<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

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

                FOR THE TRANSITION PERIOD FROM _______ TO _______

                        COMMISSION FILE NUMBER 000-24591

                               broadcast.com inc.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

       DELAWARE                                        75-2600532
(STATE OF INCORPORATION)                   (I.R.S. EMPLOYER IDENTIFICATION NO.)

                               2914 TAYLOR STREET
                               DALLAS, TEXAS 75226
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (214) 748-6660
               (REGISTRANT'S TELEPHONE NUMBER, INCLUDING ARE CODE)


INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

                                 YES [X] NO [ ]

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 11, 1998: 17,093,031



<PAGE>   2
                               broadcast.com inc.

                                    FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                                            PAGE
<S>      <C>                                                                <C>
PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         BALANCE SHEETS AS OF SEPTEMBER 30, 1998 (UNAUDITED) AND 
         DECEMBER 31, 1997                                                    3

         STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS 
         ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)                        4

         STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE MONTH PERIODS 
         ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)                        5

         NOTES TO FINANCIAL STATEMENTS (UNAUDITED)                            6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
         AND RESULTS OF OPERATIONS                                            9

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                   35

ITEM 2.  CHANGES IN SECURITIES                                               35

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                     36

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 36

ITEM 5.  OTHER INFORMATION                                                   36

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                    36
</TABLE>


                                       2
<PAGE>   3
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                               broadcast.com inc.
                                 BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,    DECEMBER 31,
                           ASSETS                              1998            1997
                                                           -------------    ------------
<S>                                                        <C>              <C>         
Current assets:
   Cash and cash equivalents                                $ 58,149,546    $ 21,337,116
   Accounts receivable, net of allowance of $238,972
      and $76,240, respectively                                3,007,511       1,976,765
   Prepaid expenses                                            1,192,947       1,032,198
   Other                                                          48,040          11,311
                                                            ------------    ------------
      Total current assets                                    62,398,044      24,357,390
Property and equipment, net                                    4,144,000       2,812,971
Prepaid expenses                                                  87,536         935,720
Intangible assets, net                                           476,670         126,733
                                                            ------------    ------------
      Total assets                                          $ 67,106,250    $ 28,232,814
                                                            ============    ============

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                              678,443         362,214
   Accrued liabilities                                         2,402,825         677,662
                                                            ------------    ------------
      Total current liabilities                                3,081,268       1,039,876
                                                            ------------    ------------

Stockholders' equity:
   Preferred stock, 5,000,000 shares authorized, $.01 par
      value, no shares issued and outstanding                         --              --
   Common stock, 60,000,000 shares authorized, $.01 par
      value, 17,088,831 and 13,976,285 shares issued
      and outstanding, respectively                              116,889          85,763
   Additional paid-in capital                                 84,114,736      36,838,152
   Accumulated deficit                                       (20,206,643)     (9,730,977)
                                                            ------------    ------------
      Total stockholders' equity                              64,024,982      27,192,938
                                                            ------------    ------------
      Total liabilities and stockholders' equity            $ 67,106,250    $ 28,232,814
                                                            ============    ============
</TABLE>


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


                                       3
<PAGE>   4
                               broadcast.com inc.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED              NINE MONTHS ENDED
                                                  SEPTEMBER 30,                   SEPTEMBER 30,
                                              1998            1997            1998            1997
                                          ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>         
Revenues:
   Business services                      $  1,960,383    $    804,286    $  4,567,175    $  2,044,724
   Web advertising                           1,706,731         692,952       4,388,610       1,762,274
   Traditional media advertising               453,136         360,074       1,594,549         567,652
   Other                                       341,797          49,594         831,970          85,773
                                          ------------    ------------    ------------    ------------
      Total revenues                         4,462,047       1,906,906      11,382,304       4,460,423
                                          ------------    ------------    ------------    ------------

Operating expenses:
   Production costs                            968,572         994,410       3,194,195       2,056,868
   Operating and development                 3,619,343       1,285,417       8,881,134       3,062,650
   Sales and marketing                       2,982,646         907,590       7,291,721       2,206,476
   General and adminstrative                   872,250         338,089       2,172,415         990,553
   Depreciation and amortization               586,229         315,180       1,537,225         715,093
                                          ------------    ------------    ------------    ------------
      Total operating expenses               9,029,040       3,840,686      23,076,690       9,031,640
                                          ------------    ------------    ------------    ------------

      Net operating loss                    (4,566,993)     (1,933,780)    (11,694,386)     (4,571,217)
Interest and other income                      678,109          38,949       1,218,720         161,303
                                          ------------    ------------    ------------    ------------
      Net loss                            $ (3,888,884)   $ (1,894,831)   $(10,475,666)   $ (4,409,914)
                                          ============    ============    ============    ============ 

Basic and diluted net loss per share      $      (0.23)   $      (0.16)   $      (0.70)   $      (0.38)
                                          ============    ============    ============    ============ 
Shares used in the net loss per share
   calculations                             16,618,835      11,680,500      15,035,512      11,595,363
                                          ============    ============    ============    ============ 
</TABLE>


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


                                       4
<PAGE>   5
                               broadcast.com inc.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                                      1998            1997
                                                                 -------------    -------------- 
                                                                           (UNAUDITED)
<S>                                                              <C>              <C>          
Cash flows from operating activities:
   Net loss                                                       $(10,475,666)   $ (4,409,914)
   Adjustments to reconcile net loss to net cash from operating
      activities:
      Depreciation                                                   1,436,758         671,993
      Amortization                                                      65,063          41,760
      Provision for doubtful accounts                                  279,500          62,240
      Changes in operating assets and liabilities:
         Accounts receivable                                        (1,310,260)       (954,993)
         Prepaid expenses                                             (160,749)         23,961
         Other assets                                                  396,687         424,709
         Accounts payable and accrued liabilities                    2,041,171         303,815
                                                                  ------------    ------------ 
            Net cash used in operating activities                   (7,727,496)     (3,836,429)
                                                                  ------------    ------------ 

Cash flows from investing activities:
   Purchases of intangible assets                                     (415,000)             --
   Purchases of property and equipment                              (3,155,427)     (2,015,623)
   Proceeds from sale-leaseback transaction                            802,640              --
                                                                  ------------    ------------ 
            Net cash used in investing activities                   (2,767,787)     (2,015,623)

Cash flows from financing activities:
   Proceeds from Common Stock issuances                             47,199,251       3,712,972
   Proceeds from sale of warrants                                           --         120,000
   Proceeds from exercise of warrants                                  108,462              --
                                                                  ------------    ------------ 
            Net cash provided by financing activities               47,307,713       3,832,972
                                                                  ------------    ------------ 
Net increase (decrease) in cash and cash equivalents                36,812,430      (2,019,080)
Cash and cash equivalents at beginning of period                    21,337,116       4,580,286
                                                                  ------------    ------------ 
Cash and cash equivalents at end of period                        $ 58,149,546    $  2,561,206
                                                                  ============    ============
</TABLE>


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


                                       5
<PAGE>   6
                               broadcast.com inc.

                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Unless the context otherwise requires, the terms "broadcast.com" and the
"Company" refer to broadcast.com inc., a Delaware corporation.

1.        NATURE OF BUSINESS

          Cameron Audio Networks, Inc. ("Cameron") was incorporated and filed
its Articles of Incorporation (the "Articles") with the Secretary of State of
Texas on May 19, 1995. On May 15, 1996, Cameron purchased the rights to the name
AudioNet and subsequently filed a Certificate of Incorporation to form AudioNet,
Inc. ("AudioNet"), a new entity, in the State of Delaware, on September 19,
1996. On November 1, 1996, Cameron and AudioNet filed a Certificate of Merger,
effectively a stock-for-stock merger, whereby Cameron merged with and into
AudioNet, with AudioNet continuing as the surviving entity. Each share of common
stock of Cameron was converted to one share of Common Stock of AudioNet, and
Cameron ceased to exist at the date of such merger. Effective as of the merger
date, the number of shares authorized increased from 10,000,000 shares of Common
Stock, no par value, to 5,000,000 shares of Preferred Stock, $.01 par value, and
45,000,000 shares of Common Stock, $.01 par value. The financial statements have
been retroactively restated to reflect this incorporation, except for the
original issuance of founders' shares. In April 1997, the Company declared a
sixty-for-one stock split to be effected in the form of a stock dividend to
stockholders of record on April 28, 1997. Concurrent with the stock split, the
number of authorized shares of Common Stock was increased from 10,000,000 to
45,000,000. Effective May 1998, the Company changed its name to broadcast.com
inc. ("broadcast.com" or the "Company"). Additionally, in June 1998, the Company
filed a Restated Certificate of Incorporation which increased the number of
authorized shares of Common Stock to 60,000,000. The financial statements have
been adjusted retroactively for the sixty-for-one stock split and the increase
in authorized shares.

          The Company aggregates content and is a broadcaster of streaming media
programming on the World Wide Web ("Web") and has the network infrastructure and
expertise to deliver or "stream" live and on-demand audio and video programming
on the Internet, including sports, talk and music radio, television, business
events, full-length music CDs, news, commentary and full-length audio-books. The
Company broadcasts on the Internet 24 hours a day, seven days a week, and its
programming includes radio stations, television stations and cable networks and
game broadcasts and other programming for college and professional sports teams.
The Company licenses such programming from content providers, in most cases
under exclusive, multi-year agreements. The Company's Business Services Group
also provides Internet and intranet broadcasting services to businesses and
other organizations. These business services include turnkey production of press
conferences, earnings conference calls, stockholder


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<PAGE>   7

meetings, product introductions, training sessions, distance learning
telecourses and media events.

          The quarterly financial information presented herein should be read in
conjunction with the Company's annual financial statements for the year ended
December 31, 1997, which can be found in the Company's registration statement
filed on Form S-1, as amended (Reg. No. 333-52877) (the "Registration
Statement"). The unaudited interim financial statements reflect all adjustments
(all of which are of a normal recurring nature) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods. The results for the interim periods are not necessarily indicative of
the results to be expected for the year.

2.        LEGAL PROCEEDINGS

          On or about July 8, 1998, a lawsuit was filed against the Company and
one of its officers and directors in the United States District Court for the
Southern District of New York by Radio Channel Networks, Inc. In this action,
the plaintiff alleges that the Company's use of the term "radio channel"
infringes a registered trademark of the plaintiff. Plaintiff seeks to enjoin the
Company from using the words "radio channel" on the Company's Web sites and
seeks damages in an amount no less than $6,900,000 and that such damages be
trebled. Although no assurance can be given as to the outcome of this lawsuit,
the Company believes that the allegations in this action are without merit, and
the Company intends to vigorously defend against this action and seek its early
dismissal.

          On or about August 25, 1998, a lawsuit was filed against the Company
and RealNetworks, Inc. in the United States District Court for the Northern
District of Texas Dallas Division by Venson M. Shaw and Steven M. Shaw. In this
action, the plaintiffs allege that the Company, independently and together with
RealNetworks, infringes on plaintiffs' patent by using media software products
and services directed to media delivery systems for the Internet and corporate
intranets. Plaintiff is seeking to enjoin defendants from further alleged
infringement of plaintiffs patent and an amount of damages in an amount no less
than a reasonable royalty. Although no assurance can be given as to the outcome
of this lawsuit, the Company believes that the allegations in this action are
without merit, and the Company intends to vigorously defend against this action
and seek its early dismissal. In addition, the Company believes it is entitled
to be indemnified under the terms of it license agreements with its streaming
software providers for the claims raised relating to the software. No
assurances, however, can be given as to the availability of such indemnification
at this time.

          From time to time, the Company has been, and continues to be, subject
to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of third-party intellectual property
rights by the Company and/or its licensees. The Company is not aware of any
legal proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, financial condition or
results of operations.


                                       7
<PAGE>   8

3.        NET LOSS PER SHARE

          Basic net loss per share has been computed in accordance with FAS 128
using the weighted average number of common shares outstanding. The provisions
and disclosure requirements for FAS 128 were required to be adopted for interim
and annual periods ending after December 15, 1997, with restatement of EPS for
all prior periods.

          Diluted net loss per share gives effect to all dilutive potential
common shares that were outstanding during the period. The Company has a net
loss for all periods presented herein; therefore, none of the options and
warrants outstanding during each of the periods presented were included in the
computations of diluted earnings per share because they were anti-dilutive. For
the three and nine month periods ended September 30, 1998, the Company had
outstanding 2,538,662 options at exercise prices ranging from $2.69 to $51.50
and had outstanding 218,096 warrants at exercise prices ranging from $6.80 to
$9.42 per share. For the three and nine month periods ended September 30, 1997,
the Company had outstanding 1,877,207 options at exercise prices ranging from
$2.69 to $6.80 and had outstanding 234,056 warrants at exercise prices ranging
from $6.80 to $9.42 per share.

4.        RECENT ACCOUNTING PRONOUNCEMENTS

          On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1998. FAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company believes the adoption of FAS 133 will not have
a material adverse effect on its business, financial condition or results of
operations.


                                       8
<PAGE>   9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Unless the context otherwise requires, the terms "broadcast.com" and the
"Company" refer to broadcast.com inc., a Delaware corporation.

          THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE
SIGNIFIED BY WORDS SUCH AS "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS,"
"MAY," "WILL" AND OTHER SIMILAR EXPRESSIONS. HOWEVER, THESE WORDS ARE NOT THE
EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. IN ADDITION, ANY STATEMENTS THAT
REFER TO EXPECTATIONS, PROJECTIONS OR OTHER CHARACTERIZATIONS OF FUTURE EVENTS
OR CIRCUMSTANCES ARE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON
THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, AMONG OTHERS, THE COMPANY'S LIMITED
OPERATING HISTORY, AVAILABILITY OF CONTENT, ACCEPTANCE OF STREAMING MEDIA
TECHNOLOGY, CONTINUED GROWTH IN THE USE OF THE INTERNET, ACCEPTANCE OF THE
INTERNET AS AN ADVERTISING MEDIUM, LICENSE FEES PAYABLE TO CONTENT PROVIDERS,
RISKS OF SYSTEM FAILURE, DELAYS AND INADEQUACY, DEPENDENCE ON A SINGLE SITE AND
COMPETITIVE PRESSURES. IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH BELOW UNDER THE
CAPTION "RISK FACTORS" IN ADDITION TO THE OTHER INFORMATION SET FORTH HEREIN.
THE COMPANY CAUTIONS INVESTORS THAT ITS BUSINESS AND FINANCIAL PERFORMANCE ARE
SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES.

OVERVIEW

          Broadcast.com is the leading aggregator and broadcaster of streaming
media programming on the Web with the network infrastructure and expertise to
deliver or "stream" hundreds of live and on-demand audio and video programs over
the Internet to hundreds of thousands of users. The Company's Web sites offer a
large and comprehensive selection of live and on-demand audio and video
programming, including


                                       9
<PAGE>   10

sports, talk and music radio, television, business events, full-length CDs,
news, commentary and full-length audio-books. During the period from the
Company's inception on May 19, 1995 through December 31, 1995 (the "Inception
Period"), the Company had no revenues and its operating activities related
primarily to the investment in necessary network infrastructure and initial
planning and development of the Company's Web sites and operations. During 1996,
the Company generated revenues primarily from business services and Web
advertising and the Company's operating activities related to the continued
development of the network infrastructure required for large-scale streaming
media broadcasts, continued enhancement of its Web sites and opening a sales
office in New York. During 1997, the Company significantly increased revenues
from business services and Web advertising and began generating revenues from
traditional media advertising. Also during 1997, the Company continued to expand
its network infrastructure, moved to a 28,000 square foot facility, continued
the enhancement of its Web sites and added qualified sales, marketing,
operations and general and administrative personnel. Thus far in 1998, the
Company has added television advertising sales to its traditional media
advertising revenues, expanded its customer and user base, hired regional sales
managers and vice presidents, opened sales offices in Los Angeles, San
Francisco, Houston, Austin and Washington, D.C. and continued to expand its
network infrastructure. In addition, the Company has continued to expend
significant resources in the aggregation of content by obtaining Internet
broadcasting rights to audio and video programming.

          The Company derives substantially all of its revenues through the sale
of business services, Web advertising and traditional media advertising.
Business services revenues are derived from the Company's Internet and intranet
broadcasts of its customers' business, educational or other programming.
Business services revenues are recognized in the month in which the service is
provided. Web advertising revenues are derived from the sale of gateway ads with
guaranteed click-thrus, channel and event sponsorships and multimedia and
traditional banner ads. Web advertising revenues are recognized over the period
in which the advertisement is displayed on one of the Company's Web pages,
except for sponsorship sales, which are recognized ratably over the term of the
sponsorship. Traditional media advertising revenues are derived from the sale of
ad spots received from radio and television stations in exchange for the Company
broadcasting their programming over the Internet and the sale of prepaid
advertising. Traditional media advertising revenues are recognized in the month
in which the spots are sold. Other revenues consist of electronic commerce sales
as well as certain programming and promotional services performed by the Company
and are recognized in the month the product is sold or the service is provided.

          The Company has incurred significant losses since its inception and,
as of September 30, 1998, had an accumulated deficit of approximately $20.2
million. The Company believes that its success will depend largely on its
ability to extend its leadership position as a leading source for streaming
media programming and business services on the Web. Accordingly, the Company
intends to invest heavily in sales and marketing, content acquisition and
continued development of its network infrastructure.


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<PAGE>   11

The Company expects to continue to incur substantial operating losses for the
foreseeable future.

          In view of the rapidly evolving nature of the Company's business and
its limited operating history, the Company believes that period-to-period
comparisons of its revenues and operating results, including operating expenses
as a percentage of total net revenues, are not necessarily meaningful and should
not be relied upon as indications of future performance. Although the Company
has experienced sequential quarterly growth in revenues, it does not believe
that its historical growth rates are necessarily sustainable or indicative of
future growth.

THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

REVENUES

          Total revenues increased $2.6 million, or 134.0%, to $4.5 million from
$1.9 million, for the three months ended September 30, 1998 and 1997,
respectively.

          Business Services. Business services revenues increased $1.2 million,
or 143.7%, to $2.0 million from $804,000, for the three months ended September
30, 1998 and 1997, respectively. Business services revenues represented 43.9% of
total revenues for the three months ended September 30, 1998 and 42.2% of total
revenues for the three months ended September 30, 1997. The increase in business
services revenues was due primarily to the increase in the number of business
services events broadcast by the Company to 422 events in the three months ended
September 30, 1998 from 188 events in the three months ended September 30, 1997.

          Web Advertising. Web advertising revenues increased $1.0 million, or
146.3%, to $1.7 million from $693,000, for the three months ended September 30,
1998 and 1997, respectively. Web advertising revenues represented 38.2% of total
revenues for the three months ended September 30, 1998 and 36.3% of total
revenues for the three months ended September 30, 1997. Bartered Web advertising
revenues increased $94,000, or 51.0%, to $280,000 from $185,000, for the three
months ended September 30, 1998 and 1997, respectively, for such periods, but
decreased as a percentage of total revenues to 6.3% from 9.7%, respectively.
Traditionally, the Company has used bartered Web advertising to assist in
establishing its brand and to drive traffic to its Web sites. As a result of the
Company's decreased focus on the use of bartered Web advertising for these
purposes, and the Company's increased cash flows from other revenue activities,
the Company expects bartered Web advertising to comprise correspondingly smaller
percentages of its revenues in future periods. Bartered Web advertising revenues
are offset by an equal amount of bartered Web advertising expense in production
costs. The increase in Web advertising revenues was due primarily to an increase
in ads sold to existing and new advertisers on the Company's Web sites,
including increased sales of gateway ads, which sell at a higher rate than
traditional banner ads.


                                       11
<PAGE>   12

          Traditional Media Advertising. Traditional media advertising revenues
increased $93,000, or 25.9%, to $453,000 from $360,000, for the three months
ended September 30, 1998 and 1997, respectively. Traditional media advertising
revenues represented 10.2% of total revenues for the three months ended
September 30, 1998 and 18.9% of total revenues for the three months ended
September 30, 1997. The increase was due primarily to higher direct cash
payments for broadcasting radio and television station feeds and increased sales
of ad spots acquired through the licensing of additional radio and television
stations.

          Other. Other revenues increased $292,000, to $342,000 from $50,000,
for the three months ended September 30, 1998 and 1997, respectively,
representing 7.7% and 2.6% of total revenues, respectively, for such periods.
The increase was due primarily to promotional services, which did not occur in
the third quarter of 1997, and increased electronic commerce sales.

          OPERATING EXPENSES

          Production Costs. Production costs consist primarily of event
production costs, bartered Web advertising expenses, performance license fees,
direct personnel expenses associated with event production and merchandise
costs. Production costs decreased $26,000, or 2.6%, to $969,000 from $994,000,
for the three months ended September 30, 1998 and 1997, respectively. The
decrease was due primarily to a reduction of expenses related to prepaid
advertising credits, which were partially offset by increased production costs
associated with an increase in the number of business services events broadcast
by the Company. Excluding both the revenues and expenses associated with
bartered Web advertising transactions, production costs were 16.5% and 47.0% of
revenues for the three months ended September 30, 1998 and 1997, respectively.

          Operating and Development. Operating and development expenses consist
primarily of data communications expenses, personnel expenses associated with
broadcasting, content and software license fees, operating supplies and
overhead. Operating and development expenses increased $2.3 million, to $3.6
million from $1.3 million, for the three months ended September 30, 1998 and
1997, respectively. Approximately $2.1 million of the increase was due to (i)
increased expenditures for data communications as user traffic increased; (ii)
additional operations personnel to oversee the increase in broadcasts by the
Company; and (iii) increased software and content license fees as the Company's
network infrastructure expanded and the Company obtained additional Internet
broadcasting rights.

          Sales and Marketing. Sales and marketing expenses consist primarily of
personnel expenses associated with the sale of the Company's business services,
Web advertising and traditional media advertising, marketing of the Company's
Web sites and overhead. Sales and marketing expenses increased $2.1 million, to
$3.0 million from $908,000, for the three months ended September 30, 1998 and
1997, respectively. Approximately $1.8 million of the increase was due to (i)
growth in the Company's sales


                                       12
<PAGE>   13

force and marketing staff to support increased revenues; and (ii) increased
advertising and marketing expenses to promote the Company's Web sites and
increase user traffic.

          General and Administrative. General and administrative expenses
consist primarily of administrative personnel expenses, professional fees,
expenditures for applicable facilities costs and overhead. General and
administrative expenses increased $534,000, to $872,000 from $338,000, for the
three months ended September 30, 1998 and 1997, respectively. The increase was
primarily a result of increased personnel expenses and other administrative
costs necessary to support the Company's growth.

          Depreciation and Amortization. Depreciation and amortization expenses
consist of depreciation of property and equipment and amortization of intangible
assets. Depreciation and amortization expenses increased $271,000, to $586,000
from $315,000, for the three months ended September 30, 1998 and 1997,
respectively. The increase was due primarily to the addition of property and
equipment as the Company expanded its network infrastructure, incurred leasehold
improvement costs and purchased equipment necessary to support the growth in
personnel.

          INTEREST AND OTHER INCOME

          Interest and other income consist primarily of interest earnings on
the Company's cash and cash equivalents. Interest and other income increased to
$678,000 from $39,000 for the three months ended September 30, 1998 and 1997,
respectively. The increase was due primarily to interest earned from the
investment of higher cash and cash equivalent balances derived from sales of the
Company's Common Stock in December 1997 and the Company's initial public
offering in July 1998.

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

          REVENUES

          Total revenues increased $6.9 million, or 155.2%, to $11.4 million
from $4.5 million, for the nine months ended September 30, 1998 and 1997,
respectively.

          Business Services. Business services revenues increased $2.5 million,
or 123.4%, to $4.6 million from $2.0 million, for the nine months ended
September 30, 1998 and 1997, respectively. Business services revenues
represented 40.1% of total revenues for the nine months ended September 30, 1998
and 41.1% of total revenues for the nine months ended September 30, 1997. The
increase in business services revenues was due primarily to the increase in the
number of business services events broadcast by the Company to 1,166 events in
the nine months ended September 30, 1998 from 464 events in the nine months
ended September 30, 1997.

          Web Advertising. Web advertising revenues increased $2.6 million, or
149.0%, to $4.4 million from $1.8 million, for the nine months ended September
30, 1998 and 1997, respectively. Bartered Web advertising revenues increased
$68,000, or 8.8%, to $839,000 from $771,000, for the nine months ended September
30, 1998 and 1997, respectively,


                                       13
<PAGE>   14

and represented 7.4% and 17.3% of total revenues, respectively, for such
periods. The increase in Web advertising revenues was due primarily to an
increase in ads sold to existing and new advertisers on the Company's Web sites,
including gateway ads, which the Company began selling in the first nine months
of 1998.

          Traditional Media Advertising. Traditional media advertising revenues
increased $1.0 million, or 180.9%, to $1.6 million from $568,000, for the nine
months ended September 30, 1998 and 1997, respectively. Traditional media
advertising revenues represented 14.0% of total revenues for the nine months
ended September 30, 1998 and 12.7% of total revenues for the nine months ended
September 30, 1997. The increase was due primarily to increased direct cash
payments for broadcasting radio and television station feeds, increased sales of
ad spots acquired through the licensing of additional radio and television
stations and prepaid advertising sales.

          Other. Other revenues increased $746,000, to $832,000 from $86,000,
for the nine months ended September 30, 1998 and 1997, respectively,
representing 7.3% and 1.9% of total revenues, respectively, for such periods.
The increase was due primarily to promotional services, which did not occur in
the first nine months of 1997, and increased electronic commerce sales.

          OPERATING EXPENSES

          Production Costs. Production costs increased $1.1 million, or 55.3%,
to $3.2 million from $2.1 million, for the nine months ended September 30, 1998
and 1997, respectively. The increase was due primarily to (i) increased event
production costs due to the increase in the number of business services events
broadcast by the Company; and (ii) an increase in expenses from the sales of
prepaid advertising credits. Excluding both the revenues and expenses associated
with Bartered web advertising transactions, production costs were 22.3% and
34.8% of revenues for the periods presented, respectively.

          Operating and Development. Operating and development expenses
increased $5.8 million, to $8.9 million from $3.1 million, for the nine months
ended September 30, 1998 and 1997, respectively. Approximately $5.2 million of
the increase was due to (i) increased expenditures for data communications as
user traffic increased; (ii) additional operations personnel to oversee the
increase in broadcasts by the Company; and (iii) increased software and content
license fees as the Company's network infrastructure expanded and the Company
obtained additional Internet broadcasting rights.

          Sales and Marketing. Sales and marketing expenses increased $5.1
million, to $7.3 million from $2.2 million, for the nine months ended September
30, 1998 and 1997, respectively. Approximately $4.6 million of the increase was
due primarily to (i) growth in the Company's sales force and marketing staff to
support increased revenues; and (ii) increased advertising and marketing
expenses to promote the Company's Web sites and increase user traffic.


                                       14
<PAGE>   15

          General and Administrative. General and administrative expenses
increased $1.2 million, to $2.2 million from $991,000 for the nine months ended
September 30, 1998 and 1997, respectively. The increase was primarily a result
of increased personnel expenses and other administrative costs necessary to
support the Company's growth.

          Depreciation and Amortization. Depreciation and amortization expenses
increased $822,000, to $1.5 million from $715,000, for the nine months ended
September 30, 1998 and 1997, respectively. The increase was due primarily to the
addition of property and equipment as the Company expanded its network
infrastructure, incurred leasehold improvement costs and purchased equipment
necessary to support the growth in personnel.

          INTEREST AND OTHER INCOME

          Interest and other income increased $1.1 million, to $1.2 million from
$161,000, for the nine months ended September 30, 1998 and 1997, respectively.
The increase was due primarily to interest earned from the investment of higher
cash and cash equivalent balances derived from sales of the Company's Common
Stock in December 1997 and the Company's initial public offering in July 1998.

LIQUIDITY AND CAPITAL RESOURCES

          Since its inception, the Company has financed its operations through
sales of Common Stock and warrants. Net proceeds from these sales from inception
to September 30, 1998 have totaled approximately $84.0 million. At September 30,
1998, the principal source of liquidity for the Company was approximately $58.1
million of cash and cash equivalents. In April 1998, the Company entered into an
operating lease facility which provides for up to $2.5 million for equipment
leasing, of which the Company has utilized approximately $803,000 as of
September 30, 1998. In addition, in December 1997 the Company entered into a
line of credit that provides for borrowings up to $2.5 million for working
capital needs and equipment purchases. As of September 30, 1998, the Company had
not made any borrowings against this line of credit.

          Net cash used in operating activities was $7.7 million and $3.8
million for the nine months ended September 30, 1998 and 1997, respectively. Net
cash used in operating activities was primarily attributable to net losses,
offset in part by increases in accounts payable and accrued liabilities.

          Net cash used in investing activities was $2.8 million and $2.0
million for the nine months ended September 30, 1998 and 1997, respectively. Net
cash used in investing activities in all such periods was related primarily to
purchases of property and equipment.

          Net cash provided by financing activities was $47.3 million and $3.8
million for the nine months ended September 30, 1998 and 1997, respectively. Net
cash provided by financing activities resulted primarily from sales of the
Company's Common Stock.


                                       15
<PAGE>   16

          In July 1998, the Company completed a public offering of 2,687,500
shares of Common Stock for net proceeds of approximately $43.4 million. The
Company believes that the net proceeds from such offering, together with its
current cash and cash equivalents, will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for the next 12 months.
The Company may need to raise additional funds through public or private
financings, or other arrangements. There can be no assurance that such
additional financings, if needed, will be available on terms attractive to the
Company, if at all. Failure of the Company to raise capital when needed could
have a material adverse effect on the Company's business, results of operations
and financial condition. If additional funds are raised through the issuance of
equity securities, the percentage ownership of the Company's then-current
stockholders would be reduced. Furthermore, such equity securities might have
rights, preferences or privileges senior to those of the Company's Common Stock.

YEAR 2000 COMPLIANCE

          There are issues associated with the programming code in existing
computer systems as the year 2000 approaches. The "year 2000 problem" is
pervasive and complex, as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to 00. The issue is whether
computer systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Company is in the
process of working with its software vendors to assure that the Company is
prepared for the year 2000. The Company has not verified that companies doing
business with it are year 2000 ready. The Company does not anticipate that it
will incur significant operating expenses or be required to invest heavily in
computer systems improvements to be year 2000 ready. However, significant
uncertainty exists concerning the potential costs and effects associated with
year 2000 readiness. Any year 2000 readiness problem of either the Company or
its users, customers or advertisers could have a material adverse effect on the
Company's business, results of operations and financial condition.

NET OPERATING LOSS CARRYFORWARDS

          As of December 31, 1997, the Company had available net operating loss
carryforwards totaling $10.3 million, which expire beginning in 2011. The Tax
Reform Act of 1986 imposes limitations on the use of net operating loss
carryforwards if certain stock ownership changes have occurred or could occur in
the future.

RISK FACTORS

          Limited Operating History; History of Losses and Anticipation of
Future Losses. The Company commenced broadcasting live audio programming on the
Web in September 1995 and live video programming in March 1997. The Company
first recognized business services revenues and Web advertising revenues in
January 1996 and traditional media advertising revenues in January 1997 and has
recorded a net loss for


                                       16
<PAGE>   17

each year since its inception. As of September 30, 1998, the Company had an
accumulated deficit of $20.2 million. Accordingly, the Company has a limited
operating history on which to base an evaluation of its business and prospects.
The Company and its prospects must be considered in light of the risks,
difficulties and uncertainties frequently encountered by companies in an early
stage of development, particularly companies in new and rapidly evolving markets
such as the market for Internet content, business services and advertising. To
achieve and sustain profitability, the Company believes it must, among other
things, (i) provide compelling and unique content to Internet users, (ii)
successfully market and sell its business services, (iii) effectively develop
new and maintain existing relationships with advertisers, content providers,
business customers and advertising agencies, (iv) continue to develop and
upgrade its technology and network infrastructure, (v) respond to competitive
developments, (vi) successfully introduce enhancements to its existing products
and services to address new technologies and standards, (vii) effectively sell
its inventory of radio and television ad spots and (viii) attract, retain and
motivate qualified personnel. The Company's operating results are also dependent
on factors outside the control of the Company, such as the availability of
compelling content and the development of broadband networks that support
multimedia streaming. There can be no assurance that the Company will be
successful in addressing these risks, and failure to do so could have a material
adverse effect on the Company's business, results of operations and financial
condition. Additionally, the limited operating history of the Company makes the
prediction of future operating results difficult or impossible, and there can be
no assurance that the Company's revenues will increase or even continue at their
current level, or that the Company will achieve or maintain profitability or
generate sufficient cash from operations in future periods. The Company expects
to continue to incur significant losses on a quarterly and annual basis for the
foreseeable future. For these and other reasons, there can be no assurance that
the Company will ever achieve profitability or, if profitability is achieved,
that it can be sustained.

          Unpredictability of Future Revenues; Potential Fluctuations in
Quarterly Operating Results. Because of the Company's limited operating history
and the emerging nature of the markets in which it competes, the Company is
unable to forecast accurately its revenues. The market for the Company's
business services and the long-term acceptance of Web-based advertising are
uncertain. The Company currently intends to increase substantially its operating
expenses in order to, among other things, (i) expand its distribution network
capacity, (ii) fund increased sales and marketing activities, (iii) acquire
additional content, (iv) develop and upgrade technology and (v) purchase
equipment for its operations. The Company's expense levels are based, in part,
on its expectations with regard to future revenues, and to a large extent such
expenses are fixed, particularly in the short term. To the extent the Company is
unsuccessful in increasing its revenues, the Company may be unable to
appropriately adjust spending in a timely manner to compensate for any
unexpected revenue shortfall or will have to reduce its operating expenses,
causing it to forego potential revenue generating activities, either of which
could cause a material adverse effect in the Company's business, results of
operations and financial condition.


                                       17
<PAGE>   18

          The Company's quarterly operating results may fluctuate significantly
in the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results include (i) the cost of acquiring and the availability of content, (ii)
the demand for the Company's business services, (iii) demand for Internet
advertising, (iv) seasonal trends in Internet and advertising placements, (v)
the advertising cycles for, or the addition or loss of, individual advertisers,
(vi) the level of traffic on the Company's Web sites, (vii) the amount and
timing of capital expenditures and other costs relating to the expansion of the
Company's operations, (viii) price competition or pricing changes in Internet
broadcasting services, such as the Company's business services, and in Internet
advertising, (ix) the seasonality of the content of the Company's broadcasts,
such as sporting and other events, (x) the level of and seasonal trends in the
use of the Internet, (xi) technical difficulties or system downtime, (xii) the
cost to acquire sufficient bandwidth or to integrate efficient broadcast
technologies, such as multicasting, to meet the Company's needs, (xiii) the mix
of unicasting and multicasting from the Company's Web sites, (xiv) the
introduction of new products or services by the Company or its competitors and
(xv) general economic conditions and economic conditions specific to the
Internet, such as electronic commerce and online media. Any one of these factors
could cause the Company's revenues and operating results to vary significantly
in the future. In addition, as a strategic response to changes in the
competitive environment, the Company may from time to time make certain pricing,
service or marketing decisions or acquisitions that could cause significant
declines in the Company's quarterly operating results.

          The Company expects that its revenues will be higher leading up to and
during major United States sport seasons for sports that the Company broadcasts,
such as the NHL and college football, and lower at other times of the year. The
Company believes that advertising sales in traditional media, such as
television, generally are lower in the first and third calendar quarters of each
year, and that advertising expenditures fluctuate significantly with economic
cycles. Depending on the extent to which the Internet is accepted as an
advertising medium, seasonality and cyclicality in the level of Internet
advertising expenditures could become more pronounced than it is currently. As a
result, the Company believes that its revenues from Web and traditional media
advertising sales have been affected by these cyclical factors and the Company
expects its Web and traditional media advertising sales generally to follow the
quarterly trends of traditional media advertising. The foregoing factors could
have a material adverse effect on the Company's business, results of operations
and financial condition.

          Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore, it is possible that the Company's operating results in one or more
quarters will fail to meet the expectations of securities analysts or investors.
In such event, the price of the Common Stock could be materially adversely
affected.

          Dependence on Content Providers; License Fees Payable to Content
Providers. The Company's future success depends in large part upon its ability
to aggregate and


                                       18
<PAGE>   19

deliver compelling content over the Internet. The Company typically does not
create its own content. Rather, the Company relies on third party content
providers, such as radio and television stations and cable networks, businesses
and other organizations, universities and record labels for compelling and
entertaining content. The Company's ability to maintain its existing
relationships with such content providers and to build new relationships with
additional content providers is critical to the success of its business.
Although many of the Company's agreements with third party content providers are
for initial terms of more than two years, the content providers may choose not
to renew such agreements or may terminate such agreements prior to the
expiration of their terms if the Company fails to fulfill its contractual
obligations. The Company's inability to secure licenses from content providers
or performance rights societies or the termination of a significant number of
content provider agreements would decrease the availability of content that the
Company can offer users. This may result in decreased traffic on the Company's
Web sites and, as a result, decreased advertising revenue, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.

          The Company's agreements with certain of its content providers are
nonexclusive, and many of the Company's competitors offer, or could offer,
content that is similar to or the same as that obtained by the Company from such
nonexclusive content providers. Such direct competition could have a material
adverse effect on the Company's business, results of operations and financial
condition.

          License fees payable to content providers and performance rights
societies and other licensing agencies may increase as the Company continues to
aggregate content and as competition for such content increases. There can be no
assurance that the Company's content providers, performance rights societies and
other licensing agencies will enter into prospective agreements with the Company
on the same or similar terms as those currently in effect or on terms acceptable
to the Company if no agreement is in effect. If the Company is required to pay
increased licensing fees, such increased payments could have a material adverse
effect on the Company's business, results of operations and financial condition.

          Uncertain Acceptance of the Company's Business Services. The Company's
ability to establish and maintain a leadership position in Internet and intranet
broadcasting for businesses and in the distribution of other live and on-demand
events will depend on, among other things, (i) the Company's success in
providing quality programming at low and high bit rates over the Internet, (ii)
the Company's marketing and sales efforts, (iii) market acceptance of the
Company's current and future service offerings, (iv) the reliability of the
Company's networks and services and (v) the extent to which end users are able
to receive the Company's broadcasts at adequate bit rates to provide for high
quality services, none of which can be assured. The Company operates in a market
that is at a very early stage of development, is rapidly evolving and is
characterized by an increasing number of market entrants who have introduced or
developed competing broadcasting and distribution services. As is typical in the
case of a new and rapidly evolving industry, demand and market acceptance for
recently


                                       19
<PAGE>   20

introduced services are subject to a high level of uncertainty and risk. Sales
of the Company's business services may require an extended sales effort in
certain cases. In addition, potential customers must accept the Company's audio
and video broadcast services as a viable alternative to face-to-face meetings,
traditional media, traditional business communications tools, such as audio
teleconferences and video conferencing, and conventional classroom-based
learning. Because the market for the Company's business services is new and
evolving, it is difficult to predict the size of this market and its growth
rate, if any. In addition, it is not known whether businesses and other
organizations will utilize the Internet to any significant degree as a means of
broadcasting business and other events. There can be no assurance that the
market for the Company's business services will continue to develop or be
sustainable. If the market fails to develop, develops more slowly than expected
or becomes saturated with competitors, or if the Company's Web sites do not
achieve or sustain market acceptance, the Company's business, results of
operations and financial condition could be materially adversely affected.

          Uncertain Acceptance of Streaming Media Technology. The Company's
success depends on the market acceptance of streaming media technology provided
by companies such as RealNetworks, Inc. ("RealNetworks") and Microsoft
Corporation ("Microsoft"). Prior to the advent of streaming technology, Internet
users could not initiate the playback of audio or video clips until such content
was downloaded in its entirety, resulting in significant waiting times. As a
result, live broadcasts of audio and video content over the Internet or
intranets were not possible. Early streaming media technology suffered from poor
audio quality, and video streaming at 28.8 kbps (thousands of bits per second)
currently is of lower quality than traditional media broadcasts. In addition,
congestion over the Internet and packet loss may interrupt audio and video
streams, resulting in unsatisfying user experiences. In order to receive
streamed media adequately, users generally must have multimedia PCs with certain
microprocessor requirements and at least 28.8 kbps Internet access and streaming
media software. Users typically electronically download such software and
install it on their PCs. Such installation may require technical expertise that
some users do not possess. In addition, older versions of certain Web browsers
may need to be reconfigured in order to receive streaming media from the
Company's Web sites. Furthermore, in order for users to receive streaming media
over corporate intranets, information systems managers may need to reconfigure
such intranets. Because of bandwidth constraints on corporate intranets, some
information systems managers may block reception of streamed media. Widespread
adoption of streaming media technology depends on overcoming these obstacles,
improving audio and video quality and educating customers and users in the use
of streaming media technology. If streaming media technology fails to achieve
broad commercial acceptance or such acceptance is delayed, the Company's
business, results of operations and financial condition could be materially
adversely affected.

          Uncertain Acceptance of the Internet as an Advertising Medium. The
market for Internet advertising has only recently begun to develop, is rapidly
evolving and is characterized by an increasing number of market entrants. As is
typical in the case of a


                                       20
<PAGE>   21

new and rapidly evolving industry, demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty. The
Company's ability to generate advertising revenue will depend on, among other
factors, (i) the development of the Internet as an advertising medium, (ii)
pricing of advertising on other Web sites, (iii) the amount of traffic on the
Company's Web sites, (iv) the Company's ability to achieve and demonstrate user
and member demographic characteristics that are attractive to advertisers, (v)
the development and expansion of the Company's advertising sales force and (vi)
the establishment and maintenance of desirable advertising sales agency
relationships. Most potential advertisers and their advertising agencies have
only limited experience with the Internet as an advertising medium and have not
devoted a significant portion of their advertising expenditures to Web-based
advertising. There can be no assurance that advertisers or advertising agencies
will be persuaded to allocate or continue to allocate portions of their budgets
to Web-based advertising or, if so persuaded, that they will find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. No standards have yet been widely
accepted for the measurement of the effectiveness of Web-based advertising, and
there can be no assurance that such standards will develop sufficiently to
enable Web-based advertising to become a significant advertising medium.
Acceptance of the Internet among advertisers and advertising agencies will also
depend, to a large extent, on the level of use of the Internet by consumers and
upon growth in the commercial use of the Internet. If widespread commercial use
of the Internet does not develop, or if the Internet does not develop as an
effective and measurable medium for advertising, the Company's business, results
of operations and financial condition could be materially adversely affected.

          Management of Growth. The Company has rapidly and significantly
expanded its operations and anticipates that significant expansion of its
operations will continue to be required in order to address potential market
opportunities. The Company expanded from fewer than 10 employees on September
30, 1995, to 225 employees on October 31, 1998, and the Company expects to
increase its personnel significantly in the near future. The Company's recent
growth has placed, and is expected to continue to place, a significant strain on
its managerial, operational and financial resources and systems. To manage its
growth, the Company must implement, improve and effectively utilize its
operational, management, marketing and financial systems and train and manage
its employees. Many of the Company's senior management have only recently joined
the Company. These individuals have not previously worked together and are in
the process of integrating as a management team. There can be no assurance that
the Company will be able to manage effectively the expansion of its operations
or that the Company's current personnel, systems, procedures and controls will
be adequate to support the Company's operations. Any failure of management to
manage effectively the Company's growth could have a material adverse effect on
the Company's business, results of operations and financial condition.

          Risk of System Failure, Delays and Inadequacy; Single Site. The
performance, reliability and availability of the Company's Web sites and network
infrastructure are


                                       21
<PAGE>   22

critical to its reputation and ability to attract and retain users, advertisers
and content providers. A large portion of the Company's network infrastructure
is located at a single, leased facility in Dallas, Texas. The Company's systems
and operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, Internet breakdowns, break-ins, tornadoes and
similar events. The Company does not presently have redundant facilities or
systems or a formal disaster recovery plan and does not carry sufficient
business interruption insurance to compensate it for losses that may occur.
Services based on sophisticated software and computer systems often encounter
development delays and the underlying software may contain undetected errors
that could cause system failures when introduced. Any system error or failure
that causes interruption in availability of content or an increase in response
time could result in a loss of potential or existing business services
customers, users, advertisers or content providers and, if sustained or
repeated, could reduce the attractiveness of the Company's Web sites to such
entities or individuals. In addition, because the Company's Web advertising
revenues are directly related to the number of advertisements delivered by the
Company to users, system interruptions that result in the unavailability of the
Company's Web sites or slower response times for users would reduce the number
of advertisements delivered and reduce revenues.

          A sudden and significant increase in traffic on the Company's Web
sites could strain the capacity of the software, hardware and telecommunications
systems deployed or utilized by the Company, which could lead to slower response
times or system failures. The Company's operations also are dependent upon
receipt of timely feeds from its content providers, and any failure or delay in
the transmission or receipt of such feeds, whether due to system failure of the
Company, its content providers, satellites or otherwise, could disrupt the
Company's operations. The Company is also dependent upon Web browsers, Internet
Service Providers ("ISPs") and online service providers ("OSPs") to provide
Internet users access to the Company's Web sites. Users may experience
difficulties accessing or using the Company's Web sites due to system failures
or delays unrelated to the Company's systems. These difficulties may negatively
affect audio and video quality or result in intermittent interruption in
programming. In addition, the Company relies on third party ISPs to provide
hosting services with respect to some of the Company's content providers. Any
sustained failure or delay could reduce the attractiveness of the Company's Web
sites to business services customers, users, advertisers and content providers.
The occurrence of any of the foregoing events could have a material adverse
effect on the Company's business, results of operations and financial condition.

          Security Risks. Despite the implementation of security measures, the
Company's networks may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. A party who is able to circumvent security
measures could misappropriate proprietary information or cause interruptions in
the Company's Internet operations. ISPs and OSPs have in the past experienced,
and may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. The Company may be required to


                                       22
<PAGE>   23

expend significant capital or other resources to protect against the threat of
security breaches or to alleviate problems caused by such breaches. Although the
Company intends to continue to implement industry-standard security measures,
there can be no assurance that measures implemented by the Company will not be
circumvented in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
users accessing the Company's Web sites, which could have a material adverse
effect on the Company's business, results of operations and financial condition.

          Dependence on Short-Term Advertising Contracts. A substantial portion
of the Company's Web advertising revenues are derived from short-term contracts.
Consequently, many of the Company's advertising customers can cease advertising
on the Company's Web sites quickly and without penalty, thereby increasing the
Company's exposure to competitive pressures. There can be no assurance that the
Company's current advertisers will continue to purchase advertisements or that
the Company will be able to secure new advertising contracts from existing or
future customers at attractive rates or at all. Any failure of the Company to
achieve sufficient advertising revenue could have a material adverse effect on
the Company's business, results of operations and financial condition.

          Competition. The market for Internet broadcasting and services is
highly competitive and the Company expects that competition will continue to
intensify. The Company competes with (i) other Web sites, Internet portals and
Internet broadcasters to acquire and provide content to attract users, (ii)
videoconferencing companies, audio conferencing companies and Internet business
services broadcasters, (iii) online services, other Web site operators and
advertising networks, as well as traditional media such as television, radio and
print, for a share of advertisers' total advertising budgets and (iv) local
radio and television stations and national radio and television networks for
sales of advertising spots. There can be no assurance that the Company will be
able to compete successfully or that the competitive pressures faced by the
Company, including those described below, will not have a material adverse
effect on the Company's business, results of operations and financial condition.

          Competition among Web sites that provide compelling content, including
streaming media content, is intense and is expected to increase significantly in
the future. The Company competes against a variety of businesses that provide
content through one or more mediums, such as print, radio, television, cable
television and the Internet. Traditional media companies have not established a
significant streaming media presence on the Internet and may expend resources to
establish a more significant presence in the future. These companies have
significantly greater brand recognition and financial, technical, marketing and
other resources than the Company. The Company competes generally with other
content providers for the time and attention of users and for advertising
revenues. To compete successfully, the Company must license and then provide
sufficiently compelling and popular content to generate users, support
advertising intended to reach such users and attract business and other
organizations seeking Internet broadcasting and distribution services. The
Company competes with other Internet


                                       23
<PAGE>   24

broadcasters and Web sites to acquire Internet broadcasting rights to compelling
content. The Company believes that the principal competitive factors in
attracting Internet users include the quality of service and the relevance,
timeliness, depth and breadth of content and services offered. In the market for
Internet distribution of radio and television broadcasts, the Company competes
with ISPs, radio and television stations and networks that originate their own
Internet broadcasts. RealNetworks and MCI Communications Corporation ("MCI")
announced a strategic alliance in August 1997 involving the introduction of a
service currently called Real Broadcast Network that delivers audio and video
broadcasts over the Internet. In the area of sports content, the Company
competes with CBS SportsLine and ESPNET SportsZone. The Company also competes
for the time and attention of Internet users with thousands of Web sites
operated by businesses and other organizations, individuals, governmental
agencies and educational institutions. For example, certain Web sites provide a
collection of links to other Web sites with streaming media content. The Company
expects competition to intensify and the number of competitors to increase
significantly in the future. In addition, as the Company expands the scope of
its content and services, it will compete directly with a greater number of Web
sites and other media companies. Because the operations and strategic plans of
existing and future competitors are undergoing rapid change, it is extremely
difficult for the Company to anticipate which companies are likely to offer
competitive services in the future.

          The Company competes with videoconferencing and teleconferencing
companies, along with companies that provide Internet broadcasting services to
businesses and other organizations. Principal competitive factors include price,
transmission quality, transmission speed, reliability of service, ease of
access, ease of use, customer support, brand recognition and operating
experience. The Company's current and potential competitors may have
significantly greater financial, technical and marketing resources, longer
operating histories and greater brand recognition. Traditional videoconferencing
and teleconferencing may allow for a more interactive user experience. As prices
for videoconferencing systems decrease and transmission quality increases, the
installed base of videoconferencing systems may increase. Companies that provide
media streaming software may also enter the market for Internet broadcast
services. If media streaming technology and backbone bandwidth becomes more
readily available to companies at low prices, the Company's customers may decide
to broadcast their own programming. In particular, local exchange carriers, ISPs
and other data communication service providers may compete in the future with a
portion of or all of the Company's business services as technological
advancements facilitate the ability of these providers to offer effectively
these services. There can be no assurance that the Company will be able to
compete successfully against current or future competitors for Internet
broadcast services.

          The Company also competes with online services, other Web site
operators and advertising networks, as well as traditional media such as
television, radio and print for a share of advertisers' total advertising
budgets. The Company believes that the principal competitive factors for
attracting advertisers include the number of users accessing the Company's Web
sites, the demographics of the Company's users, the Company's ability to


                                       24
<PAGE>   25

deliver focused advertising and interactivity through its Web sites and the
overall cost-effectiveness and value of advertising offered by the Company.
There is intense competition for the sale of advertising on high-traffic Web
sites, which has resulted in a wide range of rates quoted by different vendors
for a variety of advertising services, making it difficult to project levels of
Internet advertising that will be realized generally or by any specific company.
Any competition for advertisers among present and future Web sites, as well as
competition with other traditional media for advertising placements, could
result in significant price competition. The Company believes that the number of
companies selling Web-based advertising and the available inventory of
advertising space have recently increased substantially. Accordingly, the
Company may face increased pricing pressure for the sale of advertisements.
Reduction in the Company's Web advertising revenues would have a material
adverse effect on the Company's business, results of operations and financial
condition.

          The Company competes for traditional media advertising sales with
national radio and television networks, as well as local radio and television
stations. Local radio and television content providers and national radio and
television networks may have larger and more established sales organizations
than the Company. These companies may have greater name recognition and more
established relationships with advertisers and advertising agencies than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, obtain a more attractive inventory of ad spots, adopt more aggressive
pricing policies and devote substantially more resources to selling advertising
inventory. The Company's traditional media advertising sales efforts depend on
the Company's ability to obtain an inventory of ad spots across the top radio
and television markets. If the Company is unable to obtain such inventory, it
could have a material adverse effect on the Company's business, results of
operations and financial condition.

          Risks Associated with Traditional Media Advertising Sales. The Company
is dependent, in part, on its ability to sell its inventory of radio and
television ad spots obtained from stations in exchange for the Company's
Internet broadcast of their programming. Selling radio and television
advertising is highly competitive. The Company depends on Premiere Radio
Networks, Inc. ("Premiere Radio Networks") to sell a majority of its radio ad
spots. The Company's traditional media advertising sales efforts are focused on
selling ads to traditional national advertisers in order to avoid competing with
advertising sales efforts of its local radio and television station content
providers. Sales of ad spots to national advertisers are typically sold at a
lower cost per thousand ("CPM") than local advertising. The Company competes for
traditional media advertising sales with national radio and television networks.
National radio and television networks typically have larger and more
established sales organizations as compared to those of the Company. There can
be no assurance that Premiere Radio Networks will continue to sell effectively
the Company's inventory of ad spots or that competitive pressures with respect
to traditional media advertising sales will not have a material adverse effect
on the Company's business, results of operations and financial condition.


                                       25
<PAGE>   26

          Scalability of Number of Users. The Company's success depends on its
ability to broadcast audio and video programming to a large number of
simultaneous users. Until recently, the Company only deployed unicasting (one
user per Company originated stream) technology to broadcast audio and video
programming to users over the Internet. The Company has deployed another
broadcast technology, multicasting (multiple users per Company originated
stream), on a trial basis since September 1997 and has begun to deploy this
technology on a broader commercial basis only recently. The Company anticipates
that unicasting will continue to be used to distribute its archived and
on-demand programming and that multicasting or a similar broadcasting technology
will be used for live and other events where a large audience for the content is
expected. To increase the Company's unicast capacity, the Company will be
required to successfully expand its network infrastructure through the
acquisition and deployment of additional network equipment and bandwidth. There
can be no assurance that the Company will be successful in such expansion. The
Company believes that to be a successful Internet broadcaster it also must
successfully deploy multicasting or a similar broadcasting technology that can
deliver streaming media content to many users simultaneously through one-to-many
Internet connections. The Company will be required to test, deploy and
successfully scale its multicast network infrastructure to serve mass audiences.
There can be no assurance that the Company will be successful in doing so, that
multicasting will be able to support a substantial audience or that an
alternative technology will not emerge that offers superior broadcasting
technology as compared to multicasting. In the event that multicasting
technology is not successfully deployed in a timely manner or such an
alternative technology emerges, the Company would likely be required to expend
significant resources to deploy a technology other than multicasting, which
could have a material adverse effect on the Company's results of operations
during the period in which the Company attempts such deployment. If the Company
fails to scale its broadcasts to large audiences of simultaneous users, such
failure could have a material adverse effect on the Company's business, results
of operations and financial condition.

          Dependence on Providers of Streaming Media Products. The Company
relies on providers of streaming media products, such as RealNetworks and
Microsoft, to provide a broad base of users with streaming media software. The
Company currently licenses software products that enable the broadcast of
streaming media from such companies and others. The Company may need to acquire
additional licenses from such streaming media companies to meet its future
needs. Users are currently able to download electronically copies of the
RealNetwork's RealPlayer and Microsoft's Windows Media Player software free of
charge. If providers of streaming media products substantially increase license
fees charged to the Company for the use of their products, refuse to license
such products to the Company or begin charging users for copies of their player
software, such actions could have a material adverse effect on the Company's
business, results of operations and financial condition.

          Dependence on Continued Growth in Use of the Internet and Streaming
Media Content on the Internet. Rapid growth in use of and interest in the
Internet is a recent phenomenon and there can be no assurance that acceptance
and use of the Internet will


                                       26
<PAGE>   27

continue to develop or that a sufficient base of users will emerge to support
the Company's business. Future revenues of the Company will depend largely on
the widespread acceptance and use of the Internet as a source of multimedia
information and entertainment and as a vehicle for commerce in goods and
services. The Internet may not be accepted as a viable commercial medium for
broadcasting multimedia content, if at all, for a number of reasons, including
(i) potentially inadequate development of the necessary infrastructure, (ii)
inadequate development of enabling technologies, (iii) lack of acceptance of the
Internet as a medium for distributing streaming media content and (iv)
inadequate commercial support for Web-based advertising. To the extent that the
Internet continues to experience an increase in users, an increase in frequency
of use or an increase in the bandwidth requirements of users, there can be no
assurance that the Internet infrastructure will be able to support the demands
placed upon it, specifically the demands of delivering high-quality video
content. Furthermore, user experiences on the Internet are affected by access
speed. There is no assurance that broadband access technologies, such as xDSL
and cable modems, will become widely adopted. In addition, the Internet could
lose its viability as a commercial medium due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, or due to increased government regulation. Changes in or
insufficient availability of telecommunications services to support the Internet
also could result in unacceptable response times and could adversely affect use
of the Internet generally and of the Company's Web sites in particular. If use
of the Internet does not continue to grow or grows more slowly than expected, or
if the Internet infrastructure does not effectively support the growth that may
occur, the Company's business, results of operations and financial condition
could be materially adversely affected.

          Risk of Technological Change. The market for Internet broadcast
services is characterized by rapid technological developments, frequent new
product introductions and evolving industry standards. The emerging character of
these products and services and their rapid evolution will require the Company
to effectively use leading technologies, continue to develop its technological
expertise, enhance its current services and continue to improve the performance,
features and reliability of its network infrastructure. Changes in network
infrastructure, transmission and content delivery methods and underlying
software platforms and the emergence of new broadband technologies, such as xDSL
and cable modems, could dramatically change the structure and competitive
dynamic of the market for streaming media solutions. In particular,
technological developments or strategic partnerships that accelerate the
adoption of broadband access technologies or advancements in streaming and
compression technologies may require the Company to expend resources to address
these developments. There can be no assurance that the Company will be
successful in responding quickly, cost effectively and sufficiently to these or
other such developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by the Company
to modify or adapt its Web sites and services. A failure by the Company to
rapidly respond to technological developments could have a material adverse
effect on the Company's business, results of operations and financial condition.


                                       27
<PAGE>   28

          Dependence on Key Personnel; Need for Additional Personnel. The
Company's performance and development is substantially dependent on the
continued services of certain members of senior management, including Todd R.
Wagner, Chief Executive Officer, and Mark Cuban, President, as well as on the
Company's ability to retain and motivate its other officers and key employees.
The Company does not have "key person" life insurance policies on any of its
officers or other employees. The Company's future success also depends on its
continuing ability to attract and retain highly qualified technical personnel
and management. Competition for such personnel is intense and there can be no
assurance that the Company will be able to retain its key management and
technical employees or that it will be able to attract or retain additional
qualified technical personnel and management in the future. The inability to
attract and retain the necessary technical personnel and management could have a
material adverse effect upon the Company's business, result of operations and
financial condition.

          Government Regulation and Legal Uncertainty. Although there are
currently few laws and regulations directly applicable to the Internet, it is
likely that existing laws may be adapted, and that new laws and regulations will
be adopted in the United States and elsewhere covering issues such as music
licensing, broadcast license fees, copyrights, privacy, pricing, sales taxes and
characteristics and quality of Internet services. The adoption of restrictive
laws or regulations could slow Internet growth or expose the Company to
significant liabilities associated with content available on its Web sites. The
application of existing laws and regulations governing Internet issues such as
property ownership, libel and personal privacy is also subject to substantial
uncertainty. There can be no assurance that current or new government laws and
regulations, or the application of existing laws and regulations (including laws
and regulations governing issues such as property ownership, content, taxation,
defamation and personal injury), will not expose the Company to significant
liabilities, significantly slow Internet growth or otherwise cause a material
adverse effect on the Company's business, results of operations or financial
condition.

          On October 28, 1998, the "Digital Millennium Copyright Act" ("DMCA")
affecting the performance of sound recordings by certain subscription and
nonsubscription transmission services was enacted. The DMCA includes statutory
licenses for the performance of sound recordings and for the making of ephemeral
recordings to facilitate transmissions. Under these statutory licenses, the
Company will be required to pay licensing fees for the performance of sound
recordings by the Company in original and archived programming and through
retransmissions of radio broadcasts. The DMCA does not specify the rate and
terms of the statutory licenses, which will be determined either through
voluntary inter-industry negotiations or arbitration. Depending upon the rates
and terms adopted for the statutory licenses, the DMCA could have a material
adverse effect on the Company's business, results of operations and financial
condition.

          The Company currently does not collect sales or other taxes with
respect to the sale of services or products in states and countries where the
Company believes it is not required to do so. The Company does collect sales and
other taxes in the states it has


                                       28
<PAGE>   29

offices and believes it is required by law to do so. One or more states or
countries have sought to impose sales or other tax obligations on companies that
engage in online commerce within their jurisdictions. A successful assertion by
one or more states or countries that the Company should collect sales or other
taxes on products and services, or remit payment of sales or other taxes for
prior periods, could have a material adverse effect on the Company's business,
results of operations and financial condition.

          The Child Online Protection Act and Child Online Privacy Protection
Act (the "COPA") were enacted in October 1998. Sections of COPA, among other
things, imposes civil and criminal penalties on persons distributing over the
Internet to persons under the age of 17 material harmful to minors (e.g.,
obscene material), or collecting personal information from children under the
age of 13. The Company does not currently distribute the types of materials that
the COPA may have deemed illegal, and does not knowingly collect and disclose
personal information from such minors. Notwithstanding, the manner in which the
COPA may be interpreted and enforced cannot be fully determined, and future
legislation similar to the COPA could subject the Company to potential
liability, which in turn could have an adverse effect on the Company's business,
financial condition and results of operations. Such laws could also damage the
growth of the Internet generally and decrease the demand for the Company's
products and services, which could adversely affect the Company's business,
results of operations and financial condition.

          Liability for Internet Content. As a distributor of Internet content,
the Company faces potential liability for negligence, copyright, patent,
trademark, defamation, indecency and other claims based on the nature and
content of the materials that it broadcasts. Such claims have been brought, and
sometimes successfully pressed, against Internet content distributors. In
addition, the Company could be exposed to liability with respect to the content
or unauthorized duplication or broadcast of content. Although the Company
maintains general liability insurance, the Company's insurance may not cover
potential claims of this type or may not be adequate to indemnify the Company
for all liability that may be imposed. In addition, although the Company
generally requires its content providers to indemnify the Company for such
liability, such indemnification may be inadequate. Any imposition of liability
that is not covered by insurance, is in excess of insurance coverage or is not
covered by an indemnification by a content provider could have a material
adverse effect on the Company's business, results of operations and financial
condition.

          Intellectual Property. The Company regards its copyrights, trademarks,
trade secrets and similar intellectual property as critical to its success, and
the Company relies on a combination of copyright and trademark laws, trade
secret protection, confidentiality and non-disclosure agreements and contractual
provisions with its employees and with third parties to establish and protect
its proprietary rights. There can be no assurance that these steps will be
adequate, that the Company will be able to secure trademark registrations for
all of its marks in the United States or other countries or that third parties
will not infringe upon or misappropriate the Company's copyrights, trademarks,
service marks and similar proprietary rights. In addition, effective copyright
and trademark


                                       29
<PAGE>   30

protection may be unenforceable or limited in certain countries, and the global
nature of the Internet makes it impossible to control the ultimate destination
of the Company's broadcasts. In the future, litigation may be necessary to
enforce and protect the Company's trade secrets, copyrights and other
intellectual property rights.

          The Company may also be subject to litigation to defend against claims
of infringement of the rights of others or to determine the scope and validity
of the intellectual property rights of others. If third parties hold trademark,
copyright or patent rights that conflict with the business of the Company, then
the Company may be forced to litigate infringement claims that could result in
substantial costs to the Company. In addition, if the Company was unsuccessful
in defending such a claim, it could have a material adverse effect on the
Company's business, results of operations and financial condition. On or about
July 8, 1998, a lawsuit was filed against the Company and one of its officers
and directors relating to trademark infringement. In addition, on or about
August 25, 1998, a lawsuit was filed against the Company and RealNetworks, Inc.
alleging patent infringement. Although no assurance can be given as to the
outcome of these lawsuits, the Company believes that the allegations in these
actions are without merit. The Company intends to vigorously defend against
these actions and seek its early dismissal. If third parties prepare and file
applications in the United States that claim trademarks used or registered by
the Company, the Company may oppose those applications and be required to
participate in proceedings before the United States Patent and Trademark Office
to determine priority of rights to the trademark, which could result in
substantial costs to the Company. An adverse outcome in litigation or privity
proceedings could require the Company to license disputed rights from third
parties or to cease using such rights. Any litigation regarding the Company's
proprietary rights could be costly and divert management's attention, result in
the loss of certain of the Company's proprietary rights, require the Company to
seek licenses from third parties and prevent the Company from selling its
services, any one of which could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, inasmuch
as the Company licenses a substantial portion of its content from third parties,
its exposure to copyright infringement actions may increase because the Company
must rely upon such third parties for information as to the origin and ownership
of such licensed content. The Company generally obtains representations as to
the origins and ownership of such licensed content and generally obtains
indemnification to cover any breach of any such representations; however, there
can be no assurance that such representations will be accurate or given, or that
such indemnification will adequately protect the Company.

          In December 1997, in anticipation of the change in the Company's name
from AudioNet, Inc. to broadcast.com, the Company filed an application for a
United States trademark registration for "broadcast.com." There can be no
assurance that the Company will be able to secure such a registered trademark.
In October 1996, the Company was issued a United States trademark for
"AudioNet." The Company intends to pursue the registration of its trademarks
based upon anticipated use internationally. There can be no assurance that the
Company will be able to secure adequate protection for these


                                       30
<PAGE>   31

trademarks in foreign countries. Many countries have a "first-to-file" trademark
registration system and thus the Company may be prevented from registering its
marks in certain countries if third parties have previously filed applications
to register or have registered the same or similar marks. It is possible that
competitors of the Company or others will adopt service names similar to the
Company's, thereby impeding the Company's ability to build brand identity and
possibly leading to customer confusion. In addition, there could be potential
trademark or trademark infringement claims brought by owners of other registered
trademarks or trademarks that incorporate variations of the term broadcast.com.
The inability of the Company to protect its "broadcast.com," "AudioNet" and
other marks adequately could have a material adverse effect on the Company's
business, results of operations and financial condition.

          As part of its confidentiality procedures, the Company generally
enters into agreements with its employees and consultants and limits access to
and distribution of its software, documentation and other proprietary
information. There can be no assurance that the steps taken by the Company will
prevent misappropriation of its proprietary information or that agreements
entered into for that purpose would be enforceable. Notwithstanding the
precautions taken by the Company, it might be possible for a third party to copy
or otherwise obtain and use the Company's proprietary information without
authorization. The laws of some countries may afford the Company little or no
effective protection of its intellectual property.

          Acquisition Risk. The Company may pursue the acquisition of new or
complementary businesses, services or technologies. Any such future acquisitions
would be accompanied by the risks commonly encountered in acquisitions of
companies, including, among other things, the difficulty of integrating the
operations and personnel of the acquired companies, the potential disruption of
the Company's ongoing business, the inability of management to incorporate
successfully acquired technology and rights into the Company's services and
content offerings, additional expense associated with amortization of acquired
intangible assets, the maintenance of uniform standards, controls, procedures
and policies, and the potential impairment of relationships with employees,
customers and strategic partners.

          Control by Certain Stockholders. As of October 31, 1998, the Company's
directors and executive officers beneficially own approximately 41.7% of the
outstanding Common Stock. As a result, these stockholders, if they act as a
group, will have a significant influence on all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. Such control may have the effect of delaying or
preventing a change in control of the Company.

          Certain Anti-Takeover Provisions. The Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders of the Company. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of


                                       31
<PAGE>   32
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of, and the other rights of the holders of, the Common
Stock. The Company has no present plans to issue shares of Preferred Stock. In
addition, certain provisions of the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") and Amended and
Restated Bylaws, as amended (the "Bylaws") will have the effect of delaying,
deferring or preventing a change of control of the Company. These provisions
provide, among other things, that the Board of Directors will be divided into
three classes to serve staggered three-year terms following the first annual
meeting after a public offering, that stockholders may not take actions by
written consent and that the ability of stockholders to call special meetings
will be restricted. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"),
which will prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The Company's
indemnification agreements with directors and officers, the Company's Restated
Certificate of Incorporation and Bylaws provide that the Company will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to the Company, which may be
broad enough to include services in connection with takeover defense measures.
Such provisions may have the effect of preventing changes in the management of
the Company.

          Year 2000 Compliance. There are issues associated with the programming
code in existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex, as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is in the process of working with its software vendors to
assure that the Company is prepared for the year 2000. The Company has not
verified that companies doing business with it are year 2000 ready. The Company
does not anticipate that it will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be year 2000
ready. However, significant uncertainty exists concerning the potential costs
and effects associated with any year 2000 readiness. Any year 2000 readiness
problem of either the Company or its users, customers or advertisers could have
a material adverse effect on the Company's business, results of operations and
financial condition.

          Volatility of Stock Price. The trading price of the Common Stock has
been and may continue to be subject to wide fluctuations. Trading prices of the
Common Stock may fluctuate in response to a number of factors, such as actual or
anticipated variations in quarterly operating results, announcements of
technological innovations, new sales


                                       32
<PAGE>   33

formats or new services by the Company or its competitors, changes in financial
estimates by securities analysts, conditions or trends in Internet markets,
changes in the market valuations of other Internet companies, announcements by
the Company or its competitors of significant acquisitions, strategic
partnerships, joint ventures, capital commitments, additions or departures of
key personnel, sales of Common Stock and other events or factors, many of which
are beyond the Company's control. In addition, the stock market in general, and
the market for Internet-related and technology companies in particular, has
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect price earnings ratios substantially above historical levels. There can
be no assurance that these trading prices and price earnings ratios will be
sustained. These broad market and industry factors may materially adversely
affect the market price of the Common Stock, regardless of the Company's
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against such company. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
results of operations and financial condition.

          Shares Eligible for Future Sale; Registration Rights. Sales of a
substantial number of shares of Common Stock in the public market could
adversely affect the market price for the Company's Common Stock. The number of
shares of Common Stock available for sale in the public market is limited by
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), and lock-up agreements under which the holders of such shares have agreed
not to sell or otherwise dispose of any of their shares before January 13, 1999
without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan
Stanley & Co. Incorporated, may, however, in its sole discretion and at any time
without prior notice, release all or any portion of the Common Stock subject to
these lock-up agreements. When determining whether or not to release shares from
the lock-up agreements, Morgan Stanley & Co. Incorporated will consider, among
other factors, the stockholder's reasons for requesting the release, the number
of shares for which the release is being requested and market conditions at the
time. As of October 31, 1998, 2,875,000 shares of Common Stock are eligible for
sale in the public market. On January 13, 1999, 13,977,905 shares currently
subject to lock-up agreements will become eligible for sale in the public
market, of which all but 3,260,940 shares shall be subject to the volume
limitations and other conditions of Rule 144 adopted under the Securities Act
("Rule 144"). An additional 407,166 shares will become eligible for sale in the
public market in March 1999, all of which shall be subject to the volume
limitations and other conditions of Rule 144. The remaining 15,960 shares will
become eligible for sale in July 1999, all of which shall be subject to the
volume limitations and other conditions of Rule 144. In addition, on October 31,
1998, there were outstanding warrants to purchase 218,096 shares of the
Company's Common Stock and options exercisable for 635,215 shares of the
Company's Common Stock. In addition, the Company intends to register a total of
4,095,327 shares of Common Stock subject to options outstanding or reserved for


                                       33
<PAGE>   34

future issuance under the Company's 1996 Stock Option Plan, 1998 Stock Option
Plan and 1996 Non-Employee Directors Stock Option Plan, and 250,000 shares of
Common Stock reserved for issuance under the Company's Employee Stock Purchase
Plan. Upon expiration of the lock-up agreements referred to above, holders of
4,533,631 shares of Common Stock and holders of warrants to purchase 218,096
shares of Common Stock will have certain rights to require the Company to
register those shares of Common Stock and those shares issuable upon the
exercise of warrants under the Securities Act. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have a material adverse effect on
the market price for the Company's Common Stock.


                                       34
<PAGE>   35

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On or about July 8, 1998, a lawsuit was filed against the Company and one
of its officers and directors in the United States District Court for the
Southern District of New York by Radio Channel Networks, Inc. In this action,
the plaintiff alleges that the Company's use of the term "radio channel"
infringes a registered trademark of the plaintiff. Plaintiff seeks to enjoin the
Company from using the words "radio channel" on the Company's Web sites and
seeks damages in an amount no less than $6,900,000 and that such damages be
trebled. Although no assurance can be given as to the outcome of this lawsuit,
the Company believes that the allegations in this action are without merit, and
the Company intends to vigorously defend against this action and seek its early
dismissal.

     On or about August 25, 1998, a lawsuit was filed against the Company and
RealNetworks, Inc. in the United States District Court for the Northern District
of Texas Dallas Division by Venson M. Shaw and Steven M. Shaw. In this action,
the plaintiffs allege that the Company, independently and together with
RealNetworks, infringes on plaintiffs, patent by using media software products
and services directed to media delivery systems for the Internet and corporate
intranets. Plaintiff is seeking to enjoin defendants from further alleged
infringement of plaintiffs patent and an amount of damages in an amount no less
than a reasonable royalty. Although no assurance can be given as to the outcome
of this lawsuit, the Company believes that the allegations in this action are
without merit, and the Company intends to vigorously defend against this action
and seek its early dismissal. In addition, the Company believes it is entitled
to be indemnified under the terms of it license agreements with its streaming
software providers for the claims raised relating to the software. No
assurances, however, can be given as to the availability of such indemnification
at this time.

ITEM 2. CHANGES IN SECURITIES

     Since July 1, 1998, the Company has issued and sold unregistered securities
as follows:

     Between July 1, 1998 and September 30, 1998, an aggregate of 300 shares of
Common Stock were issued to an employee upon exercise of options. The aggregate
consideration received for such shares was $2,040.

     The Company's registration statement (Registration No. 333-52877) under the
Securities Act of 1933, as amended, for its initial public offering became
effective on July 16, 1998. Offering proceeds, net of aggregate expenses to the
Company, were approximately $43.4 million. The Company has used all of the net
offering proceeds for the purchase of temporary investments consisting of cash,
cash equivalents, and short-term investments.


                                       35
<PAGE>   36

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     None

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     a)    Exhibits

           None

     b)    Reports on Form 8-K

           None


                                       36
<PAGE>   37

                                   SIGNATURES

            Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                                       broadcast.com inc.

                                       (Registrant)

Date:  November 13, 1998               By: /s/ Jack A. Riggs
                                           -------------------------------------
                                           Jack A. Riggs
                                           Chief Financial Officer and Treasurer
                                           (Principal Financial Officer and Duly
                                           Authorized Officer)


<PAGE>   38
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER          DESCRIPTION
--------------          -----------
<S>                     <C>
      27                Financial Data Schedule
</TABLE>