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 June 30, 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, 14,704,844 shares issued and outstanding as of July 21, 2000.

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


<PAGE>


                      BRILLIANT DIGITAL ENTERTAINMENT, INC.

                                      INDEX
<TABLE>
<CAPTION>
                                                                                                       PAGE
<S>        <C>                                                                                         <C>
PART I     FINANCIAL INFORMATION.........................................................................3

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

           Condensed Consolidated Balance Sheet as of June 30, 2000......................................3

           Condensed Consolidated Statements of Operations for the three and six months
           ended June 30, 2000 and June 30, l999.........................................................4

           Condensed Consolidated Statements of Cash Flows for the six months
           ended June 30, 2000 and June 30, 1999.........................................................5

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

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

PART II    OTHER INFORMATION............................................................................25

Item 2.    Changes in Securities and Use of Proceeds....................................................25

Item 4.    Submission of Matters to Vote of Securities Holders..........................................25

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


                                     Page 2
<PAGE>


                                     PART I

                              FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

<TABLE>
                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 (In thousands)
<CAPTION>
                                                                    JUNE 30,
                                                                      2000
                                                                  -----------
                                                                  (unaudited)
<S>                                                               <C>
ASSETS
Current assets:
    Cash and cash equivalents..................................   $    4,412
    Accounts receivable, net...................................        2,257
    Other assets, net..........................................        1,587
                                                                  -----------
Total current assets...........................................        8,256
Property, plant and equipment, net.............................          848
Goodwill and other intangibles, net............................        4,829
Other assets...................................................          954
                                                                  -----------
Total assets...................................................   $   14,887
                                                                  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable...........................................   $    1,004
    Accrued expenses...........................................        1,654
    Deferred revenue...........................................        4,856
    Note payable, related party................................            6
    Current portion of notes payable and other debt............           52
                                                                  -----------
Total current liabilities......................................        7,572
Notes payable, less current portion............................           56
Other long term liabilities....................................           50
                                                                  -----------
Total liabilities..............................................        7,678
Commitments and contingencies
Stockholders' equity:
    Common stock...............................................           15
    Additional paid-in capital.................................       42,328
    Accumulated deficit........................................      (35,002)
    Cumulative other comprehensive income (loss)...............         (132)
                                                                  -----------
Total stockholders' equity.....................................        7,209
                                                                  -----------
Total liabilities and stockholders' equity.....................   $   14,887
                                                                  ===========
</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)

                                                        3 MONTHS     3 MONTHS     6 MONTHS      6 MONTHS
                                                          ENDED        ENDED        ENDED         ENDED
                                                         6/30/00      6/30/99      6/30/00       6/30/99
                                                       -----------  -----------  -----------   -----------
                                                       (UNAUDITED)  (UNAUDITED)  (UNAUDITED)   (UNAUDITED)
<S>                                                    <C>          <C>          <C>           <C>
  REVENUE:
       Revenues.....................................   $    316     $    127     $      560    $     334
                                                       ----------   ----------   -----------   ----------
  COST OF REVENUES AND EXPENSES:
  Cost of revenues..................................        227          141            530          349
  Sales & marketing.................................        370          257            507          479
  Website development...............................        691           --          1,091           --
  General and administrative........................      2,456          937          4,793        1,536
  Research and development..........................        786          880          1,676        1,883
  Amortization of software technology and goodwill .        319           --            639           --
  Depreciation......................................        107          140            199          270
                                                       ----------   ----------   -----------   ----------
  Total cost of revenues and expenses...............      4,956        2,355          9,435        4,517
                                                       ----------   ----------   -----------   ----------
  Income (loss) from operations.....................     (4,640)      (2,228)        (8,875)      (4,183)

  OTHER INCOME (EXPENSE):
  Export market development grant...................        122           90            122          127
  Gain (loss) on foreign exchange...................          1           (4)             1           (5)
  Debenture expense.................................         --          (55)           (30)         (55)
  Interest income (expense), net....................         65          (24)           113            4
                                                       ----------   ----------   -----------   ----------
       Total other income (expense).................        188            7            206           71
                                                       ----------   ----------   -----------   ----------
  Income (loss) before income taxes.................     (4,452)      (2,221)        (8,669)       4,112)
  Provision for income taxes........................         --           --             --           --
                                                       ----------   ----------   -----------   ----------
  Net income (loss).................................     (4,452)      (2,221)        (8,669)      (4,112)
  Foreign currency translation adjustment
        (net of tax effects)........................        (65)           3             19           26
                                                       ----------   ----------   -----------   ----------
  Comprehensive income (loss).......................   $ (4,517)    $ (2,218)    $   (8,650)   $  (4,086)
                                                       ==========   ==========   ===========   ==========
  Basic and diluted net income (loss) per share.....   $  (0.30)    $  (0.20)    $    (0.61)   $    (.41)
                                                       ==========   ==========   ===========   ==========
  Weighted average number of shares used in
       computing basic and diluted net income
       (loss) per share.............................     14,771       10,852         14,261       10,131
                                                       ==========   ==========   ===========   ==========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                     Page 4
<PAGE>


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

                                                                                        SIX MONTHS
                                                                                      ENDED JUNE 30,
                                                                               -------------------------
                                                                                   2000         1999
                                                                               ------------  -----------
                                                                                (unaudited)  (unaudited)
<S>                                                                              <C>          <C>
OPERATING ACTIVITIES
Net income (loss)............................................................    $ (8,669)    $ (4,112)
Adjustments to reconcile net income (loss) to the net cash provided
   by (used in) operating activities:
      Depreciation and other amortization....................................         312          380
      Amortization of movie software costs...................................         153          258
      Amortization of software technology....................................          40           --
      Amortization of goodwill...............................................         583           --
      Amortization of customer database......................................          16           --
      Effect of warrants granted.............................................         112           --
      Debenture expense......................................................          --           55
      Changes in operating assets and liabilities:
         Accounts receivable.................................................      (1,922)        (308)
         Other assets........................................................        (487)         (45)
         Accounts payable and accruals.......................................         118          105
         Deferred revenue....................................................       4,825           --
         Other long-term liabilities.........................................          --          (71)
                                                                               -----------  -----------
Net cash provided by (used in) operating activities..........................      (4,919)      (3,738)

INVESTING ACTIVITIES
Purchases of equipment.......................................................        (496)         (62)
                                                                               -----------  -----------
Net cash used in investing activities........................................        (496)         (62)

FINANCING ACTIVITIES
Proceeds from issuance of shares, net of costs...............................       7,370        4,384
Convertible debenture, net of costs..........................................          --          951
Repayment of debenture.......................................................          --         (100)
Repayments of notes..........................................................        (105)         (14)
                                                                               -----------  -----------
Net cash provided by financing activities....................................       7,265        5,221
                                                                               -----------  -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.........................       1,850        1,421

Translation adjustments......................................................          56          (21)
Cash and cash equivalents at beginning of period.............................       2,506        3,187
                                                                               -----------  -----------
Cash and cash equivalents at end of period...................................    $  4,412     $  4,587
                                                                               ===========  ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
   Interest..................................................................    $     33     $      9
                                                                               ===========  ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                     Page 5
<PAGE>


SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:

     On January 10, 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 and $36,000 was expensed in the first
quarter in connection with the shares earned. In June we dissolved our agreement
with Continental Capital and reacquired 30,000 of the unearned share of stock
pursuant to the terms of the agreement. 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 $492,000, which will be expensed over the 6-year term
of the contract. On May 23, 2000 we entered into an agreement with Yahoo!. The
warrants issued in connection with this agreement carry a value of $1,022,222
and will be expensed over 12 months. The unamortized portion of the Yahoo!
warrants is included in other current assets.


                                     Page 6
<PAGE>


                      BRILLIANT DIGITAL ENTERTAINMENT, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 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 2,113,000 and 3,326,000
were excluded from the average number of common and common equivalent shares
outstanding in the diluted EPS calculation for the six months ended June 30,
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. We
anticipate that we will fund more than the $900,000 under the agreement.

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 was received prior to June 30, 2000. 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.


                                     Page 7
<PAGE>


     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 for which Enewmedia has distribution rights. 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 was received after June 30, 2000. The revenue
will be recognized in future periods commencing in the 2nd quarter of 2000. We
are also entitled to a 10% royalty on all joint venture revenues.

     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 six months ended June 30, 1999 reflects our acquisition,
on July 1, 1999, of The Auction Channel, as if the acquisition had occurred at
the beginning of 1999.

<TABLE>
<CAPTION>
                                        -------------------
                                         SIX MONTHS ENDED
                                           JUNE 31, 1999
                                        -------------------
                                             (unaudited)
       <S>                              <C>
       Revenues.......................     $     697,000
       Net loss.......................     $ (5,824,000)
       Net loss per share.............     $      (0.54)
</TABLE>


                                     Page 8
<PAGE>


6.   GEOGRAPHICAL INFORMATION AND MAJOR CUSTOMERS

     Our operations consist of our subsidiary, Brilliant Interactive Ideas Pty.
Ltd., in Australia, Brilliant Digital Entertainment, Inc. in the United States
of America and the United Kingdom operations of The Auction Channel. 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>
SIX MONTHS ENDED JUNE 30, 1999:
Revenues from unaffiliated customers.........   $     313,000   $      21,000   $          --
Revenues from affiliated customers...........              --              --              --
                                                --------------  --------------  --------------
Total revenues...............................   $     313,000   $      21,000   $          --
                                                ==============  ==============  ==============
SIX MONTHS ENDED JUNE 30, 2000:
Revenues from unaffiliated customers.........   $     389,000   $      47,000   $     124,000
Revenues from affiliated customers...........              --              --              --
                                                --------------  --------------  --------------
Total revenues...............................   $     389,000   $      47,000   $     124,000
                                                ==============  ==============  ==============
LONG-LIVED ASSETS AS OF:
June 30, 2000................................   $   1,195,000   $     305,000   $   5,131,000
                                                ==============  ==============  ==============
</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 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 six months ended June 30, 1999, GT Interactive accounted for 28%
($94,000), and The Learning Company accounted for 23% ($78,000) of our reported
revenues. For the six months ended June 30, 2000, Enewmedia, and SlingShot, Inc.
accounted for 27% ($153,000) and 19% ($107,000) of our revenues, while GT
Interactive, L90 and Entertaindom, a Time Warner website, accounted for 6%
($32,000), 4% ($21,000) and 8% ($45,000) 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, has it's primary operations 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,


                                     Page 9
<PAGE>


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>

                                                  SIX MONTHS ENDED
                                                  JUNE 30, 2000 (1)
                                                 ------------------
                                                     (unaudited)
<S>                                              <C>
TOTAL ASSETS:
    Digital animation........................    $     9,133,000
    Auction facilitation.....................          5,754,000
                                                 ----------------
       Total assets(2).......................    $    14,887,000
                                                 ================

REVENUES--EXTERNAL CUSTOMERS:
    Digital animation........................    $       436,000
    Auction facilitation.....................            124,000
                                                 ----------------
       Total revenues........................    $       560,000
                                                 ================

INCOME (LOSS) FROM OPERATIONS:
    Digital animation (3)....................    $   (4,110,000)
    Auction facilitation (4).................        (4,765,000)
    Other (5)................................            206,000
                                                 ----------------
       Total income (loss)...................    $   (8,669,000)
                                                 ================
---------------------------
<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.
(2)  Transactions between the two segments are primarily cash transfers to fund
     The Auction Channel operations.
(3)  Includes depreciation of $147,000.
(4)  Includes $52,000 of depreciation and amortization of $639,000 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 10
<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 SIX MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 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 license software tools to others to be used by
them in the development of content for the Internet. Through our subsidiary, The
Auction Channel, Inc., we 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, the 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 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 11
<PAGE>


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

     The Auction Channel enables live real time bidding through its proprietary
NetBidlive technology, allowing bidders to compete for items at live auctions
from their homes or offices. TAC was one of the first companies to integrate
broadcast television with the power of the internet for the purpose of
broadcasting live auction's to a bidder's television or computer in a real time
broadcast quality environment. Since its inception in 1996, TAC has hosted more
than 100 internet auctions with some of the major international auction houses,
as well as producing and hosting twenty of those auctions on television in
conjunction with BSkyB Sports in the United Kingdom.

     During the quarter, The Auction Channel was selected by the CBS Early
Morning Show to assist in producing a bi-monthly co-branded auction and
appraisal segment. TAC also entered into an agreement with Auction Watch to
create a co-branded appraisal component on TAC's website to allow consumers to
send in digital photos of items they would like to have appraised. Additionally,
TAC entered into an agreement with the British based Two Way Television, an
enhanced TV pioneer, to create auction related games for their "enhanced TV
platform."

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, which is representing selected titles sold in
jewel case CD-ROM formats.

DVD MARKET

     We intend to release selected Multipath Movie titles to the DVD market for
distribution commencing in the second half of 2000. 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. Many of the titles
have been delivered to SlingShot for conversion to the DVD format and a release
plan has been developed 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 follow a syndication strategy to
distribute content as broadly as possible across the Internet. We continue to
focus more of our efforts toward Internet distribution through third party
websites and have increased our hiring of personnel in this area. Much progress
has been made in this area during the first half of 2000 and our content is now
available on third party websites that include Yahoo!, VH1.com, Studiosusa.com,
Time-Warner's Entertaindom.com, Road Runner, and Music.com. Additionally,
agreements to host BDE content have been reached with third-party sites such as
Lycos, Vidnet, and StreamSearch, thus enabling even more consumer reach in the
near term.


                                    Page 12
<PAGE>


     At this time, we have three Multipath Movie animated series in distribution
on the Internet; Superman, Xena-warrior Princess and KISS-The Immortals. We
released Xena-Warrior Princess late in the second quarter. Two additional
series, Ace Ventura and Gravity Angels, are in production and will be available
over the coming months. All of these series, except Gravity Angels, are based on
existing (licensed) properties.

B3D

     We are 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. In addition, we are currently developing an
exporter plug-in tool for users of Maya and Lightwave animation packages that is
expected to be available in the 4thquarter, 2000. This will further broaden the
market for the b3d toolset.

     Beta versions of our proprietary toolsets, which are developed by our
subsidiary, B3D, Inc. have been released to the public. The first software
products to be launched consist of b3d Studio, b3d Studio Pro, and other
supporting products that are targeted for sale by the end of the fiscal year
2000. The b3d Studio products are similar to those used by our own production
team in the creation of our syndicated Multipath Movie series such as Superman,
KISS, and Xena that are now available on popular entertainment Web portals.
These tools will provide individual artists, animators and studios with the
capability to create their own multipath movies and b3d content for commercial
distribution on the Internet, and should ultimately provide a wide and varied
base of b3d content to enrich the consumers web experience. Animation content
generated using the b3d tools can be of any type. The tool is not limited to the
production of entertainment content. It can be applied to the production of
artistic renderings, education, architecture, engineering, e-commerce and other
solutions that require animation.

     B3D, Inc. officially launched the toolset program in July 2000 at the
Siggraph computer graphics show in New Orleans, where B3D, Inc. announced and
initiated the Web-based beta program. The Beta program allows users to download
a full featured but "watermarked" (i.e., our name will appear on the content)
version of the b3d Studio software for evaluation and feedback to our b3d
software development and marketing team. B3D, Inc. is also in discussions with
other leading 3D tools makers to provide a broad array of potential companion
products for the b3d software tools. However, we do not guarantee that such
discussions will lead to any ultimate agreements or partnerships, 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."


                                    Page 13
<PAGE>


     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. Non-refundable advances are recognized as revenue when the CD-ROM
master is delivered to the licensee and the terms of the sale are considered
fixed. 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 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 earned from the sale or licensing of our software tools will be
recognized based on the terms of the sales or licensing agreement.

     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 $334,000 for the six months ended June 30, 1999 to
$560,000 for the six months ended June 30, 2000. Revenues for the six months
ended June 30, 2000 include internet advertising revenue of $66,000, licensing
of b3d tools of $84,000, licensing of b3d content of $69,000, Multipath Movie
retail sales of $59,000, DVD revenue of $107,000 and $124,000 in auction service
revenues earned by The Auction Channel, primarily from the televised broadcast
of auctions. Motion Capture Services, the use of software for the capture of
motion for animated digital characters, generated $47,000 in revenues in the
2000 period. Revenues for the six months ended June 30, 1999 were the result of
$233,000 from CD ROM sales, $80,000 earned under a Multipath Movie technology
and content development agreement and $21,000 in motion capture revenues.

     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 $349,000 for the six months
ended June 30, 1999 to $530,000 for the six months ended June 30, 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 $325,000, offset by a
reduction in the amortization of Multipath Movie development costs.


                                    Page 14
<PAGE>


     SALES AND MARKETING. Sales and marketing expenses include primarily costs
for salaries, advertising, promotions, travel and trade shows. Sales and
marketing expenses increased from $479,000 for the six months ended June 30,
1999 to $507,000 for the six months ended June 30, 2000. The minimal change is
primarily attributable to a decrease in our promotional efforts, specifically
the discontinuation of the banner program, offset by the additional costs
incurred by The Auction Channel of $72,000 and the warrant distribution expense
of $85,000 attributable to the Yahoo! agreement.

     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 $1,536,000 for the six months ended June 30, 1999 to $4,793,000
for the six months ended June 30, 2000. This is an increase of $3,257,000, which
is primarily attributable to the addition of $1,500,000 of general and
administrative costs related to The Auction Channel's operations in the United
Kingdom and $1,145,000 associated with establishing The Auction Channel's New
York office. There were also increased payroll costs of $340,000 due to the
development of internal management and the addition of personnel, additional
cost of $175,000 in supplies, rent, computer supplies, and other
personnel-related items resulting from the increase in personnel, and an
increase in professional fees of $98,000 and investor costs of $120,000 as a
result of a greater level of activity. The increase in general and
administrative costs was partially offset by a reduction of $105,000 in outside
consultant costs due to our addition of personnel.

     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 $1,883,000 and $1,676,000 for the six months ended
June 30, 1999 and June 30, 2000, respectively. The 2000 figure includes web
design costs of $967,000 pertaining to the development of The Auction Channel
web site. In the 2000 period our research and development costs were offset by a
$200,000 reimbursement fee of production costs paid to us by Entertaindom.

     DEPRECIATION AND AMORTIZATION. Depreciation expense relates to depreciation
of fixed assets such as computer equipment and cabling, furniture and fixtures
and leasehold improvements. These fixed assets are depreciated over their
estimated useful lives (up to five years) using the straight-line method.
Depreciation expense decreased from $270,000 for the six months ended June 30,
1999 to $199,000 for the six months ended June 30, 2000 as a number of assets
were fully amortized. Amortization expense for the six months ended June 30,
2000 includes amortization of goodwill of $583,000, software technology of
$40,000 and customer database of $16,000, 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 increased from income of $71,000 in 1999 to income of
$206,000 in 2000. This increased is primarily due to interest income of
$146,000.


                                    Page 15
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2000, our principal source of liquidity was approximately
$4,412,000 in cash, which we raised primarily through the issue of new equity
and the Enewmedia agreement.

     On February 17, 2000 we entered into an agreement with Enewmedia, as
described in Note 4 to the Financial Statements, which provides for the payment
to us of $9,000,000 in cash, of which $1,500,000 remained outstanding at June
30, 2000.

     On June 6, 2000, iBidLive exercised in full warrants to purchase 200,000
shares of our common stock at $4.00 per share, for aggregate proceeds to us of
$800,000.

     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 $6,000,000 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, we 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.

     Net cash used in operating activities during the six months ended June 30,
2000 was primarily attributable to a net loss of $8,669,000. Net cash of
$495,000 used in investing activities in the six months ended June 30, 2000 was
due primarily to the purchase of computer equipment. Cash 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. We anticipate that
we will fund more than the $900,000 under the agreement. We may spend up to
$1,753,000 for the development of a web site for The Auction Channel. Thus far,
we have paid $600,000 on the first two development phases for this web site.


                                    Page 16
<PAGE>


     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.

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 AND B3D
TOOLSET 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


                                    Page 17
<PAGE>


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. The b3d
toolset may have programming errors, may be incompatible with other software or
hardware products in the market, may face slow adoption in the marketplace and
may face competition from other toolmakers. Other factors that influence our
ability to generate revenues from our Multipath Movies and the b3d toolset
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;

     o    the availability of alternative forms of entertainment and leisure
          time activities;

     o    our ability to sell advertising and sponsorships for the content;

     o    our b3d toolset may contain features, functionality or workflow
          conventions that may not be widely accepted by our target audience;

     o    our ability to continue to develop and enhance the toolset and deliver
          without delay; and

     o    the marketplace's reluctance to adopt a new toolset.

     WE HAVE EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, REDUCED REVENUES DUE
TO DELAYS IN THE INTRODUCTION AND DISTRIBUTION OF OUR PRODUCTS. We cannot be
certain that we will be able to meet our planned release dates for our new
Multipath Movies. If we cannot release an important new product or webisodes
during the scheduled quarter, our revenues would likely be reduced in that
quarter. In the past, we have experienced significant delays in our introduction
of some new products. It is likely in the future that delays will continue to
occur and that some new products will not be released in accordance with our
internal development schedule or the expectations of public market analysts and
investors.

     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 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


                                    Page 18
<PAGE>


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.

     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.


                                    Page 19
<PAGE>


     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 sales 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, through it's subsidiary,
Trojan Television, Ltd., 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 ended June 30, 1999, $958,000 for the six months ended December
31, 1999, and $4,126,000 for the six months ended June 30, 2000. At June 30,
2000 The Auction Channel had an accumulated deficit of $7,857,000 relating to
net losses from the period from July 1, 1996 through June 30, 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,


                                    Page 20
<PAGE>


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, 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.


                                    Page 21
<PAGE>


     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.

     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;


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<PAGE>


     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 July 21, 2000, our officers and directors
owned, in total, approximately 14.3% 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, 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


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<PAGE>


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 impacted in
future periods, and the market price of our common stock could be materially and
adversely affected. As of July 21, 2000, we have sold 230,075 shares of our
common stock to St. Annes 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 $4.88 on July 21, 2000, and on assumed
closing share prices of $3.66, $2.44 and $1.22 which prices represent a 25%, 50%
and 75% decline, respectively, in our July 21, 2000 closing share price. The
percentages are also based on 14,704,844 shares of our common stock outstanding
on July 21, 2000.

<TABLE>
<CAPTION>
PERCENTAGE DECLINE IN                                         PERCENTAGE OF
    JULY 21, 2000           ASSUMED       SHARES OF COMMON     OUTSTANDING
    CLOSING PRICE        CLOSING PRICE          STOCK         COMMON STOCK
---------------------    -------------    ----------------    -------------
<S>                      <C>              <C>                 <C>
         --                  $4.88            1,418,923            8.9%
         25%                 $3.66            1,849,958           11.3%
         50%                 $2.44            2,657,876           15.5%
         75%                 $1.22            5,081,627           26.0%
</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 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


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<PAGE>


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.


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<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

     In May 2000, we issued 346,968 shares of Common Stock into escrow in
connection with our acquisition of Trojan Television Limited. The shares are
being held for the benefit of certain prior shareholders of Trojan Television
Limited pursuant to the terms of an escrow agreement. The escrow arrangement
provides us with the ability to make claims against the shares to satisfy our
rights to be indemnified by the prior shareholders against certain losses. In
connection with this issuance, each of the prior shareholders of Trojan
Television Limited that sold their interest in Trojan to us covenanted that he
was acquiring the securities for his 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, and Regulation S with respect to those
purchasers located outside of the United States.

     In May 2000, we issued to Yahoo! Inc. warrants to purchase up to an
aggregate of 350,076 shares of our common stock at an exercise price of $6.29
per share. The warrants have a term of 30 months. The warrants were issued to
Yahoo! Inc. in partial consideration of a web site content syndication agreement
we entered into with Yahoo! Inc. In connection with this issuance, Yahoo! Inc.
covenanted 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.

     In June 2000, iBidLive N.V. exercised its warrants to purchase 200,000
shares of common stock for aggregate proceeds to us of $800,000. The warrants to
purchase our common stock were granted to iBidLive N.V. in July 1999. In
connection with the exercise of the warrant, iBidLive N.V. 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
is 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 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     At our 2000 Annual Meeting of Stockholders held on June 23, 2000, our
stockholders (a) elected Garth Saloner to serve as a Class I director of
Brilliant Digital Entertainment, Inc. for three


                                    Page 25
<PAGE>


years and until his successor has been elected, and (b) approved an amendment to
our 1996 Stock Option Plan to increase from 2,500,000 to 3,500,000 the maximum
number of shares of common stock that may be issued pursuant to awards granted
under the plan.

     The Director was elected by a vote of 11,514,547 shares in favor of, and
423,692 shares withheld from voting for the Director. At the annual meeting,
5,647,004 shares were voted in favor of, 681,594 shares were voted against, and
32,040 shares were withheld from voting on the amendment to the our 1996 Stock
Option Plan. There were 5,577,601 broker non-votes at the annual meeting that
were not counted as votes cast for or against the proposal to amend our 1996
Stock Option Plan.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

            (a)      Exhibits.

                     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: August 11, 2000                  /S/ MICHAEL OZEN
                                       -------------------------------------
                                       By:    Michael Ozen
                                       Its:   Chief Financial Officer (Principal
                                              Financial and Accounting Officer)
                                              and Secretary


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