SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

[X]  Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
     of 1934

                  For the quarterly period ended March 31, 2000

[ ]  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 0-21637

                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
        (Exact Name of Small Business Issuer as Specified in its Charter)

            DELAWARE                                           95-4592204
  (State or Other Jurisdiction of                          (I.R.S. Employer
  Incorporation or Organization)                          Identification No.)

                       TOPANGA CANYON BOULEVARD, SUITE 120
                        WOODLAND HILLS, CALIFORNIA 91367
                    (Address of Principal Executive Offices)

                                 (818) 615-1500
                (Issuer's Telephone Number, Including Area Code)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.

                           Yes  X   No ____

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, par value
$0.001, 14,386,001 shares issued and outstanding as of May 5, 2000.

     Transitional Small Business Disclosure Format (check one): Yes ___   No X


<PAGE>

<TABLE>
<CAPTION>
                      BRILLIANT DIGITAL ENTERTAINMENT, INC.

                                      INDEX
                                                                                        PAGE

<S>                                                                                        <C>
PART I      FINANCIAL INFORMATION..........................................................3

Item 1.     Financial Statements...........................................................3

            Condensed Consolidated Balance Sheet as of March 31, 2000......................3

            Condensed Consolidated Statements of Operations for the three months
            ended March 31, 2000 and March 31, l999........................................4

            Condensed Consolidated Statements of Cash Flows for the three months
            ended March 31, 2000 and March 31, 1999........................................5

            Notes to Consolidated Financial Statements.....................................7

Item 2.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations.........................................................12

PART II     OTHER INFORMATION.............................................................26

Item 6.     Exhibits and Reports on Form 8-K..............................................26
</TABLE>


                                     Page 2
<PAGE>


                                     PART I

                              FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 (In thousands)

                                                                    MARCH 31,
                                                                     2000
                                                                  -------------
                                                                   (unaudited)
<S>                                                                <C>
ASSETS
Current assets:
    Cash and cash equivalents.................................     $    7,336
    Accounts receivable, net..................................          2,937
    Other assets, net.........................................          1,232
                                                                   -----------
Total current assets..........................................         11,505
Property, plant and equipment, net............................            745
Movie software costs..........................................             61
Goodwill and other intangibles, net...........................          5,149
Other assets..................................................            738
                                                                   -----------
Total assets..................................................     $   18,198
                                                                   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
    Accounts payable..........................................     $    1,273
    Accrued expenses..........................................          1,800
    Deferred revenue..........................................          5,009
    Note payable, related party...............................             30
    Current portion of notes payable..........................             88
                                                                   -----------
Total current liabilities.....................................          8,200
Notes payable, less current portion...........................             62
Other long term liabilities...................................             50
                                                                   -----------
Total liabilities.............................................          8,312
Commitments and contingencies
Stockholders' equity:
    Common stock..............................................             15
    Additional paid-in capital................................         40,488
    Accumulated deficit.......................................        (30,551)
    Cumulative other comprehensive income (loss)..............            (66)
                                                                   -----------
Total stockholders' equity....................................          9,886
                                                                   -----------
Total liabilities and stockholders' equity....................     $   18,198
                                                                   ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                     Page 3
<PAGE>


<TABLE>
<CAPTION>
                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

                                                                         THREE MONTHS
                                                                        ENDED MARCH 31,
                                                                --------------------------------
                                                                     2000             1999
                                                                ---------------  ---------------
                                                                 (unaudited)      (unaudited)

<S>                                                             <C>              <C>
Revenues.....................................................   $          244   $          206

Costs and expenses:
     Costs of revenues.......................................              303              205
     Sales and marketing.....................................              137              222
     General and administrative..............................            2,337              619
     Research and development................................            1,290              981
     Depreciation and amortization...........................              412              130
                                                                ---------------  ---------------
                                                                         4,479            2,157
                                                                ---------------  ---------------
Income (loss) from operations................................           (4,235)          (1,951)
Other income (expense):
     Export market development grant.........................               --               37
     Debenture expense.......................................              (30)              --
     Interest income (expense), net..........................               48               24
                                                                ---------------  ---------------
     Total other income (expense)............................               18               61
                                                                ---------------  ---------------
Income (loss) before income taxes............................           (4,217)          (1,890)
Provision for income taxes...................................               --               --
                                                                ---------------  ---------------
Net income (loss)............................................           (4,217)          (1,890)

Foreign currency translation adjustment (net of tax effects).               84               22
                                                                ---------------  ---------------
Comprehensive income (loss)..................................   $       (4,133)  $       (1,868)
                                                                ===============  ===============

Basic and diluted net income (loss) per share................   $        (0.31)  $        (0.20)
                                                                ===============  ===============
Weighted average number of shares used in computing
     basic and diluted net income (loss) per share...........           13,751            9,409
                                                                ===============  ===============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                     Page 4
<PAGE>


<TABLE>
<CAPTION>
                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                                                    THREE MONTHS
                                                                                   ENDED MARCH 31,
                                                                            ------------------------------
                                                                                2000            1999
                                                                            -----------     --------------
                                                                             (unaudited)     (unaudited)
<S>                                                                              <C>             <C>
OPERATING ACTIVITIES
Net income (loss).........................................................    $ (4,217)       $ (1,890)
Adjustments to reconcile net income (loss) to the net cash provided
   by (used in) operating activities:
      Depreciation and other amortization.................................         286             186
      Amortization of movie software costs................................          95             160
      Amortization of software technology.................................          20              --
      Amortization of goodwill............................................         292              --
      Amortization of customer database...................................           8              --
      Effect of warrants granted..........................................           6              32
      Effect of stock options granted.....................................          --              --
      Changes in operating assets and liabilities:
         Accounts receivable..............................................      (2,602)             55
         Other assets.....................................................        (720)            (22)
         Accounts payable and accruals....................................         594               6
         Deferred revenue.................................................       2,477              --
         Other long-term liabilities......................................          --             (36)
                                                                            -----------     -----------
Net cash provided by (used in) operating activities.......................      (3,761)         (1,509)

INVESTING ACTIVITIES
Purchases of equipment....................................................        (459)            (37)
                                                                            -----------     -----------
Net cash used in investing activities.....................................        (459)            (37)

FINANCING ACTIVITIES
Proceeds from issuance of shares, net of costs............................       6,531              --
Proceeds from Enewmedia for licensing rights..............................       2,500              --
Repayments of notes.......................................................         (99)             (8)
                                                                            -----------     -----------
Net cash provided by financing activities.................................       8,932              (8)
                                                                            -----------     -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................       4,712          (1,554)

Translation adjustments...................................................         118              (1)
Cash and cash equivalents at beginning of period..........................       2,506           3,187
                                                                            -----------     -----------
Cash and cash equivalents at end of period................................     $ 7,336         $ 1,632
                                                                            ===========     ===========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
   Interest...............................................................     $   16          $    4
                                                                            ==========      ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                     Page 5
<PAGE>


SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:

         On January 12, 2000, Roseworth Group, Ltd. converted a $1,500,000
debenture into 612,825 shares of our common stock. A commission of 3,798 shares
was paid in conjunction with this conversion as well as a write-off of the
debenture warrant valuation expense. On March 17, 2000, 50,000 shares were
issued to Continental Capital and Equity Corporation, valued at $143,000. This
will be expensed over the year 2000, including $36,000 in the first quarter. We
issued warrants to purchase 307,692 shares of our common stock to Enewmedia
Digital Entertainment Limited on February 28, 2000 in connection with an
investment and licensing agreement. The warrants carry a value of $428,000,
which will be expensed over the 6-year term of the contract.


                                     Page 6
<PAGE>


                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000
                                   (UNAUDITED)



1.       BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accompanying unaudited condensed
consolidated financial statements reflect all adjustments that, in the opinion
of management, are considered necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented. The
results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period. The
accompanying financial statements should be read in conjunction with the audited
consolidated financial statements of Brilliant Digital Entertainment, Inc.
included in our Form 10-KSB for the fiscal year ended December 31, 1999.

2.       STOCKHOLDERS' EQUITY

         Options and warrants representing common shares of 2,085,000 and
3,062,439 were excluded from the average number of common and common equivalent
shares outstanding in the diluted EPS calculation for the three months ended
March 31, 1999 and 2000, respectively, because they were anti-dilutive.

3.       COMMITMENTS AND CONTINGENCIES

         We have an obligation under our joint venture agreement with KISS
Digital, LLC to fund 75% of the development of a Multipath Movie, up to
$900,000. This project currently is under development and we have expensed
$775,000 on this project as of March 31, 2000.

         We have paid $600,000 towards the discovery and define phases for the
development of a web site for The Auction Channel. We have a commitment for an
additional $253,000 on the define phase. We are also obligated under the Sapient
agreement to pay $900,000 for the concept phase, for a total project cost of
$1,753,000.

         At March 31, 2000, we were obligated under certain licensing agreements
to make minimum payments totaling $107,000 for use of certain properties and
characters in development of our products.


                                     Page 7
<PAGE>


                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000
                                   (UNAUDITED)


         We lease our facilities under operating lease agreements expiring in
2003. Future minimum payments as of March 31, 2000 under these leases are as
follows:

                 YEAR                                 AMOUNT
           -----------------                       -------------

               2000...........................     $    202,000
               2001...........................          193,000
               2002...........................          136,000
               2003...........................           11,000
               2004                                          --
                                                   -------------
                  Total.......................     $    542,000
                                                   =============

         Rent expense was $163,000 and $54,000 for the three months ended March
31, 2000 and the three months ended March 31, 1999, respectively.

4.       SIGNIFICANT AGREEMENT

         On February 17, 2000, we entered into an agreement with Enewmedia
Digital Entertainment Limited ("Enewmedia"), a wholly-owned subsidiary of e-New
Media Company. The agreement with Enewmedia provides for a Distribution
Agreement, a Production Joint Venture Agreement, a Technology License Agreement
and an Investment Agreement.

         The Distribution Agreement stipulates that Enewmedia will have Internet
distribution rights to English and Asian language versions of our Multipath
Movie webisodes in selected Asian territories, with exclusive rights to the
Asian language versions. Enewmedia has agreed to pay us a fee of $2,500,000 for
these rights, of which $1,500,000 was paid on March 1, 2000 and the remaining
$1,000,000 is due upon delivery of the webisode masters. The revenue will be
recognized in future periods commencing in the 2nd quarter of 2000. Enewmedia
will be entitled to a distribution fee of 20% of gross revenues generated under
the Distribution Agreement.

         The Production Joint Venture Agreement provides for the formation of a
joint venture to create new content using our B3D technology for distribution in
the Asian territories where Enewmedia has distribution rights for our English
and Asian language webisodes. Enewmedia will fund the projects developed by the
joint venture. The joint venture will be owned in equal parts by Enewmedia and
us.

         The Technology Licensing Agreement provides for our grant to a joint
venture owned equally by Enewmedia and us of a 5-year exclusive alpha license to
our B3D technology for exploitation by the joint venture in those Asian
territories where Enewmedia has distribution rights. Enewmedia has agreed to pay
us a fee of $2,500,000 for this license, of which $1,000,000 was paid on March
1, 2000. The remaining $1,500,000 is payable on delivery of the Gold Master for
the software technology. The revenue will be recognized in future periods
commencing in the 2nd quarter of 2000. Enewmedia will receive a 5 year exclusive
alpha license for their territories and we will also be entitled to a 10%
royalty on all joint venture revenues.


                                     Page 8
<PAGE>


                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000
                                   (UNAUDITED)

         Pursuant to the Investment Agreement, Enewmedia acquired 666,667 shares
of our common stock at $6.00 per share, for aggregate proceeds to us of
$4,000,000. Additionally, Enewmedia received warrants to purchase up to 307,692
shares of our common stock at a price of $6.50 per share. The warrants have a
term of 9 months and may be called by us if our common stock share price exceeds
$7.80 for 20 consecutive trading days.

5.       PRO FORMA STATEMENT

         The following summary of unaudited pro forma combined statement of
operations data for the three months ended March 31, 1999 reflects our
acquisition, on July 1, 1999, of The Auction Channel, as if the acquisition had
occurred at the beginning of 1999.

                                        --------------------------------
                                              THREE MONTHS ENDED
                                                MARCH 31, 1999
                                        --------------------------------
                                                  (unaudited)
           Revenues....................         $     543,000
           Net loss....................         $  (2,231,000)
           Net loss per share..........         $       (0.24)

6.       GEOGRAPHICAL INFORMATION AND MAJOR CUSTOMERS

         Our operations consist of the operations of our subsidiary, Brilliant
Interactive Ideas Pty. Ltd., in Australia, Brilliant Digital Entertainment, Inc.
in the United States of America and The Auction Channel in the United Kingdom.
The following schedule sets forth our revenues and long-lived assets by
geographic area:

<TABLE>
<CAPTION>
                                                              UNITED                          UNITED
                                                              STATES         AUSTRALIA        KINGDOM
                                                           --------------  --------------  --------------
                                                            (unaudited)     (unaudited)     (unaudited)
<S>                                                        <C>             <C>             <C>
THREE MONTHS ENDED MARCH 31, 1999:
Revenues from unaffiliated customers....................   $     181,000   $      25,000   $          --
Revenues from affiliated customers......................              --              --              --
                                                           --------------  --------------  --------------
Total revenues..........................................   $     181,000   $      25,000   $          --
                                                           ==============  ==============  ==============
THREE MONTHS ENDED MARCH 31, 2000:
Revenues from unaffiliated customers....................   $     175,000   $      13,000   $      56,000
Revenues from affiliated customers......................              --              --              --
                                                           --------------  --------------  --------------
Total revenues..........................................   $     175,000   $      13,000   $      56,000
                                                           ==============  ==============  ==============
LONG-LIVED ASSETS AS OF:
March 31, 2000..........................................   $     854,000   $     437,000   $   5,402,000
                                                           ==============  ==============  ==============
</TABLE>

         For each of the periods shown above, our movie software costs, a
portion of our operating expenses and most of our research and development costs
were incurred and paid in Australia. Our production costs associated with the
duplication and packaging of our products, royalties due to


                                     Page 9
<PAGE>


                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000
                                   (UNAUDITED)


third parties, a major portion of our sales and marketing costs, and certain
corporate expenses were incurred and paid in the United States.

         For the three months ended March 31, 1999, GT Interactive accounted for
36% ($75,000) of our reported revenues. For the three months ended March 31,
2000, SlingShot, Inc., GT Interactive and Entertaindom, a Time Warner website,
accounted for 43% ($107,000), 13% ($32,000) and 7% ($16,000) of our revenues,
respectively.

7.       SEGMENT INFORMATION

         We currently have two major lines of businesses: digital animation and
live auction facilitation. Brilliant Digital Entertainment, Inc., in the United
States, together with its subsidiary Brilliant Interactive Ideas Pty. Ltd., in
Australia, is a production and development studio that uses its proprietary
software tool set to create digital entertainment for distribution over the
Internet, on CD-ROM and DVD, as television programming and for home video.
Brilliant Digital Entertainment also offers for sale its proprietary tool, B3D -
Max. Our subsidiary, The Auction Channel, is based in London, England, although
we are continuing to transition a portion of its operations from London to New
York, New York. The Auction Channel integrates live satellite, cable television
and web broadcasts of auction events conducted by auction houses, allowing for
participants to watch events on television and over the Internet and to use the
Internet or their telephone to bid simultaneously with people actually present
at the auction house. Each segment is incorporated and maintains separate sets
of books which are combined on consolidation.

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED
                                                         MARCH 31, 2000 (1)
                                                        ---------------------
                                                         (unaudited)
<S>                                                     <C>
TOTAL ASSETS:
    Digital animation...........................        $     11,672,000
    Auction facilitation........................               6,526,000
                                                        ---------------------
       Total assets(2)..........................        $     18,198,000
                                                        =====================
REVENUES--EXTERNAL CUSTOMERS:
    Digital animation...........................        $        188,000
    Auction facilitation........................                  56,000
                                                        ---------------------
       Total revenues...........................        $        244,000
                                                        =====================
INCOME (LOSS) FROM OPERATIONS:
    Digital animation (3).......................        $    (2,508,000)
    Auction facilitation (4)....................             (1,727,000)
    Other (5)...................................                  18,000
                                                        ---------------------
       Total income (loss)......................        $    (4,217,000)
                                                        =====================
---------------------------
<FN>
(1)  The Auction Facilitation segment arose on acquisition on July 1, 1999. We
     did not have separately identifiable segments prior to July 1, 1999.


                                    Page 10
<PAGE>


                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000
                                   (UNAUDITED)


(2)  Transactions between the two segments are primarily cash transfers to fund
     The Auction Channel operations.
(3)  Includes depreciation of $71,000.
(4)  Includes $20,000 of depreciation and amortization of $322,000 of goodwill
     and other intangibles.
(5)  Consists primarily of interest income and export marketing development
     grant income, net of debenture and interest expense.
</FN>
</TABLE>


                                    Page 11
<PAGE>


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

         The following discussion and analysis should be read together with our
consolidated financial statements and the notes to the consolidated financial
statements included elsewhere in this Form 10-QSB.

         THIS DISCUSSION SUMMARIZES THE SIGNIFICANT FACTORS AFFECTING THE
CONSOLIDATED OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY AND CASH FLOWS
OF BRILLIANT DIGITAL ENTERTAINMENT FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
MARCH 31, 2000. EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES
AND ARE BASED UPON JUDGMENTS CONCERNING VARIOUS FACTORS THAT ARE BEYOND OUR
CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD LOOKING STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THE FACTORS
DESCRIBED BELOW UNDER THE CAPTION "CAUTIONARY STATEMENTS AND RISK FACTORS."

OVERVIEW

         Brilliant Digital Entertainment is a pioneering entertainment content
provider and technology developer for the converging Internet and television
markets. We use our proprietary software tools to develop and distribute three
dimensional, digitally-animated interactive content for the Internet, including
our Multipath Movies. We also develop technology and software tools for sale to
others to be used by them in the development of content for the Internet.
Through our subsidiary, The Auction Channel, Inc., we also provide services to
auction houses that enable participants to watch auction events in real time on
television, and the Internet, and to bid using their telephone or the Internet.
We are headquartered in the United States and were incorporated in July 1996.

         Our annual and quarterly revenue will depend upon the successful
development, distribution, timing and market acceptance of our interactive
products and on the successful distribution and market acceptance of our
proprietary software tools. Our annual and quarterly revenue also will depend
upon the use by auction houses of our auction-related products and services. The
revenues derived from the production and distribution of our Multipath Movies
will depend primarily on the acceptance by the market of the Multipath Movie
concept and the underlying content of the Multipath Movie, neither of which can
be predicted nor necessarily bear a direct correlation to the production or
distribution costs incurred. See "Cautionary Statements and Risk Factors--We
will not be able to sell our Multipath Movies if they do not achieve market
acceptance." The commercial success of a Multipath Movie is also expected to
depend upon promotion and marketing, production costs, impact of competition and
other factors. Accordingly, our annual and quarterly revenues are, and will
continue to be extremely difficult to forecast.

OUR ACQUISITION OF THE AUCTION CHANNEL

         On July 1, 1999, we acquired Trojan Television Limited. Trojan
Television Limited is a London-based company doing business as The Auction
Channel. Founded in 1996, The Auction Channel integrates live satellite, cable
TV and Web broadcasts of auction events conducted by auction houses, allowing
for participants to watch events on television and the Internet, and use the
Internet or their telephone to bid simultaneously with people actually present
at the auction house.


                                    Page 12
<PAGE>


During the first quarter of 2000, we transferred our ownership interest in
Trojan Television Limited to our newly formed subsidiary, The Auctionchannel,
Inc.

CD-ROM RETAIL CHANNELS AND DIRECT-TO-RETAIL

         We are continuing a limited retail distribution program in which
Multipath Movies are marketed through traditional software publishers and
distributors nationwide. Distribution is being effected in the retail channel
through our relationship with GT Interactive, who is representing selected
titles sold in jewel case CD-ROM formats. Certain titles are now available in
selected mass merchant retailer stores.

DVD MARKET

         We intend to release Multipath Movie titles to the DVD market for
distribution commencing in the second half of 2000. We believe that distributing
our titles on DVD will increase the awareness of Multipath Movies in the retail
market. We entered into an agreement with SlingShot, a special purpose DVD
publisher and distributor, in March 1999. We granted to SlingShot exclusive
worldwide rights to distribute 20 of our Multipath Movies in DVD format. Under
the agreement, SlingShot has made an up-front, non-refundable cash advance and
provided a minimum guarantee in exchange for its exclusive retail DVD
distribution rights. Original Equipment Manufacturer (or OEM) and bundled sales
of DVD products will be managed jointly by SlingShot and us. We have delivered
15 titles to SlingShot for conversion to the DVD format and have developed a
release plan to ensure timely delivery of DVD titles into the retail channel.

INTERNET AND ONLINE SERVICES

         Given the importance of Internet and online delivery in the overall
success of the Multipath Movie and other B3D format movies, we believe that it
is critical to make Multipath Movies available to as many Internet and online
service users as possible. Consequently, we seek to follow a syndication
strategy to distribute content as broadly as possible across the Internet. We
will continue to focus more and more of our efforts toward Internet distribution
through third party websites. Much progress was made in this area during late
1999 and in the first quarter of 2000, as our content is now available on third
party websites such as VH1, Net Taxi, Time-Warner's Entertaindom and Road
Runner.

B3D

         We are also pursuing a strategy designed to encourage active use of our
tools and technology by a broad market of animators who are currently using 3D
Studio Max, an animation and 3D design software package developed and marketed
by Kinetix, a division of Autodesk. Our B3D - Max, a version of the B3D
technology, is a plug-in to 3D Studio Max. It enables animators to output their
animation to be played back in real time on the Internet using our Digital
Projector playback system. B3D - Max is distributed by Digimation Inc., an
authorized distributor of 3D Studio Max plug-ins, and by us directly to the
market. The marketing program is designed to encourage content creation and
distribution on the Internet of B3D - Max to further encourage use of the
Digital Projector, and through this, to establish broader demand for our other
tools and technology that we intend to continue to release to the market.
Animation content generated using B3D - Max can be of any type. The tool is not
limited to the production of entertainment content.


                                    Page 13
<PAGE>


It can be applied to the production of artistic renderings, education,
architecture, engineering, e-commerce and other solutions that require
animation. We intend to release a more advanced version of our technology to the
market in 2000-2001.

NON-INTERACTIVE FORMAT FOR TELEVISION, CABLE AND VIDEO

         We have progressed with our plans to release some of our Multipath
Movies in non-interactive format as television broadcast/cable programming and
home video features. In January 1999, we entered into an agreement with
Kaleidoscope Media Group for the distribution of GRAVITY ANGELS, a two hour 3D
animated science fiction thriller, to the television broadcast/cable and home
video markets. We are in discussions with several TV Broadcasters who have
expressed interest in the rights for their individual territories. However, we
do not guarantee that such agreements will be concluded or that the terms of
such agreements, if concluded, will be favorable to us.

RESULTS OF OPERATIONS

         REVENUES. Revenues from the sale of Multipath Movies through retail
outlets are recognized when the product is shipped. Product returns or price
protection concessions that exceed our reserves could materially adversely
affect our business and operating results and could increase the magnitude of
quarterly fluctuations in our operating and financial results. See "Cautionary
Statements and Risk Factors -- Product returns that exceed our anticipated
reserves could result in worse than expected operating results."

         We enter into distribution contracts under which we are entitled to
fixed minimum guaranteed payments. The minimum guaranteed payments are
recognized as revenue when the CD-ROM master is delivered to the distributor and
the terms of the sale are considered fixed. Historically, we have derived our
revenues from royalties, development fees and software sales. We license our
traditional CD-ROM products to publishers and distributors in exchange for
non-refundable advances and royalties based on product sales. Royalties based on
product sales are due only to the extent they exceed any associated
non-refundable royalty advance. Royalties related to non-refundable advances are
recognized when the CD-ROM master is delivered to the licensees. Royalty
revenues in excess of non-refundable advances are recognized upon notification
by the distributor that a royalty has been earned by us. Development fees are
paid by customers in exchange for our development of software packages in
accordance with customer specifications. The software development agreements
generally specify certain "milestones" which must be achieved throughout the
development process. As these milestones are achieved, we recognize the portion
of the development fee allocated to each milestone. Software sales revenues are
recognized upon shipment of product.

         Revenues which are earned from the broadcast of auctions are recognized
when the broadcast airs. Revenues which are computed as a percentage of the
hammer price of an item up for auction are recognized when the item is knocked
down.

         Revenues, which will be earned from the sale or licensing of our
software tools, will be recognized based on the terms of the sales or licensing
agreement.


                                    Page 14
<PAGE>


         Where we earn revenues from the placing of our content on third party
web sites we will recognize these revenues when the third party accounts to us.
These revenues will be accrued during the period to which they relate.

         Revenues increased from $206,000 for the three months ended March 31,
1999 to $244,000 for the three months ended March 31, 2000. Revenues for the
three months ended March 31, 2000 include internet advertising revenue of
$27,000, Multipath Movie retail sales of $37,000, DVD revenue of $107,000 and
$56,000 in auction service revenues earned by The Auction Channel, primarily
from the televised broadcast of auctions. Motion Capture Services, the software
for the capture of motion for animated digital characters, generated $13,000 in
revenues in the 2000 period. Revenues for the three months ended March 31, 1999
were primarily the result of $152,000 from CD ROM sales and $54,000 earned under
a Multipath Movie technology and content development agreement.

         COST OF REVENUES. Cost of revenues consists primarily of the
amortization and write-down of capitalized movie software costs, if any, for
previously released titles, royalties to third parties and the direct costs and
manufacturing overhead required to reproduce and package software products. The
Auction Channel cost of revenues consists of costs associated with the broadcast
of live auctions. Cost of revenues increased from $205,000 for the three months
ended March 31, 1999 to $303,000 for the three months ended March 31, 2000. The
increase in costs of revenues is primarily attributable to the addition in the
2000 period of The Auction Channel cost of revenues of $167,000.

         SALES AND MARKETING. Sales and marketing expenses include primarily
costs for salaries, advertising, promotions, travel and trade shows. Sales and
marketing expenses decreased from $222,000 for the three months ended March 31,
1999 to $137,000 for the three months ended March 31, 2000. The decrease is
primarily attributable to a decrease in our promotional efforts, specifically
the discontinuation of the banner program.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses include
primarily salaries and benefits of management and administrative personnel,
rent, insurance costs and professional fees. General and administrative expenses
increased from $619,000 for the three months ended March 31, 1999 to $2,337,000
for the three months ended March 31, 2000. This represents an increase of
$1,718,000, which is primarily attributable to increased employment recruiting
costs of $116,000 associated with the development of internal management and the
addition of personnel; increased professional fees of $131,000 as a result of a
greater level of activity; $821,000 due to the addition of general and
administrative costs related to The Auction Channel's operations in the United
Kingdom; $554,000 associated with establishing The Auction Channel's New York
office.

         RESEARCH AND DEVELOPMENT. Research and development expenses include
salaries and benefits of personnel conducting research and development of
software products. Research and development costs also include costs associated
with creating our software tools used to develop Multipath Movies. Research and
development expenses were $981,000 and $1,290,000 for the three months ended
March 31, 1999 and March 31, 2000, respectively. The 2000 figure includes web
design costs of $400,000 pertaining to the development of The Auction Channel
web site.

         DEPRECIATION AND AMORTIZATION. Depreciation expense relates to
depreciation of fixed assets such as computer equipment and cabling, furniture
and fixtures and leasehold improvements. These


                                    Page 15
<PAGE>


fixed assets are depreciated over their estimated useful lives (up to five
years) using the straight-line method. Depreciation expense decreased from
$130,000 for the three months ended March 31, 1999 to $92,000 for the three
months ended March 31, 2000. Amortization expense for the three months ended
March 31, 2000 includes amortization of goodwill of $292,000, software
technology of $20,000 and customer database of $8,000, all attributable to the
purchase of The Auction Channel in July 1999.

         OTHER INCOME AND EXPENSE. Other income and expense includes interest
income and interest expense, gains and losses on foreign exchange transactions
and export development grants paid to Brilliant Interactive Ideas Pty. Ltd. by
the Australian Trade Commission for its participation in certain export
activities. Other income and expense decreased from income of $61,000 in 1999 to
income of $18,000 in 2000. This reduction is primarily due to debenture expense
of $30,000.

LIQUIDITY AND CAPITAL RESOURCES

         As of March 31, 2000, our principal source of liquidity was
approximately $7,336,000 in cash, which we primarily raised through debt and
equity financing.

         On February 17, 2000 we entered into an agreement with Enewmedia, as
described in Note 4 to the Financial Statements, which provided an infusion of
cash of $6,500,000.

         In March 1999, we entered into a securities purchase agreement with St.
Annes Investment, Ltd. The agreement gives us the right at our election to sell
to the investor up to a total of $6 million of our common stock at a discount to
its "Market Price" from time to time during the three-year term of the
agreement. Each sale of shares under the agreement is subject to certain minimum
and maximum dollar amounts and certain other conditions, including that the
"Market Price" of our common stock at the time we give a sale notice is at least
$1.00 per share and that a registration statement under the Securities Act of
1933, as amended, covering St. Annes' resale of the shares, is in effect at the
closing of the sale. "Market Price" is defined as the lowest daily volume weight
adjusted price of our common stock (as reported on Bloomberg) for any trading
day during the 10-trading day period ending on the day before the day that we
give a sale notice to St. Annes. The purchase price that we will receive for our
shares in each sale will be 88% of the Market Price of our common stock if the
Market Price is more than $4 per share, and 86% of the Market Price if the
Market Price is $4 per share or less. We have agreed to pay to St. Annes an
amount equal to 3% of the purchase price, and to issue to St. Annes shares of
common stock having an aggregate value equal to 2% of the purchase price of the
shares of common stock to be issued and sold to St. Annes under the securities
purchase agreement. On February 2, 2000, the Company sold 230,075 shares of
common stock to St. Annes under the purchase agreement for gross proceeds of
$1,000,000. Brilliant paid St. Annes $30,000 and issued to St. Annes 4,049
shares of common stock as a fee in connection with the sale.

         On March 15, 2000, Roseworth Group, Ltd. exercised in full warrants to
purchase 50,000 shares of our common stock at $5.50 per share, for aggregate
proceeds to us of $275,000.

         Net cash used in operating activities during the three months ended
March 31, 2000 was primarily attributable to a net loss of $4,217,000. Net cash
used in investing activities in the three months ended March 31, 2000 was due
primarily to the purchase of computer equipment. Cash


                                    Page 16
<PAGE>


used in financing activities for the year was primarily for repayment of notes
for the financing of office furniture and computer equipment and for costs
associated with raising capital.

         We have an obligation under our agreement with Morgan Creek to fund
entirely the development of two Multipath Movies, the first of which, ACE
VENTURA CD-ROM, was developed and shipped in the fourth quarter of 1998 with
continued sales in 1999. The second project has not been identified yet. We have
an obligation under our joint venture agreement with KISS Digital, LLC to fund
75% of the development of a Multipath Movie up to $900,000. This project is
currently under development and we have expensed $775,000 as of March 31, 2000.
We also are required as of March 31, 2000 to make minimum payments of $107,000
under various licensing agreements. At March 31, 2000, we had rental commitments
for our offices and production facilities of $542,000 and a promissory note for
the financing of fixed assets in the amount of $92,000 payable over the next 4
years. Additionally, we have committed to pay $1,753,000 to Sapient Corporation
for the development of a web site for The Auction Channel. We have paid $600,000
on the first two phases, with a remaining commitment of $1,153,000 on the
project.

         We believe that our existing funds, cash generated from operations and
proceeds from the sale of common stock under our securities purchase agreement
with St. Annes will be sufficient to fund our ongoing working capital
requirements for at least the next twelve months. However, see "Cautionary
Statements and Risk Factors - If we are unable to raise additional funds, we may
be required to defer completion of Multipath Movie titles and reduce overhead
significantly."

ACCOUNTING TREATMENT FOR DEVELOPMENT COSTS AND RESEARCH EXPENDITURES

         Our accounting policy follows Statement of Financial Accounting
Standards No. 86 ("SFAS No. 86"), which provides for the capitalization of
software development costs once technological feasibility is established. The
capitalized costs are then amortized beginning on the date the product is made
available for sale either on a straight-line basis over the estimated product
life or on a ratio of current revenues to total projected product revenues,
whichever results in the greater amortization amount. Prior to reaching
technological feasibility, we expense all costs related to the development of
both our software tools and Multipath Movie titles. We achieved technological
feasibility of our original Digital Projector during the third quarter of 1997.
Since the date of achieving technological feasibility, the costs of developing
Multipath Movies intended to be viewed on the original projector have been
capitalized in accordance with SFAS No. 86. We continue to develop new Digital
Projectors with enhanced functionality such as improved compression technology.
Costs incurred in the development of new Digital Projectors are expensed until
technological feasibility is reached. Multipath Movies that are developed for
new Digital Projectors that have not yet reached technological feasibility are
capitalized in accordance with SFAS No. 86 to the extent that they are
compatible with an existing Digital Projector. Amounts incurred for Multipath
Movies that are developed for new Digital Projectors that are not compatible
with an existing projector and would require substantial revision in order to
achieve compatibility are expensed as incurred.

ACCOUNTING GUIDANCE FOR REVENUE RECOGNITION FOR SOFTWARE TRANSACTIONS

         Software sales entered into prior to December 15, 1997 were accounted
for in accordance with AICPA Statement of Position ("SOP") 91-1, "Software
Revenue Recognition." For transactions entered into after December 15, 1997, we
recognize revenue from the sale of software


                                    Page 17
<PAGE>


in accordance with SOP 97-2, "Software Revenue Recognition". SOP 97-2 provides
guidance on when revenue should be recognized and in what amounts for licensing,
selling, leasing, or otherwise marketing computer software.

YEAR 2000

         We have not experienced any difficulties resulting from the Year 2000
problem, which is the processing of date-sensitive information by the
information technology systems used by us and our key customers and vendors. The
Year 2000 problem is the result of computer programs being written using two
digits to define the applicable year, which could result in computer programs
recognizing a date using "00" as the year 1900 rather than 2000, thereby causing
miscalculations or system failures. We do not currently anticipate any future
Year 2000 problems.

CAUTIONARY STATEMENTS AND RISK FACTORS

         Several of the matters discussed in this document contain
forward-looking statements that involve risks and uncertainties. Factors
associated with the forward-looking statements that could cause actual results
to differ from those projected or forecast are included in the statements below.
In addition to other information contained in this report, readers should
carefully consider the following cautionary statements and risk factors.

         WE WILL NOT BE ABLE TO GENERATE REVENUES IF OUR MULTIPATH MOVIES DO NOT
ACHIEVE MARKET ACCEPTANCE. Each Multipath Movie is an individual artistic work,
and its ability to generate revenues primarily will be determined by consumer
reaction, which is unpredictable. To generate revenues, we must develop stories
and characters that capture the attention and imagination of consumers and
license recognized characters and properties from third parties for use in our
Multipath Movies. We cannot be certain that we will be able to do so. Other
factors that influence our ability to generate revenues from our Multipath
Movies include:

     o    consumer reluctance to initiate time consuming downloads of data
          necessary to view our products;
     o    our marketing strategies;
     o    the quality of our products and competing products;
     o    our ability to enter into revenue share agreements with third party
          web sites;
     o    critical reviews; and
     o    the availability of alternative forms of entertainment and leisure
          time activities.

         WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT DEMAND FOR OUR PRODUCTS
VIEWED ON THE INTERNET UNLESS THERE IS A REDUCTION IN THE TIME IT TAKES TO
DOWNLOAD THE LARGE AMOUNTS OF DATA NECESSARY TO VIEW OUR PRODUCTS ON THE
INTERNET. Our revenue growth depends in part on our ability to distribute our
products for viewing on the Internet. We believe that without reductions in the
time to download Multipath Movies over the Internet, our Multipath Movies may be
unable to gain consumer acceptance. This reduction in download time depends in
part upon advances in compression technology. We have previously experienced
delays in the development of compression technologies, which, we believe,
materially and adversely affected our online sales and results of operations. We
believe that large, time-consuming downloads have previously deterred potential
users of our products and have reduced the effectiveness


                                    Page 18
<PAGE>


of our marketing campaigns at that time. The development of these technologies
continues to be a significant component of our business strategy and a primary
focus of our research and development efforts.

         IF WE ARE UNABLE TO RAISE ADDITIONAL FUNDS, WE MAY BE REQUIRED TO DEFER
COMPLETION OF MULTIPATH MOVIE TITLES AND REDUCE OVERHEAD SIGNIFICANTLY. We
believe that our existing funds, cash generated from operations and proceeds
from our future sales of common stock to St. Annes Investments, Ltd. under the
securities purchase agreement we entered into with St. Annes in March 1999 will
be sufficient to fund our working capital requirements for at least the next
twelve months. After that period, we may need to raise additional funds through
debt or equity financing or by other means. We cannot be certain that additional
financing will be available at the time we need additional funds or that, if
available, it can be obtained on terms that we deem favorable. If necessary
funds are not available, we may be required to defer completion of Multipath
Movie titles and reduce overhead significantly, which could have a material
adverse effect on our business. Additionally, our stockholders may be diluted if
we raise additional funds through the sale of our stock.

         THIRD PARTY WEB SITES AND THE LICENSORS FROM WHOM WE OBTAIN RIGHTS TO
OUR STORIES AND CHARACTERS MAY CAUSE THE DELAY OF THE RELEASE OF OUR PRODUCTS,
WHICH MAY RESULT IN LOWER REVENUES THAN ANTICIPATED. Our distribution
relationships with third party web sites and our licensing arrangements with
companies that own the stories or characters used in many of our Multipath
Movies, contain potentially burdensome provisions. These provisions may affect
our ability to release our products, which would adversely affect our revenues,
for a number of reasons, such as:

     o    A software distributor or a licensor of a story or character may, in
          the exercise of its product approval rights, arbitrarily require
          expensive and time consuming changes to our products, which may cause
          a delay in the release of the products; and

     o    A third party web site could delay the inclusion of our content on the
          site, and thereby cause a delay in distribution.

         WE MAY NOT BE ABLE TO LICENSE STORIES AND CHARACTERS THAT APPEAL TO
CONSUMERS FOR USE IN OUR MULTIPATH MOVIES, WHICH IS NECESSARY FOR OUR MULTIPATH
MOVIES TO HAVE APPEAL IN THE MARKET. We use stories and characters developed by
third parties in our Multipath Movies. If we cannot license stories and
characters that appeal to consumers at prices or upon terms or conditions that
we consider acceptable, we may not be able to develop Multipath Movies that
consumers will watch. To have access to appealing stories and characters for use
in our Multipath Movies, we will need to continue to develop new relationships
and maintain existing relationships with the licensors of these stories and
characters. Many licensors are reluctant to grant broad licenses covering
multiple formats, like the Internet and television, to companies without a
proven track record in the particular industry. When rights are available, there
is often significant competition for licenses.

         IF THE VENDOR WE USE TO DELIVER MULTIPATH MOVIES THROUGH OUR INTERNET
SITE EXPERIENCES AN INTERRUPTION IN SERVICE, WE WILL NOT BE ABLE TO DELIVER
MOVIES THROUGH OUR INTERNET SITE UNTIL SERVICE RESUMES. We presently use a
single vendor to deliver Multipath Movies through our Internet site. Any
significant interruption in service provided by this vendor could interrupt
sales and delivery of Multipath Movies and adversely affect our ability to
conduct this portion of our business and maintain customer satisfaction.


                                    Page 19
<PAGE>


         IF WE CANNOT OBTAIN CD-ROM AND DVD MANUFACTURING AND PACKAGING SERVICES
ON A TIMELY BASIS, WE MAY NOT BE ABLE TO TIMELY DELIVER OUR CD-ROM AND DVD
PRODUCTS TO DISTRIBUTORS AND RETAILERS AND OUR SALES WILL BE

ADVERSELY AFFECTED. We use third party vendors to press CD-ROM and DVD disks,
assemble purchased product components, print product packaging and user manuals
and package finished products in connection with the retail distribution of our
Multipath Movies. We do not have contractual agreements with any of our third
party vendors, which may result in our inability to secure adequate services in
a timely manner. If we cannot obtain adequate manufacturing services, we will
not be able to timely produce and deliver our CD-ROM and DVD products to
distributors and retail stores for ultimate sale to consumers, which will
adversely affect our sales and operating results.

         IF WE ARE UNABLE TO DEVELOP A RETAIL SALES CHANNEL, EFFECTIVELY COMPETE
FOR RETAIL SHELF SPACE AND NEGOTIATE FAVORABLE TERMS WITH RETAILERS, OUR RETAIL
SALES AND OPERATING RESULTS WILL BE ADVERSELY AFFECTED. We anticipate that a
certain amount of Multipath Movies will be made by traditional retailers. We may
not be able to achieve retail sales at prices favorable to us. The competition
for shelf space in retail stores is intense. We expect that our products will
constitute a small percentage of a retailer's sales volume, and we cannot be
certain that retailers will provide our products with adequate levels of shelf
space and promotional support. Due to the increased competition for limited
retail shelf space and promotional resources, retailers and distributors
increasingly are in a better position to negotiate favorable terms of sale,
including terms relating to price discounts, product return rights and
cooperative market development funds. Increased competition could result in loss
of shelf space for our products at retail stores, as well as significant price
competition, any of which could adversely affect our sales volume and the price
we receive for our products.

         We may encounter problems in connection with our acquisition of The
Auction Channel, which may increase the costs of the acquisition and distract
management's attention from operating the combined business. In July 1999, we
acquired Trojan Television Limited, a London-based company doing business as The
Auction Channel. The Auction Channel integrates live satellite, cable TV and Web
broadcasts of auction events conducted by auction houses, allowing for
participants to watch auction events on television and use the Internet or their
telephone to bid simultaneously with people actually present at the auction
house. We have very little experience in acquiring businesses and will likely
encounter difficulties in integrating The Auction Channel's operations with our
existing operations, which may result in unexpected costs and adversely affect
our operating results. In addition, the integration will require the dedication
of management resources, which may temporarily distract management's attention
from the day-to-day operations of the two companies and adversely affect our
operating results. Some of the difficulties we expect to encounter include,
among others, those related to:

     o    integrating Brilliant's and The Auction Channel's management staffs;
     o    retaining The Auction Channel's key management and technical
          personnel; and
     o    coordinating the operation of geographically separated organizations
          with distinct cultures.

         THE AUCTION CHANNEL MAY NEVER BE PROFITABLE, WHICH WILL ADVERSELY
AFFECT OUR CONSOLIDATED OPERATIONS. The Auction Channel commenced operations in
July 1996 and, accordingly, has a limited operating history upon which to
evaluate its future prospects. There can be no assurance that The Auction
Channel will achieve profitability or implement its business strategy. The
Auction Channel had net losses of approximately $310,000 in fiscal 1997,
$485,000 in fiscal 1998, $1,978,000 for the fiscal year


                                    Page 20
<PAGE>


ended June 30, 1999, $958,000 for the six months ended December 31, 1999, and
$1,727,000 for the three months ended March 31, 2000. At March 31, 2000, The
Auction Channel had an accumulated deficit of $5,458,000 relating to net losses
from the period from July 1, 1996 through March 31, 2000. We expect that The
Auction Channel will continue to sustain losses at least for the next twelve
months.

         IF THE AUCTION CHANNEL LOSES ITS LICENSE TO THE COMPUTER SOFTWARE AND
HARDWARE TECHNOLOGIES IT USES IN ITS BUSINESS, THE AUCTION CHANNEL MAY NOT BE
ABLE TO CONTINUE TO SELL ITS PRODUCTS AND SERVICES. Many of the underlying
computer software and hardware technologies used by The Auction Channel are
licensed from Articulate UK Limited. The Auction Channel has, with respect to
these technologies, a worldwide license, with rights to exploit and improve the
software, patents, technology, documentation and know how developed or owned or
licensable by Articulate UK. If The Auction Channel loses its rights to the
computer software and hardware technologies it licenses from Articulate UK as a
result of a dispute with Articulate UK or otherwise, The Auction Channel will
not be able to continue to sell its products and services. If this occurs, The
Auction Channel's revenues will be substantially reduced.

         PRODUCT RETURNS THAT EXCEED OUR ANTICIPATED RESERVES COULD RESULT IN
WORSE THAN EXPECTED OPERATING RESULTS. At the time we ship our products to
retailers we will establish reserves, including reserves that estimate the
potential for future product returns. Product returns or price protection
concessions that exceed our reserves could increase the magnitude of quarterly
fluctuations in our operating and financial results. Furthermore, if we
incorrectly assess the creditworthiness of customers who receive our products on
credit, we could be required to significantly increase the reserves previously
established. We cannot be certain that any future write-offs will not occur or
that amounts written off will not have a material adverse effect on our business
and depress the market price of our common stock. Actual returns to date have
been within management's estimates.

         FLUCTUATIONS IN OPERATING RESULTS MAY RESULT IN UNEXPECTED REDUCTIONS
IN REVENUE AND STOCK PRICE VOLATILITY. We operate in an industry that is subject
to significant fluctuations in operating results from quarter to quarter, which
may lead to unexpected reductions in revenues and stock price volatility.
Factors that may influence our quarterly operating results include:

     o    the introduction or enhancement of software products and technology by
          us and our competitors;

     o    our ability to produce and distribute retail packaged versions of
          Multipath Movies in advance of peak retail selling seasons;

     o    our ability to create appealing content which will generate
          advertising revenue; and

     o    our ability to enter into revenue share agreements with third party
          web sites.

         Additionally, a majority of the unit sales for a product typically
occurs in the quarter in which the product is introduced. As a result, our
revenues may increase significantly in a quarter in which a major product
introduction occurs and may decline in following quarters.

         IF WE DO NOT IMPROVE OUR SOFTWARE TOOLS TO PRODUCE NEW, MORE ENHANCED
MULTIPATH MOVIES, OUR REVENUES WILL BE ADVERSELY AFFECTED. The software tools
that enable us to create Multipath Movies have been developed over the past four
years. Additional refinement of these tools is necessary to continue to enhance
the Multipath Movie format. If we cannot develop improvements to these software
tools,


                                    Page 21
<PAGE>


our Multipath Movies may not obtain or maintain market acceptance and our
revenues will be adversely affected.

         ERRORS OR DEFECTS IN OUR SOFTWARE TOOLS AND PRODUCTS MAY CAUSE A LOSS
OF MARKET ACCEPTANCE AND RESULT IN FEWER SALES OF OUR PRODUCTS. Our products are
complex and may contain undetected errors or defects when first introduced or as
new versions are released. In the past, we have discovered software errors in
some of our new products and enhancements after their introduction into the
market. Because our products are complex, we anticipate that software errors and
defects will be present in new products or releases in the future. While to date
these errors have not been material, future errors and defects could result in
adverse product reviews and a loss of, or delay in, market acceptance of our
products.

         TO DEVELOP PRODUCTS THAT CONSUMERS DESIRE, WE MUST MAKE SUBSTANTIAL
INVESTMENTS IN RESEARCH AND DEVELOPMENT TO KEEP UP WITH THE RAPID TECHNOLOGICAL
DEVELOPMENTS THAT ARE TYPICAL IN OUR INDUSTRY. The entertainment software market
and the PC industry are subject to rapid technological developments. To develop
products that consumers desire, we must continually improve and enhance our
existing products and technologies and develop new products and technologies
that incorporate these technological developments. We cannot be certain that we
will have the financial and technical resources available to make these
improvements. We must make these improvements while remaining competitive in
terms of performance and price. This will require us to make substantial
investments in research and development, often times well in advance of the
widespread release of the products in the market and any revenues these products
may generate.

         OUR PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM
UNAUTHORIZED USE BY OTHERS, WHICH COULD INCREASE OUR LITIGATION COSTS AND
ADVERSELY AFFECT OUR SALES. Our ability to compete with other entertainment
software companies depends in part upon our proprietary technology. Unauthorized
use by others of our proprietary technology could result in an increase in
competing products and a reduction in our sales. We rely on trademark, trade
secret and copyright laws to protect our technology, and require all employees
and third-party developers to sign nondisclosure agreements. We cannot be
certain, however, that these precautions will provide meaningful protection from
unauthorized use by others. We do not copy-protect our software, so it may be
possible for unauthorized third parties to copy our products or to reverse
engineer or otherwise obtain and use information that we regard as proprietary.
Our customers may take inadequate precautions to protect our proprietary
information. If we must pursue litigation in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others, we may not prevail and
will likely make substantial expenditures and divert valuable resources. In
addition, many foreign countries' laws may not protect us from improper use of
our proprietary technologies overseas. We may not have adequate remedies if our
proprietary rights are breached or our trade secrets are disclosed.

         IF OUR PRODUCTS INFRINGE ANY PROPRIETARY RIGHTS OF OTHERS, A LAWSUIT
MAY BE BROUGHT AGAINST US THAT COULD REQUIRE US TO PAY LARGE LEGAL EXPENSES AND
JUDGMENTS AND REDESIGN OR DISCONTINUE SELLING OUR PRODUCT. We believe that our
products, including our software tools, do not infringe any valid existing
proprietary rights of third parties. Any infringement claims, however, whether
or not meritorious, could result in costly litigation or require us to enter
into royalty or licensing agreements. If we are found to have infringed the
proprietary rights of others, we could be required to pay damages, redesign the
products or discontinue their sale. Any of these outcomes, individually or
collectively, could have a material adverse effect on our business and financial
condition.


                                    Page 22
<PAGE>


         OUR STOCK PRICE AND TRADING VOLUME FLUCTUATE WIDELY AND MAY CONTINUE TO
DO SO IN THE FUTURE. As a result, we may experience significant declines in our
stock price. The market price and trading volume of our common stock, which
trades on the American Stock Exchange, has been subject to substantial
volatility, which is likely to continue. This volatility may result in
significant declines in the price of our common stock. Factors that may cause
these fluctuations include:

     o    variations in quarterly operating results;
     o    the gain or loss of significant contracts;
     o    changes in management;
     o    announcements of technological innovations or new products by us or
          our competitors;
     o    recommendations by securities industry analysts;
     o    dilution to existing stockholders resulting from the issuance of
          additional shares of common stock; and
     o    short sales and hedging of our common stock.

         Additionally, the stock market has experienced extreme price and
trading volume fluctuations that have affected the market price of securities of
many technology companies. These fluctuations have, at times, been unrelated to
the operating performances of the specific companies whose stock is affected.
The market price and trading volume of our stock may be subject to these
fluctuations.

         IF OUR STOCK DOES NOT SUSTAIN A SIGNIFICANT TRADING VOLUME,
STOCKHOLDERS MAY BE UNABLE TO SELL LARGE POSITIONS IN OUR COMMON STOCK. In the
past, our common stock has not experienced significant trading volume on a
consistent basis and has not been actively followed by stock market analysts.
The average trading volume in our common stock may not increase or sustain its
current levels. As a result, we cannot be certain that an adequate trading
market will exist to permit stockholders to sell large positions in our common
stock.

         BECAUSE OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT PORTION OF OUR
COMMON STOCK, THEY MAY BE ABLE TO INFLUENCE STOCKHOLDER VOTES AND DISCOURAGE
OTHERS FROM ATTEMPTING TO ACQUIRE US. As of March 10, 2000, our officers and
directors owned, in total, approximately 15% of the outstanding shares of our
common stock. As a result, our officers and directors may be able to exert
influence over the outcome of all matters submitted to a vote of the holders of
our common stock, including the election of our Board of Directors. The voting
power of these officers and directors could also discourage others from seeking
to acquire control of us through the purchase of our common stock, which might
depress the price of our common stock.

         WE HAVE ADOPTED A NUMBER OF ANTI-TAKEOVER MEASURES THAT MAY DEPRESS THE
PRICE OF OUR COMMON STOCK. Our adoption of a stockholders' rights plan, our
ability to issue up to 700,000 shares of preferred stock and some provisions of
our certificate of incorporation and bylaws and of Delaware law could make it
more difficult for a third party to make an unsolicited takeover attempt of us.
These anti-takeover measures may depress the price of our common stock by making
third parties less able to acquire us by offering to purchase shares of our
stock at a premium to its market price. Our board of directors can issue up to
700,000 shares of preferred stock and determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by our stockholders. Our board of directors could
issue the preferred stock with voting, liquidation,


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<PAGE>


dividend and other rights superior to the rights of our common stock. The rights
of holders of our common stock will be subject to, and may be adversely affected
by, the rights of holders of the share purchase rights and of any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire a majority of our outstanding voting stock.

         OUR SALE OF SHARES TO ST. ANNES AT A PRICE BELOW THE MARKET PRICE OF
OUR COMMON STOCK WILL HAVE A DILUTIVE IMPACT ON OUR STOCKHOLDERS. We have
entered into a securities purchase agreement with St. Annes Investments, Ltd.
that allows us to sell to St. Annes up to $6,000,000 worth of shares of our
common stock at a discount to the then-prevailing market price of our common
stock. If the market price is $4.00 or less, St. Annes will receive a discount
equal to 14% of the market price, and if the market price is greater than $4.00,
St. Annes will receive a discount equal to 12% of the market price.
Additionally, we have agreed to issue to St. Annes as a fee shares of common
stock having an aggregate market price equal to 2% of the purchase price of the
shares of common stock that are issued and sold to St. Annes under the
securities purchase agreement. Accordingly, the issuance of shares under the
securities purchase agreement will have a dilutive impact on our stockholders.
As a result, our net income or loss per share could be materially impact future
periods, and the market price of our common stock could be materially and
adversely affected. As of March 10, 2000, we have sold 230,075 shares of our
common stock for gross proceeds of $1,000,000. We also have issued 4,049 shares
of our common stock to St. Annes as a fee.

         The table below sets forth the number of shares and the percentages of
our common stock that St. Annes would own if we elected to sell the remaining
$5,000,000 worth of stock under the purchase agreement. The share amounts and
the percentages include 234,124 shares already issued to St. Annes under the
securities purchase agreement and shares St. Annes will receive as a fee under
the securities purchase agreement. The share amounts and the percentages are
based on our closing share price of $12.63 on March 10, 2000, and on assumed
closing share prices of $9.47, $6.32 and $3.16, which prices represent a 25%,
50% and 75% decline, respectively, in our March 10, 2000 closing share price.
The percentages are also based on 14,251,626 shares of our common stock
outstanding on March 10, 2000.

<TABLE>
<CAPTION>
PERCENTAGE DECLINE                                            PERCENTAGE OF
 IN MARCH 10, 2000       ASSUMED         SHARES OF COMMON      OUTSTANDING
   CLOSING PRICE      CLOSING PRICE            STOCK          COMMON STOCK
------------------    --------------     ----------------     -------------
        <S>              <C>                  <C>                 <C>
        --               $12.63               691,908             4.7%
        25%               $9.47               844,665             5.7%
        50%               $6.32              1,148,969            7.6%
        75%               $3.16              2,105,629            13.1%
</TABLE>

         WE MAY NOT BE ABLE TO SELL THE ENTIRE $6,000,000 WORTH OF SHARES OF OUR
COMMON STOCK TO ST. ANNES WITHOUT OBTAINING STOCKHOLDER APPROVAL, WHICH MAY
REQUIRE THAT WE SEEK ALTERNATIVE SOURCES OF FINANCING THAT MAY NOT BE AVAILABLE
ON TERMS FAVORABLE TO US. Under the rules of the American Stock Exchange, we
cannot sell to St. Annes under our securities purchase agreement more than
1,881,800 shares of common stock unless we obtain stockholder approval of the
issuance of shares in excess of this amount. Accordingly, if the average price
at which we sell our stock to St. Annes under the securities purchase agreement
is less than $3.19 per share, we will not be able to sell the entire $6,000,000
worth of shares of our common stock to St. Annes without first obtaining
stockholder approval. If we are unable to obtain


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<PAGE>


stockholder approval, or if we choose not to pursue stockholder approval, we may
be required to seek alternative sources of financing to fund our working capital
requirements. We cannot guarantee that additional financing will be available or
that, if available, it can be obtained on terms favorable to our stockholders
and us.

         DECREASES IN THE PRICE OF OUR COMMON STOCK COULD INCREASE SHORT SALES
OF OUR COMMON STOCK BY THIRD PARTIES, WHICH COULD RESULT IN FURTHER REDUCTIONS
IN THE PRICE OF OUR COMMON STOCK. Our sales of common stock to St. Annes at a
discount to the market price of our common stock could result in reductions in
the market price of our common stock. Downward pressure on the price of our
common stock could encourage short sales of the stock by third parties. Material
amounts of short selling could place further downward pressure on the market
price of the common stock. A short sale is a sale of stock that is not owned by
the seller. The seller borrows the stock for delivery at the time of the short
sale, and buys back the stock when it is necessary to return the borrowed
shares. If the price of the common stock declines between the time the seller
sells the stock and the time the seller subsequently repurchases the common
stock, then the seller sold the shares for a higher price than he purchased the
shares and may realize a profit.


                                    Page 25
<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 2.  RECENT SALES OF UNREGISTERED SECURITIES

         In February 2000, we issued to Enewmedia Digital Entertainment Limited
warrants to purchase up to 307,692 shares of our common stock at an exercise
price of $6.50 per share. The warrants have a term of 9 months and may be called
by us if our common stock share price exceeds $7.80 for 20 consecutive trading
days shares. In connection with this issuance, Enewmedia covenanted that it was
acquiring the securities for its own account for investment purposes only and
not with a view to any distribution of the securities except pursuant to
registration under the Securities Act, and that it was an "accredited investor"
as that term is defined under Rule 501(a)(4) of Regulation D promulgated by the
Commission under the Securities Act. The issuance and sale of these securities
was exempt from the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act as a transaction
not involving any public offering.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits.

               10.1 Strategic Partner Agreement, dated as of February 17, 2000,
                    between Registrant and Enewmedia Digital Entertainment
                    Limited.

               10.2 Nontransferable Redeemable Warrant Agreement, dated February
                    28, 2000, between Registrant and Enewmedia Digital
                    Entertainment Limited.

               27.1 Financial Data Schedule.

         (b)   Reports on Form 8-K.

               None.



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<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                             BRILLIANT DIGITAL ENTERTAINMENT, INC.

Date: May 12, 2000             /S/ MICHAEL OZEN
                             --------------------------------------------------
                             By:   Michael Ozen
                             Its:  Chief Financial Officer (Principal Financial
                                   and Accounting Officer) and Secretary


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