<PAGE>

                      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 Quarterly Period Ended September 30, 2001

( )   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 000-29121

                              SNOWBALL.COM, INC.
            (Exact name of registrant as specified in its charter)

          DELAWARE                                       94-3316902
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                  3240 BAYSHORE BOULEVARD, BRISBANE, CA 94005
              (Address of principal executive offices) (Zip Code)

                                (415) 508-2000
             (Registrant's telephone number, including area 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 ___

The number of shares of the registrant's common stock outstanding as of October
31, 2001 was 1,849,604.

<PAGE>

<TABLE>
<CAPTION>
                                                                        Page No.
Part I.   Financial Information
<S>           <C>                                                        <C>
    Item 1.   Financial Statements

              Condensed Consolidated Balance Sheets as of
              September 30, 2001 and December 31, 2000                     3

              Condensed Consolidated Statements of Operations
              for the Three and Nine Months Ended September 30,
              2001 and 2000                                                4

              Condensed Consolidated Statements of Cash Flows
              for the Nine Months Ended September 30, 2001
              and 2000                                                     5

              Notes to Condensed Consolidated Financial Statements         6

    Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations                         11

    Item 3.   Quantitive and Qualitative Disclosures About
              Market Risk                                                 27

Part II.  Other Information

    Item 1.   Legal Proceedings                                           27

    Item 2.   Changes in Securities and Use of Proceeds                   27

    Item 3.   Defaults Upon Senior Securities                             28

    Item 4.   Submission of Matters to a Vote of Security Holders         28

    Item 5.   Other Information                                           29

    Item 6.   Exhibits and Reports on Form 8-K                            29

Signatures                                                                30
</TABLE>

                                       2
<PAGE>

                              Snowball.com, Inc.
                     Condensed Consolidated Balance Sheets
                     (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                            September 30,        December 31,
                                                                                2001              2000/(1)/
                                                                            -----------          -----------
<S>                                                                        <C>                  <C>
Assets                                                                        (unaudited)
Current assets:
  Cash and cash equivalents                                                 $     9,065          $    26,479
  Short-term investments                                                          3,770                5,111
  Accounts receivable, net                                                        1,100                3,401
  Prepaid expenses and other current assets                                         849                1,869
                                                                            -----------          -----------
     Total current assets                                                        14,784               36,860

Goodwill and intangible assets, net                                               2,811                6,655
Fixed assets, net                                                                 6,824               10,826
Other assets                                                                        279                  499
                                                                            -----------          -----------
     Total assets                                                           $    24,698          $    54,840
                                                                            ===========          ===========

Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                                          $     1,819          $     2,025
  Accrued liabilities and other                                                   2,590                6,428
  Deferred revenue                                                                1,415                  953
  Current equipment financing obligations                                         1,604                1,649
                                                                            -----------          -----------
     Total current liabilities                                                    7,428               11,055

Long-term equipment financing obligations                                           293                1,484

Stockholders' equity:
 Common stock, $0.001 par value: 100,000,000 shares authorized,
    1,913,315 and 2,087,196 shares issued and outstanding
    at September 30, 2001 and December 31, 2000, respectively                         2                    2
 Treasury stock, 147,661 shares at September 30, 2001 and none at
    December 31, 2000                                                              (935)                   -
 Additional paid-in capital                                                     150,022              151,491
 Other stockholders' equity                                                        (389)              (4,627)
 Accumulated deficit                                                           (131,723)            (104,565)
                                                                            -----------          -----------
     Total stockholders' equity                                                  16,977               42,301
                                                                            -----------          -----------
     Total liabilities and stockholders' equity                             $    24,698          $    54,840
                                                                            ===========          ===========
</TABLE>


/(1)/ The balance sheet at December 31, 2000 has been derived from the audited
      consolidated financial statements at that date, but does not include all
      the information and footnotes required by generally accepted accounting
      principles for complete financial statements.

See notes to condensed consolidated financial statements

                                       3
<PAGE>

                              Snowball.com, Inc.
          Condensed Consolidated Statements of Operations (unaudited)
                   (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                       Three Months Ended September 30,          Nine Months Ended September 30,
                                                       --------------------------------          -------------------------------
                                                             2001           2000                        2001           2000
                                                           -------       --------                    --------       --------
<S>                                                       <C>           <C>                         <C>            <C>
Revenue                                                    $ 2,100       $  5,194                    $  6,921       $ 15,986
Cost of revenue                                                592          3,041                       2,552          8,962
                                                           -------       --------                    --------       --------
 Gross margin                                                1,508          2,153                       4,369          7,024

Operating expenses:
 Production and content                                      1,509          2,373                       5,735          8,906
 Engineering and development                                 1,468          2,441                       5,303          7,186
 Sales and marketing                                         1,799          8,248                       8,750         32,595
 General and administrative                                    719          1,392                       3,306          4,809
 Stock-based compensation (1)                                  106          1,286                       1,897          5,132
 Amortization of goodwill and intangible assets                849          1,105                       3,092          2,885
 Restructuring and asset impairment charges                      -              -                       3,991              -
                                                           -------       --------                    --------       --------
    Total operating expenses                                 6,450         16,845                      32,074         61,513
                                                           -------       --------                    --------       --------
Loss from operations                                        (4,942)       (14,692)                    (27,705)       (54,489)
Interest and other income (expense), net                        85            569                         547          1,172
                                                           -------       --------                    --------       --------
Net loss                                                   $(4,857)      $(14,123)                   $(27,158)      $(53,317)
                                                           =======       ========                    ========       ========
Net loss per share - basic and diluted                     $ (2.60)      $  (7.50)                   $ (14.38)      $ (40.39)
                                                           =======       ========                    ========       ========
Shares used in per share calculation                         1,866          1,884                       1,888          1,320
                                                           =======       ========                    ========       ========
Pro forma net loss per share - basic and diluted                                                                    $ (30.45)
                                                                                                                    ========
Pro forma weighted average shares outstanding                                                                          1,751
                                                                                                                    ========
(1) Stock-based compensation relates to the following:

    Cost of revenue                                        $     -       $      7                    $      4       $     19
    Production and content                                      27            456                         299          1,402
    Engineering and development                                  5             80                         143            427
    Sales and marketing                                         18            251                         305          1,263
    General and administrative                                  56            492                       1,146          2,021
                                                           -------       --------                    --------       --------
     Total                                                 $   106       $  1,286                    $  1,897       $  5,132
                                                           =======       ========                    ========       ========
</TABLE>

See notes to condensed consolidated financial statements

                                       4
<PAGE>

                              Snowball.com, Inc.
          Condensed Consolidated Statements of Cash Flows (unaudited)
                                (in thousands)

<TABLE>
<CAPTION>
                                                               Nine Months
                                                                  Ended
                                                              September 30,
                                                           --------------------
                                                             2001        2000
                                                           --------    --------
<S>                                                        <C>         <C>
Cash flows from operations
  Net loss                                                 $(27,158)   $(53,317)
  Reconciliation to net cash used in operations:
    Depreciation and amortization                             6,404       5,532
    Non-cash restructuring and asset impairment charges       1,708         -
    Stock-based compensation                                  1,897       5,132
    Charitable contribution of common stock                     -         1,000
    Other non-cash expenses                                     247         630
    Changes in assets and liabilities:
      Accounts receivable                                     2,248      (1,472)
      Prepaid expenses and other assets                       1,125         198
      Accounts payable and accrued liabilities               (4,054)      3,832
      Accrued restructuring charges                              10         -
      Deferred revenue                                          462       1,043
                                                           --------    --------
Net cash (used in) operating activities                     (17,111)    (37,422)
                                                           --------    --------

Cash flow from investment activities
  Decrease in short-term investments                          1,341       2,889
  Acquisition of goodwill and intangible assets                 -        (6,050)
  Purchase of fixed assets                                     (532)     (8,859)
  Net refund on tenant improvement allowance                  1,143         -
                                                           --------    --------
Net cash provided by (used in) investment activities          1,952     (12,020)
                                                           --------    --------

Cash flow from financing activities
  Proceeds from issuance of common stock related to
    initial public offering, net                                -        62,033
  Proceeds from issuance (repurchase) of common and
    preferred stock, net                                        (84)      1,522
  Proceeds from equipment financing obligations                 -         1,526
  Payment of equipment financing obligations                 (1,236)     (1,113)
  Proceeds from borrowings                                      -        12,000
  Payment of borrowings                                         -       (12,400)
  Purchase of stock for treasury                               (935)        -
                                                           --------    --------
Net cash provided by (used in) financing activities          (2,255)     63,568
                                                           --------    --------

Net increase (decrease) in cash and cash equivalents        (17,414)     14,126
Cash and cash equivalents at beginning of period             26,479      25,489
                                                           --------    --------
Cash and cash equivalents at end of period                 $  9,065    $ 39,615
                                                           ========    ========
</TABLE>

See notes to condensed consolidated financial statements

                                       5
<PAGE>

                              Snowball.com, Inc.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. FINANCIAL STATEMENT PRESENTATION

The condensed consolidated financial statements include Snowball.com, Inc. and
its wholly owned subsidiaries (collectively herein referred to as "Snowball")
after elimination of intercompany amounts.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ materially from those estimates. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q but do not include all of the
information and footnotes required by generally accepted accounting principles
and should, therefore, be read in conjunction with our annual report on Form 10-
K for the year ended December 31, 2000. These financial statements include all
normal recurring adjustments that Snowball believes necessary for a fair
presentation of the statements. Certain reclassifications, none of which
affected net loss, have been made to the prior year's amounts in order to
conform to the current year's presentation.

The results of operations for the nine and three months ended September 30, 2001
are not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year ending December 31, 2001.

Our Board of Directors and stockholders authorized a one-for-six reverse stock
split, in which one share of common stock was exchanged for every six shares of
outstanding common stock. The effective date of the reverse split for trading on
the Nasdaq Small Cap Market was September 24, 2001. This action follows our one-
for-three reverse stock split that was effected March 6, 2001. All share and per
share information presented in this form 10-Q have been adjusted for these
splits.

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Snowball is an Internet media company that operates a network of destination web
sites for members of Generation i ("Gen i"/TM/) and the companies that want to
reach them. For these web-centric young adults, Snowball provides current
content, relevant services such as e-mail and instant messaging, a forum for
interacting with one another and access to third party merchandise. In addition
to creating original content, we expand the breadth and depth of our content
offerings by selectively offering affiliated web site content within our
network. This network model enables us to build our traffic and brand rapidly,
and to realize revenue in a variety of ways--through traditional online
advertising and sponsorships, and by providing customer acquisition and audience
development services to companies that target Gen i. Snowball also provides
premium content to its audience on a subscription fee basis. We organize both
our own web sites and affiliated web sites around networks that target different
segments of Gen i, providing a demographic and lifestyle targeting mechanism for
our marketing customers.

Revenue Recognition

Revenue is derived principally from short-term contracts for impression-based
advertisements, including Flash, Unicast, and click-within advertising units as
well as banners, buttons and textlinks. This revenue is recognized at the lesser
of the straight-line basis over the term of the contract or the ratio of
impressions delivered over total committed impressions, provided that we do not
have any significant remaining obligations and collection of the resulting
receivable is probable. To the extent that minimum committed impression levels
or other obligations are not met, we defer recognition of the corresponding
revenue until such levels are achieved.

                                       6

<PAGE>

                              Snowball.com, Inc.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Revenue also includes fees from sponsorship, fixed slotting fees, variable lead
generation, commerce partnerships and other marketing programs under contracts
in which we commit to provide our business customers with promotional
opportunities in addition to impression-based banner advertising. We generally
receive a fixed fee and/or incremental payments for lead generation, customer
delivery or traffic driven to the commerce partner's site. Revenue that includes
delivery of various types of impressions and services is recognized based on the
lesser of the straight-line basis over the term of the contract, the ratio of
average impressions delivered, or upon delivery when no minimum guaranteed
deliverable exists.

In the second quarter of 2001, we began offering premium content and services to
customers on a subscription fee basis. Subscription fees are recorded, net of
any discounts, ratably over the subscription period (generally three months to
three years) and deferred revenue is recorded for amounts received before
services are provided. Transaction costs are recognized in the period the
transaction occurs.

3. ACQUISITIONS

In February 2000, Snowball signed an asset purchase agreement to acquire all of
the assets of GameSages LLC, an Internet content provider, in exchange for
approximately $4.8 million in cash. The financial results of this entity were
insignificant and, therefore, no pro forma information reflecting this
acquisition has been presented.

In December 1999, Snowball completed the acquisition of Extreme Interactive
Media, Inc. ("Extreme") for $1.9 million in cash, common stock and unsecured
promissory notes. The purchase price was increased by $1.2 million of additional
cash consideration based upon the attainment of certain economic milestones by
Extreme. During the second quarter of 2001, Snowball ceased all operations that
had been associated with the Extreme acquisition and recorded an asset
impairment charge of $1.6 million to write off the remaining goodwill and
intangible assets. (See Note 5).

4. NET LOSS PER SHARE

Basic and diluted net loss per share are presented in conformity with the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," for all periods
presented.

In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Basic and diluted pro
forma net loss per share, as presented in the condensed consolidated statements
of operations for the nine months ended September 30, 2000, have been computed
pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No.
98 and give effect to the conversion of the convertible preferred stock (using
the if-converted method) from the original date of issuance.

The following table presents the calculation of basic and diluted and pro forma
basic and diluted net loss per common share (in thousands, except per share
data):

                                       7
<PAGE>

                     Snowball.com, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

<TABLE>
<CAPTION>
                                                             Three months ended               Nine months ended
                                                                September 30,                    September 30,
                                                             2001         2000                 2001           2000
                                                           -------      --------             --------       --------
<S>                                                        <C>          <C>                  <C>            <C>
Net loss                                                   $(4,857)     $(14,123)            $(27,158)      $(53,317)
                                                           =======      ========             ========       ========
Basic and diluted:
  Weighted average shares of
   common stock outstanding                                  1,942         2,082                1,980          1,544
  Less: weighted average shares
   subject to repurchase                                       (76)         (198)                 (92)          (224)
                                                           -------      --------             --------       --------
  Weighted average shares used in
   computing basic and diluted
   net loss per share                                        1,866         1,884                1,888          1,320
                                                           -------      --------             --------       --------
Basic and diluted net loss per share                       $ (2.60)     $  (7.50)            $ (14.38)      $ (40.39)
                                                           =======      ========             ========       ========

Pro forma:
  Shares used in the above                                                                                     1,320
  Pro forma adjustment to reflect weighted
   effect of assumed conversion
   of convertible preferred stock                                                                                431
                                                                                                            --------
  Shares used in computing pro forma
   basic and diluted net loss per share                                                                        1,751
                                                                                                            --------
Pro forma basic and diluted net loss per share                                                              $ (30.45)
                                                                                                            ========
</TABLE>

5. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

During the first six months of 2001, Snowball recorded $2.4 million in
restructuring charges related to reductions in employees and early termination
of operating leases for two buildings in Brisbane, California. There were no
restructuring charges in the third quarter of 2001. Snowball expects that the
actions taken during the first six months of 2001 will result in annualized
compensation and related benefits savings of approximately $9.2 million and
annualized facilities related savings of approximately $3.3 million. As of
September 30, 2001, the balance of accrued restructuring charges was zero as all
cash payments associated with our restructuring provisions have been made.
Snowball believes that additional restructuring charges may be incurred in the
future in connection with ongoing cost reduction efforts.

On a quarterly basis, Snowball performs an impairment assessment of its goodwill
and other intangible assets recorded in connection with its various
acquisitions. This assessment is based on the expected future cash flows from
goodwill and intangible assets over their estimated remaining useful lives.
During the second quarter of 2001, Snowball recorded an asset impairment charge
of $1.6 million to write off the remaining net book value of goodwill and other
intangible assets arising from our acquisition of Extreme Interactive Media,
Inc. No impairment charges were recorded in the third quarter of 2001.

6. COMMITMENTS

In October 2000, Snowball relocated its headquarters to Brisbane, California and
assumed a lease for three buildings with original lease terms on the buildings
of 10, 11 and 12 years,

                                       8

<PAGE>

                              Snowball.com, Inc.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

respectively. In November 2000, the lease was amended to return two of the
buildings to the landlord at the earlier of occupancy by a new tenant or October
8, 2001. The buildings were returned to the landlord in May and October of 2001
ending our associated liability under the lease. In the first quarter of 2001,
remaining costs associated with these two buildings were included as
restructuring charges (See Note 5).

Snowball originally obtained letters of credit totaling $5.1 million as security
deposits associated with our facilities in Brisbane, California and New York. As
of September 30, 2001, this amount had been reduced to $3.8 million due to the
release of our lease liability from one building in Brisbane. In October 2001,
this amount was further reduced to $2.3 million due to the release of our lease
liability from a second building in Brisbane.

7. STOCKHOLDERS' EQUITY

In connection with the granting of certain stock options from April 1999 to
February 2000, Snowball recorded an accumulated deferred compensation of
approximately $14.1 million. Additional deferred compensation of $0.8 million
was recorded in September 2000 due to the granting of repriced options to an
officer which were early exercised and subject to repurchase provisions.
Deferred compensation is adjusted quarterly for exercises, cancellations,
terminations and accelerations and is amortized for financial reporting purposes
over the vesting period of the options using an accelerated method with any
adjustments charged as stock-based compensation expense. As of September 30,
2001, deferred compensation was $0.1 million.

Snowball has also issued to certain employees and consultants stock options that
are subject to variable accounting. These grants require measurement for the
difference between the exercise price of the option and the intrinsic value of
the stock until the date the options are exercised, forfeited, or expire
unexercised. Accordingly, additional compensation expense may be recorded in
future periods due to the variable treatment of these options. Expenses
associated with these issuances are charged to stock-based compensation.

Stock-based compensation expense for the three and nine quarters ended September
30, 2001 was $0.1 million and $1.9 million, respectively. Stock-based
compensation for the three and nine quarters ended September 30, 2000 was $1.3
million and $5.1 million, respectively.

8. TREASURY STOCK

In December 2000, the Board of Directors authorized a stock repurchase program
under which Snowball is authorized to repurchase up to 277,778 shares of our
common stock in the open market for cash. Repurchases may be made from time to
time at market prices and as market and business conditions warrant. No time
limit has been set for the completion of the program. As of September 30, 2001,
Snowball had repurchased 147,661 shares at an average purchase price of $6.33
per share.

9. INITIAL PUBLIC OFFERING

In March 2000, Snowball completed its initial public offering of 347,222 shares
of common stock and realized proceeds, net of underwriting discounts, commission
and issuance costs, of approximately $62.1 million.

                                       9

<PAGE>


                              Snowball.com, Inc.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


10. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities", which requires that SFAS 133 be adopted in Snowball's
fiscal year 2001. Management does not anticipate that the adoption of SFAS 133
will have a material effect on the results of operations or financial position
because Snowball does not currently engage in or plan to engage in derivative or
hedging activities.

In June 2001, the FASB issued SFAS 141 "Business Combinations" and SFAS 142
"Goodwill and Other Intangible Assets." SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting, and broadens the criteria for recording intangible assets separate
from goodwill. SFAS 142 requires the use of a non-amortization approach to
account for purchased goodwill and intangibles deemed to have indefinite lives.
Under a non-amortization approach, goodwill and intangible assets deemed to have
indefinite lives will not be amortized into results of operations, but instead
would be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful lives.
The provisions of the Statements that apply to goodwill and intangible assets
acquired prior to June 30, 2001 will be adopted by Snowball on January 1, 2002.

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-lived Assets." SFAS 144 establishes a single accounting model,
based on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale. The statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001.

Snowball is currently evaluating the impact that SFAS 141, 142 and 144 will have
on its consolidated financial position and results of operations.

                                      10
<PAGE>


                                 Snowball.com


Item 2-Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited financial statements
and notes thereto, which include information as to significant accounting
policies, included in our annual report on Form 10-K for the year ended December
31, 2000 and our condensed consolidated financial statements and related notes
appearing elsewhere in this report. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including, but not limited
to, those discussed below and elsewhere in this report.

                                   Overview

From our inception in January 1997 through December 1998, we operated as
independent divisions of Imagine Media, Inc. During this period, we focused our
operating activities primarily on the creation of our IGN and ChickClick
networks, the development of relationships with web content partners, or
"affiliates", to expand our content and community offerings, and the generation
of revenue from advertising sales. Snowball was incorporated as a separate
entity in January 1999.

Our operating activities to date have been focused on developing the quality of
our content and services; expanding our audience and the usage of our services;
establishing relationships with users, affiliates and the companies who want to
reach this large web-centric audience; building sales momentum and marketing our
networks and Snowball brands; developing our computer software and hardware
infrastructure; recruiting personnel; and raising capital.

In addition to the creation of our own web site content, our relationships with
our affiliates have been an important part of our business model. Affiliates
bring new users and content to our networks and increase our consolidated page
views. These relationships offer affiliates revenue opportunities and a package
of integrated marketing services and support in exchange for the integration of
their site and audience into our network and the use of their site for
advertising, promotions and sponsorships. During 2001, we have reduced our
dependence on affiliate content as well as the amount of expenses associated
with these relationships.

To date, we have derived revenue principally from short-term contracts for
impression-based advertisements, including Flash, Unicast and click-within
advertising units, as well as banners, buttons and textlinks. Under these
contracts, we provide advertisers with a number of "impressions," or a number
of times a user will view their advertisements, for which we receive a fee.
Advertising revenue is recognized at the lesser of the straight-line basis over
the term of the contract or the ratio of impressions delivered over total
committed impressions, provided that we do not have any significant remaining
obligations and collection of the resulting receivable is probable. To the
extent that minimum committed impression levels or other obligations are not
met, we defer recognition of the corresponding revenue until such levels are
achieved.

Revenue also includes fees from sponsorship, fixed slotting fees, variable lead
generation, content licenses, commerce partnerships and other marketing programs
under contracts in which we commit to provide our business customers with
promotional opportunities and web site and editorial services in addition to
traditional impression based advertising. These agreements typically provide not
only for the delivery of advertising impressions on our web sites, but also
exclusive placement on our networks, special content and promotional offers and
the design and development of customized content or sites to enhance the
promotional objectives of the advertiser or commerce partner. We generally
receive a fixed fee and/or incremental payments for lead generation, customer
delivery or traffic driven to the commerce partner's site. Revenue

                                      11
<PAGE>


                                 Snowball.com


that includes delivery of various types of impressions is recognized based on
the lesser of the straight-line basis over the term of the contract or the ratio
of average impressions delivered over the average total guaranteed impressions.

In the second quarter of 2001, we began offering premium content and services to
customers on a subscription fee basis. Subscription fees are recorded, net of
any discounts, ratably over the subscription period (generally three months to
three years) and deferred revenue is recorded for amounts received before
services are provided. Transaction costs are recognized in the period the
transaction occurs.

Since our inception we have never been profitable. Furthermore, due in part to
the financial difficulties experienced recently by Internet and Internet-related
companies and reductions in advertising budgets of companies that advertise on
the Internet, we cannot assure you that our revenue will grow or that we will
ever achieve or maintain profitability. We have experienced significant declines
in our advertising revenue from Internet companies, which have been only
partially offset by revenue from companies in more traditional lines of
business. As our revenue declined, we responded by reducing the number of our
affiliate relationships, number of employees and our operating expenses.
Snowball anticipates that weakness in advertising demand will continue until
overall business conditions improve and advertising expenditures rebound.
Accordingly, we anticipate that we will incur additional operating losses at
least through 2001. If we are unsuccessful in adapting to the needs of our
advertisers and audience, it could have a material adverse effect on our
business, operating results and financial condition.

                             Results of Operations

Revenue

Revenue was $2.1 million and $5.2 million for the three months ended September
30, 2001 and 2000, respectively. For the nine months ended September 30, 2001
and 2000, revenue was $6.9 million and $16.0 million, respectively. This decline
in revenue is primarily due to continued industry-wide weakness in the online
advertising market and the associated decrease in marketing and advertising
spending by this market segment. Specifically, many of our customers did not
continue or renew their advertising and marketing programs with us this quarter,
causing revenue to decline. This was only partially offset by revenue from new
customers. To help compensate for this, we have recently broadened our product
offerings including providing premium content on a subscription fee basis, and
entering into strategic business partnerships which include technology and
content licenses. We believe these broader ranges of products and business
partnerships may help us to increase our revenue. These new products and
business partnerships may take several quarters to produce significant results,
if at all, and if they are not accepted by our customers, will not increase
revenue.

Cost of Revenue

Cost of revenue consists primarily of expenses related to operating Snowball-
owned web sites, guaranteed payments or the portion of revenue owed to our
affiliates for advertising and marketing placed on their web sites, and costs of
content and community tools. During the fourth quarter of 2000, we began to
restructure our affiliate relationships. We expect this restructuring to better
reflect the affiliates' relative size and importance to our business, and the
cost/benefit of the relationships as we renegotiate, terminate and permit to
expire many of the existing contracts.

For the three months ended September 30, 2001 and 2000, cost of revenue was $0.6
million and $3.0 million, respectively. For the nine months ended September 30,
2001 and 2000, cost of revenue was $2.6 million and $9.0 million, respectively.
Gross margin increased to 72% and 63% for the three and nine months ended
September 30, 2001, respectively, compared to a gross margin of 41% and 44% for
the three and nine months ended September 30, 2000, respectively. The decline in
cost of revenue and increase in gross margin primarily is attributable to the

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                                 Snowball.com

reduction of affiliate costs due to our restructuring of affiliate
relationships. At September 30, 2001, we had 90 affiliates compared to 313 at
September 30, 2000.

Costs related to affiliates are expected to vary from period to period as we
change or terminate our relationship with affiliates and as we expand or
contract the portion of our total sites that are represented by affiliates
versus those that we own and operate directly.

Operating Expenses

We categorize operating expenses into production and content, engineering and
development, sales and marketing, general and administrative, stock-based
compensation, amortization of goodwill and intangible assets and restructuring
and asset impairment charges. Total operating expenses for the three months
ended September 30, 2001 and 2000 were $6.5 million and $16.8 million,
respectively, representing a 62% decline. Total operating expenses for the nine
months ended September 30, 2001 and 2000 were $32.1 million and $61.5 million,
respectively, representing a 48% decline. Excluding significant non-cash
expenses--which include stock-based compensation, depreciation, amortization of
goodwill and intangible assets and charitable contribution--and restructuring
charges, operating expenses for the three and nine months ended September 30,
2001 decreased 66% and 60% as compared to the three and nine months ended
September 30, 2000, respectively. Excluding significant non-cash expenses,
operating expenses in all categories decreased primarily as a result of our
headcount reductions and expense control efforts.

Production and content costs were $1.5 million and $2.4 million for the three
months ended September 30, 2001 and 2000, respectively, and $5.7 million and
$8.9 million for the nine months ended September 30, 2001 and 2000,
respectively, each of which represents a decrease of 36%. The decrease in
comparable periods is due primarily to the reduction of our editorial, artistic
and production staff and efforts to reduce usage of freelance writers, artists
and computer-related expenses for the creation of content for our web sites.

Engineering and development expenses were $1.5 million and $2.4 million for the
three months ended September 30, 2001 and 2000, respectively, and $5.3 million
and $7.2 million for the nine months ended September 30, 2001 and 2000,
respectively, which represents a decrease of 40% and 26%, respectively. The
decrease in comparable periods is due primarily to reduction of personnel,
consulting and recruiting fees, which had been associated with the previous
expansion of our development and programming efforts in 2000.

Sales and marketing expenses were $1.8 million and $8.2 million for the three
months ended September 30, 2001 and 2000, respectively, and $8.8 million and
$32.6 million for the nine months ended September 30, 2001 and 2000,
respectively, which represents a decrease of 78% and 73%, respectively. The
decrease in comparable periods is due primarily to the reduction of our
advertising, marketing and branding activities, and decreases in our sales and
marketing staff.

General and administrative expenses were $0.7 million and $1.4 million for the
three months ended September 30, 2001 and 2000, respectively, which represents a
decrease of 48%. This decrease is due primarily to the reduction in finance and
administrative staff. General and administrative expenses for the nine months
ended September 30, 2001 and 2000 were $3.3 million and $4.8 million,
respectively, which represents a decrease of 31%. This is primarily due to a
one-time non-cash contribution to a charitable foundation of 5,556 shares of our
common stock in the first quarter of 2000, with a then fair value of $1.0
million.

Stock-based compensation expenses primarily represent the difference between the
exercise price of options granted and the deemed fair value of the common stock
underlying these options on the date of grant amortized on an accelerated basis
over the vesting period of the options, which is generally four years, and the
effects of stock option repricing. Stock-based compensation expenses were $0.1
million and $1.3 million for the three months ended September 30, 2001 and 2000,
respectively, and $1.9 million and $5.1 million for the nine months ended
September 30,

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                                 Snowball.com


2001 and 2000, respectively, which represents a decrease of 92% and 63%,
respectively. These decreases are due primarily to the accelerated method of
amortization and to options forfeited upon employee departure. At September 30,
2001, we had deferred stock compensation of $0.1 million to be amortized over
the remaining vesting period of the grants. Due to the repricing of certain
stock option awards both in 2000 and during the nine months ended September 30,
2001, additional and substantial stock-based compensation costs may be incurred
in future periods for these variable awards.

Amortization of goodwill and intangible assets was $0.8 million and $1.1 million
for the three months ended September 30, 2001 and 2000, respectively, and $3.1
million and $2.9 million for the nine months ended September 30, 2001 and 2000,
respectively, which represents a decrease of 23% and an increase of 7%,
respectively. The decrease for the third quarter 2001 as compared to the third
quarter of 2000 is due primarily to a lesser goodwill balance being amortized as
a result of an impairment charge of $1.6 million recorded in the second quarter
of 2001 against our 1999 acquisition of Extreme Interactive Media, Inc. The
increase for the nine months ended September 30, 2001 as compared to the nine
months ended September 30, 2000 is due primarily to the continued amortization
of goodwill and intangible assets from acquisitions that occurred during 2000.
Amortization of goodwill and intangible assets is over three years.

Restructuring and asset impairment charges for the nine months ended September
30, 2001 were $4.0 million. These expenses are comprised of restructuring
charges, related to a reduction in employees and early termination of operating
leases for two of our office buildings in Brisbane, California, and an
impairment charge recorded against our 1999 acquisition of Extreme Interactive
Media, Inc. No restructuring or asset impairment charges were recorded in the
third quarter of 2001 or in the nine months ended September 30, 2000.

In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets,"
which requires use of a nonamortization approach to account for purchased
goodwill and certain intangibles, effective January 1, 2002. Under this
nonamortization approach, goodwill and certain intangibles will not be amortized
into results of operations, but instead will be reviewed for impairment and
written down and charged to results of operations only in the periods in which
the recorded value of goodwill and certain intangibles is more than its fair
value. We expect the adoption of this accounting standard will have the impact
of reducing our amortization of goodwill and intangibles commencing January 1,
2002; however, impairment reviews may result in future periodic write-downs.

                        Liquidity and Capital Resources

Cash used by operations totaled $17.1 million during the first nine months of
2001 compared to $37.4 million during the first nine months of 2000. This
decrease resulted primarily from the decrease in operating expenses during the
first nine months of 2001 and the resulting decrease in net loss. Working
capital at September 30, 2001 amounted to $7.4 million. Cash, cash equivalents
and short-term investments at September 30, 2001 were $12.8 million.

Net cash provided from investment activities for the nine months ended September
30, 2001 was $2.0 million. This was due to a decrease of $1.3 million in short
term investments, a net refund of $1.1 million on tenant improvements associated
with our facilities in Brisbane, California and $0.5 million of capital
equipment purchases.

In December 2000, the Board of Directors authorized a stock repurchase program
under which Snowball is authorized to repurchase up to 277,778 shares of our
common stock in the open market for cash. During the nine months ended September
30, 2001, Snowball repurchased approximately 148,000 shares at an average
purchase price of $6.33 per share.

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                                 Snowball.com

In March 2000, we raised net proceeds of approximately $62.1 million from an
initial public offering of 347,222 shares of our common stock. The proceeds from
this offering currently are being used for working capital and general corporate
purposes, including network expansion, content development and sales and
marketing. We have invested unused proceeds in short-term, interest-bearing,
investment-grade securities. Prior to our initial public offering, we financed
our operations primarily through private placements of preferred stock and
borrowings under equipment lease lines and a credit facility.

In April and October 1999, we entered into equipment lease lines of credit
totaling $5.0 million. These credit facilities have terms of three years and
bear interest at the rate of 7.5% per year. In connection with these credit
facilities, we issued warrants to the lessor to purchase 1,755 shares of our
common stock at $57.00 per share and 1,172 shares of our common stock at $127.98
per share. The warrants have all been exercised. These credit facilities do not
include any financial covenants.

In November 1999, we entered into a term loan agreement for up to an aggregate
of $15.2 million. In connection with this loan agreement, we issued promissory
notes to the lenders, which bear interest at the rate of 11% per annum, and
warrants to purchase 15,000 shares of our common stock at an exercise price of
$151.92 per share of which 6,400 have expired with the remaining warrants
expiring in November 2002. In December 1999, $12.0 million of the loan was
repaid and the note holders cancelled $3.0 million of indebtedness under the
notes in exchange for shares of our Series C preferred stock at $60.00 per
share. During the first quarter of 2000, we borrowed $12.0 million under this
loan. The outstanding balance became due and was repaid upon consummation of our
initial public offering.

We originally obtained letters of credit totaling $5.1 million as security
deposits associated with our facilities in Brisbane, California and New York. As
of September 30, 2001, this amount had been reduced to $3.8 million due to the
release of our lease liability from one building in Brisbane. In October 2001,
this amount was further reduced to $2.3 million due to the release of our lease
liability from a second building in Brisbane.

Our capital requirements depend on numerous factors, including market acceptance
of our products and services, the resources we allocate to developing our
networks, our marketing and selling capabilities and maintenance of our brands.
Since our inception we experienced substantial expenditures as we grew our
operations and personnel. Although we have significantly reduced our costs
beginning in the second quarter of 2000, we still have not achieved cash flow
breakeven. Substantially all of the remaining capital raised in our initial
public offering is expected to be used over the next year to operate our
business and for working capital and capital expenditures. We will continue to
evaluate possible acquisitions of, or investments in, complementary businesses,
technologies, services or products. We believe that our available cash, cash
equivalents and short-term investments and cash flows from operations will be
sufficient to meet our anticipated needs for working capital and capital
expenditures at least until the end of our fiscal year 2001. To meet our longer
term liquidity needs, potentially including our needs in fiscal 2002, we may
need to raise additional funds, establish additional credit facilities, seek
other financing arrangements or further reduce costs and expenses. Additional
funding may not be available on favorable terms, on a timely basis or at all.

                                 Risk Factors

Risks Related to Our Business

Our business model is unproven and may fail.

     We have a limited operating history upon which you can evaluate our
business model and prospects and the merits of investing in our stock. We are
also implementing an evolving and unpredictable business model. If our business
model proves to be unsuccessful, the trading price

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                                 Snowball.com

of our stock will fall and our business may fail. Our IGN and ChickClick
networks began operating as divisions of Imagine Media in March 1997 and
February 1998, respectively. We were incorporated in January 1999, and Imagine
Media contributed the IGN and ChickClick assets to us in February 1999. We grew
our traffic and content quickly through the use of an affiliate model as well as
by adding new networks. However, our business model has changed as we have
reduced our dependence on affiliate content, reduced the number of networks and
implemented a new subscription model. Accordingly, our prospects and the merits
of investing in our stock must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
Internet content and services.

We have a history of losses and expect to incur substantial net losses for the
foreseeable future.

     We have incurred net losses since the formation of our business in January
1997. At September 30, 2001, we had an accumulated deficit of approximately
$131.7 million. We may increase our operating expenses to expand our affiliate
base, develop additional subscription offerings, develop additional networks,
expand our sales and marketing operations, hire more salespersons, increase our
marketing and promotional activities, develop and upgrade our technology and
purchase equipment and leasehold improvements for our operations and network
infrastructure. We also may incur costs relating to the acquisition of content,
other businesses or technologies. Whether we increase expenditures or not, we
may not generate sufficient revenue to offset our expenditures. As a result, we
expect to incur significant operating losses on a quarterly basis for the
foreseeable future, and may never be profitable. Even if we do achieve
profitability, we might not be able to sustain profitability on a quarterly or
annual basis in the future.

Our prospects for obtaining additional financing, if required, are uncertain and
failure to obtain needed financing would limit our operations and might cause
our business to fail.

     Our operating history is too brief for us to know with certainty whether
our cash reserves and any cash flows from operations or financing will be
sufficient to fund our operations. We expect to need to raise additional funds
based upon our estimates of revenue, expenses, working capital and capital
expenditure requirements, or if we are required to respond to unforeseen
technological or marketing hurdles or if we choose to take advantage of
unanticipated opportunities. If adequate funds are not available to satisfy
either short- or long-term capital requirements, we might be required to limit
our operations significantly and our business might fail. Additional financing
might not be available when required. Our future capital requirements are
dependent upon many factors, including:

  .  the rate at which we expand or contract our sales and marketing operations;

  .  the amount and timing of fees paid to affiliates;

  .  the amount and timing of leasehold improvements and capital equipment
     purchases;

  .  the extent to which we expand or contract our content and service
     offerings;

  .  the extent to which we develop and upgrade our technology and data network
     infrastructure;

  .  the response of competitors to our content and service offerings;

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                                 Snowball.com

  .  the willingness of advertisers to become and remain our customers; and

  .  the willingness or ability of our customers to pay us for services
     provided.

Additional financings could disadvantage our existing stockholders.

     If additional funds are raised through the issuance of equity securities,
the percentage ownership of our existing stockholders would be reduced and the
value of their investments might decline. In addition, any new securities issued
might have rights, preferences or privileges senior to those securities held by
our existing stockholders. If we raise additional funds through the issuance of
debt, we might become subject to restrictive covenants.

Our quarterly revenue and operating results may fluctuate in future periods and
we may fail to meet expectations, which may reduce the trading price of our
common stock.

     We cannot forecast our revenue and operating results with precision,
particularly because our products and services are relatively new and evolving,
and our prospects uncertain. Further, the U.S. economy is much weaker now than
it has been in recent history, which could have serious negative consequences
for our business and operating results. If revenue in a particular period does
not meet expectations, it is unlikely that we will be able to adjust our level
of expenditures significantly for the same period. If our operating results fail
to meet expectations, the trading price of our common stock would decline.
Recently, our operating results have not met expectations and our stock price
has significantly declined.

     We believe that period-to-period comparisons are not meaningful and are not
indicative of future performance. We anticipate that the results of our
operations will fluctuate significantly in the future as a result of a variety
of factors, including: the long sales cycle we face selling advertising and
promotions; seasonal trends in Internet usage, advertising placements and e-
commerce; and other factors discussed in this section. Approximately one quarter
of our revenue is generated from Internet-oriented companies that may experience
greater variability in advertising spending. As a result, it is likely that in
some future quarters or years our results of operations will fall below the
expectations of securities analysts or investors, which would cause the trading
price of our common stock to decline.

If we fail to maintain our relationships with affiliates, or incorporate new
affiliates into our networks on a timely basis, our revenue would decline.

     We derive revenue primarily from advertisers who pay us to advertise on our
 networks because our networks attract a large number of visitors. We rely upon
 our key affiliates to generate a significant portion of the content that
 attracts visitors to our networks. If we lose these affiliates and cannot
 replace them with affiliates having comparable traffic patterns and user
 demographics, or if we fail to maintain or add affiliates to our networks on a
 timely basis, we would lose revenue. We could lose an affiliate if it were to:

  .  terminate or fail to renew its affiliate agreement with us;

  .  be acquired by or otherwise form a relationship with one of our
     competitors;

  .  demand from us a greater portion of revenue derived from advertisements
     placed on its web sites;

  .  seek to require us to make payments for access to its web sites; or

  .  cease business operations.

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                                 Snowball.com

     We also may choose not to retain all of our affiliates or reduce our
reliance on certain affiliates due to cost, change in our desired content,
program objectives, or other reasons. If we change or terminate existing
affiliate relationships, we cannot assure you that we will be able to retain the
affiliates with whom we have changed our relationship or to attract new
affiliates. In addition, we will likely face increasing competition for the
content and services provided by current or potential affiliates. If we fail to
continue to identify potential affiliates or fail to enter into agreements with
new affiliates on a timely basis, our networks may lose their relevance to Gen
i, we would lose advertising and promotional opportunities and our revenue would
decline.

If our IGN network is unsuccessful, our revenue would decline substantially.

     IGN is a network of web sites that provide information and entertainment to
Gen i men. We rely upon IGN for a substantial portion of our traffic,
advertising revenue and subscription base. Specifically, IGN accounted for
approximately 94% of our consolidated page views and 32% of our new
subscriptions in September 2001, and approximately 33% of our registered users
as of September 30, 2001 and a substantial portion of our revenue for the three
and nine months ended September 30, 2001. If we are unable to anticipate changes
in the interests, styles, trends or preferences of IGN's target audience, if we
are unable to maintain our relationship with affiliates of IGN or incorporate
new affiliates into the IGN network on a timely basis or if IGN otherwise loses
traffic, our ability to generate advertising revenue would be impeded to an even
greater extent than if any of those events occurred with respect to any of our
other networks.

If our advertising, commerce partnerships and marketing agreements are
terminated or are not renewed, our revenue would decline.

     To date, we have derived a substantial portion of our revenue from a small
number of advertising, commerce and marketing customers. We expect that this
will continue during the early stages of our development and may continue
indefinitely. If our arrangements with these customers are terminated or are not
renewed, our revenue would decline. In addition, many of our advertising,
commerce and marketing customers enter into agreements with us that have a term
of less than six months, and one or more of our material advertising agreements
has a six-month term or termination rights at various points during the
contract. As a result, our customers could and do cancel these agreements,
change their advertising expenditures or buy advertising from our competitors on
relatively short notice and without penalty. Because we expect to derive a large
portion of our future revenue from advertising and marketing arrangements, these
short-term agreements expose us to competitive pressures and potentially severe
fluctuations in our financial results.

If we fail to perform in accordance with the terms of our advertising
agreements, we would lose revenue.

     Our advertising agreements typically provide for minimum performance
levels, such as click-throughs by web users or impressions. If we fail to
perform in accordance with these terms, we typically have to provide free
advertising to the customer until the minimum level is met, causing us to lose
revenue and/or incur additional costs. In addition, we occasionally guarantee
the availability of advertising space in connection with promotion arrangements
and content agreements and often guarantee exclusive placement on our network
for our largest customers, which precludes us from permitting certain
competitors of these customers to offer products and services on our network
that are similar to those offered by our exclusive customers. If we cannot
fulfill the guarantees we make to our customers, or if we lose potential
customers whose advertisements, sponsorships and promotions conflict with those
of other customers or our exclusive customers fail to renew their contracts, we
will lose revenue and our future growth may be impeded.

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                                 Snowball.com

If we do not continue to attract and retain users we may not be able to compete
successfully for advertisers and commerce partners, which would cause our
revenue to decline.

     We currently derive substantially all of our revenue from advertisers and
commerce partners who pay us to advertise on our networks, and our business
model depends in part on increasing the amount of this revenue. The market for
advertising revenue is highly competitive and demand has recently decreased
significantly. We must continue to attract and retain users to compete
successfully for advertising revenue. If we fail to attract and retain more
users, our revenue would decline. Many of our current competitors, including
Yahoo!, AOL, CNET, MSN, Terra Lycos and even some non-publicly traded companies,
as well as a number of potential new competitors compete vigorously in this
market. Many of these competitors have significantly greater editorial,
financial, technical, marketing, sales and other resources than we do. Our
competitors may develop content and service offerings that are superior to ours
or achieve greater market acceptance than ours or may combine to achieve market
dominance. Moreover, if our content and service offerings fail to achieve
success in the short term, we could suffer an insurmountable loss in market
share and brand acceptance.

Our current business strategy depends on a portion of our revenue being derived
from subscriptions and if our users do not subscribe or do not renew their
subscriptions, our revenue would decline.

In the second quarter of 2001, we began offering premium content and services to
customers on a subscription fee basis. A significant amount of our revenue and
cash receipts are derived from subscription services offered to our users. Many
of our competitors offer content and services similar to ours at no charge. If
users are unwilling to pay a subscription fee or if the content and services
provided do not meet customer expectations, users may not utilize our sites and
our traffic and revenue would decline.

Technical problems or intentional service adjustments with either our internal
or our outsourced computer and communications systems could interrupt or
decrease our service, resulting in decreased customer satisfaction, the possible
loss of users and advertisers and a decline in revenue.

     Our operations depend on our ability to maintain our computer systems and
equipment in effective working order. Our web sites must accommodate a high
volume of traffic and deliver frequently updated information. Any sustained or
repeated system failure or interruption would reduce the attractiveness of our
web sites to customers and advertisers and could cause us to lose users and
advertisers to our competitors. This would cause our revenue to decline. In
addition, interruptions in our systems could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Unanticipated problems affecting our
systems have caused from time to time in the past, and could cause in the
future, slower response times and interruptions in our services.

     We depend on third parties for co-location of our data servers and cannot
guarantee the security of our servers. Our primary servers currently reside in
facilities in the San Francisco Bay area. Currently, these facilities do not
provide the ability to switch instantly to another back-up site in the event of
failure of the main server site. This means that an outage at one facility could
result in our system being unavailable for at least several hours. This downtime
could result in increased costs and lost revenues which would be detrimental to
our business. Our primary Internet hosting provider, Exodus, filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in September 2001. We
cannot predict the effect this may have on its ability to continue to provide
reliable service. Further, while we are currently investigating alternative
hosting providers, should Exodus no longer be able to provide services, we may
not be able to migrate data in time to avoid disruption to our business which
could cause revenue to decline.

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                                 Snowball.com

     Fire, earthquakes, power loss, water damage, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events, may
damage our computer systems and interrupt service. Moreover, scheduled upgrades
and changes to our computer systems may increase our operating cost or result in
unsatisfactory performance. Our computer system's continuing and uninterrupted
performance is critical to our success. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems.

     California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. When power reserves for California become
low, the state has on some occasions, implemented, and may in the future
continue to implement, rolling blackouts throughout the state. If blackouts
interrupt our power supply, we may temporarily be unable to operate. In
addition, the shortages in wholesale electricity supplies have caused power
prices to increase significantly in California. If wholesale prices continue to
increase, our operating expenses will likely increase.

     Any such interruptions in our ability to continue operations could damage
our reputation, harm our ability to retain existing customers and to obtain new
customers and could result in lost revenue, any of which could substantially
harm our business and results of operations.

If we lose key personnel or are unable to hire additional qualified personnel,
or if our management team is unable to perform effectively, we will not be able
to implement our business strategy or operate our business effectively.

     Our success depends upon the continued services of our senior management
and other key personnel, many of whom would be difficult to replace. The loss of
any of these individuals would adversely affect our ability to implement our
business strategy and to operate our business effectively. In particular, the
services of Mark Jung, our chief executive officer, and Rick Boyce, our
president, would be difficult to replace. None of our officers or key employees
is covered by "key person" life insurance policies.

     Our success also depends upon our ability to continue to attract, retain
and motivate skilled employees. We believe that there are only a limited number
of persons with the requisite skills to serve in many key positions and it is
difficult to attract, retain and motivate these persons. We have in the past
experienced, and we expect to continue to experience, difficulty in hiring and
retaining skilled employees with appropriate qualifications.

     Competitors and others have in the past attempted, and may in the future
attempt, to recruit our employees. We believe that we will incur increasing
salary, benefit and recruiting expenses because of the difficulty in hiring and
retaining employees.

     Finally, our success depends on the ability of our management to perform
effectively, both individually and as a group. If our management is unable to
operate effectively in their respective roles or as a team, we will not be able
to implement our business strategy or operate our business effectively.

Our failure to manage change effectively could result in our inability to
operate our business effectively.

     We have rapidly and significantly expanded and reduced our operations and
anticipate that further change will be required to address potential market
problems and opportunities. If we fail to manage this change effectively, we
will be unable to operate our business effectively. From our incorporation in
January 1999, our business grew from approximately 40 full-time employees to a
peak of approximately 380 full-time employees in March 2000. This number has
been reduced, through attrition and lay offs, to approximately 90 full-time
employees as of October 2001. These rapid changes have placed, and we expect
them to continue to place, a significant strain on our management, operational
and financial resources. As part of these changes, we

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                                 Snowball.com

may have to implement new operational and financial procedures and controls and
expand, combine or eliminate existing networks and organizational structures.

If we are unable to identify or successfully integrate potential acquisitions
and investments, we may not grow, our expenses may increase and our management's
attention may be diverted from the operation of our business.

     Since our incorporation, we have acquired several businesses or the
selected assets of other businesses and our growth strategy includes acquiring
or making investments in complementary businesses, products, services or
technologies in the future. If we are unable to identify suitable acquisition or
investment candidates, we will not grow. Even if we do identify suitable
candidates, we might not be able to make acquisitions or investments on
commercially acceptable terms and on a timely basis. If we buy a business, we
could have difficulty in assimilating that company's personnel, operations,
products, services or technologies into ours. In fact, in 2001, we recorded an
impairment charge for the unamortized value of the goodwill and intangible
assets of one of our previous acquisitions.

We may have to litigate to protect our intellectual property rights, or to
defend claims that we have infringed the rights of others, which could subject
us to significant liability and be time consuming and expensive.

     Our success depends significantly upon our copyrights, trademarks, service
marks, trade secrets, technology and other intellectual property rights. The
steps we have taken to protect our intellectual property may not be adequate and
third parties may infringe or misappropriate our intellectual property. If this
occurs, we may have to litigate to protect our intellectual property rights.
These difficulties could disrupt our ongoing business, increase our expenses and
distract our management's attention from the operation of our business. We have
not applied for the registration of all of our trademarks and service marks, and
effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our content, services and products are
made available online. If we were prevented from using our trademarks, we would
need to re-implement our web sites and rebuild our brand identity with our
customers, users and affiliates. This would increase our operating expenses
substantially.  Companies frequently resort to litigation regarding
intellectual property rights. From time to time, we have received, and we may in
the future receive, notices of claims of infringement by Snowball or one of our
affiliates of other parties' proprietary rights. We may have to litigate to
defend claims that we have infringed the intellectual property rights of others.
Any claims of this type could subject us to significant liability, be time-
consuming and expensive, divert management's attention, require the change of
our trademarks and the alteration of content, require us to redesign our web
sites or services or require us to pay damages or enter into royalty or
licensing agreements. These royalty or licensing agreements, if required, might
not be available on acceptable terms or at all. If a successful claim of
infringement were made against us and we could not develop non-infringing
intellectual property or license the infringed or similar intellectual property
on a timely and cost-effective basis, we might be unable to continue operating
our business as planned.

We have adopted anti-takeover defenses that could delay or prevent an
acquisition of our company, even an acquisition that would be beneficial to our
stockholders.

     Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock. Issuance of the preferred stock would make it more difficult
for a third party to acquire a majority of our outstanding voting stock, even if
doing so would be beneficial to our stockholders. Without any further vote or
action on the part of the stockholders, the board of directors has the authority
to determine the price, rights, preferences, privileges and restrictions of the
preferred stock. This preferred stock, if issued, might have conversion rights
and other preferences that work to the disadvantage of the holders of common
stock.

     Our certificate of incorporation, bylaws and equity compensation plans
include provisions that may deter an unsolicited offer to purchase Snowball.
These provisions, coupled with the

                                      21
<PAGE>

                                 Snowball.com

provisions of the Delaware General Corporation Law, may delay or impede a
merger, tender offer or proxy contest involving Snowball. Furthermore, our board
of directors has been divided into three classes, only one of which will be
elected each year. Directors will only be removable by the affirmative vote of
at least 66 2/3% of all classes of voting stock. These factors may further delay
or prevent a change of control of Snowball and may be detrimental to our
stockholders.

Risks Related to Our Industry

Since our revenue is derived primarily from selling advertisements, our revenue
might decline and we might not grow if advertisers do not continue or increase
their usage of the Internet as an advertising medium.

     In the past, we have derived, and we expect to continue to derive in the
future, substantially all of our revenue from selling advertisements. However,
the prospects for continued demand and market acceptance for Internet marketing
solutions are uncertain. In particular, with the recent downturn of the U.S.
economy, there has been a reduction of advertising and marketing spending and a
negative public perception of on-line media companies, or "dot-com's" as well as
technology companies in general. If advertisers do not continue or increase
their usage of the Internet, our revenue might decline or we might not grow.
Most advertising agencies and potential advertisers, particularly local
advertisers, have only limited experience advertising on the Internet and may
not devote a significant portion of their advertising expenditures to Internet
advertising. Moreover, advertisers that have traditionally relied on other
advertising media may not advertise on the Internet. In addition, advertising on
the Internet is at a much earlier stage of development in international markets
than it is in the United States and may not fully develop in these markets. As
the Internet evolves, advertisers may find Internet advertising to be a less
attractive or effective means of promoting their products and services relative
to traditional methods of advertising and may not continue to allocate funds for
Internet advertising. Many historical predictions by industry analysts and
others concerning the growth of the Internet as a commercial medium have
overstated the growth of the Internet and should not be relied upon. This growth
may not occur or may occur more slowly than estimated. In fact, due to the
current economic downturn, our advertising revenue has declined.

     There can be no assurance that customers will continue to purchase
advertising or marketing programs or commerce partnerships on our web pages, or
that market prices for web-based advertising will not decrease due to
competitive or other factors. In addition, if a large number of Internet users
use filter software programs that limit or remove advertising from the user's
monitor, advertisers may choose not to advertise on the Internet. Moreover,
there are no widely accepted standards for the measurement of the effectiveness
of Internet advertising, and standards may not develop sufficiently to support
Internet advertising as a significant advertising medium.

Our ability to implement our business strategy and our ultimate success depend
on continued growth in the use of the Internet and the ability of the Internet
infrastructure to support this growth.

     Our business strategy depends on continued growth in the use of the
Internet and increasing the number of users who visit our networks. A decrease
in the growth of web usage, particularly usage by Gen i, would impede our
ability to implement our business strategy and our ultimate success. If the
Internet continues to experience significant growth in the number of users,
frequency of use and amount of data transmitted, the Internet infrastructure
might not be able to support the demands placed on it or the performance or
reliability of the Internet might be adversely affected. Web sites have
experienced interruptions in service as a result of outages and other delays
occurring throughout the Internet network infrastructure. If these outages or
delays occur frequently in the future, Internet usage, as well as the usage of
our web sites, could grow more slowly than expected or decline. Security and
privacy concerns may also slow growth.

                                      22
<PAGE>

                                 Snowball.com

Because our revenue ultimately depends upon Internet usage generally as well as
on our web sites, our business may suffer as a result of declines in rate of
usage.

We might have to expend significant capital or other resources to protect our
networks from unauthorized access, computer viruses and other disruptive
problems.

     Internet and online service providers 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. We might be required to expend significant capital or other resources to
protect against the threat of security breaches or to alleviate problems caused
by such breaches. Nevertheless, security measures that we implement might be
circumvented. Eliminating computer viruses and alleviating other security
problems may also require interruptions, delays or cessation of service to users
accessing web pages that deliver our content and services. In addition, a party
who circumvents our security measures could misappropriate proprietary
information or cause interruptions in our operations.

We may be sued regarding privacy concerns, subjecting us to significant
liability and expense.

     If a party were able to penetrate our network security or otherwise
misappropriate our users' personal information or credit card information, we
could be subject to significant liability and expense. We may be liable for
claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims could also be based on other
misuses of personal information, such as unauthorized marketing purposes. These
claims could result in costly litigation. The Federal Trade Commission and state
agencies have been investigating various Internet companies regarding their use
of personal information. In 1998, the United States Congress enacted the
Children's Online Privacy Protection Act of 1998. We depend upon collecting
personal information from our customers and the regulations promulgated under
this act have made it more difficult for us to collect personal information from
some of our customers. We could incur additional expenses if new regulations
regarding the use of personal information are introduced or if our privacy
practices are investigated. Furthermore, the European Union recently adopted a
directive addressing data privacy that may limit the collection and use of
information regarding Internet users. This directive and regulations enacted by
other countries may limit our ability to target advertising or to collect and
use information internationally.

Information displayed on and communication through our networks could expose us
to significant liability and expense.

     We face possible liability for defamation, negligence, copyright, patent or
trademark infringement and other claims, such as product or service liability,
based on the nature and content of the materials published on or downloaded from
our and our affiliate web sites. These types of claims have been brought,
sometimes successfully, against Internet companies and print publications in the
past, and the potential liability associated with these claims is significant.
We could also be subjected to claims based upon the online content that is
accessible from our web sites through links to other web sites or through
content and materials that may be posted in chat rooms or bulletin boards. We do
not verify the accuracy of the information supplied by third-party content
providers, including affiliates. We also offer email services which may subject
us to potential risks, such as liabilities or claims resulting from unsolicited
email, lost or misdirected messages, illegal or fraudulent use of email or
interruptions or delays in email service. The law in these areas is unclear.
Accordingly, we are unable to predict the potential extent of our liability. Our
insurance may not cover potential claims of this type, or may not be adequate to
indemnify us for all liability that may be imposed.

                                      23
<PAGE>

                                 Snowball.com

Changes in regulation of domain names may result in the loss or change of our
domain names, a reduction in brand awareness among our customers and a
diminished ability to attract advertisers and generate revenue.

     We hold various domain names relating to our networks and brands. In the
United States, the National Science Foundation has appointed a limited number of
entities as the current exclusive registrars for the ".com," ".net" and ".org"
generic top level domains. We expect future changes in the United States to
include a transition from the current system to a system controlled by a non-
profit corporation and the creation of additional top level domains.
Requirements for holding domain names also are expected to be affected. These
changes may result in the loss or change of our domain names, a reduction in
brand awareness among our customers and a diminished ability to attract
advertisers and generate revenue. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights. In
addition, we may lose our domain names to third parties with trademarks or other
proprietary rights in those names or similar names.

Future regulation of the Internet may slow its growth, resulting in decreased
demand for our services and increased costs of doing business.

     Although we are subject to regulations applicable to businesses generally,
few laws or regulations exist that specifically regulate communications and
commerce over the Internet. We expect more stringent laws and regulations
relating to the Internet to be enacted due to the increasing popularity and use
of the Internet and other online services. Future regulation of the Internet may
slow its growth, resulting in decreased demand for our services and increased
costs of doing business. New and existing laws and regulations are likely to
address a variety of issues, including:

  .  user privacy and expression;

  .  taxation and pricing;

  .  the rights and safety of children;

  .  intellectual property; and

  .  information security.

     Currently we may be subject to Sections 5 and 12 of the Federal Trade
Commission Act, which regulate advertising in all media, including the Internet,
and require advertisers to have substantiation for advertising claims before
disseminating advertisements. The Federal Trade Commission recently brought
several actions charging deceptive advertising via the Internet, and is actively
seeking new cases involving advertising via the Internet. We also may be subject
to the provisions of the recently enacted Communications Decency Act, which,
among other things, imposes substantial monetary fines and/or criminal penalties
on anyone who distributes or displays certain prohibited material over the
Internet or knowingly permits a telecommunications device under its control to
be used for this purpose. In addition, several telecommunications companies and
local telephone carriers have petitioned the Federal Communications Commission
to regulate Internet service providers and online service providers in a manner
similar to long distance telephone carriers and to impose access fees. If this
were to occur, the cost of communicating on the Internet could increase
substantially, potentially decreasing the use of the Internet.

     Finally, the applicability to the Internet and other online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or

                                      24
<PAGE>

                                 Snowball.com

regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the Internet and other online services could also increase
our costs of doing business, discourage Internet communications and reduce
demand for our services.

Risks Related to the Securities Markets

If our common stock ceases to be listed for trading on the Nasdaq SmallCap
Market, the value and liquidity of your investment may be adversely affected.

     On May 31, 2001, we participated in an oral hearing before the Nasdaq
Listing Qualifications Panel (the "Panel") to request a temporary exception from
the Nasdaq Marketplace Rules concerning the bid price of our common stock and
the market value of our public float so that our common stock would continue to
trade on the Nasdaq National Market. The Panel notified us on July 23, 2001 that
it would not continue to list our common stock on the Nasdaq National Market,
but rather would transfer the listing of our common stock on July 25, 2001,
under a temporary exception from its minimum bid price rule, from the Nasdaq
National Market to the Nasdaq SmallCap Market. This temporary exception was to
expire September 24, 2001. On October 2, 2001, the Panel notified us that as of
September 27, 2001 Nasdaq implemented a general market moratorium on the minimum
bid price and market value of public float requirements through January 1, 2002.
Additionally, we were notified that our hearing had been closed and we would
continue to be listed on the Nasdaq SmallCap Market.

     We cannot assure you that we will be able to meet or maintain all of the
requirements for continued listing on the Nasdaq SmallCap Market in the future.
If we do not meet the requirements, we expect that our common stock would be
traded on the NASD Over-The-Counter Bulletin Board. If our common stock were to
be delisted from the Nasdaq SmallCap Market, the liquidity of your investment
would be diminished and the volatility of the trading price of our common stock
would increase.

We expect to experience volatility in our stock price, which could negatively
affect your investment.

     Our common stock has only recently been traded in a public market and an
active trading market for our stock may not be sustained. Moreover, the trading
price of our common stock is likely to be highly volatile in response to a
number of factors, such as:

  .  actual or anticipated variations in our quarterly results of operations;

  .  the addition or loss of affiliates;

  .  changes in the market valuations of other Internet content and
     service companies;

  .  public perception of Internet content and service companies;

  .  announcements by us of significant acquisitions, strategic partnerships,
     joint ventures or capital commitments;

  .  changes in financial estimates or recommendations by securities analysts;

  .  additions or departures of key personnel;

  .  additions or departures of key customers; and

  .  failure to maintain minimum Nasdaq listing requirements.

                                      25
<PAGE>


                                 Snowball.com


     In addition, broad market and industry factors may materially and adversely
affect the market price of our common stock, regardless of our operating
performance. The Nasdaq Market, and the market for Internet and technology
companies in particular, has experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of these companies.

Class action litigation resulting from volatility of the trading price of our
common stock would likely result in substantial costs and a diversion of
management's attention and resources.

     Volatility in the trading price of our common stock could result in
securities class action litigation. Any litigation would likely result in
substantial costs and a diversion of management's attention and resources.

Should our stockholders sell a substantial number of shares of common stock in
the public market, the price of our common stock could fall.

     Our current stockholders include individuals or firms that hold a
substantial number of shares which they recently became entitled to sell in the
public market. Sales of a substantial number of these shares could reduce the
market price of our common stock. These sales could make it more difficult for
us to sell equity or equity-related securities in the future at a time and price
that we deem appropriate.

Our officers and directors and their affiliates exercise significant control
over us, which could disadvantage other stockholders.

     Our executive officers and directors and their affiliates together owned
approximately 65% of our outstanding common stock as of September 30, 2001.
Christopher Anderson, the chairman of our board of directors, owned
approximately 47% of our outstanding common stock alone. As a result, these
stockholders exercise significant control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of control could disadvantage other
stockholders with interests different from those of our officers, directors and
their affiliates. For example our officers, directors and their affiliates could
delay or prevent someone from acquiring or merging with us even if the
transaction would benefit other stockholders.

Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

     Certain statements contained in this Form 10-Q that are not statements of
historical facts are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based on
beliefs of management, as well as assumptions made by and information currently
available to management. Such statements also are based on current expectations,
estimates and projections about our industry, our beliefs and our assumptions.
All statements, other than statements of historical fact, included in this Form
10-Q, regarding our strategy, future operations, financial position, estimated
revenue, projected costs, prospects, plans and objectives of management are
forward-looking statements. Words such as "may," "will," "should,"
"anticipates," "projects," "predicts," "expects," "intends," "plans,"
"believes," "seeks" and "estimates," and variations of these words and similar
expressions, are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. These statements
are only predictions and are subject to risks, uncertainties and other factors,
many of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements.

                                      26
<PAGE>


                                 Snowball.com


Item 3 - Quantitative and Qualitative Disclosures About Market Risk

     Our exposure to market risk is limited to interest income sensitivity,
which is affected by changes in the general level of interest rates in the
United States, particularly since the majority of our investments are in short-
term debt securities issued by corporations or divisions of the United States
government. We place our investments with high quality issuers and limit the
amount of credit exposure to any one issuer. Due to the nature of our short-term
investments, we believe that we are not subject to any material market risk
exposure.

     We had no foreign currency hedging or other derivative financial
instruments as of September 30, 2001.

Part II - OTHER INFORMATION

Item 1 - Legal Proceedings

     Not applicable

Item 2 - Changes in Securities and Use of Proceeds

     (d) Use of Proceeds

     Snowball completed the initial public offering of its common stock in March
2000. The managing underwriters in the offering were Goldman, Sachs & Co., Chase
Securities, Inc. and FleetBoston Robertson Stephens, Inc. The 347,222 shares of
the common stock sold in the offering were registered under the Securities Act
on a Registration Statement on Form S-1 (No. 333-93487). The Securities and
Exchange Commission declared the Registration Statement effective on March 20,
2000.

     The offering commenced on March 24, 2000 and terminated following the sale
of all securities registered under the Registration Statement (excluding 52,083
shares of common stock reserved for issuance in connection with the exercise of
the underwriters' over-allotment option). The initial public offering price was
$198 per share for an aggregate initial public offering of $68.8 million.

     In conjunction with its initial public offering, Snowball paid a total of
$4.8 million in underwriting discounts and commissions. In addition, the
following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the
offering. None of the amounts shown was paid directly or indirectly to any
director, officer, general partner of Snowball or their associates, to persons
owning 10% or more of any class of equity securities of Snowball or to any
affiliate of Snowball.

<TABLE>
<S>                                                                   <C>
Securities and Exchange Commission registration fee.................  $   22,770
NASD filing fee.....................................................       9,125
Nasdaq National Market filing fee...................................      95,000
Accounting fees and expenses........................................     500,000
Legal fees and expenses.............................................     600,000
Road show expenses..................................................      85,000
Printing and engraving expenses.....................................     370,000
Blue sky fees and expenses..........................................      10,000
Transfer agent and registrar fees and expenses......................      10,000
Miscellaneous.......................................................     298,105
                                                                      ----------
    Total...........................................................  $2,000,000
                                                                      ==========
</TABLE>

                                      27
<PAGE>

                                 Snowball.com

     After deducting the underwriting discounts and commissions and the offering
expenses, the estimated net proceeds to Snowball from the offering were
approximately $62.1 million.

     From March 24, 2000 to September 30, 2001, we used the net proceeds from
this offering for repayment of debt, investing in short-term, interest bearing,
investment grade securities and general corporate purposes, including
advertising and promoting our brands, maintaining our sales and marketing
activities, purchasing fixed assets and improving our facilities.

     In addition, during the nine months ended September 30, 2001, we used
approximately $0.9 million of the net proceeds from this offering to repurchase
approximately 148,000 shares of our common stock under the terms of our stock
repurchase program as approved by the board of directors in December 2000.

     We expect that we will use the remaining net proceeds for short-term,
interest-bearing, investment-grade securities, lease payments that may be
incurred under our credit facility, purchases of fixed assets, possible
acquisitions, common stock repurchases and other general corporate purposes.

Item 3 - Defaults Upon Senior Securities

     Not applicable

Item 4 - Submission of Matters to a Vote of Security Holders

     We held a special meeting of stockholders on September 11, 2001. A
description of the matters voted upon and the results of such meeting are set
forth below:

<TABLE>
<CAPTION>
                                                                          Votes                Votes                 Votes
                                                                           For                Against              Abstained
                                                                        ---------             -------              ---------
<S>                                                                     <C>                   <C>                  <C>
1.  Amendment to our cerfification of incorporation
     authorizing our Board of Directors, at their
     discretion, to elect to effect a reverse split of
     our common stock at an exchange ratio of:
      One-to-three....................................................   1,642,721              17,227                1,150
      One-to-four.....................................................   1,642,876              16,186                2,036
      One-to-five.....................................................   1,644,437              14,649                2,013
      One-to-six......................................................   1,642,182              16,836                2,081
      One-to-seven....................................................   1,642,060              16,950                2,089
      One-to-eight....................................................   1,641,990              17,066                2,043
      One-to-nine.....................................................   1,641,797              17,267                2,034
      One-to-ten......................................................   1,643,499              16,130                1,470

    There were no votes withheld or broker non-votes.

2.  Amendment of corporate name from
     "Snowball.com, Inc." to "Snowball, Inc.".........................   1,653,050               7,423                  626

    There were no votes withheld or broker non-votes.
</TABLE>

                                      28

<PAGE>

                                 Snowball.com

Item 5 - Other Information

     Shareholder approval was obtained at our special meeting of stockholders on
September 11, 2001, which authorized our Board of Directors, at their
discretion, to elect to effect a reverse stock split of our outstanding common
stock in a range between one-to-three and one-to-ten. Accordingly, the Board
authorized a one-for-six reverse stock split which became effective September
24, 2001. This action follows our one-for-three reverse stock split which was
effected March 6, 2001. All share and per share information presented in this
form 10-Q have been adjusted for these splits.

     Shareholder approval was obtained at our special meeting of stockholders on
September 11, 2001, to amend our corporate name from "Snowball.com, Inc." to
"Snowball, Inc.". Snowball has filed with the state of Delaware to effect this
name change; however, as of the date of this 10-Q, our request has not yet been
approved. Snowball has filed for a fictitious business name in San Mateo County
and is currently doing business as "Snowball."

     On May 31, 2001, we participated in an oral hearing before the Nasdaq
Listing Qualifications Panel (the "Panel") to request a temporary exception from
the Nasdaq Marketplace Rules concerning the bid price of our common stock and
the market value of our public float so that our common stock would continue to
trade on the Nasdaq National Market. The Panel notified us on July 23, 2001 that
it would not continue to list our common stock on the Nasdaq National Market,
but rather would transfer the listing of our common stock on July 25, 2001,
under a temporary exception from its minimum bid price rule, from the Nasdaq
National Market to the Nasdaq SmallCap Market. This temporary exception was to
expire September 24, 2001. On October 2, 2001, the Panel notified us that as of
September 27, 2001 Nasdaq implemented a general market moratorium on the minimum
bid price and market value of public float requirements through January 1, 2002.
Additionally, we were notified that our hearing had been closed and we would
continue to be listed on the Nasdaq SmallCap Market.

Item 6 - Exhibits and Reports on Form 8-K

  (a)  Exhibits

       3.01  Registrant's Amended and Restated Certificate of Incorporation.

       3.02  Registrant's Amended Bylaws.

  (b)  Reports on Form 8-K

       None

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<PAGE>

                                 Snowball.com

                                  SIGNATURES

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


                                      SNOWBALL.COM, INC.

Date: November 13, 2001               By /s/ Mark A. Jung
      -----------------                  ----------------------
                                         Mark A. Jung
                                         Chief Executive Officer and Director


Date: November 13, 2001               By /s/ James R. Tolonen
      -----------------                  ----------------------
                                         James R. Tolonen
                                         Chief Financial Officer, Chief
                                         Operating Officer and Director

                                      30