<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, 2001
                                      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)

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

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

Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports and (2) whether the registrant has
been subject to such filing requirements for the past 90 days.  Yes  X   No____
                                                                    ---

The number of shares of the registrant's common stock outstanding as of April
30, 2001 was 11,865,306.

                                       1
<PAGE>

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

  Item 1.      Condensed Consolidated Financial Statements (unaudited)

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

               Condensed Consolidated Statements of Operations for the
               Three Months Ended March 31, 2001 and 2000                   4

               Condensed Consolidated Statements of Cash Flows for the
               Three Months Ended March 31, 2001 and 2000                   5

               Notes to Condensed Consolidated Financial Statements         6

  Item 2.      Management's Discussion and Analysis of Financial
               Condition and Results of Operations                         10

  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                             25

  Item 4.      Submission of Matters to a Vote of Security Holders         25

  Item 5.      Other Information                                           25

  Item 6.      Exhibits and Reports on Form 8-K                            25

Signatures                                                                 26
</TABLE>

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      March 31,      December 31,
                                                                                        2001             2000
                                                                                    ------------     ------------
<S>                                                                                 <C>              <C>
Assets
Current assets:
     Cash and cash equivalents                                                        $   16,864       $   26,479
     Short-term investments                                                                5,111            5,111
     Accounts receivable, net                                                              1,757            3,401
     Prepaid expenses and other current assets                                             1,225            1,869
                                                                                      ----------       ----------
          Total current assets                                                            24,957           36,860

Goodwill and intangible assets, net                                                        5,824            6,655
Fixed assets, net                                                                          8,847           10,826
Other assets                                                                                 398              499
                                                                                      ----------       ----------
          Total assets                                                                $   40,026       $   54,840
                                                                                      ==========       ==========


Liabilities and stockholders' equity
     Current liabilities:
     Accounts payable                                                                 $    2,063       $    2,025
     Accrued liabilities and other                                                         4,391            6,428
     Deferred revenue                                                                        728              953
     Current equipment financing obligations                                               1,679            1,649
                                                                                      ----------       ----------
          Total current liabilities                                                        8,861           11,055

Long-term equipment financing obligations                                                  1,049            1,484

Stockholders' equity:
   Convertible preferred stock, $0.001 par value, issuable in series:
        5,000,000 shares authorized and no shares outstanding                                  -                -
   Common stock, $0.001 par value: 100,000,000 shares authorized,
        11,939,154 and 12,523,175 shares issued and outstanding
        at March 31, 2001 and December 31, 2000, respectively                                 12               13
   Treasury stock, 440,167 shares at March 31, 2001 and none at
        December 31, 2000                                                                   (772)               -
   Additional paid-in capital                                                            150,334          151,480
   Other stockholders' equity                                                             (1,945)          (4,627)
   Accumulated deficit                                                                  (117,513)        (104,565)
                                                                                      ----------       ----------
          Total stockholders' equity                                                      30,116           42,301
                                                                                      ----------       ----------

          Total liabilities and stockholders' equity                                  $   40,026       $   54,840
                                                                                      ==========       ==========
</TABLE>

See notes to condensed consolidated financial statements

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                               Three Months Ended March 31,
                                                               ----------------------------
                                                                    2001            2000
                                                               -----------      -----------
<S>                                                            <C>              <C>
Revenue                                                          $  2,512         $   4,591
Cost of revenue                                                     1,232             2,531
                                                                 --------         ---------
   Gross margin                                                     1,280             2,060

Operating expenses:
   Production and content                                           2,471             3,570
   Engineering and development                                      2,157             2,525
   Sales and marketing                                              4,110            13,119
   General and administrative                                       1,427             1,886
   Stock-based compensation/(1)/                                    1,303             1,954
   Amortization of goodwill and intangible assets                   1,123               738
   Restructuring charges                                            1,958                 -
                                                                 --------         ---------
     Total operating expenses                                      14,549            23,792
                                                                 --------         ---------

Loss from operations                                              (13,269)          (21,732)
Interest and other income (expense), net                              321              (196)
                                                                 --------         ---------
Net loss                                                         $(12,948)        $ (21,928)
                                                                 ========         =========

Net loss per share - basic and diluted                           $  (1.13)        $  (16.69)
                                                                 ========         =========
Shares used in per share calculation                               11,489             1,314
                                                                 ========         =========
Pro forma net loss per share - basic and diluted                                  $   (2.40)
                                                                                  =========
Pro forma weighted average shares outstanding                                         9,083
                                                                                  =========



/(1)/ Stock-based compensation relates to the following:
      Cost of revenue                                            $      2         $       5
      Production and content                                          153               371
      Engineering and development                                     112               239
      Sales and marketing                                             206               535
      General and administrative                                      830               804
                                                                 --------         ---------
        Total                                                    $  1,303         $   1,954
                                                                 ========         =========
</TABLE>

See notes to condensed consolidated financial statements

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                            Three Months Ended March 31,
                                                            ----------------------------
                                                                 2001            2000
                                                            -------------    -----------
<S>                                                         <C>              <C>
Cash flows from operations
   Net loss                                                     $ (12,948)     $ (21,928)
   Reconciliation to net cash used in operations:
     Depreciation and amortization                                  2,356          1,491
     Stock-based compensation                                       1,303          1,954
     Charitable contribution of common stock                            -          1,000
     Restructuring charges                                            928              -
     Other noncash expenses                                             -            179
     Changes in assets and liabilities:
        Accounts receivable                                         1,644         (1,188)
        Prepaid expenses and other assets                             745         (2,216)
        Accounts payable and accrued liabilities                   (2,848)         7,005
        Deferred revenue                                             (225)           668
                                                               ----------      ---------
Net cash used in operating activities                              (9,045)       (13,035)
                                                               ----------      ---------
Cash flow from investment activities
   Decrease in short-term investments                                   -          1,889
   Acquisition of goodwill and intangible assets                        -         (4,850)
   Purchase of fixed assets                                          (355)        (1,552)
   Net refund on tenant improvement allowance                       1,023              -
                                                               ----------      ---------
Net cash provided by (used in) investment activities                  668         (4,513)
                                                               ----------      ---------
Cash flow from financing activities
   Proceeds from issuance of common stock related to
     initial public offering, net                                       -         62,033
   Proceeds from issuance (repurchase) of common and
     preferred stock, net                                             (61)         1,507
   Proceeds from equipment financing obligations                        -          1,526
   Payment of equipment financing obligations                        (405)          (338)
   Proceeds from borrowings                                             -         12,000
   Purchase of stock for treasury                                    (772)             -
                                                               ----------      ---------
Net cash provided by (used in) financing activities                (1,238)        76,728
                                                               ----------      ---------

Net increase (decrease) in cash and cash equivalents               (9,615)        59,180
Cash and cash equivalents at beginning of period                   26,479         25,489
                                                               ----------      ---------
Cash and cash equivalents at end of period                      $  16,864      $  84,669
                                                               ==========      =========
</TABLE>


See notes to condensed consolidated financial statements

                                       5
<PAGE>

                              Snowball.com, Inc.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Notes to Condensed Consolidated Financial Statements (unaudited)
-----------------------------------------------------------------

1. FINANCIAL STATEMENT PRESENTATION

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

Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations. While in
the opinion of Snowball, the unaudited financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position at March 31, 2001 and the operating
results and cash flows for the three months ended March 31, 2001 and 2000, these
financial statements and notes should be read in conjunction with our audited
consolidated financial statements and notes thereto, which include information
as to significant accounting policies, included in our annual report on Form 10-
K for the year ended December 31, 2000.

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

All shares and per share amounts have been adjusted to reflect our one-for-three
reverse stock split, which was effective March 6, 2001.

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

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

Revenue Recognition

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

Revenue also includes fees from sponsorship, fixed slotting fees, variable lead
generation, commerce partnerships and other marketing programs under contracts
in which we commit to provide our business customers with promotional
opportunities in addition to impression-based banner advertising. We generally
receive a fixed fee and/or incremental payments for lead generation, customer
delivery or traffic driven to the commerce partner's site. Revenue that

                                       6
<PAGE>

                              Snowball.com, Inc.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

includes delivery of various types of impressions and services is recognized
based on the lesser of the straight-line basis over the term of the contract,
the ratio of average impressions delivered, or upon delivery when no minimum
guaranteed deliverable exists.

3. ACQUISITIONS

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

In December 1999, Snowball completed the acquisition of Extreme Interactive
Media, Inc. ("Extreme") for $1.9 million in cash, common stock and unsecured
promissory notes. The purchase price was increased by $1.2 million of additional
cash consideration based upon the attainment of certain economic milestones by
Extreme.

4. 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.

In accordance with SFAS No. 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Basic and diluted pro
forma net loss per share, as presented in the condensed consolidated statements
of operations for the three months ended March 31, 2000, have been computed
pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No.
98 and give effect to the conversion of the convertible preferred stock (using
the if-converted method) from the original date of issuance.

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

<TABLE>
<CAPTION>
                                                                   Three months ended March 31,
                                                                       2001             2000
                                                                    ----------      ---------
<S>                                                                 <C>             <C>
Net loss                                                            $  (12,948)     $ (21,928)
                                                                    ==========      =========
Basic and diluted:
     Weighted average shares of common stock outstanding                12,144          2,815
     Less: weighted average shares subject to repurchase                  (655)        (1,501)
                                                                    ----------      ---------
     Weighted average shares used in computing basic and
          diluted net loss per share                                    11,489          1,314
                                                                    ----------      ---------
Basic and diluted net loss per share                                $    (1.13)     $  (16.69)
                                                                    ==========      =========
Pro forma:
     Shares used in the above                                                           1,314
     Pro forma adjustment to reflect weighted effect of
          assumed conversion of convertible preferred stock                             7,769
                                                                                    ---------
     Shares used in computing pro forma basic and dilluted
          net loss per share                                                            9,083

                                                                                    ---------
Pro forma basic and diluted net loss per share                                      $    2.40
                                                                                    =========
</TABLE>

                                       7
<PAGE>

                              Snowball.com, Inc.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


5. RESTRUCTURING CHARGES

During the first quarter of 2001, Snowball recorded $2.0 million in
restructuring charges related to a reduction in employees and early termination
of operating leases for two buildings in Brisbane, California. With respect to
the leases, a provision for $0.8 million was established as an estimate of
future lease payments.

6. COMMITMENTS

In October 2000, Snowball relocated its headquarters to Brisbane, California and
assumed a lease for three buildings with original lease terms on the buildings
of 10, 11 and 12 years, respectively.  In November 2000, the lease was amended
to return two of the buildings to the landlord at the earlier of occupancy by a
new tenant or October 8, 2001.  Beginning January 2001, costs associated with
these two buildings have been included in restructuring charges (See Note 5).

7. STOCKHOLDERS' EQUITY

On December 31, 2000 deferred stock compensation was $3.4 million.  During the
first quarter of 2001, Snowball recorded cancellations of approximately $1.0
million due to employee terminations.  Additionally, we recorded approximately
$1.3 million of stock-based compensation expense.  This consisted of $0.8
million of amortization of deferred stock-based compensation and $0.5 million
due to option repricing.  The option repricing consisted of a repurchase of
100,000 shares of common stock, related cancellations of options to purchase
66,667 shares of common stock and related issuance of options to purchase common
stock.

Repriced stock options are subject to variable accounting, which requires re-
measurement for the difference between the exercise price of the option and the
intrinsic value of the stock until the date the options are exercised,
forfeited, or expire unexercised. Accordingly, additional compensation expense
may be recorded in future periods due to the variable treatment of these
options. Expenses associated with these issuances are charged to stock-based
compensation.

8. TREASURY STOCK

In December 2000, the Board of Directors authorized a stock repurchase program
under which Snowball is authorized to repurchase up to 1,666,667 shares of our
common stock in the open market for cash.  Repurchases may be made from time to
time at market prices and as market and business conditions warrant.  No time
limit has been set for the completion of the program.  As of March 31, 2001,
Snowball had repurchased approximately 440,000 shares at an average purchase
price of $1.75 per share.

9. INITIAL PUBLIC OFFERING

In March 2000, Snowball completed its initial public offering of 2,083,333
shares of common stock and realized proceeds, net of underwriting discounts,
commission and issuance costs, of approximately $62.1 million.

10. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued which requires that Statement No. 133 be adopted in
Snowball's fiscal year 2001. Management does not anticipate that the adoption of
Statement No. 133 will have a material effect on the results of operations or
financial position because Snowball does not currently engage in or plan to
engage in derivative or hedging activities.

                                       8
<PAGE>

                              Snowball.com, Inc.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


11. SUBSEQUENT EVENTS

In April 2001, Snowball reduced the number of full-time employees from
approximately 170 at March 31, 2001 to approximately 115 as of April 30, 2001
through a reduction in force. Approximately $0.2 million is expected to be
recorded as a restructuring charge associated with severance costs for this
reduction in the second quarter of 2001.

                                       9
<PAGE>

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

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

                                   Overview

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

In addition to the creation of our own web site content, our relationships with
our affiliates are an important part of our business model. Affiliates typically
bring new users and content to our networks and increase our consolidated page
views.  We have typically entered into agreements with affiliates for periods of
between six months and five years. These agreements 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 often include fixed or variable minimum
guaranteed payments.

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

Revenue also includes fees from sponsorship, fixed slotting fees, variable lead
generation, commerce partnerships and other marketing programs under contracts
in which we commit to provide our business customers with promotional
opportunities and web site and editorial services in addition to traditional
banner advertising. These agreements typically provide for the delivery of
advertising impressions on our web sites, exclusive placement on our networks,

                                       10
<PAGE>

special content and promotional offers and the design and development of
customized sites to enhance the promotional objectives of the advertiser or
commerce partner. We generally receive a fixed fee and/or incremental payments
for lead generation, customer delivery or traffic driven to the commerce
partner's site. Revenue 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.

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

                             Results of Operations

Revenue
Revenue was $2.5 million and $4.6 million for the three months ended March 31,
2001 and 2000, respectively. Revenue for the first quarter of 2001 declined by
$2.1 million compared to the first quarter of 2000 and by $2.7 million compared
to the fourth quarter of 2000 primarily due to continued industry-wide weakness
in the online advertising market and the associated decrease in marketing and
advertising spending by this market segment. Many of our customers did not
continue or renew their advertising and marketing programs with us this quarter,
causing revenue to decline. This was only partially offset by revenue from new
customers. We have recently broadened our product offerings. We believe this
broader range of marketing and advertising solutions may help us to increase our
revenue. However, these new solutions may take several quarters to produce
results, and if they are not accepted by our customers, may not increase
revenue.

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

For the three months ended March 31, 2001 and 2000, cost of revenue was $1.2
million and $2.5 million, respectively.  Also, gross margin increased to 51% in
the first quarter of 2001 compared with a gross margin of 45% for the first
quarter of 2000.  The decline in cost of revenue and increase in gross margin
primarily is attributable to the reduction of affiliate costs due to our
restructuring of affiliate relationships.  At March 31, 2001, we had 155
affiliates compared to 236 at March 31, 2000.

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

Operating Expenses
We categorize operating expenses into production and content, engineering and
development,

                                       11
<PAGE>

sales and marketing, general and administrative, stock-based compensation,
amortization of goodwill and intangible assets and restructuring costs. Total
operating expenses for the three months ended March 31, 2001 were $14.5 million
compared to $23.8 million for the prior year period. Excluding significant non-
cash expenses for stock-based compensation and amortization of goodwill and
intangible assets, operating expenses were $10.5 million in the first quarter of
2001 compared to $18.2 million in the first quarter of 2000. Operating expenses
in all categories except amortization of goodwill and intangible assets and
restructuring costs decreased, primarily as a result of our headcount reductions
and expense control efforts.

Production and content costs decreased to $2.5 million in the first quarter of
2001 compared to $3.6 million in the prior year period.  This decrease is due
primarily to reduction of our editorial, artistic and production staff and
efforts to reduce usage of freelance writers, artists and computer-related
expenses for the creation of content for our web sites.

Engineering and development expenses decreased to $2.2 million for the three
months ended March 31, 2001 from $2.5 million for the prior year period. This
decrease is due primarily to reduction of personnel, consulting and recruiting
fees, which had been associated with expanding our development and programming
efforts in 2000.

Sales and marketing expenses decreased to $4.1 million for the three months
ended March 31, 2001 from $13.1 million for the prior year period. This decrease
was due primarily to the reduction of our advertising, marketing and branding
activities, and decreases in our sales and marketing staff.

General and administrative expenses decreased to $1.4 million for the first
quarter of 2001 compared to $1.9 million in the first quarter of 2000. Included
in the first quarter of 2000 was a one-time non-cash contribution of 33,333
shares of our common stock with a then fair value of $1.0 million to a
charitable foundation.

Stock-based compensation expense was $1.3 million and $2.0 million for the three
months ended March 31, 2001 and 2000, respectively. Stock-based compensation
expense primarily represents the difference between the exercise price of
options granted and the deemed fair value of the common stock underlying these
options on the date of grant amortized on an accelerated basis over the vesting
period of the options and the effects of stock option repricing. At March 31,
2001, we had deferred stock compensation of $1.0 million to be amortized over
the vesting period of the grants, which is generally four years. Due to the
repricing of certain stock option awards both in 2000 and during the three
months ended March 31, 2001, additional and substantial stock-based compensation
costs may be incurred in future periods for these variable awards.

Amortization of goodwill and intangible assets for the three months ended March
31, 2001 and 2000 was $1.1 million and $0.7 million, respectively. These
expenses include the continuing amortization of costs associated with our 1999
and 2000 acquisitions.  Amortization of goodwill and intangible assets is over
three years or less.

In connection with our fourth quarter 1999 acquisition of Extreme Interactive
Media, Inc., we paid an additional $1.2 million to the former shareholders of
Extreme Interactive Media during 2000 based upon the attainment of certain
contractual milestones.  This payment increased the amount of goodwill to be
amortized for this acquisition.

Restructuring charges for the three months ended March 31, 2001 were $2.0
million. These expenses related to a reduction in employees and early
termination of operating leases for two of our office buildings in Brisbane,
California. With respect to the leases, a provision for $0.8 million was
established as an estimate of future lease payments related to the remaining
lease liability of the two buildings. No restructuring charges were recorded in
the first quarter of 2000.

                                       12
<PAGE>

                        Liquidity and Capital Resources

Cash used by operations totaled $9.0 million during the first quarter 2001
compared to $13.0 million during the first quarter 2000. This decrease resulted
primarily from the decrease in net loss. Working capital at March 31, 2001
amounted to $16.1 million, including cash, cash equivalents and short-term
investments of $22.0 million.

Capital expenditures for the three months ended March 31, 2001 were a credit of
$0.7 million primarily due to a net refund on tenant improvements associated
with our facilities in Brisbane, California.

In December 2000, the Board of Directors authorized a stock repurchase program
under which Snowball is authorized to repurchase up to 1,666,667 shares of our
common stock in the open market for cash.  During the first quarter ended March
31, 2001, Snowball had repurchased approximately 440,000 shares at an average
purchase price of $1.75 per share.

In March 2000, we raised net proceeds of approximately $62.1 million from an
initial public offering of 2,083,333 shares of our common stock. The proceeds
from this offering currently are being used for working capital and general
corporate purposes, including network expansion and content development and
sales and marketing. We have invested unused proceeds in short-term, interest-
bearing, investment-grade securities. Prior to our initial public offering, we
financed our operations primarily through private placements of preferred stock
and borrowings under equipment lease lines and a credit facility.

In April and October 1999, we entered into equipment lease lines of credit
totaling $5.0 million. These credit facilities have terms of three years and
bear interest at the rate of 7.5% per year. In connection with these credit
facilities, we issued warrants to the lessor to purchase 10,532 shares of our
common stock at $9.50 per share and 7,033 shares of our common stock at $21.33
per share. The warrants have all been exercised. These credit facilities do not
include any financial covenants.

In November 1999, we entered into a term loan agreement for up to an aggregate
of $15.2 million. In connection with this loan agreement, we issued promissory
notes to the lenders, which bear interest at the rate of 11% per annum, and
warrants to purchase 90,000 shares of our common stock at an exercise price of
$25.32 per share. In December 1999, $12.0 million of the loan was repaid and the
note holders cancelled $3.0 million of indebtedness under the notes in exchange
for shares of our Series C preferred stock at $10.00 per share. During the first
quarter of 2000, we borrowed $12.0 million under this loan. The outstanding
balance became due and was repaid upon consummation of our initial public
offering.

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

Our capital requirements depend on numerous factors, including market acceptance
of our services, the resources we allocate to developing our networks, our
marketing and selling capabilities and maintenance of our brands. We have
experienced substantial increases in our expenditures since our inception
consistent with the growth in our operations and personnel. Substantially all of
the remaining capital raised in our initial public offering is expected to be
used over the next year to operate our business and for working capital and
capital expenditures.  We will continue to evaluate possible acquisitions of, or
investments in, complementary businesses, technologies, services or products. We
believe that our available cash, cash equivalents and short-term investments and
cash flows from operations will be sufficient to meet our anticipated needs for
working capital and capital expenditures at least until the end of our fiscal
year. To

                                       13
<PAGE>

meet our longer term 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.

                                 Risk Factors

Risks Related to Our Business

Our business model is unproven and may fail.

We have a limited operating history upon which you can evaluate our business
model and prospects and the merits of investing in our stock. We are also
implementing an evolving and unpredictable business model. If our business model
proves to be unsuccessful, the trading price of our stock will fall and our
business may fail. Our IGN and ChickClick networks began operating as divisions
of Imagine Media in March 1997 and February 1998, respectively. We were
incorporated in January 1999, and Imagine Media contributed the IGN and
ChickClick assets to us in February 1999. 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.

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

We cannot forecast our revenue and operating results with precision,
particularly because our products and services are relatively new and evolving,
and our prospects uncertain. 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.
Recently, our operating results have not met expectations and our stock price
has significantly declined.

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

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, 2001, we had an accumulated deficit of approximately $117.5
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 and leasehold improvements for
our operations and network infrastructure. We also may incur costs relating to
the acquisition of content, other businesses or technologies. Whether we
increase expenditures or not, we may not generate sufficient revenue to offset
our expenditures. As a result, we expect to incur significant operating losses
on a quarterly basis for the foreseeable future, and may never be profitable.
Even if we do achieve profitability, we might not be able to sustain
profitability on a quarterly or annual basis in the future.

                                       14
<PAGE>

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

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

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

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

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

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

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

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

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 Gen i men. IGN accounted for approximately 83% of our
consolidated page views in March 2001, approximately 29% of our registered users
as of March 31, 2001 and a substantial portion of our revenue for the three
months ended March 31, 2001. 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 partnerships and marketing agreements are
terminated or are not renewed, our revenue would decline.

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

                                       15
<PAGE>

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

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

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

We currently derive substantially all of our revenue from advertisers and
commerce partners who pay us to advertise on our networks, and our business
model depends in part on increasing the amount of this revenue. The market for
advertising revenue is highly competitive and demand has recently decreased
significantly. We must continue to attract and retain users to compete
successfully for advertising revenue. If we fail to attract and retain more
users, our revenue would decline. Many of our current competitors, 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 or intentional service adjustments with either our internal
or our outsourced computer and communications systems could interrupt or
decrease our service, resulting in decreased customer satisfaction, the possible
loss of users and advertisers and a decline in revenue.

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

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. Moreover, scheduled upgrades
and changes to our computer systems may increase our operating cost or result in
unsatisfactory performance. Our computer system's continuing and uninterrupted
performance is critical to our success. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems.

                                       16
<PAGE>

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

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

Our success also depends upon our ability to continue to attract, retain and
motivate skilled employees. Competition for employees in 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 attract, retain and
motivate these persons. We have in the past experienced, and we expect to
continue to experience, difficulty in hiring and retaining skilled employees
with appropriate qualifications.

Competitors and others have in the past attempted, and may in the future
attempt, to recruit our employees. We believe that we will incur increasing
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. If our management is unable to
operate effectively in their respective roles or as a team, we will not be able
to implement our business strategy or operate our business effectively.

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

We have rapidly and significantly expanded and reduced our operations and
anticipate that further change will be required to address potential market
problems and opportunities. If we fail to manage this change effectively, we
will be unable to operate our business effectively. From our incorporation in
January 1999, our business grew from approximately 40 full-time employees to a
peak of approximately 380 full-time employees in March 2000.  This number has
been reduced, through attrition and lay offs, to approximately 115 full-time
employees as of April 2001. These rapid changes have placed, and we expect them
to continue to place, a significant strain on our management, operational and
financial resources. As part of these changes, we may have to implement new
operational and financial procedures and 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;

                                       17
<PAGE>

     .  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;

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

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


Additional financings could disadvantage our existing stockholders.

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

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
property rights of others. Any claims of this type could subject us to
significant liability, be time-consuming and expensive, divert management's
attention, require the change of our trademarks and the alteration of content,
require us to redesign our web sites or services or

                                       18
<PAGE>

require us to pay damages or enter into royalty or licensing agreements. These
royalty or licensing agreements, if required, might not be available on
acceptable terms or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing intellectual property or
license the infringed or similar intellectual property on a timely and cost-
effective basis, we might be unable to continue operating our business as
planned.

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

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

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

Risks Related to Our Industry

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

In the past, we have derived, and we expect to continue to derive in the future,
substantially all of our revenue from selling advertisements. However, the
prospects for continued demand and market acceptance for Internet marketing
solutions are uncertain. 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.

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

                                       19
<PAGE>

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

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

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

                                       20
<PAGE>

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.

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

                                       21
<PAGE>

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
the SnowballShopping channels in October 2000 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;

     .  additions or departures of key customers and

     .  failure to maintain minimum Nasdaq listing requirements.

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 particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies.

On April 10, 2001 we received notification from Nasdaq that our common stock is
subject to delisting from the Nasdaq National Market for failure to comply with
Marketplace Rule 4450(a)(5),

                                       22
<PAGE>

requiring maintenance of a minimum bid price of $1.00 per share. Snowball has
been granted a hearing before the Nasdaq Listing Qualifications Panel, on May
31, 2001, to review Nasdaq's decision. This request stays any delisting pending
the panel's decision. There can be no assurance that the panel will grant our
request for continued listing. If our common stock ceases to be listed on the
Nasdaq National Market, we expect that our common stock would then be traded on
the NASD Over-The-Counter Bulletin Board, which could reduce liquidity and
increase volatility of our common stock.

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

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

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

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

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

Our executive officers and directors and their affiliates together owned
approximately 64% of our outstanding common stock as of March 31, 2001.
Christopher Anderson, the chairman of our board of directors, owned
approximately 46% of our outstanding common stock alone. As a result, these
stockholders exercise significant control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of control could disadvantage other
stockholders with interests different from those of our officers, directors and
their affiliates. For example our officers, directors and their affiliates could
delay or prevent someone from acquiring or merging with us even if the
transaction would benefit other stockholders.

Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

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

                                       23
<PAGE>

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

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

We had no foreign currency hedging or other derivative financial instruments as
of March 31, 2001.

Part II - OTHER INFORMATION

Item 1 - Legal Proceedings

     Not applicable

Item 2 -  Changes in Securities and Use of Proceeds

     (d)  Use of Proceeds

     Snowball completed the initial public offering of its common stock in March
2000.  The managing underwriters in the offering were Goldman, Sachs & Co.,
Chase Securities, Inc. and FleetBoston Robertson Stephens, Inc.  The 2,083,333
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 312,500
shares of common stock reserved for issuance in connection with the exercise of
the underwriters' over-allotment option).  The initial public offering price was
$33 per share for an aggregate initial public offering of $68.8 million.


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

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

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

                                       24
<PAGE>

     From March 24, 2000 to March 31, 2001, we used the net proceeds from this
offering for repayment of debt, investing in short-term, interest bearing,
investment grade securities and general corporate purposes, including
advertising and promoting our brands, maintaining our sales and marketing
activities, purchasing fixed assets and improving our facilities.

     During the first quarter of 2001, we repurchased approximately 440,000
shares of our common stock under the terms of our stock repurchase program as
approved by the board of directors in December 2000.

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

Item 3 -  Defaults Upon Senior Securities

     Not applicable

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

     A special meeting of shareholders was held March 5, 2001 to vote for a
proposed one-for-three reverse stock split.  8,056,648 votes were cast for the
proposal, 8,483 votes were cast against the proposal or were withheld and 67
votes abstained. There were no broker non-votes registered at the meeting.

Item 5 -  Other Information

     Not applicable

Item 6 -   Exhibits and Reports on Form 8-K

    (a)        Exhibits

               10.01  Amendment to Offer Letter dated February 1, 1999 from
                      Registrant to Mark A. Jung, dated May 1, 2001.

               10.02  Amendment to Offer Letter dated October 18, 1999 from
                      Registrant to James R. Tolonen, dated May 1, 2001.

               10.03  Offer Letter dated February 15, 2000, from Registrant to
                      Richard D. Boyce, as amended on May 1, 2001.

    (b)        Reports on Form 8-K

               None

                                       25
<PAGE>

                                  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 14, 2001                         By /s/ Mark A. Jung
       ------------                            ----------------------
                                               Mark A. Jung
                                               Chief Executive Officer and
                                               Director



Date:  May 14, 2001                         By /s/ James R. Tolonen
       ------------                            ----------------------
                                               James R. Tolonen
                                               Chief Financial Officer, Chief
                                               Operating Officer and Director

                                       26