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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

  [x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
                                  Act of 1934.

                   For the fiscal year ended December 31, 2001

                                       or

[_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
                                  Act of 1934.

               For the transition period from _______ to ________

                        Commission file number: 000-29121

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

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

                   3240 BAYSHORE BOULEVARD, BRISBANE, CA 94005
               (Address of principal executive offices) (Zip Code)
                                 (415) 508-2000
              (Registrant's telephone number, including area code)

                         -------------------------------

        Securities Registered Pursuant to Section 12(b) of the Act: NONE

           Securities Registered Pursuant to Section 12(g) of the Act:

                          COMMON STOCK $0.001 PAR VALUE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) whether the registrant
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of such shares on February 28,
2002 as reported on the Nasdaq SmallCap Market, was approximately $ 4,346,993.

As of February 28, 2002, there were 1,813,849 shares of the registrant's common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the registrant's May
2002 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, are incorporated by reference
into Part III of this annual report on Form 10-K.

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                               SNOWBALL.COM, INC.

                                    FORM 10-K

                                TABLE OF CONTENTS

                                                                        Page No.

PART I.

     Item 1.  Business                                                         1
     Item 2.  Properties                                                       9
     Item 3.  Legal Proceedings                                                9
     Item 4.  Submission of Matters to a Vote of Security Holders              9
     Item 4A. Executive Officers                                               9

PART II.

     Item 5.  Market for Registrant's Common Equity and Related
              Stockholder Matters                                             11
     Item 6.  Selected Consolidated Financial Data                            11
     Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                             14
     Item 7A. Quantitative and Qualitative Disclosures About
              Market Risk                                                     36
     Item 8.  Consolidated Financial Statements and Supplementary Data        37
     Item 9.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                             61

PART III.
     Item 10. Directors and Executive Officers of the Registrant              61
     Item 11. Executive Compensation                                          61
     Item 12. Security Ownership of Certain Beneficial Owners
              and Management                                                  61
     Item 13. Certain Relationships and Related Transactions                  61

PART IV.
     Item 14. Exhibits, Financial Statement Schedules, and
              Reports on Form 8-K                                             61

Signatures                                                                    64

Snowball, IGN, IGNinsider, IGN Unplugged, IGN Arena, Gen i, ChickClick and their
respective logos are the trademarks of Snowball.com, Inc. All other trademarks
or trade names appearing elsewhere in this annual report are the property of
their respective holders.

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FORWARD-LOOKING STATEMENTS

      Certain statements contained in this annual report on Form 10-K that are
not statements of historical facts are "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements are based on beliefs of
management, as well as assumptions made by and information currently available
to management. Such statements are based on current expectations, estimates and
projections about our industry, our beliefs and our assumptions. All statements,
other than statements of historical fact, included in this annual report on Form
10-K regarding our strategy, future operations, financial position, estimated
revenue, projected costs, prospects, plans and objectives of management are
forward-looking statements. Words such as "may," "will," "should,"
"anticipates," "projects," "predicts," "expects," "intends," "plans,"
"believes," "seeks" and "estimates" and variations of these words and similar
expressions, are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. These statements
are only predictions and are subject to risks, uncertainties and other factors,
many of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements. The risks, uncertainties and assumptions referred to
above include our unproven business model, history of losses, prospects for
obtaining additional financing, concentration on our IGN network, and other
risks that are described from time to time in our Securities and Exchange
Commission reports, including but not limited to the items discussed in "Risk
Factors" set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 in this report. We assume no
obligation and do not intend to update these forward-looking statements.

                                     PART I

Item 1. BUSINESS

      Snowball's IGN network, is one of the Internet's leading gaming and
entertainment destinations for Gen i(TM). We define Gen i as young adults,
primarily 13 to 30 years of age, who regularly use the Internet. As an Internet
media property, we sell advertising, marketing and commerce programs to
companies that wish to reach this audience for branding, education or sales of
their products and services. Additionally, we sell rights to access certain of
our content to our web site visitors on a subscription fee basis. We serve our
audience by providing editorial content, relevant services, a forum for
interacting with one another and access to third party merchandise. We serve our
advertising and marketing customers by providing access, targeting and
communication to our audience, and relevant contextual integration for customer
products, services and messages. We serve our subscribers, IGNinsiders(TM), by
providing premium content and services. In addition to creating original
content, we expand the breadth and depth of our content offerings by linking web
sites to our network. We had approximately 55 affiliated web sites as of
December 31, 2001.

      We organize both our own web sites and affiliated web sites around
networks and channels that target different segments of the Gen i audience.
Currently, our networks are:

      .     IGN Games, which contains separate channels for all the different
            gaming platforms, as well as separate channels for codes and guides;
            and

      .     IGN Entertainment, which contains separate channels covering DVDs,
            male lifestyle, gear, movies and sci-fi.

      In response to the difficult market conditions of 2001, we chose to focus
on our core strengths, and in the fourth quarter of 2001, curtailed operations
of our HighSchoolAlumni and our


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ChickClick networks to focus solely on our largest network, IGN. In January
2002, we sold our HighSchoolAlumni network.

      In addition to our own networks, we have used our proprietary publishing
technology to produce two web sites for InterAct Accessories, one of the leading
providers of gaming accessories. The sites, called GameShark.com and
GameSharkGear.com, offer visitors multiple features, including discussion
boards, search capabilities and contests.

      By offering targeted access to a large audience with attractive
demographic characteristics, we seek to generate marketing and advertising
revenue in a variety of forms. These include promotions and sponsorships with
negotiated financial terms, slotting and lead-generation fees from merchants
that seek preferential placement on our sites, and sales of impression based
advertising, both traditional and contextual. In addition, we offer our
customers opt-in registration, e-mail and newsletter programs to reach our
audience directly, content licensing and full-service hosting and editorial
production. During 2001, we also began offering subscriptions for premium
content to our site visitors.

      According to Jupiter Media Metrix, U.S. male Internet users between the
ages of 13 and 34 currently number approximately 22 million, and account for
approximately 21% of all U.S. Internet users. According to a November 2001
report by the Audit Bureau of Circulations, IGN attracted more than 8.3 million
unique visitors per month who viewed approximately 300 million page impressions.
In December 2001, Jupiter Media Metrix reported that IGN was ranked number one
among gaming information sites based on unique visitors. As of December 31,
2001, our IGN network had over 4.3 million registered users and of these users,
over 30,000 had joined our IGNinsider paid subscription program.

The Snowball Strategy

      Our goal is to be the Internet's preeminent gaming and entertainment
destination for Gen i and to be the partner of choice for the companies that
want to reach this audience. Our strategy includes:

      .     Building and developing our network. We will continue to develop our
            network by increasing the depth of content, services and product
            offerings arranged around the appropriate focus of each network or
            channel.

      .     Offering a range of value-added services to attract new and retain
            current subscribers. In order to further entice new subscribers, we
            continue to implement a variety of features in the subscription area
            that provide unique benefits to the paid subscriber versus the
            non-paying visitor. Some of the features that we have added
            exclusively to the subscription area since the beginning of the
            fourth quarter of 2001 include the following: unique articles and
            reviews; time-locked articles and reviews made available to
            IGNinsiders first for a period of time before being released to the
            general public; access to IGN Unplugged(TM), a monthly online
            magazine; unlimited access to file and downloads as opposed to
            restricted access for non-subscribers; an online multi-player game,
            called IGN Arena(TM); and message board access. We have also
            expanded the variety of payment options made available to IGN's user
            base. In addition to accepting subscription payments by check and
            credit card we recently began accepting PayPal online currency and
            cash. We also offer sponsored subscription opportunities in which
            IGN users are offered free subscriptions in exchange for acquiring
            or signing up for a third party sponsor's product.

      .     Offering a range of value-added services to attract, retain and
            develop affiliated web sites. We intend to continue to attract and
            retain select affiliates by identifying


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            small and developing web sites early and by offering them a mutually
            beneficial agreement to increase their marketing capabilities and to
            expand their reach. Additionally, we will continue to solicit and
            respond to affiliate and user feedback to refine the services we
            provide. These services will assist us in incubating new web sites
            and networks to supplement our content and service offerings. We
            will also modify, terminate or not renew contracts with affiliates
            where we do not perceive that a beneficial relationship exists.

      .     Promoting affinity and community across all networks and affiliates
            to increase the amount of time which users spend on our networks. We
            intend to continue to develop the community tools and services we
            provide to increase the time that users spend on our sites, as well
            as increase the frequency of their visits. We will continue to
            incorporate those services into our networks that appeal to Gen i,
            such as e-mail, instant messaging, chat rooms, bulletin boards,
            personalized home pages and polling, to keep them actively engaged
            in both content and communication. In some cases we are able to
            derive revenue or reduce service-offering costs from partnerships
            with companies that provide these services to us.

      .     Being the premier partner for marketing, advertising and commerce
            directed at Gen i. By creating a branded gaming and entertainment
            network, whose channels focus on a variety of discrete subjects of
            interest to Gen i, and by remaining a premier online destination for
            Gen i, we intend to offer potential advertisers and other customers
            valuable opportunities to reach targeted segments of this
            demographic. By providing impression-based advertisements (Flash,
            Unicast and click-within advertising units, as well as banners,
            buttons, text links), sponsorships and slotting opportunities,
            e-mail lists, newsletter advertising, opt-in registration data,
            content licensing and outsource editorial and publishing services,
            we can offer customized marketing programs for companies wanting to
            address this market. Additionally, we will continue to develop
            opportunities for merchants to sell selected merchandise through
            e-commerce partnerships.

      .     Pursuing strategic alliances and acquisitions that increase content,
            traffic and revenue opportunities. We intend to selectively develop
            strategic alliances to incorporate additional content or services on
            our networks, to derive additional traffic from the resulting
            co-branding effects and to drive new methods of revenue generation.
            For example, we entered into two significant partnerships during
            2001 with InterAct Accessories and CompUSA. The InterAct partnership
            involves an integrated marketing contract and a custom publishing
            contract, in which we have taken over responsibility for creating
            and maintaining two of InterAct's web sites using our propriety
            online publishing system. The CompUSA partnership is a strategic
            integrated marketing, contract licensing and retail contract.
            CompUSA is now IGN's video and computer games and gaming accessories
            retail partner. The partnership not only features promotions online,
            but also throughout CompUSA's 218 offline stores. In selecting our
            partners, we will strive to ensure the integrity of our own brand
            identity with Gen i. Additionally, where strategically appropriate,
            we intend to acquire selected web sites, affiliates and businesses
            that complement our existing networks.

Content and Networks

      We believe that the large number of Gen i users who visit our networks do
so for the compelling content contained on the web sites that make up each
network. This content is


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derived from three sources: our in-house editorial staff, freelance writers and
our affiliates. As of December 31, 2001, our editorial staff consisted of
approximately 20 professional in-house writers, 20 freelance writers and we had
approximately 55 affiliated web site relationships.

      In response to the difficult market conditions of 2001, we chose to focus
on our core strengths, and in the fourth quarter of 2001, curtailed operations
of our ChickClick network and our HighSchoolAlumni network which we sold in
January 2002. We now focus solely on our largest network, IGN.

      IGN is a network of web sites focusing on games, entertainment and
lifestyle for Gen i. IGN provides current editorial coverage of games, science
fiction, movies and television. IGN targets three distinct interest groups
through the following channels: IGN Games, IGN Entertainment and IGN for Men.
IGN Games provides reviews and previews of games for personal computers,
Playstation, XBox, GameCube and other video game consoles. IGN Entertainment
provides editorial content on science fiction, movies, television, books,
electronic gear and toys. IGN for Men offers content focusing on the lifestyles
of young men. Our IGN network offers numerous features and services to keep its
users engaged, including e-mail, discussion boards, contests and promotions,
weather, horoscopes and search capabilities. IGN also offers slots to partners
seeking to sell products and services online.

Custom Publishing

      In addition to our own networks, we have used our proprietary publishing
technology to produce two web sites for InterAct Accessories, one of the leading
providers of gaming accessories. The sites, called GameShark.com and
GameSharkGear.com, offer visitors multiple features, including discussion
boards, search capabilities, contests, and a zip code-based retail store finder.

Revenue Sources

      Our business model provides our customers with a wide range of advertising
and marketing programs to reach our Gen i audience. These programs include
impression-based advertisements, including Flash, Unicast and click-within
advertising units, as well as banners, buttons, and textlinks; sponsorships,
fixed slotting fees, variable lead generation, content licenses, commerce
partnerships and other marketing programs. We also provide premium content and
services to our audience on a subscription fee basis.

      For the years ended December 31, 2001, 2000 and 1999, our various
advertising and marketing programs represented approximately 92%, 99% and 100%
of our revenue, respectively.

Advertising and marketing programs

      Our strategy is focused in part on generating a majority of our
advertising revenue from sponsors and merchants seeking an integrated and
cost-effective means to reach Gen i on the Internet. We derive a significant
portion of our advertising revenue from impression-based advertisements that are
displayed on pages throughout our networks. From each of these, viewers can
hyperlink directly to the advertiser's own web site, thus providing the
advertiser the opportunity to interact directly with a potential customer. Under
these contracts, we sell fixed placements over time or we guarantee advertisers
a minimum number of impressions for which we receive a fixed fee. We believe
that we are a leader in offering new and evolving web-based advertising units
and programs, which helps our customers to achieve higher awareness and
recognition with Gen i.

      Our sponsorship arrangements are designed to achieve broad marketing
objectives such as brand promotion, brand awareness, product introductions and
online research. To help


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sponsors achieve these goals, we develop individually tailored sponsorship
programs that may include any combination of impression based advertisements,
promotions, contests, sponsorships of specific categories and direct merchandise
slotting opportunities. We also develop content to support the marketing
initiatives of advertisers. In addition, sponsors may communicate with their
customers on our message boards and through chats, and may gain insights into
their customers' preferences and buying habits through polls and special events.
Sponsorships allow us to cater to the specific goals of advertisers in the areas
of impressions, product research, market research, new product launches, list
development, product information, repositioning, new account openings, lead
generation and transactions. Our sponsorship agreements generally have terms of
up to one year with revenue based upon contract duration.

      We also generate revenue by selling premier placement of advertisements on
our web sites to merchants interested in targeting Gen i. These arrangements
provide merchants with exclusive placement on our networks, exposure through
impression based advertising, special content and promotional offers in exchange
for which we collect a fixed fee and/or incremental payments for visitors
forwarded to the advertiser's site. In addition to helping merchants attract
customers, these retailing opportunities can also be used to identify valuable
purchasing trends, which in turn can be used in future advertising and commerce
and to develop additional targeted content.

      During the year ended December 31, 2001, no one customer accounted for
more than 10% of our total revenue.

Subscriptions

      In the second quarter of 2001, we began offering subscriptions for premium
content and services on our IGN and HighSchoolAlumni networks. For the year
ended December 31, 2001, approximately 5% of our revenue was from subscriptions.
Because subscriptions revenue is amortized over the subscription period
(generally one month to three years), at year end we had approximately $700
thousand of unrecognized deferred subscription revenue on our balance sheet. At
December 31, 2001, we had over 30,000 subscribers on our IGN network and over
40,000 on our HighSchoolAlumni network. During January 2002, we sold our
HighSchoolAlumni network.

Sales

      As of December 31, 2001, we had a direct sales organization of 11 sales
professionals. Our sales team consults regularly with advertisers and agencies
on design and placement of advertisements, sponsorships and promotions across
our networks. We also have several sales professionals who concentrate primarily
on strategic sponsorships and promotions, seeking to establish relationships
with senior level executives and to develop larger partnership packages linking
our users with the partner's brand. In addition, several individuals in our
product marketing group work directly with advertisers who wish to develop user
opt-in registration or call- to-action programs on a fee-per-user or per-action
generated basis.

      At December 31, 2001, we also had 8 sales support and advertising
operations staff who provide advertisers with information and expertise intended
to help them market their products and services more effectively to Gen i. We
currently have sales offices in New York City, Brisbane and Los Angeles.

Marketing

      During the first half of 2000 we targeted potential advertising customers
in a variety of online and offline media, including newspapers, print magazines,
outdoor locations such as commuter rail lines and bus tails, and online sites.
During the second half of 2000 through 2001, as Snowball and its brands became
more recognized and we initiated cost reduction programs to


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reduce our operating losses, most of our marketing initiatives were eliminated.
Despite these decreased initiatives, page views on our IGN network continue to
be significant which we believe is due to the viral nature of our audience and
the expanding gaming market.

      We also engage in ongoing media and public relations campaigns with
business and financial contacts and key industry analysts. Our public relations
efforts are a key component of our overall marketing and brand awareness
strategy. We plan to continue to develop a media outreach program based on
market research that we organize and conduct with third parties. Our IGN network
also manages tradeshow attendance, public relations activities targeted to the
consumer press to encourage publicity on new channels, affiliates, services and
partners. The primary purpose of our public relations activities is to increase
our share of each network's target audience and increase overall visibility of
the IGNnetwork to customers and potential customers.

      In addition, as of December 31, 2001, we had 10 employees in investor and
public relations, creative services and product management.

Technology

      Our web site hosting infrastructure is co-located at our headquarters in
Brisbane and at Exodus Internet Data Center in Santa Clara, California. Exodus
is responsible for providing us with a high-speed, scalable, fault-tolerant
Internet connection, clean power and physical security. Exodus, now a Cable and
Wireless Services company, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in September 2001. We cannot predict the effect this may have on
its ability to continue to provide reliable service. Further, while we are
currently investigating alternative hosting providers, should Exodus no longer
be able to provide services, we may not be able to migrate data in time to avoid
disruption to our business which could cause revenue to decline. Packaged
software enables full text search, bulk e-mail delivery, web serving and traffic
analysis. We developed our membership, personalization, advertising delivery and
community software using standard application servers and Oracle database
systems. Our advertising selection and management system is DoubleClick's
NetGravity software. We have developed traffic analysis software to compute
industry-standard and advanced metrics. We also host a small number of our
affiliates on our servers.

      Our editorial infrastructure is located at our headquarters in Brisbane
and at Exodus. We internally developed our editorial, publishing and certain
user services software. We believe this software gives us a strategic advantage
in allowing a rapid and standardized approach to collecting, storing, and using
a variety of content and services from a variety of sources. We may also quickly
reconfigure page layout to reflect editorial and advertising standards, changing
layout, and preferences across our networks. We believe our hosting and
editorial networks are fault-tolerant, scalable and economical.

      Our significant non-derivable data is presently split between a storage
array at our headquarters in Brisbane and a storage array at Exodus, or in
backup data stored off-site.

Competition

      The demand for Internet advertising revenue has recently decreased
significantly. Moreover, the market for Internet users and online advertisers is
highly fragmented, rapidly changing and characterized by thousands of
competitors. With no substantial barriers to entry, we believe that the number
of Internet companies competing for web-based advertising revenue will increase
greatly in the future. We also provide certain of our content and services to
our customers on a subscription fee basis while many of our competitors offer
similar content and services at a lesser fee or free of charge. Companies or
sites that are primarily focused on targeting Gen i online include MTV.com,
Warner Bros. Online (Entertaindome), Electronic Arts, TheGlobe.com, and Alloy
Online, Inc. In addition to these direct competitors, we will likely face
competition in the future from:


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      .     game and entertainment producers, wholesalers and retailers;

      .     developers of web directories;

      .     search engine providers;

      .     content sites;

      .     commercial online services;

      .     sites maintained by Internet service providers; and

      .     other entities that establish a community on the Internet by
            developing their own competing content or purchasing one of our
            competitors.

      We also could face competition in the future from traditional media
companies, a number of which, including Time Warner, CBS and NBC, have recently
combined with, made acquisitions of, or made investments in significant Internet
companies. Finally, we compete for advertisers and advertising revenue with
traditional forms of media, such as newspapers, magazines, radio and television.

      Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition and larger existing customer bases than we do. These
competitors are able to undertake more extensive marketing campaigns for their
brands and services, adopt more aggressive advertising pricing policies, can
offer content and services similar to ours at a lesser or no charge to users,
and make more attractive offers to potential employees, distribution partners,
commerce companies, advertisers and third-party content providers. Further,
these competitors may develop communities that are larger or more desirable than
ours or that achieve greater market acceptance than ours. In addition, many of
our current advertising customers and strategic partners also have established
collaborative relationships with certain of our competitors or potential
competitors and other frequently visited web sites. Accordingly, we cannot
assure you that:

      .     we will be able to sustain our traffic levels or retain our
            advertising customers;

      .     competitors will not experience greater growth in traffic as a
            result of strategic collaborative relationships that make their web
            sites more attractive to advertisers;

      .     we can grow or sustain the number of our subscribers; or

      .     our strategic partners will not sever or will renew their agreements
            with us.

      We believe that the primary competitive factors in attracting and
retaining users are:

      .     quality of content and services;

      .     brand recognition;

      .     user affinity and loyalty;

      .     demographic focus;

      .     variety of value-added services;

      .     proper pricing of subscriptions; and

      .     critical mass of our audience and subscribers.

      We believe that the principal competitive factors in attracting and
retaining online advertisers are:

      .     the amount of traffic on a web site;

      .     the size of our paid subscriber base;


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      .     brand recognition;

      .     the demographic characteristics of a site's users;

      .     the ability to offer targeted audiences;

      .     the duration of user visits;

      .     cost-effectiveness; and

      .     a variety of advertising and marketing programs from which our
            customers may choose.

      We cannot assure you that we will be able to compete successfully against
our current or future competitors. Competitive pressures faced by us may have a
material adverse effect on our business, our financial condition and the results
of our operations.

Proprietary Rights and Licensing

      We regard our copyrights, trademarks, service marks, trade secrets,
technology and other intellectual property rights as important to our success.
In particular, we rely upon our domain names and trademarks to increase brand
awareness among our users and advertisers. We currently have registered
approximately 150 domain names, including all names currently in use across our
networks. "Snowball," "IGN," "IGNinsider", "IGN Unplugged", "IGN Arena", "Gen
i", and "ChickClick" are trademarks of ours. Our trademarks will remain in
effect indefinitely, but only to the extent that we continue to use them in
commerce. We have not applied for the registration of all of our trademarks and
service marks and may not be successful in obtaining the trademarks and service
marks that we have applied for. We have not applied for any patents.

      To protect our intellectual property rights, we rely on a combination of
copyright and trademark laws, trade secret protection, and confidentiality
agreements with employees and third parties and protective contractual
provisions. Prior to entering into discussions with potential content providers
and affiliates regarding our business and technologies, we generally require
that they enter into nondisclosure agreements with us. If these discussions
result in a license or other business relationship, we also generally require
that the agreement setting forth each party's rights and obligations include
provisions for the protection of our intellectual property rights. Licensees of
these rights may take or fail to take actions that would diminish the value of
our rights or reputation.

      Despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products or services or obtain and use
information that we regard as proprietary. The laws of some foreign countries do
not protect proprietary rights to as great an extent as do the laws of the
United States. We do not currently have any patents or patent applications
pending in any foreign country. In addition, others may be able independently to
develop substantially equivalent intellectual property. If we do not protect our
intellectual property effectively, our business could suffer.

Employees

      As of December 31, 2001, we had a total of 76 full-time employees,
including 24 in sales and marketing, 12 in engineering, 27 in production and
content and 13 in administration and finance. This is significantly less than
our December 31, 2000 full-time employee count of 243, which included 109 in
sales and marketing, 36 in engineering, 77 in production and content and 21 in
administrative and finance, mainly due to several reductions in force that were
enacted throughout the year in efforts to reduce costs. Other than as described
in our Proxy Statement for our May 2002 Annual Meeting of Stockholders, none of
these individuals is bound by an employment agreement. None of our employees is
represented by a collective bargaining


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agreement, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.

Item 2. PROPERTIES

      Our principal editorial, sales, marketing, development and administrative
offices occupy one building in Brisbane, California. In March 2002, we amended
our lease for this facility whereby our square footage decreased from 66,002 to
13,606 and our monthly rents decreased proportionately. Additionally, our
committed lease term was reduced from an original end date of September 2012 to
February 2004. We believe that this one building will be adequate for our needs
in the foreseeable future. We also lease sales and support offices in New York,
Los Angeles and Connecticut. With respect to our New York sales office, we are
currently seeking alternative lease arrangements as we believe our space exceeds
our present needs.

      We originally leased two other buildings in Brisbane comprising an
additional 180,000 square feet with original terms of 10 and 11 years from
October 2000. The terms on these additional buildings were amended to cease in
May and October 2001, therefore ending our associated liabilities under these
leases.

Item 3. LEGAL PROCEEDINGS

      We are not a party to any material legal proceedings.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of security holders during the fourth
quarter of 2001.

ITEM 4A. EXECUTIVE OFFICERS

      The following table presents information regarding our executive officers
as of December 31, 2001:

Name                    Age  Position

Mark A. Jung            40   Chief Executive Officer and Director

Richard D. Boyce        39   President

James R. Tolonen        52   Chief Financial Officer, Chief Operating Officer,
                             and Director

Teresa M. Crummett      41   Vice President, Corporate Marketing and
                             Chief Marketing Officer

Kenneth H. Keller       44   Vice President, Engineering

      Mark A. Jung has served as our Chief Executive Officer since February 1999
and as a director since our incorporation in January 1999. He also served as our
President from February 1999 through October 2000. Prior to joining us, from
July 1997 to January 1999, he served as an independent industry consultant to
various companies. From February 1992 to July 1997, he co-founded and served as
Chief Executive Officer, a director and, from February 1996 to July 1997,
Chairman of Worldtalk Communications Corporation, an Internet security company.
Mr. Jung holds a Bachelor of Science degree in electrical engineering from
Princeton University and a Master of Business Administration from Stanford
University.


                                       9

<PAGE>

      Richard D. Boyce has served as our President since October 2000, with
responsibility for managing editorial content and sales. From March 2000 until
October 2000, Mr. Boyce served as President of the Networks. Prior to joining to
us, in September 1994, he co-founded HotWired, Inc. (now known as Wired
Digital), an Internet media company which as of June 1999, became a wholly-owned
subsidiary of Lycos, Inc., an Internet media company. From September 1994 to
February 2000, he served in a number positions at Wired Digital/Lycos, including
most recently as its Senior Vice President of Advertising Sales and Commerce.
Mr. Boyce holds a Bachelor of Arts degree in communications from Washington
State University.

      James R. Tolonen has served as our Chief Financial Officer and Chief
Operating Officer since October 1999, as a director since November 1999. Prior
to joining us, from November 1998 to October 1999, Mr. Tolonen served as an
advisor and board member to several private companies. From August 1996 to
October 1998, he served as a director of Cybermedia, Inc., a software product
service and support company, and as its President and Chief Operating Officer
from May 1998 to October 1998. From June 1989 to April 1998, he served as Senior
Vice President and Chief Financial Officer of Novell, Inc., a computer network
and software company. Mr. Tolonen holds a Bachelor of Science degree in
mechanical engineering and a Master of Business Administration from the
University of Michigan. Mr. Tolonen is also a certified public accountant.

      Teresa M. Crummett served as our Chief Marketing Officer from February
2001 to January 2002, and as Vice President, Corporate Marketing since March
1999. From January 1999 to March 1999, she served as a consultant to us. Ms.
Crummett's employment with Snowball terminated January 11, 2002. Prior to
joining us, from August 1997 to December 1998, she was a self-employed business
consultant. She served as a Director of Corporate Marketing at CyberCash, Inc.,
an electronic commerce company, from January 1996 to August 1997. From July 1995
to December 1995, Ms. Crummett again worked as a self-employed business
consultant. From April 1994 to June 1995, she served as Vice President, Direct
Marketing of Interactive Network, Inc., an interactive television company, and
from December 1993 to March 1994, she served as a business consultant to Time
Warner, a worldwide media company. From March 1992 to November 1993, Ms.
Crummett served as Director of Marketing of Walt Disney Company, a diversified
worldwide entertainment company. Ms. Crummett holds a Bachelor of Arts degree in
government from Harvard University and a Master of Business Administration from
Stanford University.

      Kenneth H. Keller has served as our Vice President, Engineering since
March 1999. From January 1999 to March 1999, he served as a consultant to us.
Prior to joining us, from May 1996 to December 1998, he was a self-employed
business consultant, entrepreneur and investor. From April 1995 to April 1996,
he served as Director of Development of Excite, Inc., an Internet media company.
From January 1995 to April 1995, Mr. Keller was between occupations. Mr. Keller
holds a Bachelor of Science degree in mathematics from Carnegie Mellon
University and a Master of Science degree and Ph.D. in computer science from the
University of California at Berkeley.


                                       10

<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Since July 25, 2001, our common stock has been traded on the Nasdaq
SmallCap market under the symbol "SNOW." From March 20, 2000, to July 24, 2001,
our common stock was traded on the Nasdaq National Market under the same symbol.
Prior to March 20, 2000, there was no public market for our common stock. Our
stock was moved from the Nasdaq National Market to the SmallCap Market due to
our failure to maintain Nasdaq National Market minimum listing criteria. The
following table sets forth, for the periods indicated, the high and low closing
sales prices per share of the common stock as reported on the Nasdaq National
Market and Nasdaq SmallCap Market during the applicable periods, as adjusted for
our one-for-three and one-for-six reverse stock splits, which were effective
March 6, 2001 and September 24, 2001, respectively:

<TABLE>
<CAPTION>
                                                                                                  Quarter End
                                                             High                Low           Closing Bid Price
                                                          ----------          ----------       -----------------
<S>                                                        <C>                 <C>                 <C>
2000
----
First Quarter (from March 20, 2000)                        $ 275.63            $ 181.13            $ 181.13
Second Quarter                                             $ 168.75            $  65.25            $  87.75
Third Quarter                                              $  85.50            $  25.88            $  25.88
Fourth Quarter                                             $  28.69            $   3.38            $   7.88

2001
----
First Quarter                                              $  19.13            $   2.06            $   2.06
Second Quarter                                             $   4.80            $   1.69            $   2.76
Third Quarter                                              $   3.00            $   1.15            $   1.17
Fourth Quarter                                             $   4.52            $   0.90            $   3.30
</TABLE>

      On February 28, 2002, the closing price of our common stock was $7.03 per
share. There were approximately 159 holders of record of our common stock as of
February 28, 2002, although there are a greater number of beneficial holders.

Dividend Policy

      We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

      The following table of selected consolidated financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
to those statements and other financial information included elsewhere in this
Form 10-K.

      The following consolidated statement of operations data for each of the
five years ended December 31, 2001, and the consolidated balance sheet data as
of the years then ended are derived from our audited consolidated financial
statements and those of our predecessor division of Imagine Media. From our
inception as a division of Imagine Media in January 1997 through our
incorporation on January 6, 1999, our financial statement information is
presented on a


                                       11

<PAGE>

carved-out basis derived from the historical books and records of Imagine Media.
Imagine Media's corporate accounting systems were not designed to track cash
receipts and payments and liabilities on a division-specific basis. For 1997,
1998 and for the period from January 1, 1999 through our date of incorporation
on January 6, 1999, our financial statements include all revenue and expenses
directly attributable to Snowball, including an allocation of the costs of
facilities, salaries, and employee benefits based on relative headcount.
Additionally, incremental administrative, finance and management costs have been
allocated to Snowball. All of the allocations reflected in the 1997, 1998 and
1999 statements are based on assumptions that management believes are reasonable
under the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs that would have resulted if Snowball had
operated on a stand-alone basis.


                                       12

<PAGE>

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                      ------------------------------------------------------------------
                                                         2001          2000          1999          1998          1997
                                                      ----------    ----------    ----------    ----------    ----------
                                                                    (in thousands, except per share data)
<S>                                                   <C>           <C>           <C>           <C>           <C>
Consolidated Statements of
     Operations
Revenue                                               $    9,687    $   21,242    $    6,674    $    3,256    $      927
Cost of revenue                                            2,961        11,852         4,316         1,322           171
                                                      ----------    ----------    ----------    ----------    ----------
     Gross profit                                          6,726         9,390         2,358         1,934           756
Operating expenses:
     Production and content                                7,027        11,842         6,610         1,599           628
     Engineering and development                           6,407         9,454         5,084           329            65
     Sales and marketing                                  10,122        38,378        20,393         2,592           836
     General and administrative                            4,245         5,971         3,486         1,074           506
     Stock-based compensation                              2,003         6,139         1,521            --            --
     Amortization of goodwill and
          intangible assets                                3,692         4,001           471            --            --
     Restructuring and asset
          impairment charges                               4,171            --            --            --            --
                                                      ----------    ----------    ----------    ----------    ----------
          Total operating expenses                        37,667        75,785        37,565         5,594         2,035
     Loss from operations                                (30,941)      (66,395)      (35,207)       (3,660)       (1,279)
     Interest and other income, net                          589         1,591           385            --            --
                                                      ----------    ----------    ----------    ----------    ----------
     Net loss                                         $  (30,352)   $  (64,804)   $  (34,822)   $   (3,660)   $   (1,279)
                                                      ==========    ==========    ==========    ==========    ==========
     Basic and diluted net loss per share /1/         $   (16.21)   $   (44.36)   $(3,482.20)
                                                      ==========    ==========    ==========
     Shares used in per share
          calculation /1/                                  1,873         1,461            10
                                                      ==========    ==========    ==========
     Basic and diluted pro forma
          net loss per share (unaudited) /1/                        $   (36.30)   $   (34.75)
                                                                    ==========    ==========
     Shares used in pro forma
          per share calculation (unaudited) /1/ /2/                      1,785         1,002
                                                                    ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                  December 31,
                                              ----------------------------------------------------
                                                2001       2000       1999       1998       1997
                                              --------   --------   --------   --------   --------
                                                                (in thousands)
<S>                                           <C>        <C>        <C>        <C>        <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
     investments                              $  8,285   $ 26,479   $ 29,090         --         --
Restricted cash                               $  2,296   $  5,111   $  4,399         --         --
Working capital                               $  3,530   $ 20,779   $ 23,864   $    669   $    474
Total assets                                  $ 21,314   $ 54,840   $ 46,718   $  1,161   $    763
Long-term liabilities, less current portion   $    637   $  1,569   $  2,036         --         --
Stockholders' equity                          $ 13,752   $ 42,301   $ 34,661   $    762   $    502
</TABLE>

/1/   All share and per share data have been restated to reflect our
      one-for-three and one-for-six reverse stock splits, which were effective
      March 6, 2001 and September 24, 2001, respectively.

/2/   Pro forma unaudited weighted average shares outstanding assumes the
      conversion of all shares of preferred stock into common, effective as to
      the original issue date for the preferred stock.


                                       13

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this report. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those discussed below and elsewhere in this
report. We undertake no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.

Overview

      Snowball's business model and focus have significantly evolved since our
inception. Our response to the difficult market conditions of 2001 was to focus
on our core strengths. As of the fourth quarter of 2001, we have focused our
business on our IGN entertainment and gaming network. We have greatly reduced
our relationships with affiliated web sites. We have diversified our revenue by
adding new product lines, including a subscription based access model, which
grew to over 70,000 subscribers as of December 31, 2001. We have significantly
reduced operating costs, mainly by reducing headcount, decreasing marketing
efforts and reducing the number of our affiliates. We still have not achieved
profitability, although, we have made progress towards this goal by sequentially
decreasing our loss each quarter of 2001.

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

      In February 1999, we raised $3.3 million of initial capital, part of which
was paid by a promissory note for $2.0 million, which has been paid in full.
Imagine Media contributed the IGN and ChickClick assets and related intellectual
property to us, and we hired approximately 40 Imagine Media employees. During
the summer and early fall of 1999, we raised approximately $31.5 million of
additional capital (including equipment financing of $3.5 million). We began an
aggressive expansion program, adding new employees to develop additional content
and web sites, to recruit more affiliate web sites into our networks and to
expand our sales and marketing staff. In December 1999, we raised $33.8 million
of additional capital to continue financing our expansion.

      In March 2000, we completed our initial public offering of 347,222 shares
of common stock at an offering price of $198 per share, as adjusted for our
one-for-three and one-for-six reverse stock splits, which were effective March 6
and September 24, 2001, respectively. We realized proceeds, net of underwriting
discounts, commission and issuance costs, of approximately $62.1 million.

      During the first quarter of 2000 we had significantly expanded our
operations, consistent with our growing revenue and expectations of the
continuing strength of the Internet market. Beginning approximately at the end
of the first quarter of 2000, the Internet and technology markets experienced
severe cutbacks, reductions in marketing and advertising programs and a
significant decline in the availability of capital. In response to these
conditions, we reduced our staff from a peak of approximately 380 employees to
approximately 63 full-time employees as of the end of February 2002, and
significantly curtailed our trade and industry branding and marketing programs.

      As part of our earlier expansion, our relationships with our affiliates
were an important part of our business model. By adding new affiliates to our
networks, we were able to gain new content and increase our users and the
consolidated page views of our networks. We had typically entered into
agreements with affiliates for periods of between six months and five years


                                       14

<PAGE>

paying them according to either a fixed or minimum guarantee or upon their share
of revenue generated from various campaigns run on their sites. During the
fourth quarter of 2000, we reassessed the cost/benefit of our affiliate
relationships and in light of a continued decline of the Internet media market,
we began to significantly reduce the number of our affiliates thus decreasing
our associated costs. From a peak of over 300 affiliates during 2000, we had
reduced the number of our affiliates to only 55 at December 31, 2001, and to
only 11 by the end of February 2002.

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

      To date, we have derived revenue principally from short-term contracts for
impression-based advertisements, including Flash, Unicast and click-within
advertising units, as well as banners, buttons and textlinks. Under these
contracts, we provide advertisers with a number of "impressions," or a number of
times a user will view their advertisements, for which we receive a fee.

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

      During the fourth quarter of 2000 we began offering several new products,
including opt-in registration and cost-per-action programs. Under these
programs, we charge our customers a fee for a specified user action or data
pass. We recognize revenue when the data pass or action is completed and
collection of the resulting receivable is reasonably assured.

      During 2001 we expanded our product offerings by adding a pay for access
subscription fee model. During the year, our IGNinsider subscription base grew
to approximately 31,500 users. We collected approximately $550 thousand of
monthly, quarterly, or annual subscription fees, of which approximately $235
thousand was recognized as revenue in 2001. Also during 2001, we recognized
approximately $165 thousand of subscription revenue from our HighSchoolAlumni
site, which was subsequently sold in January 2002.

      Since our inception we have never been profitable. Furthermore, due in
part to the financial difficulties experienced recently by Internet and
Internet-related companies and reductions in advertising budgets of companies
that advertise on the Internet, we cannot assure you that our revenue will grow
or that we will ever achieve or maintain profitability. We have experienced
significant declines in our advertising revenue from Internet companies, which
have been only partially offset by revenue from companies in more traditional
lines of business. Snowball anticipates that weakness in advertising demand will
continue until overall business conditions improve and advertising expenditures
rebound. Accordingly, we anticipate that we will incur additional operating
losses at least through 2002. If we are unsuccessful in adapting to the needs of
our advertisers and audience, it could have a material adverse effect on our
business, operating results and financial condition.

Events Subsequent to Year End

      On January 16, 2002 we completed the sale of our HighSchoolAlumni network
for approximately $1.0 million in cash to Reunion.com, a private company. In the
first quarter of


                                       15

<PAGE>

2002, we expect to record an extraordinary gain of approximately $1.1 million in
association with this transaction, which represents cash received plus the
deferred revenue balance as of January 15, 2002 related to the unrecognized
portion of subscription money received on our HighSchoolAlumni subscription
program less the net unamortized value of our 1999 acquisition of Ameritrack.

      On January 30, 2002, we paid off the outstanding balance owed on our
capital leases whereby ownership of the related assets was transferred to
Snowball. The balance owed as of December 31, 2001 was $1.6 million.

      In March 2002, Snowball amended its lease for its Brisbane, CA facilities
whereby our square footage decreased from 66,002 to 13,606 and our monthly rents
decreased proportionately. Additionally, our committed lease term was reduced
from an original end date of September 2012 to February 2004. As buyout
consideration, the landlord drew upon their $1.6 million letter of credit, we
paid an additional $416 thousand in cash and we forfeited certain furniture and
all tenant improvements from the vacated space. In the first quarter of 2002,
Snowball expects to record a net restructuring charge of approximately $4.9
million for the total buyout consideration.

Results of Operations for Years Ended December 31, 2001, 2000 and 1999

                                               2001         2000         1999
                                             --------     --------     --------
                                                      (in thousands)
Revenue                                      $  9,687     $ 21,242     $  6,674
                                             --------     --------     --------
Percentage of revenue                            100%         100%         100%
                                             --------     --------     --------

      Our total 2001 revenue was $9.7 million, a decrease of $11.6 million, or
54% from 2000. The decline in 2001 revenue from 2000 was largely due to an
industry-wide weakness in the online advertising market and the associated
decrease in marketing and advertising spending by this market segment. Many of
our customers did not continue or renew their advertising and marketing programs
with us in 2001. Specifically, a large portion of our 2000 revenue was from
"dot.coms", who significantly reduced their online advertising spending in 2001
or were no longer in business. This was only partially offset by revenue from
new more traditional customers. Our total revenue increased to $21.2 million in
2000 from $6.7 million in 1999, a $14.6 million, or 218% increase. The increase
in our revenue in 2000 over 1999 can largely be attributed to the general
strength of the Internet advertising, as well as our expansion efforts in sales
and marketing, increases in our available inventory of internal and affiliated
page views, and a larger number of product offerings.

      As our revenue from banner based Internet advertising decreased in 2000
and 2001, we broadened our product offerings including providing premium content
and services on a subscription fee basis, and entered into strategic business
partnerships, which include technology and content licenses. We believe these
new products and business partnerships may take several quarters to produce
significant results, if at all, and if they are not accepted by our customers,
will not increase revenue. No customer accounted for over 10% of revenue in
2001, 2000 or 1999, however, three of our customers, if combined, accounted for
approximately 15% of our revenue in 2001. Due to fluctuations in revenue it is
likely that one or more of these customers could account for 10% or more of
revenue in a future period. There can be no assurance that these customers will
continue to do business with Snowball. Snowball derives virtually all of its
revenue from operations in the United States.


                                       16

<PAGE>

                                               2001         2000         1999
                                             --------     --------     --------
                                                        (in thousands)
Cost of Revenue                              $  2,961     $ 11,852     $  4,316
                                             --------     --------     --------
Percentage of revenue                             31%          56%          65%
                                             --------     --------     --------

      Cost of revenue consists primarily of expenses related to operating
Snowball-owned web sites, guaranteed payments or the portion of revenue owed to
our affiliates for advertising and marketing placed on their web sites, and
costs of content and community tools. During the fourth quarter of 2000, to
better reflect the affiliates' relative size and importance to our business in
view of the cost/benefit of the relationships, we began to renegotiate,
terminate or let expire many of our affiliate contracts. In 2001, costs
associated with our affiliates comprised 35% of our total cost of revenue with
this percentage dropping to 11% in the fourth quarter of 2001. In 1999 and 2000,
costs associated with our affiliates comprised over 60% of our total cost of
revenue.

      Cost of revenue was $3.0 million in 2001, a decrease of $8.9 million, or
75% from 2000. This decrease reflected lower hosting costs due to a more
favorable hosting contract with our outside service provider, a reduction in the
number of affiliates and less reliance upon community tools content. Cost of
revenue increased to $11.9 million in 2000 from $4.3 million in 1999, a $7.5
million, or 175% increase. This increase reflected the increased hosting costs
of our expanding web site operations and expansion of our community tools in
2000. This increase also reflected a growth in amounts paid to affiliates due to
increases in the number of affiliates, costs associated with growth in page
views of affiliates, and increases in revenue from advertisements and marketing
programs placed on affiliate web sites.

Operating Expenses

      We categorize operating expenses into production and content, engineering
and development, sales and marketing, general and administrative, stock-based
compensation, amortization of goodwill and intangible assets and restructuring
and asset impairment charges.

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Production and Content                         $  7,027    $ 11,842    $  6,610
                                               --------    --------    --------
Percentage of revenue                               73%         56%         99%
                                               --------    --------    --------

      Production and content expenses consist primarily of payroll and related
expenses for editorial, artistic and production staff; payments to freelance
writers and artists; and telecommunications and computer-related expenses for
the creation of content for our web sites. These expenses vary from period to
period as affiliates or selected sites from an affiliate were acquired, or as we
expanded or contracted the portion of our total sites that are represented by
affiliates versus those that we own and operate directly. For example, after we
acquire an affiliate, our production and content expenses typically increase
because we incur costs for additional staff, services and equipment associated
with operating the new business.

      Production and content expenses were $7.0 million in 2001, a decrease of
$4.8 million, or 41% from 2000. This decrease was due primarily to the reduction
of our editorial, artistic and production staff and efforts to reduce usage of
freelance writers, artists and computer-related expenses for the creation of
content of our web sites. These reductions came as a response to lower revenue
levels; specifically, we eliminated certain channels within our networks and in
the fourth quarter of 2001 we curtailed operations of our HighSchoolAlumni and
our ChickClick


                                       17

<PAGE>

networks. Production and content expenses increased to $11.8 million in 2000
from $6.6 million in 1999, a $5.2 million, or 79% increase. This increase was
due primarily to expansion of our editorial, artistic and production staff;
payments to additional freelance writers and artists; and computer-related
expenses for the creation of content for our web sites.

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Engineering and Development                    $  6,407    $  9,454    $  5,084
                                               --------    --------    --------
Percentage of revenue                               66%         45%         76%
                                               --------    --------    --------

      Engineering and development expenses consist primarily of personnel and
related costs, consultant and outside contractor costs, and software and
hardware maintenance and depreciation costs for our development and programming
efforts, including internal information services costs. To date, all engineering
and development expenses have been expensed as incurred.

      Engineering and development expenses were $6.4 million in 2001, a decrease
of $3.0 million, or 32% from 2000, due primarily to a reduction in engineering
headcount during 2001. Engineering and development expenses increased to $9.5
million in 2000 from $5.1 million in 1999, a $4.4 million, or 86% increase. This
increase was due primarily to additional personnel, consulting and recruiting
fees associated with expanding our development and programming efforts and
maintenance and depreciation expense associated with the increase in capital
equipment.

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Sales and Marketing                            $ 10,122    $ 38,378    $ 20,393
                                               --------    --------    --------
Percentage of revenue                              104%        181%        306%
                                               --------    --------    --------

      Sales and marketing expenses consist primarily of personnel and related
costs for our direct sales force, sales and advertising operations support
personnel, affiliate relations and marketing staff. In addition, these expenses
include the costs of marketing programs such as advertisements, trade shows,
promotional activities and media events.

      Sales and marketing expenses were $10.1 million in 2001, a decrease of
$28.3 million, or 74% from 2000. This decrease is due primarily to our reduction
of marketing initiatives and sales and marketing staff. Sales and marketing
expenses were $38.4 million in 2000, an increase of $18.0 million, or 88%, from
$20.4 million in 1999. This increase was due primarily to increases in salary
and related costs for expansion of our sales, affiliate development and
marketing personnel, as well as increases in our advertising, marketing and
branding expenses. During early 2000, we conducted a national television, radio
and outside media campaign to increase awareness of Snowball among our target
audience and our prospective customers. During the second half of 2000 as
Snowball and its brands became more recognized and we initiated cost reduction
programs to reduce our operating losses, most of our marketing initiatives were
eliminated.


                                       18

<PAGE>

                                                 2001        2000        1999
                                               --------    --------    --------
                                                       (in thousands)
General and Administrative                     $  4,245    $  5,971    $  3,486
                                               --------    --------    --------
Percentage of revenue                               44%         28%         52%
                                               --------    --------    --------

      General and administrative expenses consist primarily of personnel and
related costs for corporate functions including accounting and finance, human
resources, facilities and legal.

      General and administrative expenses were $4.2 million in 2001, a decrease
of $1.7 million, or 29% from 2000. This decrease is due largely to the general
reduction in accounting and finance, human resources and other administrative
staff in response to reductions in staff in other functional areas. General and
administrative expenses increased to $6.0 million in 2000 from $3.5 million in
1999, a $2.5 million, or 71% increase. This increase resulted primarily from
increases in salary and related costs associated with expansion of our
accounting and finance, human resources and other administrative staff, as well
as from increased use of outside consulting services. Additionally, during the
first quarter of 2000 we recorded expenses associated with a one-time, non-cash
contribution of 5,556 shares of our common stock, with a fair value of $1.0
million, to a charitable foundation.

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Stock-based Compensation                       $  2,003    $  6,139    $  1,521
                                               --------    --------    --------
Percentage of revenue                               21%         29%         23%
                                               --------    --------    --------

      Stock-based compensation represents the aggregate differences, at the
dates of grant, between the respective exercise prices of stock options and
issuance prices of common and preferred stock and the deemed fair values of the
underlying stock. Stock-based compensation is amortized using the graded
amortization method over the vesting period of the related options, which is
generally four years but is discontinued for options that are cancelled.

      Stock-based compensation for 2001 was $2.0 million, a decrease of $4.1
million, or 67% from 2000. This decrease was due to the combination of the
accelerated amortization method with which the options were expensed combined
with cancellations as a result of our reductions in force. We did not grant any
options or shares in 2001 at a price less than the then deemed fair value.
Stock-based compensation expenses increased to $6.1 million in 2000 from $1.5
million in 1999, a $4.6 million, or 304% increase. This increase was due largely
to the majority of our grants occurring in the latter quarters of 1999 and the
first quarter of 2000. We did not grant any shares of our common stock prior to
our incorporation in January 1999, and therefore had no stock-based compensation
prior to that time. At December 31, 2001, we had amortized all of the deferred
stock-based compensation arising from the grant of awards below deemed fair
value. However, certain option awards granted in the past are accounted for as
variable awards and, accordingly, may result in stock-based compensation charges
in future periods, if our stock price exceeds the strike price of these awards.


                                       19

<PAGE>

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Amortization of Goodwill and
     Intangible Assets                         $  3,692    $  4,001    $    471
                                               --------    --------    --------
Percentage of revenue                               38%         19%          7%
                                               --------    --------    --------

      Amortization of goodwill and intangible assets represents the non-cash
charges for the expensing, over the anticipated useful life, of intangible
assets and goodwill.

      Amortization of goodwill and intangible assets in 2001 was $3.7 million, a
decrease of $309 thousand, or 8% from 2000. This decrease is due to the write
off the remaining unamortized goodwill portion relative to our 1999 acquisition
of Extreme Interactive as an impairment charge in the second quarter of 2001. As
of December 31, 2001, goodwill and intangible assets of $2.2 million remained to
be amortized. Amortization of goodwill and intangible assets was $4.0 million
and $471 thousand for the years ended December 31, 2000 and 1999, respectively.
The increase resulted from the amortization of cost associated with our
acquisitions in 2000 and 1999. Further, during 2000, we paid, and began
amortizing over the remaining life of the asset, $1.2 million in additional
consideration in connection with the terms of our acquisition of Extreme
Interactive Media, Inc. Amortization of goodwill and intangible assets has been
over three years or less.

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

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Restructuring and Asset
     Impairment Charges                        $  4,171    $     --    $     --
                                               --------    --------    --------
Percentage of revenue                               43%          --          --
                                               --------    --------    --------

      In response to the challenges in our business, during 2001 our Board of
Directors approved a restructuring program aimed at reducing our underlying cost
structure to better position Snowball for improved operating results. As a part
of this program, we implemented reductions in force that eliminated
approximately 130 positions. These reductions came from all functional areas of
Snowball and, as of December 31, 2001, all of the affected employees had been
terminated or notified of their termination. Charges related to these employee
terminations were $728 thousand. As of December 31, 2001, $65 thousand of these
charges had not yet been paid. The restructuring charges also included
approximately $1.8 million in estimated facility exit costs for two of our
office buildings in Brisbane, California.

      Asset impairment charges arise when the expected future discounted cash
flows to be generated from a long-lived intangible asset, goodwill in our case,
are less than the present carrying value. We recorded an impairment charge of
$1.6 million recorded against the remaining unamortized goodwill of our 1999
acquisition of Extreme Interactive Media, Inc. when we discontinued operation of
that site during 2001. We had no restructuring and asset impairment charges in
1999 or 2000.


                                       20

<PAGE>

      While we believe that our restructuring program will assist us in focusing
operations, reducing expenses and thereby increasing the opportunity of
achieving profitability, we cannot assure you that we will achieve these
results. We may in the future be required to take additional actions, including
further changes to the business and further headcount reductions, in order to
realign our business with anticipated requirements. If we are not successful in
this realignment, we may never achieve profitability.

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Interest and Other Income, net                 $    589    $  1,591    $    385
                                               --------    --------    --------
Percentage of revenue                                6%          7%          6%
                                               --------    --------    --------

      Interest and other income, net was $589 thousand in 2001, a decrease of
$1.0 million, or 63% from 2000. This decrease was due primarily to our
decreasing cash and cash equivalent position due to our operating losses and to
decreasing interest rates in 2001. Interest and other income, net, increased to
$1.6 million in 2000 from $385 thousand in 1999, a $1.2 million, or 313%
increase. This increase was primarily due to interest received from investing
the proceeds of preferred equity financing and our initial public offering, net
of interest expense related to equipment financing.

Provision for Income Taxes

      No provision for federal and state income taxes has been recorded because
we have experienced net operating losses since inception. As of December 31,
2001, we had approximately $105.0 million of federal net operating loss
carryforwards, which expire in 2019 through 2021. Due to the uncertainty
regarding the ultimate use of the net operating loss carryforwards, we have not
recorded any benefit for losses, and a valuation allowance has been recorded for
the entire amount of the net deferred tax asset. Additionally, utilization of
the net operating loss may be subject to annual limitation due to the ownership
change limitation provided by the Internal Revenue Code and similar state
provisions.

Liquidity and Capital Resources

      Since our incorporation in January 1999, we have financed our operations
primarily through private placements of preferred stock, our initial public
offering, borrowings under equipment lease lines and a credit facility. Cash and
cash equivalents were $8.3 million at December 31, 2001.

      Our capital requirements depend on numerous factors, including market
acceptance of our products and services, the resources we allocate to developing
our networks, our marketing and selling capabilities and maintenance of our
brands. Since our inception we experienced substantial expenditures as we grew
our operations and personnel. Although we significantly reduced our costs
beginning in the second quarter of 2000, we still have not achieved cash flow
breakeven. We expect to use substantially all of the remaining capital raised in
our initial public offering over the next year to operate our business and for
working capital and capital expenditures. We will continue to evaluate possible
acquisitions of, or investments in, complementary businesses, technologies,
services or products.

      Our working capital requirements in the foreseeable future will depend on
a variety of factors including our ability to implement our business plan or
reduce our net cash outflow. If we do not reduce our net cash outflow, as
compared to fiscal 2001 or if we are otherwise unable to successfully implement
our business plan, we will require additional credit facilities, additional
equity and/or debt financings in the upcoming year, the amount and timing of
which will depend in


                                       21

<PAGE>

large part on our spending program. If additional funds are raised through the
issuance of equity securities, our stockholders may experience significant
dilution. Furthermore, there can be no assurance that additional financing will
be available when needed or that if available, such financing will include terms
favorable to us, or our stockholders. If such financing is not available when
required or is not available on acceptable terms, we may be unable to meet
operating obligations.

      We raised $80.8 million in equity and debt financing during 1999. During
that period, we used $26.9 million in operating activities and $5.6 million in
acquiring property and equipment, and we repaid $12.0 million in debt
obligation. We raised net proceeds of approximately $62.1 million from our
initial public offering in March 2000. During 2000, we used $49.0 million in
operating activities and $10.3 million in acquiring leasehold improvements and
property and equipment.

      From April 1999 through March 2000 we entered into equipment lease lines
of credit totaling $5.0 million. These credit facilities have terms of three
years and bear interest at the rate of 7.5% per annum. In connection with these
credit facilities, we issued warrants to the lessors to purchase 1,755 shares of
our common stock at $57.00 per share and 1,172 shares of our common stock at
$127.98 per share. The warrants have all been exercised. These credit facilities
do not include any financial covenants. As of December 31, 2001, the remaining
principal balance owed on these lease lines was $1.6 million. In January 2002,
we paid off the remaining balance owed.

      In November 1999, we entered into a term loan agreement for up to an
aggregate of $15.2 million. In connection with this loan agreement, we issued
promissory notes to the lenders, which bear interest at the rate of 11.0% per
annum, and warrants to purchase 15,000 shares of our common stock, at an
exercise price of $151.92 per share. In December 1999, $12.0 million of the loan
was repaid and the note holders cancelled $3.0 million of indebtedness under the
notes in exchange for shares of our Series C preferred stock at $10.00 per
share. The outstanding balance under the notes became due and was repaid upon
consummation of our initial public offering.

      During 1999, we entered into several leases for our headquarters and our
sales offices, with terms ranging from month-to-month to three years.
Additionally, in November 1999, we entered into leases for three new
headquarters office buildings in Brisbane, California, originally commencing
October 2000 and expiring in 2012. The leases for two of these buildings were
amended to cease in May and October 2001, therefore ending our associated
liabilities under these leases. In connection with our facility leases, we made
payments of approximately $500 thousand in 1999, $2.6 million in 2000 and $4.5
million in 2001. In March 2002, we further amended the lease for our remaining
Brisbane building. Per the terms of this amendment, our square footage decreased
from 66,002 to 13,606 and our monthly rents decreased proportionately.
Additionally, our committed lease term was reduced from an original end date of
September 2012 to February 2004. Inclusive of our March 2002 lease amendment, we
will make payments of approximately $1.5 million in 2002, $1.1 million in 2003,
$784 thousand in 2004, $683 thousand in 2005, $688 thousand in 2006 and a total
of $2.9 million thereafter until the expiration of the leases.

      During 2001, our letter of credit lease deposits for all facilities were
reduced from $5.1 million to $2.3 million in association with the termination of
two of our Brisbane leases. In March 2002, this amount was further reduced to
$783 thousand in association with the amendment of our remaining Brisbane lease
as our landlord drew down upon $1.6 million of the letter of credit deposits as
part of the lease buyout terms.

      We used $18.8 million in net cash due to operating activities in 2001 as
compared to $49.0 million in 2000. This decrease was due primarily to our
decreased operating expenses during 2001 and the resulting decrease in net loss.
Cash used in operating activities was $26.7 million in 1999. The increase in
2000 was due primarily to our increasing operating expenses and the resulting
increase in 2000 net loss.


                                       22

<PAGE>

      Net cash provided by investment activities in 2001 was $3.4 million,
consisting of $2.8 million of proceeds from short-term investments, net refunds
on tenant improvements of $1.1 million less purchases of fixed assets of $593
thousand. Net cash used in investments activities was $13.5 million during 2000
and consisted of purchases of fixed assets of $10.3 million, acquisitions of
goodwill and intangible assets of $6.1 million net of proceeds from short-term
investments of $2.9 million. Net cash used in investment activities during 1999
was $16.1 million and consisted of $8.0 million in purchases of short-term
investments, purchases of fixed assets of $5.6 million and acquisitions of
goodwill and intangible assets of $2.6 million.

      Net cash used in financing activities in 2001 was $2.8 million, consisting
primarily of $1.5 million of repayment of equipment financing obligations and
purchases of stock for treasury of $1.2 million. Net cash provided by financing
obligations in 2000 was $63.5 million which was comprised mainly of net proceeds
from our initial public offering of $62.1 million. Net cash provided by
financing activities in 1999 was $68.5 million and was comprised primarily of
net proceeds from issuance of common and preferred stock of $62.2 million and
proceeds from equipment financing obligation of $3.5 million.

      In January 2002, we sold our HighSchoolAlumni network for $1.0 million in
cash. Also in January, we used part of the proceeds from this sale to pay off
the remaining outstanding balance of our capital equipment lease which had a
balance of $1.6 million at December 31, 2001.

Critical Accounting Policies

      The discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. On an on-going
basis, we evaluate estimates, including those related to bad debts, intangible
assets and restructuring. Estimates are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions or conditions.

      We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.

Revenue recognition

      We derive our revenue principally from short-term contracts for various
size and types of impression-based advertisements. This revenue is recognized at
the lesser of the straight-line basis over the term of the contract or the ratio
of impressions delivered over total committed impressions, provided that we do
not have any significant remaining obligations and collection of the resulting
receivable is reasonably assured. To the extent that minimum committed
impression levels or other obligations are not met, we defer recognition of the
corresponding revenue until such levels are achieved.

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


                                       23

<PAGE>

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

      We assess collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer.
We do not request collateral from our customers. If we determine that collection
of a fee is not reasonably assured, we defer the fee and recognize revenue at
the time collection becomes reasonably assured, which is generally upon receipt
of cash.

      Our arrangements do not generally include acceptance clauses. However, if
an arrangement includes an acceptance provision, acceptance occurs upon the
earlier of receipt of a written customer acceptance or expiration of the
acceptance period.

      For all sales we use either a binding insertion order or signed agreement
as evidence of an arrangement.

      In addition to the above, we recognize revenue from subscription fees we
charge our customers for access on our web sites to premium content and
services. Subscription fees are recorded, net of any discounts, ratably over the
subscription period (generally one month to three years) and deferred revenue is
recorded for amounts received before services are provided. Transaction costs
are recognized in the period the transaction occurs.

Allowance for doubtful accounts

      Our management must make estimates of the collectability of our accounts
receivable. Management specifically analyzes accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in our customer payment terms when
evaluating the adequacy of the allowance for doubtful accounts. At December 31,
2001, our accounts receivable balance was $1.5 million, net of allowance for
doubtful accounts of $550 thousand. At December 31, 2001, our accounts
receivable balance was $3.4 million, net of allowance for doubtful accounts of
$768 thousand. The use of different estimates or assumptions could produce
different allowance balances. If the financial condition of our customers were
to deteriorate, subsequent to the date of our arrangements with them, this could
result in an impairment of their ability to make payments and additional
allowances would be required.

Valuation of goodwill and intangible assets

      We assess the impairment of goodwill and intangible assets whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an impairment
review include the following:

      .     significant underperformance relative to expected historical or
            projected future operating results;

      .     significant changes in the manner of our use of the acquired assets
            or the strategy for our overall business; and

      .     significant negative industry or economic trends.

      When we determine that the carrying value of goodwill and intangibles may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commensurate with the risk inherent in our current business model. Net
goodwill and intangible assets amounted to $2.2 million and $6.7 million as of
December 31, 2001 and 2000, respectively.

      In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, we will
cease to amortize our


                                       24

<PAGE>

December 31, 2001 goodwill balance of $2.2 million. We expect to perform an
initial impairment review in the first quarter of 2002 and currently do not
expect to record an impairment charge upon completion of this review; however,
there can be no assurance that at the time the review is completed a material
impairment charge will not be recorded.

Recent Accounting Pronouncements

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

      In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (FAS 144), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business". FAS 144 is effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. We will adopt FAS 144 as of January
1, 2002 and we are currently evaluating the impact that the adoption of FAS 144
will have on our financial position and results of operations.

                                  RISK FACTORS

Risks Related to Our Business

Our business model is unproven and may fail.

      We have a limited operating history upon which you can evaluate our
business model and prospects and the merits of investing in our stock. We are
also implementing an unproven business model. If our business model proves to be
unsuccessful, the trading price of our stock will fall and our business may
fail. Our IGN and ChickClick networks began operating as divisions of Imagine
Media in March 1997 and February 1998, respectively. We were incorporated in
January 1999, and Imagine Media contributed the IGN and ChickClick assets to us
in February 1999. We grew our traffic and content quickly through the use of an
affiliate model as well as by adding new networks. However, our business model
has changed as we have sold or significantly decreased operations of all except
our IGN network, implemented a new subscription based program and significantly
reduced our dependence on affiliate content. Accordingly, our prospects and the
merits of investing in our stock must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as Internet content and services. In addition, although management believes
that existing funds as of December 31, 2001 will be sufficient to enable
Snowball to meet planned expenditures through at least December 31, 2002, this
belief is subject to many of the risks and uncertainties discussed throughout
this report. To meet our longer-term liquidity needs, potentially including our
needs in fiscal 2002, we expect to need to raise additional funds, establish
additional credit facilities, seek other financing arrangements or further
reduce costs and expenses. Additional funding may not be available on favorable
terms, on a timely basis or at all. Our plans with respect to liquidity and
capital resource requirements are discussed above in Management's discussion and
Analysis of


                                       25

<PAGE>

Financial Condition and Results of Operations--Liquidity and Capital Resources,
and are disclosed in Note 1 of Notes to Consolidated Financial Statements and
the concern about liquidity is mentioned in our Audit Opinion.

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

      We have incurred net losses since the formation of our business in January
1997. At December 31, 2001, we had an accumulated deficit of approximately
$134.9 million. We may increase our operating expenses to develop additional
subscription offerings, buyout or restructure some or all of our long-term
facility leases, develop additional networks, expand our sales and marketing
operations, develop and upgrade our technology and purchase equipment and
leasehold improvements for our operations and network infrastructure. We also
may incur costs relating to the acquisition of content, other businesses or
technologies. Whether we increase expenditures or not, we may not generate
sufficient revenue to offset our expenditures. As a result, we expect to incur
significant operating losses on a quarterly basis for the foreseeable future,
and may never be profitable. Even if we do achieve profitability, we might not
be able to sustain profitability on a quarterly or annual basis in the future.

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

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

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

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

      .     our ability to successfully transfer liability for or restructure
            long term facility leases for facilities that exceed our present
            capacity needs;

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

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

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

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

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

Additional financings could disadvantage our existing stockholders.

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


                                       26

<PAGE>

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

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

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

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

      In the second quarter of 2001, we began offering premium content and
services to customers on a subscription fee basis. A significant amount of our
revenue and cash receipts are derived from subscription services offered to our
users. Part of our subscription model requires that certain content and services
that had previously been offered for free now require a paid subscription.
Because many of our competitors offer content and services similar to ours at no
charge users may be unwilling to pay a subscription fee, or if the content and
services provided do not meet customer expectations, users may not utilize our
sites and as a result, revenue would decline. This potential decline in our
traffic also could cause a decrease in our advertising revenue.

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

      IGN is a network of web sites that provides information and entertainment
to Gen i. As of the date of this report, we have either sold or significantly
decreased operations of all of our networks except IGN. Accordingly, we rely
upon IGN for substantially all of our traffic, advertising revenue and
subscription base. If we are unable to anticipate changes in the interests,
styles, trends or preferences of IGN's target audience, if we are unable to
maintain our relationship with key affiliates of IGN or incorporate new key
affiliates into the IGN network on a timely basis or if IGN otherwise loses
traffic, our advertising and subscription revenue would decline.

Our ability to successfully raise awareness of our IGN brand and web sites is
crucial to our success.

      We believe that broader recognition and a favorable user perception of our
IGN brand and web sites are essential to our future success. As we have
significantly decreased marketing related expenditures, the success of our brand
awareness is reliant mainly upon user word of


                                       27

<PAGE>

mouth. If we fail to build a favorable reputation with our audience, our user
base and revenue would decline.

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

     To date, we have derived a substantial portion of our revenue from a small
number of advertising, commerce and marketing customers. We expect that this
will continue during the early stages of our development and may continue
indefinitely. If our arrangements with these customers are terminated or are not
renewed, our revenue would decline. In addition, many of our advertising,
commerce and marketing customers enter into agreements with us that have a term
of less than six months, and several of our larger agreements have longer than
six-month terms but have termination rights at various points during the term.
As a result, our customers could and do cancel these agreements, change their
advertising expenditures or buy advertising from our competitors on relatively
short notice and without penalty. Because we expect to derive a large portion of
our future revenue from advertising and marketing arrangements, these short-term
agreements expose us to competitive pressures and potentially severe
fluctuations in our financial results. Three of our customers, if combined,
accounted for approximately 15% of our revenue in 2001. Due to fluctuations in
revenue it is likely that one or more of these customers could account for 10%
or more of revenue in a future period. There can be no assurance that these
customers will continue to do business with Snowball.

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

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

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

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


                                       28

<PAGE>

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

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

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

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

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

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

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

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


                                       29

<PAGE>

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

      Further, we have conducted several workforce reductions over our brief
operating history. These reductions can cause anxiety and uncertainty and could
adversely affect employee morale. As a result, our remaining personnel may seek
employment with larger, more established companies or companies they perceive as
having less volatile stock prices.

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

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

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

      We have rapidly and significantly expanded and reduced our operations and
anticipate that further change will be required to address potential market
problems and opportunities. If we fail to manage this change effectively, we
will be unable to operate our business effectively. From a peak of approximately
380 full-time employees in March 2000, we have reduced our workforce, through
attrition and lay offs, to approximately 75 full-time employees as of December
31, 2001. These rapid changes have placed, and we expect them to continue to
place, a significant strain on our management, operational and financial
resources. In particular, the reduction in workforce could have negative
consequences on our ability to produce content and to attract new users, or to
maintain our web site's availability and performance.

If we fail to maintain our relationships with key affiliates, or incorporate new
key affiliates into our networks on a timely basis, our user traffic and revenue
would decline or would not increase.

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

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

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

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

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

      .     cease business operations.

      We also will likely face increasing competition for the content and
services provided by current or potential affiliates. If we fail to continue to
identify potential affiliates or fail to enter into


                                       30

<PAGE>

agreements with new affiliates on a timely basis, our IGN network may lose its
relevance to Gen i, we would lose advertising and promotional opportunities, and
our revenue would decline.

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

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

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

      Our success depends significantly upon our copyrights, trademarks, service
marks, trade secrets, technology and other intellectual property rights. The
steps we have taken to protect our intellectual property may not be adequate and
third parties may infringe or misappropriate our intellectual property. If this
occurs, we may have to litigate to protect our intellectual property rights.
These difficulties could disrupt our ongoing business, increase our expenses and
distract our management's attention from the operation of our business. We have
not applied for the registration of all of our trademarks and service marks, and
effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our content, services and products are
made available online. If we were prevented from using our trademarks, we would
need to re-implement our web sites and rebuild our brand identity with our
customers, users and affiliates. This would increase our operating expenses
substantially.

      Companies frequently resort to litigation regarding intellectual property
rights. From time to time, we have received, and we may in the future receive,
notices of claims of infringement by Snowball or one of our affiliates of other
parties' proprietary rights. We may have to litigate to defend claims that we
have infringed the intellectual property rights of others. Any claims of this
type could subject us to significant liability, be time-consuming and expensive,
divert management's attention, require the change of our trademarks and the
alteration of content, require us to redesign our web sites or services or
require us to pay damages or enter into royalty or licensing agreements. These
royalty or licensing agreements, if required, might not be available on
acceptable terms or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing intellectual property or
license the infringed or similar intellectual property on a timely and
cost-effective basis, we might be unable to continue operating our business as
planned.

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

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


                                       31

<PAGE>

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

Risks Related to Our Industry

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

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

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

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

      Our business strategy depends on continued growth in the use of the
Internet and increasing the number of users who visit our networks. A decrease
in the growth of web usage, particularly usage by Gen i, would impede our
ability to implement our business strategy and our ultimate success. If the
Internet continues to experience significant growth in the number of users,
frequency of use and amount of data transmitted, the Internet infrastructure
might not be able to support the demands placed on it or the performance or
reliability of the Internet might be adversely affected. Web sites have
experienced interruptions in service as a result of outages


                                       32

<PAGE>

and other delays occurring throughout the Internet network infrastructure. If
these outages or delays occur frequently in the future, Internet usage, as well
as the usage of our web sites, could grow more slowly than expected or decline.
Security and privacy concerns may also slow growth. Because our revenue
ultimately depends upon Internet usage generally as well as on our web sites,
our business may suffer as a result of declines in Internet usage.

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

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

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

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

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

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


                                       33

<PAGE>

Our insurance may not cover potential claims of this type, or may not be
adequate to indemnify us for all liability that may be imposed.

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

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

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

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

      .     user privacy and expression;

      .     taxation and pricing;

      .     the rights and safety of children;

      .     intellectual property; and

      .     information security.

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


                                       34

<PAGE>

      Finally, the applicability to the Internet and other online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could also increase our costs of doing business,
discourage Internet communications and reduce demand for our services.

Risks Related to the Securities Markets

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

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

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

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

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

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

      .     our limited amount or availability of public float shares;

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

      .     public perception of Internet content and service companies;

      .     public perception of growth prospects for the gaming and
            entertainment industries;

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

      .     changes in financial estimates or recommendations by securities
            analysts;

      .     additions or departures of key personnel;

      .     additions or departures of key customers;

      .     our ability to attract or retain subscribers;


                                       35

<PAGE>

      .     failure to maintain minimum Nasdaq listing requirements; and

      .     the addition or loss of affiliates.

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

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

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

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

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

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

      Our executive officers and directors and their affiliates together owned
approximately 66% of our outstanding common stock as of December 31, 2001.
Christopher Anderson, the chairman of our board of directors, owned
approximately 46% of our outstanding common stock alone. As a result, these
stockholders exercise significant control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of control could disadvantage other
stockholders with interests different from those of our officers, directors and
their affiliates. For example, our officers, directors and their affiliates
could delay or prevent someone from acquiring or merging with us even if the
transaction would benefit other stockholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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


                                       36

<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                               Snowball.com, Inc.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page

Report of Ernst & Young LLP, independent auditors                            38

Consolidated balance sheets                                                  39

Consolidated statements of operations                                        40

Consolidated statements of stockholders' equity                              41

Consolidated statements of cash flows                                        42

Notes to consolidated financial statements                                   43

Quarterly results of operations (unaudited)                                  60


                                       37

<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Snowball.com, Inc.

      We have audited the accompanying consolidated balance sheets of
Snowball.com, Inc. as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Snowball.com,
Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1, the Company
has sustained losses and negative cash flows from operations since its
inception. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The accompanying financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.


                                         /s/ Ernst & Young LLP

Palo Alto, California

February 5, 2002, except for
         Note 9, as to which
         the date is March 22,
         2002


                                       38

<PAGE>

                               Snowball.com, Inc.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                            December 31,     December 31,
                                                                                2001             2000
                                                                            -------------    -------------
<S>                                                                         <C>              <C>
 Assets
 Current assets:
       Cash and cash equivalents                                            $       8,285    $      26,479
       Accounts receivable, net of allowance of $550 and $768 at
           December 31, 2001 and 2000, respectively                                 1,544            3,401
       Prepaid expenses and other current assets                                      626            1,869
                                                                            -------------    -------------
           Total current assets                                                    10,455           31,749

 Restricted cash                                                                    2,296            5,111
 Goodwill and intangible assets, net                                                2,218            6,655
 Fixed assets, net                                                                  6,118           10,826
 Other assets                                                                         227              499
                                                                            -------------    -------------
           Total assets                                                     $      21,314    $      54,840
                                                                            =============    =============

 Liabilities and stockholders' equity
 Current liabilities:
       Accounts payable                                                     $       1,732    $       2,025
       Accrued liabilities and other                                                2,245            6,343
       Deferred revenue                                                             1,410              953
       Current equipment financing obligations                                      1,538            1,649
                                                                            -------------    -------------
           Total current liabilities                                                6,925           10,970

 Deferred rent                                                                        562               85
 Long-term equipment financing obligations                                             75            1,484
 Commitments

 Stockholders' equity:
      Convertible preferred stock, $0.001 par value, issuable in series:
          5,000,000 shares authorized and no shares outstanding                        --               --
      Common stock, $0.001 par value: 100,000,000 shares authorized,
          1,804,052 and 2,087,196 shares issued and outstanding
          at December 31, 2001 and 2000, respectively                                   2                2
      Treasury stock, 269,311 shares at December 31,
          2001 and none at December 31, 2000                                       (1,172)              --
      Additional paid-in capital                                                  150,004          151,491
      Notes receivable from stockholders                                             (165)            (338)
      Deferred stock-based compensation                                                --           (3,363)
      Prepaid marketing and distribution rights, net                                   --             (926)
      Accumulated deficit                                                        (134,917)        (104,565)
                                                                            -------------    -------------
           Total stockholders' equity                                              13,752           42,301
                                                                            -------------    -------------

           Total liabilities and stockholders' equity                       $      21,314    $      54,840
                                                                            =============    =============
</TABLE>

See note to consolidated financial statements.


                                       39

<PAGE>

                               Snowball.com, Inc.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                          -----------------------------------------------
                                                               2001             2000             1999
                                                          -------------    -------------    -------------
<S>                                                       <C>              <C>              <C>
Revenue                                                   $       9,687    $      21,242    $       6,674
Cost of revenue                                                   2,961           11,852            4,316
                                                          -------------    -------------    -------------
     Gross profit                                                 6,726            9,390            2,358

Operating expenses:
     Production and content                                       7,027           11,842            6,610
     Engineering and development                                  6,407            9,454            5,084
     Sales and marketing                                         10,122           38,378           20,393
     General and administrative                                   4,245            5,971            3,486
     Stock-based compensation /a/                                 2,003            6,139            1,521
     Amortization of goodwill and intangible assets               3,692            4,001              471
     Restructuring and asset impairment charges                   4,171               --               --
                                                          -------------    -------------    -------------
          Total operating expenses                               37,667           75,785           37,565
                                                          -------------    -------------    -------------

Loss from operations                                            (30,941)         (66,395)         (35,207)
Interest income, net                                                589            1,591              265
Other income                                                         --               --              120
                                                          -------------    -------------    -------------
Net loss                                                  $     (30,352)   $     (64,804)   $     (34,822)
                                                          =============    =============    =============

Basic and diluted net loss per share                      $      (16.21)   $      (44.36)   $   (3,482.20)
                                                          =============    =============    =============

Shares used in per share calculation /b/                          1,873            1,461               10
                                                          =============    =============    =============

Pro forma basic and dilutive net loss
     per share (unaudited)                                                 $      (36.30)   $      (34.75)
                                                                           =============    =============

Shares used in pro forma
     per share calculation /c/                                                     1,785            1,002
                                                                           =============    =============

/a/  Stock-based compensation relates to the following:
          Cost of revenue                                 $           4    $          25    $           7
          Production and content                                    326            1,808              407
          Engineering and development                               148              486              263
          Sales and marketing                                       323            1,415              777
          General and administrative                              1,202            2,405               67
                                                          -------------    -------------    -------------
               Total                                      $       2,003    $       6,139    $       1,521
                                                          =============    =============    =============
</TABLE>

/b/   All shares have been restated to reflect the one-for-three and one-for-six
      reverse stock splits, which were effective March 6, 2001 and September 24,
      2001, respectively.

/c/   Pro forma weighted average shares outstanding assumes the conversion of
      all shares of preferred stock into common stock, effective as of the
      original issue date for the preferred stock.

See note to consolidated financial statements.


                                       40

<PAGE>

                               Snowball.com, Inc.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                           Convertible Preferred                                  Additional
                                                                    Stock                  Common Stock         Paid in Capital/
                                                         -------------------------   -------------------------  Net Contribution
                                                            Shares        Amount         Shares       Amount     From Imagine
                                                         -----------------------------------------------------------------------
<S>                                                       <C>           <C>            <C>          <C>           <C>
Balance at December 31, 1998                                      --    $       --            --    $       --    $    5,701
Issuance of common stock to founders and
     employees for cash and notes receivable                      --            --       211,794             0           382
Issuance of Series A preferred stock for
     cash, notes receivable and assets
     transferred from Imagine Media                        9,990,111            10            --            --         3,257
Issuance of Series B and B-1 preferred stock
     for cash and assets transferred from
     Imagine Media                                         4,028,437             4            --            --        23,746
Issuance of Series B-1 preferred stock to
     strategic partner and officer for cash and
     marketing rights                                        668,721             1            --            --         6,571
Issuance of common stock to employees upon
     exercise of stock options, net of repurchases                --            --        92,681             0         1,108
Issuance of warrants to purchase Series B-1
     preferred stock in connection with lease financing
     and term loan                                                --            --            --            --           948
Issuance of Series C preferred stock for cash and
     conversion of $3.0 million term loan                  3,379,000             3            --            --        33,786
Payments received on notes receivable from
     stockholders                                                 --            --            --            --            --
Issuance of common stock in connection
     with acquisitions                                            --            --         5,833             0           780
Deferred stock-based compensation                                 --            --            --            --        12,389
Amortization of deferred compensation and
     prepaid marketing and distribution rights                    --            --            --            --            --
Net and comprehensive loss for the period                         --            --            --            --            --
                                                         -----------------------------------------------------------------------
Balance at December 31, 1999                              18,066,269    $       18       310,308    $        0    $   88,668

Issuance of Series C preferred stock for cash                150,000             0            --            --         1,490
Issuance of common stock for Series A, B-1 and
    C preferred stock conversion                         (18,216,269)          (18)    1,419,995             2            16
Issuance of common stock for initial public
    offering, net                                                 --            --       347,222             0        62,109
Issuance of common stock for donation to
    charitable foundation                                         --            --         5,556             0         1,000
Issuance of common stock for exercise of
    warrants                                                      --            --         1,665             0            --
Issuance of common stock to employees,
    net of repurchases                                            --            --         2,450             0          (426)
Forgiveness and repayment of notes receivable
    from stockholders                                             --            --            --            --            --
Deferred stock-based compensation                                 --            --            --            --        (1,986)
Amortization of deferred stock-based compensation
    and prepaid marketing & distribution rights                   --            --            --            --           620
Net and comprehensive loss for the period                         --            --            --            --            --
                                                         -----------------------------------------------------------------------
Balance at December 31, 2000                                      --    $       --     2,087,196    $        2    $  151,491

Issuance of common stock to employees,
     net of repurchases                                           --            --       (13,833)            0          (127)
Purchase of treasury stock                                        --            --      (269,311)       (1,172)           --
Forgiveness and repayment of notes receivable
    from stockholders                                             --            --            --            --            --
Deferred stock-based compensation                                 --            --            --            --        (1,268)
Amortization of deferred stock-based compensation
    and prepaid marketing & distribution rights                   --            --            --            --           (92)
Net and comprehensive loss for the period                         --            --            --            --            --
                                                         -----------------------------------------------------------------------
Balance at December 31, 2001                                      --    $       --     1,804,052    $   (1,170)   $  150,004
                                                         =======================================================================

<CAPTION>
                                                                                      Prepaid
                                                            Notes                     Marketing
                                                         Receivable      Deferred        and                        Total
                                                            From       Stock-Based   Distribution  Accumulated  Stockholders'
                                                         Stockholders  Compensation     Rights        Deficit       Equity
                                                         --------------------------------------------------------------------
<S>                                                       <C>           <C>           <C>           <C>           <C>
Balance at December 31, 1998                              $       --    $       --    $       --    $   (4,939)   $      762
Issuance of common stock to founders and
     employees for cash and notes receivable                    (302)           --            --            --            79
Issuance of Series A preferred stock for
     cash, notes receivable and assets
     transferred from Imagine Media                           (2,000)           --            --            --         1,267
Issuance of Series B and B-1 preferred stock
     for cash and assets transferred from
     Imagine Media                                                --            --            --            --        23,750
Issuance of Series B-1 preferred stock to
     strategic partner and officer for cash and
     marketing rights                                             --            --        (2,339)           --         4,233
Issuance of common stock to employees upon
     exercise of stock options, net of repurchases            (1,044)           --            --            --            65
Issuance of warrants to purchase Series B-1
     preferred stock in connection with lease financing
     and term loan                                                --            --            --            --           948
Issuance of Series C preferred stock for cash and
     conversion of $3.0 million term loan                         --            --            --            --        33,789
Payments received on notes receivable from
     stockholders                                              2,045            --            --            --         2,045
Issuance of common stock in connection
     with acquisitions                                            --            --            --            --           780
Deferred stock-based compensation                                 --       (12,389)           --            --            --
Amortization of deferred compensation and
     prepaid marketing and distribution rights                    --         1,521           244            --         1,765
Net and comprehensive loss for the period                         --            --            --       (34,822)      (34,822)
                                                         --------------------------------------------------------------------
Balance at December 31, 1999                              $   (1,301)   $  (10,868)   $   (2,095)   $  (39,761)   $   34,661

Issuance of Series C preferred stock for cash                     --            --            --            --         1,490
Issuance of common stock for Series A, B-1 and
    C preferred stock conversion                                  --            --            --            --            --
Issuance of common stock for initial public
    offering, net                                                 --            --            --            --        62,109
Issuance of common stock for donation to
    charitable foundation                                         --            --            --            --         1,000
Issuance of common stock for exercise of
    warrants                                                      --            --            --            --            --
Issuance of common stock to employees,
    net of repurchases                                            --            --            --            --          (426)
Forgiveness and repayment of notes receivable
    from stockholders                                            963            --            --            --           963
Deferred stock-based compensation                                 --         1,986            --            --            --
Amortization of deferred stock-based compensation
    and prepaid marketing & distribution rights                   --         5,519         1,169            --         7,308
Net and comprehensive loss for the period                         --            --            --       (64,804)      (64,804)
                                                         --------------------------------------------------------------------
Balance at December 31, 2000                              $     (338)   $   (3,363)   $     (926)   $ (104,565)   $   42,301

Issuance of common stock to employees,
     net of repurchases                                           --            --            --            --          (127)
Purchase of treasury stock                                        --            --            --            --        (1,172)
Forgiveness and repayment of notes receivable
    from stockholders                                            173            --            --            --           173
Deferred stock-based compensation                                 --         1,268            --            --            --
Amortization of deferred stock-based compensation
    and prepaid marketing & distribution rights                   --         2,095           926            --         2,929
Net and comprehensive loss for the period                         --            --            --       (30,352)      (30,352)
                                                         --------------------------------------------------------------------
Balance at December 31, 2001                              $     (165)   $       --    $       --    $ (134,917)   $   13,752
                                                         ====================================================================
</TABLE>

See notes to consolidated financial statements.


                                       41

<PAGE>

                               Snowball.com, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                       --------------------------------
                                                                         2001        2000        1999
                                                                       --------    --------    --------
<S>                                                                    <C>         <C>         <C>
Cash flows from operations
   Net loss                                                            $(30,352)   $(64,804)   $(34,822)
   Reconciliation to net cash used in operations:
       Depreciation and amortization                                      7,770       7,874       1,769
       Stock-based compensation                                           2,003       6,139       1,521
       Charitable contribution of common stock                               --       1,000          --
       Restructuring and asset impairment charges                         1,751          --          --
       Other non-cash expenses                                              331         641         948
       Changes in assets and liabilities:
          Accounts receivable                                             1,812      (1,199)     (1,640)
          Prepaid expenses and other assets                               1,349         525      (2,798)
          Accounts payable and accrued liabilities                       (4,391)        615       7,487
          Deferred revenue                                                  457         251         654
          Deferred rent                                                     477          --          --
                                                                       --------    --------    --------
              Net cash used in operating activities                     (18,793)    (48,958)    (26,881)
                                                                       --------    --------    --------

Cash flows from investment activities
   Proceeds from (purchases of) short-term investments                    2,815       2,889      (8,000)
   Acquisition of goodwill and intangible assets                             --      (6,090)     (2,550)
   Purchases of fixed assets                                               (593)    (10,331)     (5,575)
   Net refund on tenant improvements                                      1,143          --          --
                                                                       --------    --------    --------
              Net cash provided by (used in) investment activities        3,365     (13,532)    (16,125)
                                                                       --------    --------    --------

Cash flows from financing activities
   Proceeds from issuance of common stock related
       to initial public offering, net                                       --      62,114          --
   Proceeds from other issuance of common and preferred
       stock, net of (repurchases)                                          (74)      1,750      62,228
   Proceeds from equipment financing obligations                             --       1,526       3,464
   Proceeds from borrowings under term loan                                  --      12,000      15,150
   Repayment of borrowings under term loan                                   --     (12,400)    (12,000)
   Repayment of equipment financing obligations                          (1,520)     (1,510)       (347)
   Purchase of stock for treasury                                        (1,172)         --          --
                                                                       --------    --------    --------
              Net cash provided by (used in) financing activities        (2,766)     63,480      68,495
                                                                       --------    --------    --------

Net increase (decrease) in cash and cash equivalents                    (18,194)        990      25,489
Cash and cash equivalents at beginning of year                           26,479      25,489          --
                                                                       --------    --------    --------
Cash and cash equivalents at end of year                               $  8,285    $ 26,479    $ 25,489
                                                                       ========    ========    ========

Supplemental schedule of non-cash investing and financing activities

Repurchase of common stock in connection with
       reduction of shareholder notes receivable                             --    $    724          --
                                                                       ========    ========    ========
Common stock issued for notes receivable                                     --          --    $  3,346
                                                                       ========    ========    ========
Deferred stock compensation                                            $  1,268    $  1,986    $ 12,389
                                                                       ========    ========    ========
Conversion of term loan debt to Series C preferred stock                     --          --    $  3,000
                                                                       ========    ========    ========
Common and preferred stock issued for goodwill and
       intangible assets and prepaid marketing and distribution              --          --    $  3,119
                                                                       ========    ========    ========
</TABLE>

See notes to consolidated financial statements.


                                       42

<PAGE>

                               Snowball.com, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Company and Summary of Significant Accounting Policies

Description of Company

      Snowball.com, Inc. ("Snowball") was incorporated as Affiliation, Inc. in
the state of Delaware on January 6, 1999, and commenced operations as a separate
legal entity at that time. From its inception in January 1997 through January 5,
1999, Snowball operated as a division of Imagine Media, Inc. ("Imagine Media").
Snowball is an Internet media company that operates a network of destination web
sites providing content, community and commerce primarily to teens and young
adults between the ages of 13 and 30 who consider the Internet to be an integral
part of their daily lives. Snowball serves the members of this community by
providing them with opinionated, current content, relevant services such as
e-mail and instant messaging and a forum for interacting with one another.
Snowball provides its advertisers with targeted access to these users and
supplies its content partners with an integrated package of marketing services
and audience-development opportunities. Snowball has sustained net losses and
negative cash flows from operations since inception. Snowball's ability to meet
obligations in the ordinary course of business is dependent upon its ability to
establish profitable operations and raise additional financing through public or
private equity financings, collaborative or other arrangements with corporate
sources, or other sources of financing. In the year ended December 31, 1999,
Snowball received net financing of approximately $65.2 million through the
issuance of common stock and Series A, B1 and C convertible preferred stock.
During the year ending December 31, 2000, Snowball received approximately $63.9
million, primarily from the net issuance of common stock through our initial
public offering. Although management believes that existing funds as of December
31, 2001 will be sufficient to enable Snowball to meet planned expenditures
through at least December 31, 2002, this belief is subject to many of the risks
and uncertainties discussed throughout this report. To meet our longer-term
liquidity needs, potentially including our needs in fiscal 2002, we expect to
need to raise additional funds, establish additional credit facilities, seek
other financing arrangements or further reduce costs and expenses. Additional
funding may not be available on favorable terms, on a timely basis or at all.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

Principles of Consolidation

      The consolidated financial statements include the accounts of Snowball and
its wholly-owned subsidiaries. All inter-company balances and transactions have
been eliminated.

Basis of Presentation

      All share and per share numbers in the accompanying consolidated financial
statements and financial notes thereto have been adjusted to retroactively
reflect our one-for-three and one-for-six reverse stock splits, which were
effective March 6, 2001 and September 24, 2001, respectively. (See Note 7).

      Certain reclassifications, none of which have affected operating loss or
net loss, have been made to prior year balances in order to conform to the
current year presentation.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported


                                       43

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

amounts of assets and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ materially from
those estimates.

Certain Risks and Concentrations

      Snowball has a limited operating history and its prospects are subject to
the risks, expenses, and difficulties frequently encountered by companies in
their early stages of development, particularly companies in new and rapidly
evolving markets such as Internet services. These risks include the failure to
develop and extend online service brands, the rejection of services by web
consumers, vendors, and/or advertisers, the inability of Snowball to maintain
and increase the level of traffic to our IGN network from online services, as
well as other risks and uncertainties. In the event that Snowball does not
successfully implement its business plan or adequately change its plan to adapt
to a changing market and environment, certain assets may not be recoverable.

      Snowball's revenue is principally derived from the sale of online
advertising, the market for which is highly competitive and rapidly changing.
Significant changes in the industry or changes in customer buying behavior could
adversely affect operating results.

      Snowball maintains cash and cash equivalents with domestic financial
institutions. Snowball performs periodic evaluations of the relative standing of
these institutions. From time to time, Snowball's cash balances with these
financial institutions may exceed Federal Deposit Insurance Corporation
insurance limits.

      Snowball's customers are concentrated mainly in the United States.
Snowball performs ongoing credit evaluations, generally does not require
collateral and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of each customer, historical trends and other
information; to date, such amounts have been within management's expectations.

      For the years ended December 31, 2001, 2000, and 1999 no customer
accounted for over 10% of total revenue and no customer accounted for over 10%
of gross accounts receivable at December 31, 2001 and 2000. Accounts receivable
is stated net of allowance for doubtful accounts. A summary of change in the
allowance is as follows:

                                                         December 31,
                                               --------------------------------
Allowance for doubtful accounts                  2001        2000        1999
                                               --------    --------    --------
                                                        (in thousands)
Balance at beginning of period                 $    768    $    528    $     99
Additions charged to costs and expenses              45         357         734
Write-off of uncollectible accounts                (263)       (117)       (305)
                                               --------    --------    --------
Balance at end of period                       $    550    $    768    $    528
                                               ========    ========    ========

Revenue Recognition

      Revenue is derived principally from short-term contracts for various sizes
and types of impression-based advertisements, including Flash, Unicast, and
click-within advertising units. This revenue is recognized at the lesser of the
straight-line basis over the term of the contract or the ratio of impressions
delivered over total committed impressions, provided that we do not have any
significant remaining obligations and collection of the resulting receivable is
probable. To the


                                       44

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

extent that minimum committed impression levels or other obligations are not
met, we defer recognition of the corresponding revenue until such levels are
achieved.

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

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

      Approximately 92%, 99% and 100% of our revenue was from advertising and
marketing programs and services in 2001, 2000 and 1999, respectively.

      Snowball has not recognized any revenue related to the nonmonetary
exchange of advertising for advertising as such exchanges were not objectively
determinable based on the criteria set forth in Accounting Principles Board
Opinion No. 29, "Accounting for Nonmonetary Transactions."

Advertising Expenses

      Snowball expenses the cost of advertising as incurred. Advertising
expenses were approximately $175 thousand, $12.3 million and $8.0 million for
the years ended December 31, 2001, 2000 and 1999, respectively.

Cash Equivalents and Short-term Investments

      Snowball considers all highly liquid investments with an original maturity
from the date of purchase of three months or less to be cash equivalents.

Fixed Assets

      Fixed assets are stated at cost less accumulated depreciation.
Depreciation and amortization are computed using the straight-line method over
the shorter of the estimated useful lives of the assets, generally two to five
years, or the lease term, if applicable. Gains and losses on disposals are
included in income at amounts equal to the difference between the net book value
of the disposed assets and the proceeds received upon disposal. Expenditures for
replacements and betterments are capitalized, while expenditures for maintenance
and repairs are charged against earnings as incurred.

Goodwill and Intangible Assets

      Goodwill consists of the excess of purchase price paid over identified
tangible and intangible net assets and trademarks. Goodwill and intangible
assets are amortized using the


                                       45

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

straight-line method over the period of expected benefit, generally three years.
Goodwill and other intangible assets are evaluated quarterly for impairment.
Snowball records impairment losses on goodwill and other intangible assets when
events and circumstances indicate that such assets might be impaired and the
estimated fair value of the asset is less than its recorded amount. Conditions
that would trigger an impairment assessment include material adverse changes in
operations or Snowball's decision to abandon acquired products, services or
technologies. Measurement of fair value would be based on discounted cash flows
at Snowball's incremental borrowing rate and would include a factor for the
probability that the impaired product would be successful. During 2001, Snowball
had recorded asset impairment charges of $1.7 million. No such charges were
recorded in 2000 or 1999. In January 2002, Snowball sold its HighSchoolAlumni
web site. Accordingly, $268 thousand of remaining unamortized goodwill related
to our 1999 Ameritrack, Inc. acquisition was written off at the time of sale.

Fair Value of Financial Instruments

      The carrying amounts of Snowball's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable, accounts
payable, accrued expenses and deferred revenue, approximate their fair value at
December 31, 2001 and 2000 because of their short maturities. The carrying
amount of Snowball's capital lease obligations approximate their fair value
based upon implicit interest rates of the leases.

Net Loss Per Share

      Basic net loss per share and diluted net loss per share is presented in
conformity with the Financial Accounting Standards Board's ("FASB") Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
Pursuant to Securities and Exchange Commission ("SEC") Accounting Bulletin No.
98, common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net loss per
share as if they had been outstanding for all periods presented. Snowball had no
issuances or grants for nominal consideration prior to its initial public
offering.

      In accordance with Statement of Financial Accounting Standards No. 128,
basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the period,
less the weighted-average number of shares of common stock that are subject to
repurchase. Diluted net loss per share includes the impact of options and
warrants to purchase common stock, if dilutive. There is no difference between
our basic and diluted net loss per share as we incurred losses in each of the
periods presented. Pro forma basic and diluted net loss per share, as presented
in the statements of operations, has been computed as described above and also
gives effect, under SEC guidance, to the conversion of the convertible preferred
stock (using the if-converted method) from the original date of issuance.
Snowball commenced operations as a separate legal entity in January 1999 and
issued common stock in February 1999. Accordingly, historical earnings per share
have been presented beginning with the year ended December 31, 1999. The
following table presents the calculation of basic and diluted and pro forma
basic and diluted net loss per share (in thousands, except per share data):


                                       46

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                     2001          2000           1999
                                                 -----------   -----------    -----------
<S>                                              <C>           <C>            <C>
Net loss                                         $   (30,352)  $   (64,804)   $   (34,822)
                                                 ===========   ===========    ===========
Basic and diluted:
   Weighted average shares of
      common stock outstanding                         1,948         1,679            230
   Less: weighted average shares
      subject to repurchase                              (75)         (218)          (220)
   Weighted average shares used in
      computing basic and diluted
      net loss per share                               1,873         1,461             10
                                                 -----------   -----------    -----------
Basic and diluted net loss per share             $    (16.21)  $    (44.36)   $ (3,482.20)
                                                 ===========   ===========    ===========

Pro forma (unaudited):
   Shares used in the above                                          1,461             10
   Pro forma adjustment to reflect weighted
      effect of assumed conversion
      of convertible preferred stock                                   324            992
   Shares used in computing pro forma
      basic and diluted net loss per share                           1,785          1,002
                                                               -----------    -----------
Pro forma basic and diluted net loss per share                 $    (36.30)   $    (34.75)
                                                               ===========    ===========
</TABLE>

      Snowball has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted loss per share because all of these
securities are antidilutive for all periods presented. All of the convertible
preferred stock outstanding was converted upon the consummation of the initial
public offering.

      The number of shares excluded from the calculation of diluted net loss per
share were as follows (on an as-converted-to common basis as of December 31,
1999):

                                              Year Ended December 31,
                                           2001       2000        1999
                                         -------     -------     -------
Common stock, subject to repurchase       74,340     146,805     245,860
Preferred stock                               --          --   1,411,661
Common stock options outstanding         613,497     305,456     131,023
Warrants to purchase preferred stock          --          --      17,927

Income Taxes

      Through December 31, 1998, Snowball was not a separate taxable entity for
federal, state, or local income tax purposes, and its operations were included
in the tax returns of Imagine Media. Since incorporation, Snowball has
recognized income taxes under the liability method.


                                       47

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stock-Based Compensation

      Snowball accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and its interpretations and
complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense on fixed stock
options is based on the difference, if any, on the date of the grant, between
the fair value of Snowball's stock and the exercise price of the option.
Snowball accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF")
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

Comprehensive Income

      Snowball has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
comprehensive income and its components in the financial statements. To date,
Snowball's comprehensive loss has equaled its net loss.

Segment Information

      Snowball has organized its operations into a single operating segment, the
sale of advertising, marketing programs and content based on material produced
for distribution on the Internet. Snowball derives the significant majority of
its revenue from operations in the United States.

Recent Accounting Pronouncements

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

      In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (FAS 144), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations for a disposal of a segment of a
business. FAS 144 is effective for fiscal years beginning after December 15,
2001, with earlier application encouraged.


                                       48

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      We will adopt FAS 144 as of January 1, 2002 and we are currently
evaluating the impact that the adoption of FAS 144 will have on our financial
position and results of operations.

2. Cash and Cash Equivalents and Restricted Cash

      Cash, cash equivalents, and restricted cash consist of the following:

                                                       December 31,
                                                  ---------------------
                                                    2001         2000
                                                  --------     --------
                                                      (in thousands)
Cash and cash equivalents:
  Cash                                            $    764     $  1,496
  Money market funds                                 7,396        5,653
  Corporate commercial paper                            --       11,431
  Certificate of deposit                               125           --
  Municipal bonds                                       --        5,850
  Treasury bonds                                        --        2,049
                                                  --------     --------
    Total cash and cash equivalents                  8,285       26,479
                                                  --------     --------

Restricted cash
  Certificate of deposit                             2,296        5,111
                                                  --------     --------
    Total restricted cash                            2,296        5,111
                                                  --------     --------

Cash and cash equivalents and restricted cash     $ 10,581     $ 31,590
                                                  ========     ========

      Through December 31, 2001, the difference between the fair value and the
amortized cost of available-for-sale securities was not significant; therefore,
no unrealized gains or losses have been recorded in stockholders' equity. At
December 31, 2001, the contractual maturity of Snowball's short-term investments
was one year or less.


                                       49

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. Balance Sheet Detail

                                              December 31,
                                        ----------------------
                                          2001          2000
                                        ----------------------
Goodwill and Intangible Assets              (in thousands)
Vault                                   $    550      $    550
Ameritrack, Inc.                           1,207         1,207
Extreme Interactive Media, Inc.               --         3,050
Two Cents, Inc.                               --            90
Game Sages                                 4,817         4,817
                                        --------      --------
                                           6,574         9,714
Less accumulated amortization             (4,356)       (3,059)
                                        --------      --------
Goodwill and intangible assets, net     $  2,218      $  6,655
                                        ========      ========

                                              December 31,
                                        ----------------------
                                          2001          2000
                                        ----------------------
Fixed Assets                                (in thousands)
Computers and equipment                 $  6,497      $  6,395
Software                                   1,893         1,800
Furniture and fixtures                     2,535         2,453
Leasehold improvements                     4,489         4,272
Construction in process                       --         1,139
                                        --------      --------
                                          15,414        16,059
Less accumulated depreciation
  and amortization                        (9,296)       (5,233)
                                        --------      --------
Fixed assets, net                       $  6,118      $ 10,826
                                        ========      ========

                                              December 31,
                                        ----------------------
                                          2001          2000
                                        ----------------------
Accrued Liabilities and Other               (in thousands)
Accrued compensation                    $    689      $  1,852
Accrued payouts to affiliates                 59         1,710
Other accrued liabilities                  1,497         2,781
                                        --------      --------
Total accrued liabilities and other     $  2,245      $  6,343
                                        ========      ========

4. Related Party Transactions

Corporate Services

      In accordance with Staff Accounting Bulletin No. 55, prior to the
incorporation of Snowball, certain allocations have been reflected in our 1999
financial statements. These expenses include corporate communications,
management compensation and benefits administration, payroll, accounts payable,
income tax compliance, and other administration and finance overhead.
Allocations and charges were based on either a direct cost pass-through for


                                       50

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

incremental corporate administration, finance and management costs or a
percentage allocation of costs for other services provided based on factors such
as headcount and relative expenditure levels. Such allocations and charges
totaled approximately $757 thousand in 1999.

      From incorporation on January 6, 1999 through September 30, 1999, there
was a service and support agreement in place between Snowball and Imagine Media
which specified the terms of certain services to be provided by Imagine Media.
Under that agreement, Imagine Media provided certain management, personnel and
technology and information services support and rental space in return for cash
payments based upon divisional allocations and the actual costs of providing
such services. The agreement terminated on October 1, 1999.

      Management believes that the basis used for allocating corporate services
is reasonable. However, the terms of these transactions may differ from those
that would have resulted from transactions among unrelated parties.

Asset Contribution

      Among the assets transferred to Snowball from Imagine Media, upon the
incorporation of Snowball on January 6, 1999, were a number of co-hosting and
technology agreements to which Imagine Media was a party, revenue from
advertising agreements involving Snowball and ownership rights in certain
intellectual property. The assets transferred from Imagine Media have been
recorded at historical cost. No liabilities were transferred to Snowball, except
for those directly resulting from the assets transferred.

      The Chairman of Snowball's board of directors is a principal stockholder
and from May 1999 to August 2001 was the Chairman of the Board of Future Network
plc, the parent company of Imagine Media. Accordingly, Imagine Media is
considered a related party for the period subsequent to Snowball's
incorporation. As of December 31, 2001 and 2000, Imagine Media owned
approximately 2.7% and 4.7%, respectively, of the outstanding voting shares of
Snowball. During 2001 and 2000, no material transactions occurred between
Snowball and either Imagine Media or Future Network plc.

5. Business / Asset Acquisitions and Restructuring and Asset Impairment Charges

Ameritrack, Inc.

      On September 28, 1999, Snowball acquired all of the outstanding stock of
Ameritrack, Inc., an Internet content provider doing business as
HighSchoolAlumni, in exchange for approximately $1.0 million in cash and 5,000
shares of common stock valued at $180 thousand. These assets served as the
foundation of our HighSchoolAlumni network. The cost of the acquisition was
allocated to the assets and liabilities assumed based upon their estimated fair
values as follows:

Working capital (deficit)                                           $    (3,381)
Equipment                                                                21,060
Goodwill and purchased intangibles                                    1,162,321
                                                                    -----------
                                                                    $ 1,180,000
                                                                    ===========

      The financial results of Ameritrack, Inc. were insignificant and,
therefore, no pro forma information reflecting the acquisition has been
presented. On January 16, 2002, we sold our HighSchoolAlumni network. See Note10
for further information.


                                       51

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Extreme Interactive Media, Inc.

      On December 17, 1999, Snowball completed the acquisition of Extreme
Interactive Media, Inc. ("Extreme"), an Internet community site. Snowball
acquired all of the outstanding capital stock of Extreme in exchange for 12,500
shares of Snowball common stock, valued at $600 thousand, $1.0 million in cash
and $250 thousand in unsecured promissory notes, which were paid in full during
2000. During 2000, Snowball paid $1.2 million of additional cash consideration
based upon the achievement of contractual milestones. The cost of the
acquisition was allocated to the assets and liabilities assumed based upon their
estimated fair values as follows:

Working capital                                                     $     1,885
Equipment                                                                27,361
Goodwill and purchased intangibles                                    1,820,754
                                                                    -----------
                                                                    $ 1,850,000
                                                                    ===========

      The financial results of Extreme Interactive Media were insignificant and,
therefore, no pro forma information reflecting the acquisition has been
presented.

Asset Purchases

      In July 1999, Snowball entered into an asset purchase agreement with Vault
Networks, an Internet content producer, under which Snowball acquired certain
intangible rights such as trademarks, intellectual property rights, certain
registered Internet locations, and a small amount of computer hardware. The
total purchase price for these assets was $550 thousand in cash. This purchase
price has been included within goodwill and intangible assets.

      In February 2000, Snowball signed an asset purchase agreement with
GameSages LLC, an Internet content provider under which Snowball acquired
certain intangible rights such as trademarks, intellectual property rights and
certain registered Internet locations, in exchange for approximately $4.8
million in cash. The financial results of this entity were insignificant and,
therefore, no pro forma information reflecting this acquisition has been
presented. The total purchase price has been included within goodwill and
purchased intangibles.

Restructuring and Asset Impairment Charges.

      In response to the challenges in our business, during 2001 our Board of
Directors approved a restructuring program aimed at reducing our underlying cost
structure to better position Snowball for improved operating results. As a part
of this program, we implemented reductions in force that eliminated
approximately 130 positions. These reductions came from all functional areas of
Snowball and, as of December 31, 2001, all of the affected employees had been
terminated or notified of their termination. Charges related to these employee
terminations were $728 thousand. As of December 31, 2001, $65 thousand of these
charges had not yet been paid. The restructuring charges also included
approximately $1.8 million in estimated facility exit costs for two of our
office buildings in Brisbane, California.

      Asset impairment charges arise when the expected future discounted cash
flows to be generated from a long-lived intangible asset, goodwill in our case,
are less than the present carrying value. We recorded an impairment charge of
$1.6 million recorded against the remaining unamortized goodwill of our 1999
acquisition of Extreme Interactive Media, Inc. when we


                                       52

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

discontinued operation of that site during 2001. We had no restructuring and
asset impairment charges in 1999 or 2000.

6. Term Loan

      In November 1999, Snowball entered into a term loan agreement for up to
$15.2 million. In connection with this loan agreement, Snowball issued a
promissory note, which bore interest at the rate of 11.0% per annum, and
warrants to purchase 30,000 shares of Series B-1 preferred stock. In November
and December of 1999, Snowball drew down $15.2 million under the term loan. On
December 20, 1999, $3.0 million of this loan was converted into Series C
preferred stock. An additional $12.0 million was repaid in cash raised through
the Series C preferred stock issuance. At December 31, 1999, $150 thousand
remained payable under the term loan. In February 2000, Snowball borrowed $12.0
million, under the terms of this loan agreement. In April 2000, Snowball repaid
$12.4 million in principal, accrued interest and fees, retiring this loan.

7. Stockholders' Equity

Convertible Preferred Stock

      All shares of previously outstanding preferred stock were converted into
1,419,995 shares of common stock upon the closing of our initial public offering
in March 2000. In March 2000, Snowball decreased its authorized preferred stock
from 20,000,000 to 5,000,000 shares. No preferred stock was outstanding as of
December 31, 2001 or December 31, 2000.

      Holders of Snowball's preferred stock were entitled to one vote for each
share of common stock into which the preferred stock was convertible.

Warrants

      In April 1999 and October 1999 Snowball issued warrants to purchase 21,063
and 14,064 shares, respectively, of Series B-1 preferred stock (2,927 shares of
common stock as converted) in connection with lease financing. In accordance
with SFAS 123, Snowball valued the warrants using the Black-Scholes option
pricing model at $14.88 and $36.18 per preferred series B-1 share, respectively.
The following assumptions were used in the option pricing model: preferred stock
price of $25.32 and $60.00, exercise price of $18.99 and $42.66, option term of
five years, risk-free rate of interest of 6%, 50% volatility, and a dividend
yield of 0%. On March 24, 2000, the lessor exercised the warrants associated
with these credit facilities and executed a non-cash conversion into 1,665
shares of our common stock. The value of the warrants (approximately $206
thousand) was recognized as additional interest expense during 2000 and 1999.

      In November 1999, Snowball issued a series of warrants to purchase 180,000
shares of Series B-1 preferred stock (15,000 shares of common stock as
converted), in connection with entering into a term loan agreement. In
accordance with SFAS 123, Snowball valued the warrants using the Black-Scholes
option pricing model at $14.40 and $18.06 per preferred share. The following
assumptions were used in the option pricing model: preferred stock price of
$48.00, exercise price of $50.64, option term of 2 to 3 years, risk free rate of
interest of 6%, 50% volatility and a dividend yield of 0%. The value of the
warrants (approximately $742 thousand) was expensed during 2000 and 1999 as
additional interest expense. Warrants to purchase 15,000 shares of common stock
expired unexercised in 2000.


                                       53

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Notes Receivable from Stockholders

      In February 1999, Snowball loaned an aggregate of $2.0 million to its
Chairman, secured by a full recourse promissory note and a stock pledge
agreement, in connection with his purchase of 8,571,429 shares of Series A
preferred stock at $0.35 per share. The note accrued interest at a rate of 4.57%
per year and was due and payable with respect to $1.0 million of principal, plus
interest, on or before March 1, 1999 and with respect to the remaining $1.0
million of principal, and any remaining interest, on or before April 1, 1999.
The note has been repaid in full.

      In February 1999, Snowball loaned an aggregate of $92 thousand to an
officer, secured by a full recourse promissory note and a stock pledge
agreement, in connection with his purchase of 109,890 shares of common stock at
$0.84 per share. The note accrued interest at a rate of 4.64% per year, payable
annually, and the principal amount of the note was due and payable on or before
February 1, 2003. Effective April 1, 2000, Snowball forgave the remaining
balance. The total amount forgiven during 2000 was $71 thousand.

      In October and November 1999, Snowball loaned an aggregate of $933
thousand to an officer secured by full recourse promissory notes and stock
pledge agreements in connection with his purchase of 100,000 shares of Series
B-1 preferred stock at $6.33 per share and the exercise of options for 19,445
shares of common stock at $36.00 per share. The notes accrue interest at 5.86%
and 6.08%, payable annually, and are due and payable on October 20, 2003 and
November 20, 2003, respectively. Under the terms of the promissory note of $333
thousand attributable to the purchase of Series B-1 preferred stock, principal
of $6,938 per month and interest are being forgiven. The promissory note of $600
thousand attributable to the purchase of the common stock was offset by a
repurchase of 16,667 shares common stock. The effective date of this repurchase
was in January 2001. However, the repurchase has been reflected in the financial
statements as if it had occurred on the date approved by the board of directors
in December 2000.

Common Stock

      In March 2000, we completed our initial public offering of 347,222 shares
of common stock at an offering price of $198.00 per share, as adjusted for our
one-for-three and one-for-six reverse stock splits, which were effective March
6, 2001 and September 24, 2001. We realized proceeds, net of underwriting
discounts, commission and issuance costs, of approximately $62.1 million.

1999 and 2000 Equity Incentive Plans

      In February 1999, the board of directors approved the 1999 Equity
Incentive Plan (the "1999 Plan"). The 1999 Plan provides for option grants at an
option price no less than 85% of the fair market value of the stock subject to
the option on the date the option is granted. The options must vest at a rate of
at least 20% per year over five years from the date the option was granted.
However, in the case of options granted to officers, directors, or consultants,
the options may vest at any time established by Snowball. All options under the
1999 Plan expire ten years after their grant. The 1999 Plan also provides for
restricted stock awards. The purchase price of restricted stock under these
awards may not be less than 85% of the fair market value of the stock on the
date the award is made or at the time the purchase is consummated.

      In February 2000, the board of directors adopted the 2000 Equity Incentive
Plan (the "2000 Plan"). The 2000 Plan was substantially similar to the 1999
Plan. In addition, each


                                       54

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

January 1, beginning in 2001, the aggregate number of shares reserved for
issuance under this plan will increase automatically by a number of shares equal
to 5% of the outstanding shares of capital stock on December 31 of the preceding
year. In March 2000, the 2000 Plan became effective. No further grants were made
from the 1999 Plan subsequent to the effective date of the 2000 Plan; all
authorized shares not issued were transferred to the 2000 Plan.

      In January 2002 and 2001, 90,203 and 104,360 shares, respectively, were
added to the 2000 Plan under its annual evergreen provision.

      Aggregate activity under the 1999 and 2000 Plans is summarized as follows:

<TABLE>
<CAPTION>
                                                               Options Outstanding
                                                -------------------------------------------------
                                   Shares                                           Weighted
                               available for    Number of         Price per          average
                                    grant        shares             share         exercise price
                               -------------    ---------         ---------       --------------
<S>                              <C>            <C>             <C>                  <C>
Authorized February 1999           434,212
Restricted stock granted          (100,863)
Options granted                   (217,082)       217,082       $0.84 - $144.00      $  23.10
Options canceled                    16,751        (16,751)       $0.84 - $36.00      $  13.68
Options exercised                       --        (80,419)       $0.84 - $54.00      $   5.10
                                 ---------      ---------
Balance at December 31, 1999       133,018        119,912       $0.84 - $144.00      $  36.42

Authorized March 2000              277,778
Restricted stock granted           (23,181)
Restricted stock repurchased        35,347
Options granted                   (256,694)       256,694       $6.78 - $198.00      $  96.84
Options canceled                   117,956       (117,956)      $0.84 - $198.00      $  91.98
Options exercised                       --         (8,591)       $0.84 - $36.00      $   6.06
                                 ---------      ---------
Balance at December 31, 2000       284,224        250,059       $0.84 - $198.00      $  73.26

Authorized January 2001            104,360
Restricted stock repurchased        15,141
Options granted                   (564,379)       564,379        $0.99 - $12.38      $   3.90
Options canceled                   230,761       (230,761)      $0.84 - $198.00      $  52.62
Options exercised                       --         (5,738)       $0.84 - $12.00      $   1.53
                                 ---------      ---------
Balance at December 31, 2001        70,107        577,939       $0.84 - $198.00      $  22.02
                                 =========      =========
</TABLE>

      At December 31, 2001 and 2000, 32,476 and 79,542 shares of stock,
respectively, remained subject to repurchase and 179,482 and 25,640 shares were
exercisable, respectively, under the 1999 and 2000 Plans.

      The following table summarizes information regarding options outstanding
and exercisable at December 31, 2001 under the 2000 Plan:


                                       55

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

<TABLE>
<CAPTION>
                                                                                     Weighted
                                                                                     average
                                                                 Weighted            remaining
      Range of              Number             Number             average          contractual
  exercise prices        outstanding        exercisable        exercise price      life (years)
  ---------------        -----------        -----------        --------------      ------------
<S>                        <C>                <C>                <C>                   <C>
   $0.84 - $4.08           347,287             63,181            $     0.99            9.63
   $9.00 - $12.38          151,059             73,466            $     9.13            8.94
  $24.00 - $37.13           16,678              8,522            $    33.53            8.20
  $46.13 - $54.00           14,971             13,357            $    46.93            8.58
  $72.00 - $81.00           32,561             14,435            $    78.17            8.40
 $153.00 - $168.30           7,164              3,417            $   166.76            8.13
 $180.00 - $198.00           8,219              3,104            $   196.04            8.22
                           -------            -------
                           577,939            179,482            $    22.02            9.05
                           =======            =======
</TABLE>

2000 Employee Stock Purchase Plan

         In February 2000, the board of directors adopted the 2000 Employee
Stock Purchase Plan ("ESPP") and reserved 27,778 shares of common stock under
this plan. The ESPP became effective on the first business day on which price
quotations for Snowball common stock were available on the Nasdaq National
Market, March 21, 2000. On each January 1, beginning in 2001, the aggregate
number of shares reserved for issuance under the ESPP will increase
automatically by a number of shares equal to 1% of the outstanding shares on
December 31 of the preceding year. In January 2002, 18,041 shares were added to
the ESPP under its annual evergreen provision. The aggregate number of shares
reserved for issuance under the ESPP may not exceed 277,778 shares

Other Employee Stock Issuances

         Outside of Snowball's 1999 and 2000 Plans, Snowball issued shares of
common stock and option grants to founders and employees. Generally, these
shares were sold pursuant to restricted stock purchase or option agreements
containing provisions established by the board of directors. These provisions
give Snowball the right to repurchase certain shares at the original sale price.
The rights generally expire at the rate of 25% of the shares after one year and
2.0833% per month thereafter, or ratably over four years. As of December 31,
2001 and 2000, 114,167 underlying shares had been granted. At December 31, 2001,
112,668 shares were outstanding of which 41,864 remained subject to repurchase
and 35,558 were exercisable. At December 31, 2000, 130,168 shares were
outstanding of which 67,264 remained subject to repurchase and 55,556 were
exercisable.

Stock-Based Compensation and Other Prepaid Marketing and Distribution Rights

         During 2000 and 1999, Snowball recorded deferred stock-based
compensation of approximately $2.0 million and $12.0 million, respectively,
representing the difference between the exercise prices and the deemed fair
values of Snowball's common stock on the dates these shares and stock options
were granted. Also, in October 1999 Snowball sold and issued 100,000 shares of
Series B-1 preferred stock to an officer for $633 thousand in cash and notes and
recorded an additional deferred stock-based compensation of approximately $417
thousand,


                                       56

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

representing the difference between the price at which the stock was granted and
the deemed fair value of Snowball's common stock on the date the stock was
granted. Deferred stock-based compensation was recorded as a reduction to
stockholders' equity and has been charged to operations on a graded amortization
method over the vesting period of the related options. Snowball recorded
amortization of deferred stock-based compensation of approximately $2.1 million,
$6.1 million and $1.5 million for the years ended December 31, 2001, 2000 and
1999, respectively. During the years ended December 31, 2001 and 2000,
approximately $1.3 million and $4.0 million of deferred stock-based compensation
was cancelled due to employee terminations. As of December 31, 2001, Snowball's
deferred compensation balance was zero.

      Snowball has granted certain option awards that are subject to variable
accounting, which requires re-measurement for the difference between the
exercise price of the option and the intrinsic value of the stock until the date
the options are exercised, forfeited, or expire unexercised. Accordingly, future
re-measurements may result in stock-based compensation charges if our stock
price were to exceed the strike price of these awards. As of December 31, 2001,
the strike prices for these awards ranged from $9.00 to $37.13.

      In October 1999, Snowball issued 560,822 shares of Series B-1 preferred
stock in connection with a commercial transaction. Snowball recorded, as an
offset to the related equity, approximately $2.3 million in prepaid marketing
and distribution rights representing the difference between the purchase price
and the deemed fair value of the shares at that date. The rights were amortized
using the straight-line method over two years and became fully amortized in
2001.

      Snowball has elected to follow APB 25 and related interpretations in
accounting for its employee stock-based compensation plans. Except as noted
above, the exercise price of Snowball's employee stock options equals the market
price of the underlying stock on the date of grant; no compensation expense is
generally recognized. Pro forma information regarding net loss has been
determined as if Snowball had accounted for its employee stock options under the
fair value method prescribed by SFAS 123. The resulting effect on pro forma net
loss disclosed is not likely to be representative of the effects on net loss on
a pro forma basis in future years, due to additional grants and years of vesting
in subsequent years. The fair value of each option granted was estimated on the
date of grant using the Black-Scholes method with the following weighted-average
assumptions for the year ended December 31:

<TABLE>
<CAPTION>
                                                      2001             2000            1999
                                                    --------       ------------      --------
<S>                                                 <C>             <C>               <C>
Dividend yield                                            --                 --            --
Risk-free interest rate                                 4.00%       5.10%-5.65%         6.00%
Volatility factor                                        100%              100%           50%
Expected life                                       3-5 years         1-5 years       4 years
Weighted-average fair value of options granted      $    2.90       $     82.74       $ 10.56
</TABLE>

      For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to pro forma expense over the options' vesting period, and
results in a pro forma net loss of approximately $33.2 million, $67.3 million
and $34.9 million for the years ended December 31, 2001, 2000 and 1999 and pro
forma basic and diluted net loss per share of $(17.73), $(46.06) and
$(3,490.50), respectively.


                                       57

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Treasury Stock

      In December 2000, the Board of Directors authorized a stock repurchase
program under which Snowball is authorized to repurchase up to 277,778 shares of
our common stock in the open market for cash. Repurchases may be made from time
to time at market prices and as market and business conditions warrant. No time
limit has been set for the completion of the program. As of December 31, 2001,
Snowball had repurchased 269,311 shares at an average purchase price of $4.35
per share.

8. Provision for Income Taxes

      As of December 31, 2001, Snowball had federal net operating loss
carryforwards of approximately $105.0 million. The net operating loss
carryforwards will expire in 2019 through 2021. Utilization of the net operating
loss may be subject to substantial annual limitations due to the ownership
change limitations provided by the Internal Revenue Code and similar state
provisions. The annual limitation may result in the expiration of net operating
loss and tax credit carryforwards before utilization.

      The net losses incurred for the year ending prior to December 31, 1999 are
attributable to the operations of Snowball as a division of Imagine Media and
were included in the income tax returns filed by Imagine Media. Because Snowball
will not receive any benefit for its historical operating losses incurred
through December 31, 1998, no income tax benefit has been reflected for those
periods.

      Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Snowball's deferred tax assets were as follows:

                                                        December 31,
                                                   -----------------------
                                                     2001           2000
                                                   --------       --------
Deferred tax assets                                     (in thousands)

Net operating losses                               $ 41,200       $ 33,100
Other                                                 2,800          2,000
                                                   --------       --------
  Total deferred tax assets                          44,000         35,100

Valuation allowance                                 (44,000)       (35,100)
                                                   --------       --------
Net deferred tax assets                            $     --       $     --
                                                   ========       ========

      Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $8.9 million and $21.9 million in 2001 and 2000,
respectively.

9. Commitments

Capital Lease Obligations

      At December 31, 2001, Snowball owed a total of $1.6 million in principal
relative to its capital lease obligations. On January 30, 2002, Snowball paid
off the entire outstanding balance


                                       58

<PAGE>

                               Snowball.com, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

owed on these leases thus transferring ownership of the assets to Snowball and
ending any associated liability under the leases.

      The cost of assets under capital lease arrangements was $4.9 million at
both December 31, 2001 and 2000, and the related accumulated depreciation was
$4.8 million and $2.9 million at December 31, 2001 and 2000, respectively.

Operating Leases

      In March 2002, Snowball amended its lease for its Brisbane, CA facilities
whereby our square footage decreased from 66,002 to 13,606 and our monthly rents
decreased proportionately. Additionally, our committed lease term was reduced
from an original end date of September 2012 to February 2004. As buyout
consideration, the landlord drew upon their $1.6 million letter of credit, we
paid an additional $416 thousand in cash and we forfeited certain furniture and
all tenant improvements from the vacated space. In the first quarter of 2002,
Snowball expects to record a net restructuring charge of approximately $4.9
million for the total buyout consideration. The following shows our aggregate
commitments under non-cancelable office space as of December 31, 2001 as
presented with and without respect to our March 2002, Brisbane lease amendment
(in thousands):

<TABLE>
<CAPTION>
                                                                           Pro forma inclusive of
                                                                            March 2002 Brisbane
Year ended December 31,                                                       lease amendment
                                                                           ----------------------
<S>                                                         <C>                         <C>
2002                                                        $  2,820                    $ 1,454
2003                                                           2,841                      1,129
2004                                                           2,940                        784
2005                                                           3,013                        683
2006                                                           3,122                        688
2007 and thereafter                                           19,218                      2,924
                                                            --------                    -------
        Total minimum lease payments                        $ 33,954                    $ 7,662
                                                            ========                    =======
</TABLE>

      As of December 31, 2001, in connection with Snowball's Brisbane and New
York facility leases, we were committed under irrevocable standby letters of
credit totaling $2.3 million as security deposits for these facilities. This
amount is classified as restricted cash on the accompanying balance sheet at
December 31, 2001. Our total letters of credit were reduced to $783 thousand in
March 2002 in association with our amended Brisbane lease.

10. Sale of HighSchoolAlumni

      On January 16, 2002 we completed the sale of our HighSchoolAlumni network
for approximately $1.0 million in cash to Reunion.com, a private company. In the
first quarter of 2002, we expect to record an extraordinary gain of
approximately $1.1 million in association with the transaction, which represents
cash received plus the deferred revenue balance as of January 15, 2002 related
to the unrecognized portion of subscription money received on our
HighSchoolAlumni subscription program less the net unamortized value of our 1999
acquisition of Ameritrack.


                                       59

<PAGE>

                               Snowball.com, Inc.
                   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                       Quarter End
                               Dec. 31,    Sept. 30,   June 30,    Mar. 31,    Dec. 31,    Sept. 30,   June 30,    Mar. 31,
                                 2001        2001        2001        2001        2000        2000        2000        2000
                               --------    --------    --------    --------    --------    --------    --------    --------
<S>                            <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Revenue                        $  2,766    $  2,100    $  2,309    $  2,512    $  5,256    $  5,194    $  6,201    $  4,591
Cost of sales                       409         592         728       1,232       2,890       3,041       3,390       2,531
                               --------    --------    --------    --------    --------    --------    --------    --------
    Gross profit                  2,357       1,508       1,581       1,280       2,366       2,153       2,811       2,060

Operating expenses:
    Production and content        1,292       1,509       1,755       2,471       2,936       2,373       2,963       3,570
    Engineering and
      development                 1,104       1,468       1,678       2,157       2,268       2,441       2,220       2,525
    Sales and marketing           1,372       1,799       2,841       4,110       5,783       8,248      11,228      13,119
    General and
      administrative                939         719       1,160       1,427       1,162       1,392       1,531       1,886
    Stock-based
      compensation                  106         106         488       1,303       1,007       1,286       1,892       1,954
    Amortization of goodwill
      and intangible assets         600         849       1,120       1,123       1,116       1,105       1,042         738
    Restructuring and asset
      impairment charges            180          --       2,033       1,958          --          --          --          --
                               --------    --------    --------    --------    --------    --------    --------    --------
Total operating expenses          5,593       6,450      11,075      14,549      14,272      16,845      20,876      23,792

Loss from operations             (3,236)     (4,942)     (9,494)    (13,269)    (11,906)    (14,692)    (18,065)    (21,732)
Interest and other
    income, net                      42          85         141         321         419         569         799        (196)
                               --------    --------    --------    --------    --------    --------    --------    --------
Net loss                       $ (3,194)   $ (4,857)   $ (9,353)   $(12,948)   $(11,487)   $(14,123)   $(17,266)   $(21,928)
                               ========    ========    ========    ========    ========    ========    ========    ========

Basic and diluted net
    loss per share             $  (1.80)   $  (2.60)   $  (4.96)   $  (6.76)   $  (6.09)   $  (7.50)   $  (9.30)   $(100.13)
                               ========    ========    ========    ========    ========    ========    ========    ========

Pro forma basic and dilutive
    net loss per share                                                                                             $ (14.48)
                                                                                                                   ========

<CAPTION>
                                                 Quarter End
                               Dec. 31,      Sept. 30,   June 30,    Mar. 31,
                                 1999          1999        1999        1999
                               --------      --------    --------    --------
<S>                            <C>           <C>         <C>         <C>
Revenue                        $  3,460      $  1,206    $  1,110    $    898
Cost of sales                     2,029         1,052         644         591
                               --------      --------    --------    --------
    Gross profit                  1,431           154         466         307

Operating expenses:
    Production and content        2,648         1,760       1,349         853
    Engineering and
      development                 2,001         1,473       1,193         417
    Sales and marketing          10,691         7,100       1,946         656
    General and
      administrative              1,386           781         425         894
    Stock-based
      compensation                1,015           506          --          --
    Amortization of goodwill
      and intangible assets         382            74          15          --
    Restructuring and asset
      impairment charges             --            --          --          --
                               --------      --------    --------    --------
Total operating expenses         18,123        11,694       4,928       2,820

Loss from operations            (16,692)      (11,540)     (4,462)     (2,513)
Interest and other
    income, net                      86           177         147         (25)
                               --------      --------    --------    --------
Net loss                       $(16,606)     $(11,363)   $ (4,315)   $ (2,538)
                               ========      ========    ========    ========

Basic and diluted net
    loss per share             $(1,277.38)   $(946.92)   $(431.50)   $(423.00)
                               ==========    ========    ========    ========

Pro forma basic and dilutive
    net loss per share         $ (13.32)     $  (9.63)   $  (4.21)   $  (4.68)
                               ========      ========    ========    ========
</TABLE>


                                       60

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        None

                                    PART III.

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information required by this Item 10 will be set forth in our Proxy
Statement for our May 2002 Annual Meeting of Stockholders, under the caption
"Proposal No. 1 - Election of Directors," and is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

      The information required by this Item 11 will be set forth in our Proxy
Statement for our May 2002 Annual Meeting of Stockholders, under the caption
"Executive Compensation," and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this Item 12 will be set forth in our Proxy
Statement for our May 2002 Annual Meeting of Stockholders, under the caption
"Security Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this Item 13 will be set forth in our Proxy
Statement for our May 2002 Annual Meeting of Stockholders, under the caption
"Certain Relationships and Related Transactions," and is incorporated herein by
reference.

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)   The following documents are filed as part of this report:

      1.    Consolidated Financial Statements and Report of Ernst & Young LLP,
            which are set forth in the index to Consolidated Financial
            Statements on page 37.


                                       61

<PAGE>

      2.    Financial Statement Schedules:

            All schedules have been omitted since they either are not required
            or because the required information is included in the financial
            statements or related notes.

      3.    Exhibits:

            The following table lists the exhibits filed as part of this report.
            In some cases, these exhibits are incorporated into this report by
            reference to exhibits to our other filings with the Securities and
            Exchange Commission. Where an exhibit is incorporated by reference,
            we have noted the type of form filed with the Securities and
            Exchange Commission, the file number of that form, the date of the
            filing and the number of the exhibit referenced in that filing.

<TABLE>
<CAPTION>

                                                                            Incorporated by Reference
Exhibit                                                       -----------------------------------------------------     Filed
  No.      Exhibit                                                  Form        File No.     Exhibit No.Filing Date    Herewith
--------------------------------------------------------------------------------------------------------------------------------
<S>        <C>                                                      <C>        <C>           <C>         <C>           <C>
     2.01  Stock Exchange Agreement among Registrant,                S-1       333-93487        2.01      3/17/00
           Ameritrack, Inc. and the security holders of
           Ameritrack, Inc., dated as of September 28, 1999.
     2.02  Stock Purchase and Exchange Agreement among               S-1       333-93487        2.02      3/17/00
           Registrant, Extreme Interactive Media, Inc. and all
           of the security holders of Extreme Interactive
           Media, Inc., dated as of December 17, 1999.
     3.01  Registrant's Certificate of Amended and Restated         10-Q       000-29121        3.01      11/14/01
           Certificate of Incorporation.
     3.02  Registrant's Amended Bylaws                              10-Q       000-29121        3.02      11/14/01
     4.01  Specimen Certificate for Registrant's common stock.       S-1       333-93487        4.01      3/17/00
    10.01  Form of Indemnity Agreement between Registrant and        S-1       333-93487        10.01     3/17/00
           each of its directors and executive officers.
    10.02  Amendment to Offer Letter dated February 1, 1999         10-Q       000-29121        10.01     5/14/01
           from Registrant to Mark A. Jung, dated May 1, 2001.
    10.03  1999 Equity Incentive Plan and related agreements.        S-1       333-93487        10.02     3/17/00
    10.04  Amendment to Offer Letter dated October 18, 1999         10-Q       000-29121        10.02     5/14/01
           from Registrant to James R. Tolonen, dated May 1,
           2001.
    10.05  2000 Equity Incentive Plan and forms of stock option      S-1       333-93487        10.03     3/17/00
           agreements and stock option exercise agreements.
    10.06  Offer Letter dated February 15, 2000, from               10-Q       000-29121        10.03     5/14/01
           Registrant to Richard D. Boyce, as amended May 1, 2001.
    10.07  2000 Employee Stock Purchase Plan and forms of            S-1       333-93487        10.04     3/17/00
           related agreements.
    10.08  Adoption Agreement for Pan American Life Insurance        S-1       333-93487        10.05
           3/17/00 Standardized 401(k) Profit Sharing Plan and
           Trust dated April 1, 1999, and related agreements.
    10.09  Offer Letter dated February 1, 1999 from Registrant       S-1       333-93487        10.06     3/17/00
           to Mark A. Jung.
    10.12  Offer Letter dated March 15, 1999 from Registrant to      S-1       333-93487        10.09     3/17/00
           Teresa M. Crummett.
    10.13  Offer Letter dated March 15, 1999 from Registrant to      S-1       333-93487        10.1      3/17/00
           Kenneth H. Keller.
    10.14  Offer Letter dated October 18, 1999 from Registrant       S-1       333-93487        10.11     3/17/00
           to James R. Tolonen.
    10.15  Secured Promissory Note between Registrant and Mark       S-1       333-93487        10.12     3/17/00
           A. Jung, dated as of February 1, 1999.
    10.16  Secured Promissory Note between Registrant and            S-1       333-93487        10.13     3/17/00
           Christopher Anderson, dated as of February 1, 1999.
</TABLE>

                                       62

<PAGE>

<TABLE>
<S>        <C>                                                      <C>        <C>           <C>         <C>
    10.17  Secured Promissory Note between Registrant and James      S-1       333-93487        10.14     3/17/00
           R. Tolonen and Ginger Tolonen Family Trust dated
           9/26/96, dated as of October 20, 1999.
    10.18  Secured Promissory Note between Registrant and James      S-1       333-93487        10.15     3/17/00
           R. Tolonen, dated as of November 30, 1999.
    10.20  Services and Support Agreement between Registrant         S-1       333-93487        10.17     3/17/00
           and Imagine Media, Inc., dated as of January 7,
           1999.
    10.21  Brisbane Technology Park Lease dated November 29,         S-1       333-93487        10.18     3/17/00
           1999, between Registrant and GAL-Brisbane, L.P.
    10.22  Sublease Agreement dated as of May 1, 1999, between       S-1       333-93487        10.19     3/17/00
           Registrant and Imagine Media, Inc.
    10.23  Loan and Security Agreement dated November 8, 1999,       S-1       333-93487        10.2      3/17/00
           between Registrant and Sand Hill Capital II, L.P.
    10.24  Indemnity Agreement dated as of June 1, 1999,             S-1       333-93487        10.21     3/17/00
           between Registrant and Richard LeFurgy.
    10.25  Desktop.com Letter Agreement dated as of December         S-1       333-93487        10.22     3/17/00
           29, 1999 between the Registrant and Desktop.com, Inc.
    10.26  eCommerce and Content Agreement dated as of January       S-1       333-93487        10.23     3/17/00
           1, 2000 between the Registrant and EBWorld.com,
           Inc.
    10.27  eCommerce Agreement dated as of October 15, 1999          S-1       333-93487        10.24     3/17/00
           between the Registrant and edu.com, inc.
    10.28  Content Agreement dated as of September 29, 1999          S-1       333-93487        10.25     3/17/00
           between the Registrant and Gloss.com, Inc.
    10.29  eCommerce Agreement dated as of December 23, 1999         S-1       333-93487        10.26     3/17/00
           between the Registrant and Kabang.com, Inc.
    10.30  Services and Promotion Agreement dated as of              S-1       333-93487        10.27     3/17/00
           December 22, 1999 between the Registrant and
           Riffage.com, Inc.
    10.31  Services and Promotion Agreement dated as of              S-1       333-93487        10.28     3/17/00
           December 22, 1999 between the Registrant and
           X-drive, Inc.
    10.32  Webcourier Provider Agreement dated as of November        S-1       333-93487        10.29     3/17/00
           29, 1999 between the Registrant and Microsoft
           Corporation.
    10.33  Webcourier Provider Agreement dated as of October         S-1       333-93487        10.3      3/17/00
           28, 1999 between the Registrant and Microsoft
           Corporation.
    10.34  Webcourier Provider Agreement dated as of October         S-1       333-93487        10.31     3/17/00
           25, 1999 between the Registrant and Microsoft
           Corporation.
    10.35  eCommerce Agreement dated as of February 1, 2000          S-1       333-93487        10.32     3/17/00
           between the Registrant and drugstore.com, Inc.
    10.36  Commerce Agreement dated as of February 29, 2000          S-1       333-93487        10.33     3/17/00
           between the Registrant and JobDirect.com.
    10.37  Lease dated March, 2000 between Registrant and 475        S-1       333-93487        10.34     3/17/00
           Park Avenue So. Co.
    10.38  First Amendment to Brisbane Technology Park Lease                                                             X
           Dated November 29, 1999, Between Registrant and
           GAL-Brisbane, L.P. Dated May 4, 2000.
    10.39  Second Amendment to Brisbane Technology Park Lease                                                            X
           Dated November 29, 1999, Between Registrant and
           GAL-Brisbane, L.P. Dated November 16, 2000.
    10.40  Fourth Amendment to Brisbane Technology Park Lease                                                            X
           Dated November 29, 1999, Between Registrant and
           GAL-Brisbane, L.P. Dated March 13, 2002.
    21.01  Subsidiaries of Registrant.                               S-1       333-93487        21.01     3/17/00
    23.01  Consent of Ernst & Young LLP, independent auditors.                                                           X
    24.01  Power of Attorney (included on page 64 of this Form                                                           X
           10-K).
</TABLE>

                                       63

<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Brisbane, State of California, on this 29th day of March, 2002.

                                    SNOWBALL.COM, INC.


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

                                POWER OF ATTORNEY

      Each person whose signature appears below constitutes and appoints Mark A.
Jung and James R. Tolonen, and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution, for him or her,
and in his or her name, place and stead, in any and all capacities to sign any
and all amendments to this annual report on Form 10-K, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his, her or their substitute or substitutes,
may lawfully do or cause to be done by virtue thereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Date                Signature                Capacity

March 29, 2002     /s/ Mark A. Jung          Chief Executive Officer and
                   -----------------         Director
                       Mark A. Jung

March 29, 2002     /s/ James R. Tolonen      Chief Financial and Chief Operating
                  ---------------------      Officer and Director
                       James R. Tolonen

March 29, 2002     /s/ Sean C. Deorsey       Controller and Chief
                  ---------------------      Accounting Officer
                       Sean C. Deorsey

March 29, 2002     /s/ Chris Anderson        Chairman of the Board
                  --------------------       of Directors
                  Chris Anderson

March 29, 2002     /s/ Michael Orsak         Director
                  ---------------------
                  Michael Orsak

March 29, 2002     /s/ Robert H. Reid        Director
                  ---------------------
                  Robert H. Reid


                                       64