<PAGE>

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

                                   FORM 10-Q

(x)  Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934.

                For the Quarterly Period Ended March 31, 2000

                                      or

( )  Transition report pursuant to section 13 or 15(d) of the Securities
     Exchange Act of 1934.

              For the transition period from _______ to ________

                       Commission File Number  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)

      250 EXECUTIVE PARK BOULEVARD, SUITE 4000, SAN FRANCISCO, CA 94134
             (Address of principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant 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).
Yes  X   No ___
    ---
Indicate by check mark whether the registrant has been subject to such filing
requirements for the past 90 days.   Yes ___   No  X
                                                  ---

The number of shares of the registrant's common stock outstanding as
of May 1, 2000 was 37,576,400.
<PAGE>

                              SNOWBALL.COM, INC.

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

   Item 1. Condensed Consolidated Financial Statements (unaudited)

           Condensed Consolidated Balance Sheets as of
           December 31, 1999 and March 31, 2000                               3

           Condensed Consolidated Statements of Operations for
           the Three Months Ended March 31, 1999 and 2000                     4

           Condensed Consolidated Statements of Cash Flows for
           the Three Months Ended March 31, 1999 and 2000                     5

           Notes to Condensed Consolidated Financial Statements               6

   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                9

   Item 3. Quantitative and Qualitative Disclosures About Market Risk        24

Part II. Other Information

   Item 1. Legal Proceedings                                                 24

   Item 2. Changes in Securities and Use of Proceeds                         24

   Item 3. Defaults Upon Senior Securities                                   26

   Item 4. Submission of Matters to a Vote of Security Holders               26

   Item 5. Other Information                                                 26

   Item 6. Exhibits and Reports on Form 8-K                                  26

Signatures                                                                   27
</TABLE>
<PAGE>

                              SNOWBALL.COM, INC.

PART I - FINANCIAL INFORMATION
         ---------------------

Item 1.  Condensed Consolidated Financial Statements (unaudited)
         -------------------------------------------------------

A.    Condensed Consolidated Balance Sheets (unaudited)
      -------------------------------------------------
      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                 March 31,                  December 31,
                                                                                   2000                         1999
                                                                            ----------------              ----------------
<S>                                                                     <C>                           <C>
 ASSETS
 Current Assets
       Cash and cash equivalents                                             $     84,669                    $    25,489
       Short-term investments                                                       6,111                          8,000
       Accounts receivable, net                                                     3,601                          2,560
       Prepaid expenses and other current assets                                    4,452                          2,235
                                                                          ---------------               ----------------
            Total current assets                                                   98,833                         38,284

       Goodwill and intangible assets, net                                          7,800                          3,355
       Fixed assets, net                                                            5,168                          4,368
       Other assets                                                                   664                            711
                                                                          ---------------                ---------------
            Total assets                                                     $    112,465                    $    46,718
                                                                          ===============                ===============

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current Liabilities
       Accounts payable                                                      $      9,368                    $     4,757
       Accrued liabilities and other                                                5,475                          3,081
       Deferred revenue                                                             1,370                            702
       Notes and loan payable                                                      12,400                            400
       Current equipment financing obligations                                      1,564                          1,081
                                                                          ---------------                ---------------
            Total current liabilities                                              30,177                         10,021

 Long-term equipment financing obligations                                          2,741                          2,036

 Stockholders' Equity
       Common stock, $0.001 par value:
         Authorized:    1999 - 37,500,000 shares
                        2000 - 100,000,000 shares
         Outstanding:   1999 - 5,585,500 shares
                        2000 - 37,567,300 shares                                       38                              6
       Convertible preferred stock, $0.001 par value, issuable in series
         20,000,000 shares authorized at December 31, 1999                              -                             18
       Additional paid-in capital                                                 153,919                         88,662
       Other stockholders' equity                                                 (12,721)                       (14,264)
       Accumulated deficit                                                        (61,689)                       (39,761)
                                                                          ---------------                ---------------
            Total stockholders' equity                                             79,547                         34,661
                                                                          ---------------                ---------------
            Total liabilities and stockholders' equity                       $    112,465                    $    46,718
                                                                          ===============                ===============
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                       SNOWBALL.COM, INC.

B.    Condensed Consolidated Statements of Operations (unaudited)
      -----------------------------------------------------------
      (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                       Three Months Ended March 31,
                                                                                     2000                      1999
                                                                                ---------------           ---------------
<S>                                                                          <C>                        <C>
Revenue                                                                           $       4,591               $       898
Cost of revenue                                                                           2,531                       591
                                                                                ---------------           ---------------
       Gross margin                                                                       2,060                       307

Operating expenses:
      Production and content                                                              3,570                       853
      Engineering and development                                                         2,525                       417
      Sales and marketing                                                                13,119                       656
      General and administrative                                                          1,886                       894
      Stock-based compensation (1)                                                        1,954                         -
      Amortization of goodwill and intangible assets                                        738                         -
                                                                                ---------------           ---------------
           Total operating expenses                                                      23,792                     2,820
                                                                                ---------------           ---------------

Loss from operations                                                                    (21,732)                   (2,513)
Interest and other income (expense), net                                                   (196)                      (25)
                                                                                ---------------           ---------------
Net Loss                                                                          $     (21,928)              $    (2,538)
                                                                                ===============           ===============

Net Loss Per Share - Basic and Diluted                                           $       (5.56)              $    (24.64)
                                                                                ===============           ===============
Shares used in per share calculation                                                      3,943                       103
                                                                                ===============           ===============
Pro Forma Net Loss Per Share - Basic and Diluted                                         $(0.80)              $     (0.26)
                                                                                ===============           ===============
Shares used in pro forma per share calculation                                           27,250                     9,900
                                                                                ===============           ===============

/(1)/   Stock-based compensation relates to the following in 2000:
        Cost of revenue                                                           $           5
        Production and content                                                              371
        Engineering and development                                                         239
        Sales and marketing                                                                 535
        General and administrative                                                          804
                                                                                ---------------
            Total                                                                 $       1,954
                                                                                ===============

</TABLE>

See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                           SNOWBALL.COM, INC.

C.    Condensed Consolidated Statements of Cash Flows (unaudited)
      -----------------------------------------------------------
      (In thousands)

<TABLE>
<CAPTION>
                                                                               Three Months Ended March 31,
                                                                                2000                    1999
                                                                          ------------------      ----------------
<S>                                                                    <C>                      <C>
Cash Flows from Operations
      Net loss                                                              $   (21,928)           $    (2,538)
      Reconciliation to net cash used in operations:
         Depreciation and amortization                                            1,491                     18
         Stock-based compensation                                                 1,954                      -
         Charitable contribution of common stock                                  1,000                      -
         Other noncash expenses                                                     179                     (1)
         Changes in assets and liabilities:
            Accounts receivable                                                  (1,188)                    (5)
            Prepaid expenses and other assets                                    (2,216)                  (155)
            Accounts payable and accrued liabilities                              7,005                  1,569
            Deferred revenue                                                        668                    286
                                                                      -----------------        ---------------
Net cash used in operating activities                                           (13,035)                  (826)
                                                                      -----------------        ---------------
Cash Flows from Investment Activities
      Decrease in short-term investments                                          1,889                      -
      Acquisition of goodwill and intangible assets                              (4,850)                     -
      Purchases of fixed assets                                                  (1,552)                  (669)
                                                                      -----------------        ---------------
Net cash used in investment activities                                           (4,513)                  (669)
                                                                      -----------------        ---------------
Cash Flows from Financing Activities
      Proceeds from issuance of common stock related
         to initial public offering, net                                         62,033                      -
      Proceeds from issuance of common stock and preferred stock                  1,507                  2,350
      Proceeds from equipment financing obligations                               1,526                      -
      Payment of equipment financing obligations                                   (338)                     -
      Proceeds from borrowings                                                   12,000                      -
                                                                      -----------------        ---------------
Net cash provided by financing activities                                        76,728                  2,350
                                                                      -----------------        ---------------
Net increase in cash and cash equivalents                                        59,180                    855
Cash and cash equivalents at beginning of period                                 25,489                      -
                                                                      ------------------       ---------------
Cash and cash equivalents at end of period                                  $    84,669            $       855
                                                                      ==================       ===============
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>

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 ("Snowball" or collectively the
     "Company") after elimination of intercompany amounts.

     The information furnished in this report reflects all normal recurring
     adjustments which, in the opinion of management, are necessary for a fair
     statement of the results for the interim periods. Results of operations for
     interim periods are not necessarily indicative of results for the full
     year. These unaudited condensed consolidated financial statements should be
     read in conjunction with the Company's audited financial statements and
     notes thereto, which include information as to significant accounting
     policies, included in the Company's Registration Statement on Form S-1
     (Registration No. 333-93487) declared effective by the Securities and
     Exchange Commission on March 20, 2000.

2.   THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

     Snowball is an Internet company that operates a network of destination
     websites for Generation i and the companies that want to reach them. For
     these web-centric young adults, Snowball provides current content, relevant
     services such as email and instant messaging, a forum for interacting with
     one another and carefully selected merchandise. In addition to creating
     original content, we expand the breadth and depth of our content offerings
     by adding affiliated web sites to our network. While allowing us to build
     our traffic and brand rapidly, this network model also allows Snowball 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 Generation i. We
     organize both our own web sites and affiliated web sites around networks
     that target different segments of Generation i, providing a demographic and
     lifestyle targeting mechanism for our marketing customers.

     Revenue Recognition

     Revenue is derived principally from short-term contracts for banner
     advertisements, buttons and textlinks. 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, commerce partnerships and other marketing programs under
     contracts in which we commit to provide our business customers with
     promotional opportunities in addition to traditional banner advertising. We
     generally receive a fixed fee plus 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 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

                                       6
<PAGE>

                              SNOWBALL.COM, INC.

     impressions. The portion of any up-front nonrefundable fee specified in the
     contract related to the up-front design work is also recognized at 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.

3.   ACQUISITIONS

     On February 16, 2000, Snowball signed an asset purchase agreement to
     acquire all of the assets of GameSages, an Internet content provider, in
     exchange for approximately $4.8 million in cash (of which $500,000 was
     placed in escrow to secure certain obligations). The financial results of
     this entity were insignificant and, therefore, no pro forma information
     reflecting this acquisition has been presented.

4.   STOCK OPTIONS

     In the three month period ended March 31, 2000, options to purchase
     3,008,000 shares of common stock were granted to employees. These options
     will become exercisable over a period of four to five years from the date
     of grant. The exercise price of these options were between $8.50 and $11.00
     per share. The total compensation expense associated with the granting of
     these options is $1.4 million. This amount has been included as a reduction
     in stockholders' equity and will be charged to expense in accordance with
     the vesting provisions of these options as the employee services are
     performed.

5.   NET LOSS PER SHARE

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

     Pursuant to the Securities and Exchange Commission Staff Accounting
     Bulletin No. 98, common stock and convertible preferred stock issued or
     granted for nominal consideration prior to the effective date of the
     initial public offering must be included in the calculation of basic and
     diluted pro forma net income (loss) per common share as if they had been
     outstanding for all periods presented.

     In accordance with SFAS No. 128, basic and diluted net income (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, have been computed as
     described above and also give effect 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.

<TABLE>
<CAPTION>
                                                                       Three months ended March 31,
                                                                             2000        1999
                                                                       ------------    ------------
       <S>                                                             <C>             <C>
       Net loss                                                        $    (21,928)   $    (2,538)

       Basic and diluted:
        Weighted average shares of common stock outstanding                   8,445          1,736
        Less: weighted average shares subject to repurchase                  (4,502)        (1,633)
                                                                       ------------    -----------
        Weighted average shares used in computing
         basic and diluted net loss per share                                 3,943            103
                                                                       ------------    -----------
       Basic and diluted net loss per share                            $      (5.56)   $    (24.64)
                                                                       ============    ===========
       Pro forma:
        Shares used in the above                                              3,943            103
        Pro forma adjustment to reflect weighted effect of assumed
         conversion of convertible preferred stock                           23,307          9,797
                                                                       ------------    -----------
        Shares used in computing pro forma basic
         and diluted net loss per share                                      27,250          9,900
                                                                       ------------    -----------
       Pro forma basic and diluted net loss per share                  $      (0.80)   $     (0.26)
                                                                       ============    ===========
</TABLE>

6.   INITIAL PUBLIC OFFERING

     In March 2000, the Company completed its initial public offering of
     6,250,000 shares of common stock and realized proceeds, net of underwriting
     discounts, commission and issuance costs, of approximately $62 million.

7.   COMPREHENSIVE INCOME

     The Company has adopted SFAS 130, "Reporting Comprehensive Income," which
     establishes standards for reporting comprehensive loss and its components
     in the financial statements. To date, Snowball's comprehensive loss has
     equaled its net loss.

8.   RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
     Instruments and Hedging Activities." SFAS 133 establishes methods of
     accounting for derivative financial instruments and hedging activities
     related to those instruments as well as other hedging activities, and is
     effective for fiscal years beginning after June 15, 2000, as amended by
     SFAS No. 137. Snowball does not currently hold any derivatives and does not
     expect this pronouncement to materially impact the results of its
     operations.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
     101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes
     certain areas of the Staff's views in applying generally accepted
     accounting principles to revenue recognition in financial statements. In
     March 2000, the SEC issued SAB No. 101A to defer for one quarter the
     effective date of implementation of SAB No. 101 with earlier application
     encouraged. The Company is required to adopt SAB 101 in the second quarter
     of fiscal 2000. Snowball believes that its current revenue recognition
     principles comply with SAB 101.

                                       8
<PAGE>

                              SNOWBALL.COM, INC.

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 Registration Statement on Form
S-1 (Registration No. 333-93487) 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 an
independent division of Imagine Media, Inc. During this period, we focused our
operating activities primarily on the creation of our IGN, ChickClick and
PowerStudents 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. The Company was incorporated as a
separate entity in January 1999.

     In addition to the creation of our own web site content, our relationships
with our affiliates are an important part of our business model. By adding new
affiliates to our networks, we are able to gain new content and to increase the
consolidated page views of our networks rapidly. We typically enter into
agreements with affiliates for periods of between six months and five years
under which we 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. Typically, we pay affiliates a portion
of the revenue generated from advertising, promotions and sponsorships run on
their pages and in some cases we pay minimum guaranteed payments.

     Since our inception, we have acquired several of our affiliates. We
anticipate that we may acquire additional affiliates and selected assets of
affiliates in the future.

     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.

     To date, we have derived revenue principally from short-term contracts for
banner advertisements, 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

                                       9
<PAGE>

                              SNOWBALL.COM, INC.

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, commerce partnerships and other marketing programs under
contracts in which we commit to provide our business customers with promotional
opportunities in addition to traditional banner advertising. These agreements
typically provide for the delivery of advertising impressions on our web sites,
exclusive placement on our networks, special content and promotional offers, the
design and development of customized sites to enhance the promotional objectives
of the advertiser or commerce partner. We generally receive a fixed fee plus
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 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. The portion of any up-front nonrefundable
fee specified in the contract related to the up-front design work is also
recognized at 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.

     Revenue has increased each year since our inception, although we have never
been profitable. We cannot assure you that our revenue will continue to grow or
that we will ever achieve or maintain profitability. We anticipate that we will
incur additional operating losses at least through 2001.

                             Results of Operations

Revenue
Revenue was $4.6 million and $0.9 million for the three months ended March 31,
2000 and 1999, respectively. Revenue during the first quarter of 2000 increased
411% due primarily to our expansion efforts in sales and marketing and increases
in our available inventory of internal and affiliated pageviews compared to the
same quarter of 1999, our first operating quarter as a corporation.

Cost of Revenue
Cost of revenue consists primarily of expenses related to operating
Company-owned web sites, guaranteed payment or the portion of revenue owed to
the affiliates for advertising and marketing placed on their web sites, and the
costs and license fees of content and community tools. As a result of expanding
our web site operations, cost of revenue increased to $2.5 million during the
first quarter of 2000 compared to $0.6 million in the prior year period. At
March 31, 2000, we had 236 affiliates compared to 99 at March 31, 1999.
Accordingly, hosting costs and payments to affiliates increased during this
period. Gross margin improved to 45% for the first quarter in 2000 compared to
34% in 1999 due primarily to the increase in total revenues and the mix of
advertisements and marketing programs placed on our web sites compared to those
placed on affiliate web sites. These costs are expected to vary from period to
period as we acquire an affiliate or selected sites from an affiliate or as we
expand 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

                                       10
<PAGE>

                              SNOWBALL.COM, INC.

compensation and amortization of goodwill and intangible assets. Operating
expenses in all categories increased as a result of our growth from
approximately 60 employees at March 31, 1999 to 380 employees at March 31, 2000
and increases in our marketing and advertising expenses. Additionally, this
increase is attributable primarily to increases in personnel and outside
consulting cost, and increases in rent and facilities expenses for expanding our
principal office space in San Francisco and opening new offices in Los Angeles
and New York. Costs may increase due to our expected growth of the business,
relocation of our principal offices in the second half of 2000, and additional
legal, accounting and filing costs associated with operations as a public
company.

Production and Content: Costs increased to $3.6 million in the first quarter of
2000 compared to $0.9 million in the prior year period, primarily as a result of
expanding our editorial, artistic and production staff; payments to additional
freelance writers and artist; and telecommunications and computer-related
expenses for the creation of content for our web sites.

Engineering and Development: Expenses increased to $2.5 million during the three
months ended March 31, 2000 from $0.4 million during the similar period of the
prior year. The increase is primarily due to additional personnel, consulting
and recruiting fees associated with expanding our development and programming
efforts and depreciation expense associated with the increase in capital
equipment.

Sales and Marketing: Expenses consist primarily of personnel and related costs
for our direct sales force and marketing staff. In addition, these expenses
include the cost of marketing programs such as advertisements, trade shows,
promotional activities and media events. Sales and marketing expenses increased
to $13.1 million for the three months ended March 31, 2000 compared to $0.7
million for the prior year period. The increase resulted from costs associated
with increasing the sales and marketing staff as well as increases in our
advertising, marketing and branding activities. Beginning March 2000 and
continuing through May 2000, we also conducted a national television and radio
advertising campaign to increase awareness of the Company among our target
audience and customers.

We may increase our sales and marketing expenses in future periods. There can be
no assurances that these efforts will increase traffic to our web site or
increase revenue.

General and administrative: Expenses increased to $1.9 million for the first
quarter of 2000 compared to $0.9 million in the first quarter of 1999.
Additionally, included in the first quarter of 2000 was a one-time non-cash
contribution of 100,000 shares of our common stock with an estimated fair value
of $1 million to a charitable foundation. The first quarter of 1999 included a
one-time charge of $0.6 million related to assets transferred from Imagine
Media.

Stock-based compensation: We recognized $2 million of stock-based compensation
expense for the three months ending March 31, 2000. This amount represents the
amortization of the difference between the exercise price and the deemed fair
value of our common stock on the grant date. At March 31, 2000, we had $9.7
million to be amortized over the remaining vesting period, generally four years.
No amount was recognized during the first quarter of 1999. We did not grant any
options prior to our incorporation in January 1999.

                                       11
<PAGE>

                              SNOWBALL.COM, INC.

Amortization of intangible assets: For the three months ended March 31, 2000
amortization expenses of $0.7 million includes expenses associated with the 1999
acquisition of Extreme Interactive Media, Inc. and Ameritrak, Inc. and prepaid
marketing and distribution rights. Additionally, in the first quarter of 2000,
the Company acquired GameSages LLC, for $4.8 million in cash, which was recorded
to goodwill and intangible assets. Amortization of these assets is typically
over three years. No acquisitions were made during the first quarter of 1999.

                        Liquidity and Capital Resources

     Cash used by operations totaled $13 million during the first three months
of 2000 compared to $0.8 million during the first three months of 1999. The
increase in cash used by operations resulted primarily from increases in net
losses, partially offset by increases in accounts payable and accrued
liabilities. Working capital at March 31, 2000 amounted to $68.7 million,
including cash and equivalents and short-term investments of $90.8 million.

     Capital expenditure increased $0.9 million to $1.6 million for the three
months ended March 31, 2000 compared to the prior year period, primarily for
purchases of computer equipment and software associated with the increase in
personnel and increase in traffic to our web sites. Capital expenditure for the
remainder of 2000 is expected to increase to more than $15 million, primarily
for leasehold improvements.

     Financing activities provided cash of $76.7 million for the first quarter
of 2000. In March 2000, we raised net proceeds of approximately $62 million from
an initial public offering of 6,250,000 shares of our common stock. We expect to
use the proceeds from this offering to fund working capital and general
corporate purposes, including network expansion and content development,
relocation of our offices and possible acquisitions of affiliates. Pending such
uses, we have invested the net 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 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 lessors to purchase 31,595 shares of our
common stock at $3.17 per share and 21,097 shares of our common stock at $7.11
per share. These credit facilities do not include any financial covenants. On
March 24, 2000, the lessor exercised the warrants associated with these credit
facilities and executed a non-cash conversion into 29,960 shares of common
stock.

     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, which bear interest at the rate of 11% per annum, and warrants
to purchase 270,000 shares of our common stock at an exercise price of $8.44 per
share. The note holders maintained a first position lien on all of our assets,
excluding fixed assets. These credit facilities do not include any financial
covenants. In December 1999, $12 million of the loan was repaid and the note
holders cancelled $3 million of indebtedness under the notes in exchange for
shares of our Series C preferred stock at $10 per share. In February 2000,

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                              SNOWBALL.COM, INC.

we borrowed $12 million, under the terms of this loan agreement. In April 2000,
we repaid $12.3 million in principal, accrued interest and fees on this term
loan.

     As a deposit for our facilities in Brisbane, California and New York, New
York, we obtained letters of credit totaling $5.1 million, which also requires
restrictions on our usage of cash for the equivalent amount.

     Our capital requirements depend on numerous factors, including market
acceptance of our services, the resources we allocate to developing our
networks, our marketing and selling capabilities and our brand. We have
experienced substantial increases in our expenditures since our inception
consistent with the growth in our operations and personnel. A significant
percentage of the capital raised in our initial public offering is expected to
be expensed over the next year to operate our business and to advertise and
promote our brands. 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. We may need to raise additional funds, however, to fund expansion,
including increases in personnel and office facilities, to develop new or
enhance existing services or products, to respond to competitive pressures or to
acquire or invest in complementary businesses, technologies, services or
products. In addition, to meet our liquidity needs, we may need to raise
additional funds, establish additional credit facilities or seek other financing
arrangements. Additional funding may not be available on favorable terms, on a
timely basis or at all.

Year 2000 Compliance

     We designed our internal systems as well as our software, hardware and
network architecture to be Year 2000 compliant. To date, we have not encountered
any material disruption subsequent to December 31, 1999 related to the Year 2000
issue, nor have we encountered any material problems with critical third party
vendors. We will continue to monitor any new issues or concerns relative to the
Year 2000 issue.

                                 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. If our business
model proves to be unsuccessful, the trading price of our stock will fall. Our
IGN, ChickClick and PowerStudents networks began operating as divisions of
Imagine Media in March 1997, February 1998 and August 1998, respectively. We
were incorporated in January 1999, and Imagine Media contributed the IGN,
ChickClick and PowerStudents assets to us in February 1999. 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. In particular, we are
implementing an evolving and unpredictable business model. Our business model is
unproven and may fail, which could harm our business and diminish the value of
your investment.

                                       13
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                              SNOWBALL.COM, INC.

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 our
prospects uncertain. If revenue in a particular period does not meet
expectations, it is likely that we will be unable 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. 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. Additionally, more than
half 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.

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 March 31, 2000, we had an accumulated deficit of approximately $61.7 million.
We may increase our operating expenses to expand our affiliate base, 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 for our operations and network
infrastructure. We also may incur costs relating to the acquisition of content,
other businesses or technologies. We may not generate sufficient revenue to
offset these 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.

If we fail to maintain our relationships with affiliates, or incorporate new
affiliates into our networks on a timely basis, our revenue will 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 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 add new affiliates to our networks on a timely basis, we will 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; or
  . seek to require us to make payments for access to its web sites.

During the first quarter of 2000, the loss of affiliates did not have a
significant impact on our revenue because during the same period we entered into
agreements with new

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                              SNOWBALL.COM, INC.

affiliates. We cannot assure you, however, that we will not lose a major
affiliate in the future, which could cause our revenue to decline. We also must
continue to identify potential new affiliates to ensure that we keep pace with
the changing interests, styles, trends and preferences of Generation i. Web
sites targeting Generation i might not continue to emerge at their current pace
or at all. Moreover, we may be unable to identify potential new affiliates as
they emerge or to negotiate affiliate agreements with potential new affiliates
on a timely basis. 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 and enter agreements with potential new affiliates on a
timely basis, our networks may lose their relevance to Generation i, we will
lose advertising and promotional opportunities and our revenue will decline.

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

We rely upon IGN for a substantial portion of our traffic and advertising
revenue. IGN is a network of web sites that provide information and
entertainment to Generation i men. IGN accounted for approximately 70% of our
consolidated page views in March 2000, approximately 15% of our registered users
as of March 31, 2000 and a substantial portion of our revenue for the three
months ended March 31, 2000. If we are unable to anticipate changes in the
interests, styles, trends or preferences of the audience targeted by IGN, 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 partnership and marketing arrangements are
terminated or are not renewed, our revenue will decline.

To date, we have derived a substantial portion of our revenue from a small
number of advertising 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
will decline. In addition, many of our advertising 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. As a result,
our customers could 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 will 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

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                              SNOWBALL.COM, INC.

guarantees we make to our customers, or if we lose potential customers whose
advertisements, sponsorships and promotions conflict with those of other
customers, we will lose revenue and our future growth may be impeded.

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. 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 will decline. Many of our current
competitors, as well as a number of potential new 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. 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.

Technical problems with either our internal or our outsourced computer and
communications systems could interrupt 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. Our web sites
reside on computer systems located in the San Francisco Bay area. 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. 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.

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, would be difficult to
replace. None of our officers or key employees is bound by an employment
agreement, nor do we have "key person" life insurance policies covering any of
these individuals. Our success also depends upon our ability to continue to
attract, retain and motivate skilled employees. Competition for employees in

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                              SNOWBALL.COM, INC.

our industry is intense, especially in the San Francisco Bay area. We believe
that there are only a limited number of persons with the requisite skills to
serve in many key positions and it is becoming increasingly difficult to hire,
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 salaries, benefits 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. Our management team has been working together for
less than one year. Moreover, James Tolonen, who was hired as our Chief
Operating Officer and Chief Financial Officer in October 1999, Richard Boyce,
who was hired as our President of the Networks in March 2000, and certain other
members of our management team have only recently joined us. 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 growth effectively could result in our inability to
operate our business effectively.

We have rapidly and significantly expanded our operations and anticipate that
further expansion will be required to address potential market opportunities. If
we fail to manage this expansion effectively, we will be unable to operate our
business effectively. Since our incorporation in January 1999 to March 31, 2000,
our business grew from 44 employees to 380 employees. This rapid growth has
placed, and we expect it to continue to place, a significant strain on our
management, operational and financial resources. As part of this growth, we will
have to implement new operational and financial systems, procedures, controls
and expand, combine, or eliminate existing networks and organizational
structures.

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, expense, 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 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 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; and

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                              SNOWBALL.COM, INC.

  .  the willingness of advertisers to become or remain our customers.

Additional financings could disadvantage our existing stockholders.

If additional funds are raised through the issuance of equity securities, the
percentage ownership of our 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
stockholders. If we raise additional funds through the issuance of debt, we
might become subject to restrictive covenants.

If we are unable to identify or successfully integrate potential acquisitions
and investments, we may not grow as planned, 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 as planned. 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.

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 of other parties' proprietary rights.
We may have to litigate to defend claims that we have infringed the intellectual
properly 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.

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                              SNOWBALL.COM, INC.

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 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 have 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. 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 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.

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                              SNOWBALL.COM, INC.

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 Generation 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. Because our revenue ultimately depend upon Internet usage
generally as well as on our web sites, our business may suffer as a result of
retarded or declining growth.

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 third parties 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.

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                              SNOWBALL.COM, INC.

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 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.

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.

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                              SNOWBALL.COM, INC.

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 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.

We may be subject to significant liability for products sold through our web
sites.

We introduced ChickShops, our first e-commerce initiative, in December 1999 and
plan to develop a range of e-commerce activities. Consumers may sue us if any of
the products sold through our web sites are defective, fail to perform properly
or injure the user. Liability claims resulting from our sale of products could
require us to spend significant time and money in litigation or to pay
significant damages.

Risks Related to the Securities Markets

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;
     .    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, and
     .    additions or departures of key customers.

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 National Market, and the market for Internet and
technology companies in

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<PAGE>

                              SNOWBALL.COM, INC.

particular, has experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of these
companies. Further, the trading prices of the stocks of many Internet and
technology companies are at or near historical highs and reflect price-earnings
ratios substantially above those in other industries. If these trading prices
and price earnings ratios are not sustained or if our stock does not trade at
the same levels as other Internet or Internet-related company stock your
investment will suffer.

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 hold a substantial number of shares which they will be
able to sell in the public market in the near future. Sales of a substantial
number of these shares could reduce the market price of our common stock. Even
the perception that our current stockholders might sell shares of common stock
could depress the trading price of the common stock. These sales, and the
possibility of 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 60% of our outstanding common stock as of March 31, 2000.
Christopher Anderson, the chairman of our board of directors, owned
approximately 35% 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 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"

                                      23
<PAGE>

                              SNOWBALL.COM, INC.

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.

Item 3 -  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

          The Company's 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 March 31, 2000.

Part II - OTHER INFORMATION

Item 1    Legal Proceedings
          -----------------

          Not applicable.

Item 2    Changes in Securities and Use of Proceeds
          -----------------------------------------

          (c) Changes in Securities.

          During the period covered by this report, we granted stock options to
          purchase 3,008,000 shares of our common stock at exercise prices
          ranging from $8.50 to $11.00 per share to our employees, consultants,
          directors, and other service providers under our 1999 Equity Incentive
          Plan and 2000 Equity Incentive Plan. During the period covered by this
          report, we issued and sold an aggregate of 42,000 shares of our common
          stock to employees, consultants, directors, and other service
          providers at exercise prices of $0.05 per share under direct issuances
          or exercises of options granted under our 1999 Equity Incentive Plan.
          These securities were not registered under the Securities Act of 1933,
          as amended (the "Securities Act") in reliance upon the exception
          provided by Section 4(2) of the Securities Act and/or Rule 701 or Rule
          506 promulgated thereunder. All shares purchased under our 1999 Equity
          Incentive Plan and 2000 Equity Incentive Plan are subject to our right
          to repurchase such shares at their original exercise price. The
          repurchase feature generally expires for 25% of the shares after the
          first year of employment service then expires ratably over the next 36
          months.

          On March 24, 2000, the Company sold and issued to Comdisco 29,960
          shares of common stock pursuant to the net exercise of warrants to
          purchase 31,595 shares of common stock for $3.17 per share and 21,097
          shares of common stock

                                      24
<PAGE>

                              SNOWBALL.COM, INC.

          for $7.11 per share. These sales were made in reliance on section 4(2)
          of the Securities Act and/or Rule 506 promulgated thereunder.

          (d) Use of Proceeds.

          The Company 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 6,250,000 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 937,500 shares of common stock reserved for issuance in
          connection with the exercise of the underwriters' over-allotment
          option). The initial public offering price was $11 per share for an
          aggregate initial public offering of $68.8 million

          In conjunction with the Company's 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, persons owning 10 percent or
          more of any class of equity securities of Snowball or an affiliate of
          Snowball.

          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...........................    300,000
          Blue sky fees and expenses................................     10,000
          Transfer agent and registrar fees and expenses............     10,000
          Miscellaneous.............................................    368,105
                                                                     ----------
               Total................................................ $2,000,000
                                                                     ==========

          After deducting the underwriting discounts and commissions and the
          offering expenses, the estimated net proceeds to Snowball from the
          offering were approximately $62 million.

          We intend to use the net proceeds from this offering for general
          corporate purposes, including advertising and promoting our brands,
          maintaining our sales

                                      25
<PAGE>

                              SNOWBALL.COM, INC.

          and marketing workforce, repay any debt that may be incurred under our
          credit facility, purchases of fixed assets, relocation of our offices
          and possible acquisitions of affiliates. Pending such uses, we will
          invest the net proceeds of this offering in short-term, interest-
          bearing, investment-grade securities.

Item 3    Defaults Upon Senior Securities
          -------------------------------

          Not applicable

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

               On March 15, 2000, the Company solicited its stockholders'
          written consent for the following proposals: (1) adoption of the
          Company's 2000 Equity Incentive Plan, (2) adoption of the Company's
          2000 Employee Stock Purchase Plan, (3) amendment and restatement of
          the Company's Certificate of Incorporation, effective upon the
          conversion of all shares of the Company's preferred stock into common
          stock, (4) amendment and restatement of the Company's Bylaws,
          effective upon the conversion of all shares of the Company's preferred
          stock into common stock, and (5) approval of the form of Indemnity
          Agreement to be entered into between the Company and each of its
          executive officers. Each of the proposals was approved by a majority
          of the stockholders.

Item 5    Other Information
          -----------------

          Not applicable

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

          (a)  Exhibits

               27.01 Financial Data Schedule

          (b)  Reports on Form 8-K

               None

                                      26
<PAGE>

                              SNOWBALL.COM, INC.

                                  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:  May 12, 2000                     By /s/ Mark A. Jung
                                          --------------------------
                                          Mark A. Jung
                                          President, Chief Executive Officer
                                          and Director

Date:  May 12, 2000                     By /s/ James R. Tolonen
                                          -------------------------
                                          James R. Tolonen
                                          Chief Financial Officer, Chief
                                          Operating Officer and Director

Date:  May 12, 2000                     By /s/ Janette S. Chock
                                          -------------------------
                                          Janette S. Chock
                                          Vice President, Controller and
                                          Chief Accounting Officer

                                      27