, 2000.(3)
10.31 -- Letter agreement by and among eUniverse, Inc. Take-Two
Interactive Software, Inc. and Falcon Ventures
Corporation, dated as of February 2, 2000.(3)
10.32 -- Employment Agreement by and between eUniverse, Inc. and
William R. Wagner dated as of April 5, 1999.(3)
10.33 -- Letter Agreement by and between eUniverse, Inc. and
Christian Walter d/b/a Justsaywow.com dated February 20,
2000.(4)
10.34 -- Lease by and between Hamms Building Associates and Falcon
Ventures Corp., dated as of July 27, 1999.(5)
10.35 -- eUniverse, Inc. Common Stock Purchase Warrant to Michael
Zaroff, dated December 10, 1999.(5)
10.36 -- eUniverse, Inc. Common Stock Purchase Warrant to Bob
Agriogianis, dated December 10, 1999.(5)
10.37 -- eUniverse, Inc. Common Stock Purchase Warrant to Mark
Bergman, dated January 15, 2000.(5)
10.38 -- eUniverse, Inc. Common Stock Purchase Warrant to Mark
Bergman, dated February 15, 2000.(5)
10.39 -- Stock Option Agreement by and between eUniverse, Inc. and
Charles Beilman, dated as of January 26, 2000.(5)
10.39.01 -- First Amendment to Stock Option Agreement by and between
eUniverse, Inc. and Charles Beilman, dated as of
March 31, 2000.(5)
10.39.02 -- Second Amendment to Stock Option Agreement by and between
eUniverse, Inc. and Charles Beilman, dated as of May 31,
2000.(6)
10.39.03 -- Third Amendment to Stock Option Agreement and Escrow
Agreement by and among eUniverse, Inc., Charles Beilman
and Martin, Gasparrini & Chioffi, LLP, dated as of
June 16, 2000.(6)
10.40 -- Letter agreement between eUniverse, Inc. and former
shareholders of The Big Network, Inc. which provides
eUniverse, Inc. with the right to purchase a minimum of
500,000 shares of eUniverse, Inc. common stock from former
shareholders of The Big Network, Inc. (the 'Big Network
Buyout Agreement'), the closing of which shall occur on or
before April 24, 2000.(5)
10.40.01 -- First Amendment providing for extension of closing date
of the Big Network Buyout Agreement to May 5, 2000.**
10.40.02 -- Second Amendment providing for extension of closing date
of the Big Network Buyout Agreement to May 19, 2000.**
10.40.03 -- Third Amendment providing for extension of closing date
of the Big Network Buyout Agreement to May 26, 2000.**
10.41 -- eUniverse, Inc. Common Stock Purchase Warrant to Salomon
Grey Financial Corporation, dated March 14, 2000
(terminated).(5)
10.42 -- eUniverse, Inc. Common Stock Purchase Warrant to Salomon
Grey Financial Corporation, dated March 14, 2000
(terminated). (5)
10.43 -- Agreement by and between eUniverse, Inc. and Take-Two
Interactive Software, Inc., dated as of March 16, 2000,
providing for account marketing services.(5)

EXHIBIT
NUMBER EXHIBIT TITLE/DESCRIPTION
------ -------------------------

10.44 -- Agreement by and between eUniverse, Inc. and Take-Two
Interactive Software, Inc., dated as of March 16, 2000,
providing for programming services.(5)
10.45 -- Letter agreement by and among eUniverse, Inc. and Erik
MacKinnon and Dan Barnes d/b/a Dustcloud Media, dated
March 29, 2000.(6)
10.46 -- Form of Warrant issued to certain eUniverse preferred
shareholders on February 2, 2000.**
21.01 -- Subsidiaries of eUniverse, Inc.(5)
27.01 -- Financial Data Schedule**

- ---------

** Filed herewith.

(1) Incorporated by reference to eUniverse's Form 10 filed on June 15, 1999
(Registration File No. 0-26355).

(2) Incorporated by reference to eUniverse's Form 10-Q filed on November 15,
1999.

(3) Incorporated by reference to eUniverse's Form 10-Q filed on February 14,
2000.

(4) Incorporated by reference to eUniverse's Form 8-K filed on March 13, 2000.

(5) Incorporated by reference to eUniverse's Form S-1 filed on March 23, 2000
(Registration File No. 333-33084).

(6) Incorporated by reference to eUniverse's Form 8-K filed on June 28, 2000.