<PAGE>   1


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

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 000-25723

                               LAUNCH MEDIA, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             DELAWARE                                  95-4465753
    (STATE OR JURISDICTION OF             (IRS EMPLOYER IDENTIFICATION NUMBER)
  INCORPORATION OR ORGANIZATION)


                            2700 PENNSYLVANIA AVENUE
                         SANTA MONICA, CALIFORNIA 90404
                    (Address of principal executive offices)
                            TELEPHONE: (310) 526-4300



     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) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

     COMMON STOCK, PAR VALUE OF $0.001 PER SHARE, 13,531,057 SHARES OUTSTANDING
AS OF APRIL 30, 2001.

=========================================================================




<PAGE>   2


                               LAUNCH MEDIA, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                             Page
<S>             <C>                                                                          <C>
PART I          FINANCIAL INFORMATION

Item 1.         Consolidated Financial Statements

                Consolidated Balance Sheets as of December 31, 2000 and March
                  31, 2001 (unaudited)                                                           3

                Consolidated Statements of Operations and  Comprehensive Loss
                  for the Three Months Ended March 31, 2000 and 2001 (unaudited)                 4

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

                Notes to Consolidated Financial Statements                                       6

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

Item 3.         Quantitative and Qualitative Disclosures About Market Risk                      26

PART II        OTHER INFORMATION                                                                27

Item 1.         Legal Proceedings                                                               27

Item 2.         Changes in Securities                                                           27

Item 3.         Defaults Upon Senior Securities                                                 27

Item 4.         Submission of Matters to a Vote of Security Holders                             27

Item 5.         Other Information                                                               27

Item 6.         Exhibits and Reports on Form 8-K                                                27

                Signatures                                                                      27

</TABLE>




<PAGE>   3


                       LAUNCH MEDIA, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                     December 31,         March 31,
                                                                        2000                2001
                                                                     ------------        -----------
                                   ASSETS                                                (unaudited)
<S>                                                                    <C>               <C>
Current assets:
       Cash and cash equivalents                                       $   1,438         $     690
       Marketable securities                                              15,219             2,925
       Accounts receivable, net                                            5,759             2,300
       Notes receivable                                                    2,729               882
       Prepaid and other current assets                                      613               694
                                                                       ---------         ---------
           Total current assets                                           25,758             7,491

Property and equipment, net                                               17,315            17,631
Intangible and other assets                                               25,878            22,165
                                                                       ---------         ---------
           Total assets                                                $  68,951         $  47,287
                                                                       =========         =========

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable and accrued expenses                           $  13,090         $   6,846
       Deferred revenue                                                      356               842
       Capital lease obligations, current portion                          2,005             1,648
                                                                       ---------         ---------
           Total current liabilities                                      15,451             9,336

Capital lease obligations, net of current portion                          2,501             2,413
                                                                       ---------         ---------
           Total liabilities                                              17,952            11,749
                                                                       ---------         ---------
Commitments and contingencies

Stockholders' equity:
       Common stock, $.001 par value, shares authorized
           75,000; 14,392 (December 31, 2000) and 13,491
           (March 31, 2001) shares issued and outstanding                     14                13
       Additional paid-in capital                                        166,981           166,982
       Treasury stock                                                       --              (1,633)
       Other comprehensive loss                                             --                  (8)
       Unearned compensation                                                (306)             --
       Accumulated deficit                                              (115,690)         (129,816)
                                                                       ---------         ---------
           Total stockholders' equity                                     50,999            35,538
                                                                       ---------         ---------
           Total liabilities and stockholders' equity                  $  68,951         $  47,287
                                                                       =========         =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.




<PAGE>   4


                       LAUNCH MEDIA, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                 (unaudited, in thousand except per share data)
<TABLE>
<CAPTION>

                                                                            Three Months Ended March 31,
                                                                            ----------------------------
                                                                               2000             2001
                                                                            --------         --------
<S>                                                                          <C>              <C>

Net Revenues:
       Advertising                                                           $  4,379         $  2,689
       Content licensing                                                        2,055            1,158
                                                                             --------         --------
Total Net Revenues                                                              6,434            3,847

Operating Expenses:
       Cost of revenue                                                          1,633            1,362
       Warped Tour                                                               --                112
       Sales and marketing                                                      6,562            4,422
       Content and product development                                          5,200            4,025
       General and administrative                                               2,122            3,257
       Depreciation and amortization                                            3,972            4,877
                                                                             --------         --------
Loss from operations                                                          (13,055)         (14,208)
       Interest income, net                                                     1,167               87
                                                                             --------         --------
Loss before provision for income taxes                                        (11,888)         (14,121)
       Provision for income taxes                                                   6                5
                                                                             --------         --------
Net loss                                                                     $(11,894)        $(14,126)
                                                                             ========         ========

Basic and diluted net loss per share                                         $  (0.89)        $  (0.98)
                                                                             ========         ========
Weighted average shares outstanding used in per share calculation              13,390           14,392
                                                                             ========         ========

Comprehensive loss:
Net loss                                                                     $(11,894)        $(14,126)
Unrealized loss on securities available for sale                                 --                 (8)
                                                                             --------         --------
Comprehensive loss                                                           $(11,894)        $(14,134)
                                                                             ========         ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>   5

                       LAUNCH MEDIA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (unaudited, in thousands)
<TABLE>
<CAPTION>

                                                                                 Three Months Ended March 31,
                                                                                ------------------------------
                                                                                    2000              2001
                                                                                ------------       -----------
<S>                                                                               <C>                <C>
Cash flows from operating activities:
       Net loss                                                                   $(11,894)          $(14,126)
       Adjustments to reconcile net loss to net cash used in
         operating activities:
         Depreciation and amortization                                               3,972              4,877
         Allowance for sales returns and bad debts                                      58              1,181
         Amortization of deferred compensation                                          76                306
         Gain (loss) on sale of securities                                             488                (20)
         Change in operating assets and liabilities:
            Accounts receivable                                                       (543)             2,375
            Prepaid and other current assets                                          (125)               (81)
            Accounts payable and accrued expenses                                    1,443             (6,361)
            Deferred revenue                                                          (883)               486
                                                                                  --------           --------
              Net cash used in operating activities                                 (7,408)           (11,363)
                                                                                  --------           --------
Cash flows from investing activities:
       Purchases of property and equipment                                          (1,703)            (1,534)
       Purchases of securities                                                     (38,404)              --
       Maturities of securities                                                     50,467             12,308
       Change in other assets                                                         (189)                52
       Proceeds from notes receivables                                                --                  234
       Proceeds from sale of securities                                                968               --
       Acquisition of business                                                        (984)              --
                                                                                  --------           --------
              Net cash provided by investing activities                             10,155             11,060
                                                                                  --------           --------
Cash flows from financing activities:
       Payments under capital leases                                                  (198)              (445)
       Proceeds from capital leases                                                    839               --
       Proceeds from exercise of stock options                                          62               --
       Acquired treasury stock                                                        (834)              --
                                                                                  --------           --------
           Net cash used in financing activities                                      (131)              (445)
                                                                                  --------           --------
           Increase (decrease) in cash and cash equivalents                          2,616               (748)
       Cash and cash equivalents, beginning of the period                              878              1,438
                                                                                  --------           --------
       Cash and cash equivalents, end of the period                               $  3,494           $    690
                                                                                  ========           ========
Supplemental disclosure of cash flow information
  Cash paid during the period for:
       Interest                                                                   $     45           $    132
       Taxes                                                                      $      2           $      5

Supplemental disclosure of non-cash transactions:
           Equipment acquired under capital leases                                $  1,644               --
           Common stock received as payment on notes receivable                       --             $  1,633
           Issuance for common stock for acquisitions                             $ 10,612               --

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>   6

                       LAUNCH MEDIA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (in thousands, except per share data)

1. NATURE OF OPERATIONS:

Launch Media, Inc. was incorporated in Delaware in February 1994 and is a
digital media company dedicated to creating the premier Internet music site,
www.launch.com, by providing music fans the broadest array of music and
music-related content. Launch Media, Inc. and its subsidiaries are collectively
referred to as the "Company" or "Launch". The Company currently operates in one
reportable industry segment. Leveraging the inherent advantages of digital
media, the Company offers a compelling music discovery experience from new and
established artists for consumers and provides a valuable marketing platform for
record labels, artists, advertisers and merchants. The music content is
delivered on the Internet at www.launch.com and on Launch on CD-ROM. Both
launch.com and Launch on CD-ROM are advertiser supported and include original
content that takes advantage of the personal computer's interactive multimedia
technology. Launch also creates and manages multi-city concert series that
showcase new and emerging artists that generate additional integrated
sponsorships.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation and Management's Plans

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has incurred recurring losses from operations that raise substantial
doubt about its ability to continue as a going concern. Management's plans
include (i) substantially reducing operating and overhead costs and accelerating
our move to profitability by increasing our net revenues through increasing the
Launch audience and increasing advertising revenue per advertiser, (ii) raising
additional funds through public or private debt or equity placement, (iii)
licensing our content and technology, and/or (iv) merging with a strategic
partner. There can be no assurance that the Company will be successful in these
plans. Moreover, the financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of Launch Media, Inc.
and its wholly owned subsidiaries. All inter-company accounts and transactions
have been eliminated in the consolidated financial statements.



<PAGE>   7

Revenue Recognition

The Company's revenues have been derived primarily from the sale of advertising
and sponsorships and syndicating content to radio stations and other Internet
sites. Revenues for sponsorships across the Launch media properties are
recognized ratably over the sponsorship term which ranges from one to twelve
months. Revenues from advertisements for Launch on CD-ROM are recognized upon
the release date of the issue in which the advertisement appears. With respect
to launch.com, revenues from advertisements are recognized ratably in the period
in which the advertisement is displayed, provided that no significant Launch
obligations remain.

Content licensing revenue includes revenue resulting from Launch obtaining
on-air radio advertising inventory in exchange for music news content. Launch
sells this inventory for cash and recognizes revenue when the radio stations
broadcast the advertisement. Revenue from syndication of Launch content is
recognized ratably over the contract term, which is typically one year.

Advance payments for sponsorships are deferred and recognized over the term of
the sponsorship.

Advertising revenues also include barter revenues, which represent an exchange
by Launch of advertising space for advertising space on other Web sites or other
advertising media. Revenues and expenses from barter transactions are recorded
at the lower of estimated fair value of the advertisements received or delivered
based on advertising rates currently in effect. Barter revenues are recognized
when the advertisements are run on the Launch media properties. Barter expenses
are recognized when Launch's advertisements are run on the reciprocal Web sites
or other advertising medium, which is typically in the same period as when the
advertisements are run on the Launch media properties.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an initial maturity of
three months or less to be cash equivalents. The Company maintains its cash
accounts in various financial institutions and, at times, these deposits may be
in excess of the federally insured limit.

Marketable Securities

The Company invests excess cash in commercial paper, corporate notes and bonds,
U.S. Government securities and money market funds. The investments are stated at
cost, as it is the intent of the Company to hold these securities until
maturity. Investments in corporate notes and bonds, and U.S. Government
securities are stated at amortized cost, which approximates fair market value.

The Company has also made investments in equity securities and are classified as
available-for-sale. Available for sale securities are carried at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity. Realized gains and losses and declines in value judged to
be other than temporary on available for sale securities are included in other
income. The cost basis for realized gains and losses on available for sale
securities is determined on a specific identification basis.



<PAGE>   8

Property and Equipment

Property and equipment are stated at cost. Depreciation is being applied on the
straight-line method over five years. Leasehold improvements and equipment under
capital leases are amortized over the shorter of the estimated useful life or
the life of the lease.

Maintenance and repairs are charged to expense as incurred while renewals and
improvements are capitalized.

Intangible and other Long-termed Assets

The Company evaluates the recoverability of its long-lived assets whenever
events or changes in circumstances result in the carrying amount of the assets
exceeding the sum of the expected future undiscounted cash flows associated with
such assets. The measurement of the impairment losses to be recognized is based
on the difference between the fair values and the carrying amounts of the
assets.

Fair Value of Financial Instruments

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease obligations are carried
at cost, which approximates their fair market value because of the short-term
maturity of these instruments. The carrying amount of the long-term capital
lease obligations is also assumed to approximate fair value.

Web Site

The Company capitalizes the costs incurred to build web site infrastructure and
applications. Cost incurred for subsequent updates and operations are expensed
as incurred.

Concentration of Credit Risk and Major Customers

The Company sells sponsorships and advertising to major advertising agencies
representing their clients and directly to large, well established, companies.

The Company's customers are concentrated in the United States of America. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Estimated credit losses and
returns have been provided for in the financial statements and, to date, have
generally been within management's expectations; however, for the three months
ended March 31, 2001, the Company increased the allowance for doubtful accounts
by $1.2 million which is primarily as a result of certain of the Company's
customers filing for bankruptcy.

Advertising

Advertising costs are expensed as incurred.

Income Taxes

The Company accounts for income taxes under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.



<PAGE>   9

Stock Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective vesting
period based on the difference, if any, on the date of grant, between the fair
value of the Company's common stock and the grant price. The Company accounts
for stock issued to non-employees in accordance with the provisions of SFAS No.
123 and Emerging Issues Task Force 96-18. During the three months ended March
31, 2001, the Company accelerated the vesting of certain options, which were
granted between March 12, 1998 and November 4, 1998 and as a result recorded a
one-time non-cash charge of $306.

Computation of Net Loss Per Share

In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed using the weighted average number of shares
outstanding during the period and diluted earnings per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the conversion of the Mandatory
Redeemable Convertible Preferred Stock (using the if-converted method) and
shares issuable upon exercise of outstanding stock options and warrants, using
the treasury stock method. Common equivalent shares are excluded from the
calculation if their effect is anti-dilutive.

Diluted net loss per share for the three months ended March 31, 2000 and 2001,
does not include the effect of options and warrants to purchase 2,566 and 3,357
shares of common stock, respectively, as the effect of their inclusion is
anti-dilutive during each period.

Reclassifications

Certain reclassifications have been made to the 2000 amounts to conform to the
2001 presentation. These reclassifications did not change the previously
reported net loss or the total assets of the Company.

3. BARTER REVENUE

Revenues and expenses recognized from barter transactions were approximately
$430 and $1.3 million for the three months ended March 31, 2000 and 2001,
respectively.

4. RELATED PARTY TRANSACTIONS

Notes Receivable

Notes receivable consist of loans to officers and other key employees. These
loans are due on demand and bear interest at 8% per annum.

During the three months ended March 31, 2001, officers and employees made cash
payments of $234 and surrendered 901 shares of the Company's common stock. The
shares surrendered have been accounted for as treasury stock with a cost of
approximately $1.6 million. Subsequent to March 31, 2001, officers and an
employee made additional cash payments on these notes receivable in the amount
of $462.



<PAGE>   10

5. SUBSEQUENT EVENTS

During the second quarter of 2001, the Company initiated a plan designed to
improve gross margins, decrease sales and marketing, content and product
development and general and administrative expenses and position the Company to
generate positive cash flow. This plan, together with the consolidation of
facilities and the discontinuation of the Company's European expansion plans,
are part of the Company's continued strategic plan to focus on growing the
Company's core media brand and related revenue base and lowering operating costs
to generate positive cash flow.

The plan should be completed during the three months ending June 30, 2001 and
will result in a cash charge for severance of approximately $300, accruals for
facility leases of approximately $1.5 million and non-cash write-down of
approximately $10 million of intangible assets from discontinued product lines,
leasehold improvements related to vacated space and development and closure
costs relating to our European operation.


Convertible Debt Financing:

On May 14, 2001, the Company signed a non-binding term sheet providing for $5
million in a secured convertible note financing. The Company expects to sign a
definitive agreement by May 24, 2001; however, no definitive assurances can be
given that this financing transaction will close or that the Company will
receive the proceeds.



<PAGE>   11

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

The Company has included in this filing certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
concerning the Company's business, operations and financial condition. The words
or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimates", "projects", and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties, and the Company cautions you
that any forward-looking information provided by or on behalf of the Company is
not a guarantee of future performance. Actual results could differ materially
from those anticipated in such forward-looking statements due to a number of
factors, some of which are beyond the Company's control, in addition to those
discussed in the Company's other public filings, press releases, web casts and
statements by the Company's management, including (i) the volatile and
competitive nature of the Internet and music industries, (ii) changes in
domestic and foreign economic and market conditions, (iii) the effect of
federal, state and foreign regulation on the Company's business, and (iv) the
effect of any future acquisitions. All such forward-looking statements are
current only as of the date on which such statements were made. The Company does
not undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any such statement is
made or to reflect the occurrence of unanticipated events.

OVERVIEW

Launch is a media company that offers a compelling online music discovery
experience for consumers and provides a valuable marketing platform for record
labels, artists, advertisers and merchants. We create engaging music content
focused on both new and established artists, spanning almost all musical genres.
We currently deliver our content on the Internet at www.launch.com and on the
monthly Launch on CD-ROM. As broadband access to the Internet achieves greater
consumer acceptance and enables us to add our richest audio and video content to
launch.com, we intend to phase out delivery of Launch on CD-ROM.

Launch has incurred significant net losses and negative cash flows from
operations since its inception, and as of March 31, 2001, had an accumulated
deficit of approximately $129.8 million. Launch intends to continue to make
significant financial investments in marketing and promotions, content
development, technology and infrastructure development. As a result, we believe
that we may incur operating losses and negative cash flows from operations
during the next year.

To date, Launch's revenues have been derived primarily from the sale of
advertising, including online and offline sponsorships and content licensing.
Launch derives revenue from advertising sales against the total audience viewing
content on both launch.com and Launch on CD-ROM. Launch expects that future
growth, if any, in advertising revenue will largely depend upon increasing the
launch.com audience.

Advertising revenues for sponsorships across the Launch media properties are
recognized ratably over the sponsorship term, which are typically one to twelve
months. Sponsorships on offline tour promotions which, to date have not been
significant, are recognized ratably over the tour schedule. Revenues from
advertisements for Launch on CD-ROM are recognized upon the release date of the
issue in which the advertisement appears. With respect to launch.com, revenues
from advertisements are recognized ratably in the period in which the
advertisement is displayed, provided that no significant Launch obligations
remain.

Content licensing primarily relates to the Launch Radio Networks' content
syndication. Launch obtains on-air radio advertising inventory in exchange for
music and entertainment news content. Launch sells this inventory for cash and
recognizes revenue when the radio stations broadcast the advertisement. Other
content licensing revenues includes online and content syndication.



<PAGE>   12

Advertising revenues also include barter revenues, which represent an exchange
by Launch of advertising space for advertising space on other Web sites.
Revenues and expenses from barter transactions are recorded at the lower of
estimated fair value of the advertisements received or delivered based on
advertising rates currently in effect. Barter revenues are recognized when the
advertisements are run on the Launch media properties. Barter expenses are
recognized when Launch's advertisements are run on the reciprocal Web sites or
other advertising medium, which is typically in the same period as when the
advertisements are run on the Launch media properties.

We have made business acquisitions in order to build our audience, provide
music-specific content, generate additional online traffic, increase registered
members and establish additional sources of revenue. These acquisitions have
resulted in a variety of non-cash charges that will affect our operating results
over the next several fiscal periods.

Convertible Debt Financing:

On May 14, 2001, the Company signed a non-binding term sheet providing for $5
million in a secured convertible note financing. The Company expects to sign a
definitive agreement by May 24, 2001; however, no definitive assurances can be
given that this financing transaction will close or that the Company will
receive the proceeds.

RESULTS OF OPERATIONS

Net Revenues

Net revenues decreased 40.2% from $6.4 million for the three months ended March
31, 2000 to $3.8 million for the three months ended March 31, 2001. The decrease
in net revenues was attributable to an overall softness in the advertising
market.

Advertising Revenues. Advertising revenues decreased 38.6% from $4.4 million, or
68.1% of total net revenues for the three months ended March 31, 2000, to $2.7
million, or 69.9% of total net revenues for the three months ended March 31,
2001. The decrease in advertising revenue can be attributed to industry wide
softness in advertising in particular to the Internet. Launch expects
advertising revenue to continue to represent a significant portion of its total
net revenues for the foreseeable future.

Content Licensing. Content licensing revenues decreased 43.6% from $2.1 million,
or 31.9% of total net revenues for the three months ended March 31, 2000, to
$1.2 million, or 30.1% of total net revenues for the three months ended March
31, 2001. Content licensing revenue is primarily generated from Launch Radio
Networks (LRN) by providing news and information to radio stations in exchange
for advertising radio spots. These radio spots are sold through a third-party
advertising agency and recognized as revenue when the radio station broadcasts
the advertisement. Content licensing revenues from LRN depend on both the number
of music and music related spots we are able to create and on the radio markets
demand for news and information. The decline in revenue was a result of the
soft radio advertising market during the three months ended March 31, 2001.

Operating Expenses

Cost of Revenues. Cost of revenues consist primarily of CD-ROM manufacturing,
packaging and distribution costs, Online Music Group ("OMG") inventory costs,
content licensing, site-hosting, bandwidth and online advertisement serving
costs. Cost of revenue decreased 16.6% from $1.6 million, or 25.4% of total net
revenues for the three months ended March 31, 2000, to $1.4 million or 35.4% of
total net revenues for the three months ended March 31, 2001. The decrease in
cost of revenues can be attributed to a decrease in OMG costs and a decrease in
CD-ROM manufacturing costs. During the three months ended March 31, 2001, the
OMG program was phased out, and we manufactured fewer issues of the Launch on
CD-ROM than the prior year. We expect the cost of revenues remain relatively
constant as a percentage of net revenues.

Warped Tour. On August 31, 2000, the Company purchased the Warped Tour, which is
a popular summer concert series where musicians, athletes and fans interact and
participate in daylong events. Operating costs of the tour consist of service
fees, transportation, talent and production costs. The costs incurred for the
three months ended March 31, 2001 of $112 represents tour service fees, which
are recognized pro rata over the life of the service contracts. The tour
operates during the summer months and the costs will increase significantly
during the


<PAGE>   13

second and third calendar quarters, which will be offset by ticket and other
revenues generated from the Warped Tour.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
customer acquisition and marketing costs, promotional costs and the cost of the
direct marketing and advertising sales force. Sales and marketing expenses
decreased 32.6% from $6.6 million, or 102.0% of total net revenues for the three
months ended March 31, 2000 to $4.4 million, or 114.9% of total net revenues for
the three months ended March 31, 2001. The decrease in sales and marketing
expenses is attributed to reduced advertising spending, lower subscription costs
of the Launch on CD-ROM and reduced outside marketing fees on the Launch Radio
Networks syndication business. We expect sales and marketing expenses to
decrease as a percentage of total net revenues as we leverage existing
distribution agreements to increase the audience on launch.com.

Content and Product Development Expenses. Content and product development
expenses consist of editorial, which includes video production and editorial
writers, art production and software, technology and Web development costs.
Content and product development expenses decreased 22.6% from $5.2 million, or
80.8% of total net revenues for the three months ended March 31, 2000 to $4.0
million, or 104.6% of total net revenues for the three months ended March 31,
2001. Content and product development expenses decreased due to decreased
payroll and production costs associated with producing content. We believe that
significant investments in content and product development are required to
remain competitive and to retain our registered users. However, while we expect
that content and product development expenses will remain relatively constant,
we do expect them to decrease as a percentage of total net revenues.

General and Administrative Expenses. General and administrative expenses consist
primarily of salaries and related costs for general corporate functions,
including finance and accounting, human resources, legal, facilities, investor
relations, and fees for professional services. General and administrative
expenses increased 53.5% from $2.1 million, or 33.0% of total net revenues for
the three months ended March 31, 2000, to $3.3 million, or 84.7% of total net
revenues for the three months ended March 31, 2001. The increase in general and
administrative expenses is primarily attributed to a net $1.2 million charge to
bad debt expense during the three months ended March 31, 2001. We anticipate
that general and administrative expenses will continue to remain relatively
constant, but decrease as a percentage of total net revenue.

Depreciation and Amortization

Depreciation and amortization was $4.9 million for the three months ended March
31, 2000 as compared to $4.0 million for the three months ended March 31, 2001.
Launch's depreciation and amortization expenses primarily consisted of
amortization of excess purchase prices over net tangible assets acquired arising
from its acquisitions. Also included in depreciation and amortization are costs
associated with purchases of equipment and facility enhancements.

Interest Income, Net

Interest income, net consists of interest earned on cash, cash equivalents,
notes receivable and marketable securities, offset by interest expense on
borrowings under capital leases. Net interest income decreased from $1.2 million
for the three months ended March 31, 2000 to $87 for the three months ended
March 31, 2001. The decrease in net interest income is a result of the decrease
in the average amount of short-term investments.

Income Taxes

Launch's income taxes consist of minimum state franchise taxes. At December 31,
2000 Launch had approximately $101.6 million and $47.8 million of federal and
state net operating loss carryforwards, respectively, available to offset future
taxable income. Launch's federal and state net operating loss carryforwards
expire beginning in 2009 and 2001, respectively. Due to the change in Launch's
ownership interests in connection with the IPO and prior private placements,


<PAGE>   14

future utilization of the net operating loss carryforwards may be subject to
certain annual limitations.

Unearned Compensation

In connection with the grant of stock options to employees in 1998, Launch
recorded unearned compensation of $1.4 million representing the difference
between the deemed value of Launch's common stock for accounting purposes and
the exercise price of such options at the date of grant. Such amount, net of
amortization, is presented as a reduction of stockholders' equity and amortized
over the four-year vesting period of the options. Amortization of unearned
compensation was $76 and $306 for the three months ended March 31, 2000 and
2001, respectively. During the three months ended March 31, 2001, the Company
accelerated the vesting of certain options, which were granted between March 12,
1998 and November 4, 1998 and as a result the unearned compensation as of March
31, 2001 was fully amortized.


LIQUIDITY AND CAPITAL RESOURCES

Since its inception, Launch has financed its operations primarily through a
public issuance of common stock, private placements of preferred stock and, to a
lesser extent, from the revenues generated by operations.

Net cash used in operating activities increased 53% from $7.4 million for the
three months ended March 31, 2000, to $11.4 million for same period in 2001. The
increase in net cash used in operating activities is substantially attributable
to the costs associated with the growth of Launch's media business and decline
in revenue during the three months ended March 31, 2001.

Net cash provided by investing activities was $11.1 million for the three months
ended March 31, 2001, as compared to $10.2 million for three months ended March
31, 2000. The increase in net cash provided by investing activities resulted
primarily from the net maturities of debt securities in 2001, of which the
majority was used to fund the Company's operating activities, rather than
reinvested in additional securities. Investments of cash are predominantly
invested in instruments that are highly liquid, are high quality investment
grade, and have maturities of less than one year with the intent to make such
funds readily available for operating purposes.

Net cash used in financing activities increased slightly to $445,000 for the
three months ended March 31, 2001, from $131,000 for the three months ended
March 31, 2000. The increase is due to an increase in payments under capital
leases.

Launch has capital lease lines of credit for $5.0 million collateralized by
equipment purchased under the lines, bearing interest in the range of prime rate
to 15% per annum, and requiring monthly interest and principal payments. The
Company's net borrowings under these lines of credit were approximately $2.9
million and $3.9 million as of March 31, 2000 and 2001, respectively.

As of March 31, 2001, Launch had approximately $3.6 million in cash, cash
equivalents and marketable securities. This cash is not sufficient to meet the
Company's capital needs through June 30, 2001. Management's plans include (i)
substantially reducing operating and overhead costs and accelerating our move to
profitability by increasing our net revenues through increasing the Launch
audience and increasing advertising revenue per advertiser, (ii) raising
additional funds through public or private debt or equity placement, (iii)
licensing our content and technology, and/or (iv) merging with a strategic
partner. Launch has signed a non-binding term sheet providing for $5 million in
a secured convertible note financing. We expect to sign a definitive agreement
within ten days of May 14, 2001; however no definitive assurances can be given
that this financing transaction will close or that the Company will receive the
proceeds. There can be no assurance that Launch will be successful in these
plans. Moreover, the financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


<PAGE>   15

SEASONALITY

Launch believes that advertising sales in traditional media generally are lower
in the first and third quarters of each year and that advertising expenditures
fluctuate significantly with economic cycles. Depending on the extent to which
the Internet is accepted as an advertising medium, seasonality and cyclicality
in the level of Internet advertising expenditures could become more pronounced.
The foregoing factors could have a material adverse affect on the Company's
business, financial conditions, results of operations and cash flows.

RISK FACTORS

This Form 10-Q contains forward-looking statements relating to future events or
our future financial performance. You are cautioned that such events are only
predictions and that actual events or results may differ materially. In
evaluating such statements, you should specifically consider the various factors
identified in this form 10-Q, including those discussed below, which could cause
actual events or results to differ materially from those indicated by the
forward-looking statements.

You should consider carefully the following risk factors and all other
information contained in this report before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Additional risks
and uncertainties that are not yet identified or that we currently think are
immaterial may also materially adversely affect our business and financial
condition in the future. Any of the following risks could materially adversely
affect our business, operating results and financial condition and could result
in a complete loss of your investment.

WE HAVE A HISTORY OF LOSSES AND BECAUSE WE ANTICIPATE THAT OUR OPERATING
EXPENSES WILL GROW MORE QUICKLY THAN OUR REVENUES, AT LEAST IN THE SHORT TERM,
WE EXPECT INCREASED LOSSES. AS A RESULT OF OUR ANTICIPATED LOSSES AND OUR CASH
POSITION, OUR INDEPENDENT ACCOUNTANTS QUALIFIED THEIR OPINION ON OUR FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2000 TO NOTE THAT THERE IS
SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.

As of March 31, 2001, our accumulated deficit was $129.8 million. We have not
achieved profitability and expect to incur operating losses during the remainder
of 2001 as well. Our existing financial resources may not be adequate to fund
our operations over the next twelve months unless we obtain additional financing
or significantly increase our revenues or reduce our expenses. We cannot assure
you that we will be able to obtain such financing, increase our revenues or
reduce our expenses to the extent required to continue operations without
significantly curtailing our business activities. Further, even if we are
successful in addressing our capital needs, such actions may adversely impact
stockholder value. We will need to generate significant revenues to achieve and
maintain profitability, and we cannot assure you that we will be able to do so.
Even if we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or an annual basis in the future. If our
revenues grow more slowly than we anticipate or if our operating expenses exceed
our expectations, our financial performance will likely be adversely affected.

WE MAY NEED ADDITIONAL FINANCING TO ACHIEVE OUR BUSINESS OBJECTIVES, AND SUCH
FINANCING MAY NOT BE AVAILABLE BECAUSE OF THE CONDITION OF OUR BUSINESS OR THE
UNCERTAIN NATURE OF THE FINANCIAL MARKETS

If we raise additional funds by issuing equity or convertible debt securities,
the percentage ownership of our then-current stockholders will be reduced, and
such securities may have rights, preferences or privileges senior to those of
such stockholders. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of unanticipated opportunities, develop or enhance
services or products or otherwise

<PAGE>   16




respond to competitive pressures would be significantly limited. This limitation
could adversely affect our business.

We may need to raise additional funds in order to do the following:

     o    fund our ongoing operations;

     o    fund more rapid expansion;

     o    develop new or enhance existing services or products;

     o    fund distribution relationships;

     o    respond to competitive pressures; or

     o    acquire complementary products, businesses or technologies.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for a discussion of our working
capital and capital expenditures.

OUR OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR STOCK PRICE TO FLUCTUATE

Our future revenues and operating results are likely to vary significantly from
quarter to quarter due to a number of factors, many of which are outside of our
control. Accordingly, you should not rely on quarter-to-quarter comparisons of
our results of operations as an indication of future performance. It is possible
that in some future periods our operating results will be below the expectations
of public market analysts and investors. In this event, the price of our common
stock will likely decline. Factors that may cause our revenues and operating
results to fluctuate include the following:

     o    our ability to attract and retain advertisers;

     o    our ability to increase the registered membership of launch.com and
          the new web sites, services or products introduced by us or by our
          competitors;

     o    the timing and uncertainty of sales cycles;

     o    mix of online advertisements sold;

     o    seasonal declines in advertising sales, which typically occur in the
          first and third calendar quarters, which will be partially be offset
          with the increased revenues from The Warped Tour in the third quarter;

     o    the level of Web and online services usage;

     o    our ability to successfully integrate operations and technologies from
          acquisitions or other business combinations;

     o    technical difficulties or system downtime affecting the Internet
          generally or the operation of launch.com; and

     o    general economic conditions, as well as economic conditions specific
          to digital media and the music industry.

To attract and retain a larger audience, we plan to increase our expenditures
for sales and marketing, content development, and technology and infrastructure
development. Many of these

<PAGE>   17

expenditures are planned or committed in advance in anticipation of future
revenues. Because advertising orders are typically short term and subject to
cancellation without penalty until shortly before the advertisement runs, our
quarterly operating results are difficult to forecast. If our revenues in a
particular quarter are lower than we anticipate, we may be unable to reduce
spending in that quarter. As a result, any shortfall in revenues would likely
adversely affect our quarterly operating results.

BECAUSE WE DEPEND PRINCIPALLY UPON ADVERTISING REVENUES, IF WE DO NOT INCREASE
ADVERTISING SALES, OUR BUSINESS MAY NOT GROW OR SURVIVE

Our revenues for the foreseeable future will depend substantially on sales of
advertising. In 2000 and for the three months ended March 31, 2001 advertising
sales accounted for 67.5% and 69.9% of our net revenues, respectively. If we do
not increase advertising revenues, our business may not grow or survive.
Increasing our advertising revenues depends upon many factors, including our
ability to do the following:

     o    conduct successful selling and marketing efforts aimed at advertisers;

     o    increase the size of the launch.com audience;

     o    increase the amount of revenues per advertisement;

     o    aggregate our target demographic group of 12 to 34 year old active
          music consumers, and, in particular, the Generation Y segment of this
          group;

     o    increase awareness of the Launch brand among advertisers;

     o    target advertisements to appropriate segments of our audience;

     o    make Launch available through evolving broadband distribution
          channels; and

     o    accurately measure the size and demographic characteristics of our
          audience.

Our failure to achieve one or more of these objectives could adversely affect
our business.

Advertising revenues are difficult to forecast, especially because the market
for advertising on digital media has emerged relatively recently. We have
historically entered into barter transactions with advertisers that we do not
believe would pay cash for such advertisements. We expect to substantially
reduce both the dollar volume and frequency of such transactions in future
periods. In each quarterly period, we derive a significant portion of our
revenues from sales of advertising to a limited number of customers.
Accordingly, the loss of a key advertising relationship or the cancellation or
deferral of even a limited number of orders could adversely affect our quarterly
performance.

IF WE FAIL TO INCREASE THE SIZE OF OUR AUDIENCE, WE MAY NOT BE ABLE TO ATTRACT
ADVERTISERS OR STRATEGIC PARTNERS

Increasing the size of our audience is critical to selling advertising and to
increasing our revenues. If we cannot increase the size of our audience, then we
may be unable to attract new or retain existing advertisers. In addition, we may
be at a relative disadvantage to other digital media companies with larger
audiences that may be able to leverage their audiences to access more
advertisers and significant strategic alliances. To attract and retain our
audience, we must do the following:

     o    continue to offer compelling music content;

     o    encourage our users to become part of our community;


<PAGE>   18

     o    conduct effective marketing campaigns to acquire new members;

     o    develop new and maintain existing distribution relationships with
          other Web sites;

     o    update and enhance the features of launch.com;

     o    increase awareness of the Launch brand;

     o    make Launch available through broadband distribution channels as they
          achieve widespread consumer acceptance; and

     o    offer targeted, relevant products and services.

Our failure to achieve one or more of these objectives could adversely affect
our business, and we cannot assure you that we will be successful in these
efforts.

A significant element of our strategy is to build a loyal community of
registered members on launch.com because we believe community features help
retain actively engaged users. The concept of developing such a community on the
Web is unproven, and if it is not successful, then it may be more difficult to
increase the size of our audience.

We also depend on establishing and maintaining distribution relationships with
high-traffic Web sites to increase our audience. There is intense competition
for placements on these sites, and we may not be able to enter into such
relationships on commercially reasonable terms or at all. Even if we enter into
distribution relationships with these Web sites, they themselves may not attract
significant numbers of users. Therefore, launch.com may not obtain additional
users from these relationships. Moreover, we have paid in the past, and may pay
in the future, significant fees to establish these relationships.

We also intend to increase our financial expenditures on marketing the Launch
brand because we believe brand awareness will be critical to increasing our
audience, especially because there are few barriers to entry for Internet
businesses. If we do not increase our revenues as a result of our branding and
other marketing efforts or if we otherwise fail to promote our brand
successfully, our business could be adversely affected.

SALES CYCLES VARY FOR ADVERTISING AND MAY CAUSE OUR OPERATING RESULTS TO
FLUCTUATE

Our dependence on advertising subjects us to additional risks because the sales
cycles for these sales vary significantly. The time between the date of initial
contact with a potential advertiser or sponsor and receipt of a purchase order
from the advertiser may range from as little as nine weeks to up to nine months.
During these sales cycles, we may expend substantial funds and management
resources but not obtain advertising revenues. Therefore, if these sales are
delayed or do not otherwise occur, our operating results for a particular period
may be adversely affected.

Advertising sales are subject to delays over which we have little or no control,
including the following:

     o    advertisers' budgetary constraints;

     o    internal acceptance reviews by advertisers and their agencies;

     o    the timing of completion of advertisements by advertisers; and

     o    the possibility of cancellation or delay of projects by advertisers or
          sponsors.



<PAGE>   19

WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT

We incorporated in February 1994 and published the first issue of Launch on
CD-ROM in May 1995. We first made launch.com available over the Internet in
October 1997. Because we have a limited operating history, you must consider the
risks and difficulties frequently encountered by early-stage companies such as
Launch in new and rapidly evolving markets, including the market for advertising
on the Internet and other digital media. Prior to 1999, Launch on CD-ROM had
accounted for the majority of Launch's audience. Accordingly, Launch had derived
its revenues principally from advertising sales against the Launch on CD-ROM
audience and, to a lesser extent, from subscriptions for Launch on CD-ROM.
Future growth in our business will depend substantially upon our ability to
increase the size of the launch.com audience, to increase advertising sales
against that audience and to meet the challenges described in the risk factors
below.

FAILURE TO CONTINUE TO DEVELOP COMPELLING CONTENT THAT ATTRACTS OUR TARGET
AUDIENCE COULD CAUSE OUR AUDIENCE SIZE TO DECREASE OR CHANGE THE DEMOGRAPHICS OF
OUR AUDIENCE

Our future success depends on our ability to continue to develop content that is
interesting and engaging to our target audience. If our audience determines that
our content does not reflect its tastes, then our audience size could decrease
or the demographic characteristics of our audience could change. Either of these
results would adversely affect our ability to attract advertisers. Our ability
to develop compelling content depends on several factors, including the
following:

     o    quality of our editorial staff;

     o    technical expertise of our production staff;

     o    access to recording artists; and

     o    access to content controlled by record labels, publishers and artists.

Further, consumer tastes change, particularly those of Generation Y, and we
maybe unable to react to those changes effectively or in a timely manner.

LIMITATIONS ON THE AVAILABILITY OR INCREASES IN THE PRICE OF MUSIC CONTENT
DEVELOPED BY THIRD PARTIES COULD ADVERSELY AFFECT OUR BUSINESS

Because much of our content, including recording artist interviews, audio and
video performances and music, are provided to us by record labels and artists at
minimal or no charge, we depend on our good relations with record labels and
artists to offer compelling content. We cannot assure you that they will
continue to make their content available to us on reasonable terms or at all. If
record labels, music publishers or artists charge significant fees for their
content or discontinue their relationships with us, then our content offering
could be adversely affected.

A significant portion of the music content available on Launch is licensed from
publishers, record labels and artists. We frequently either do not have written
contracts or have short-term contracts with copyright owners, and, accordingly,
our access to copyrighted content depends upon the willingness of such parties
to continue to make their content available. Further, the parties who license
material to us may face increasing costs to develop or acquire that material as
a result of evolving laws regarding intellectual property, and these licensors
may pass any such additional costs on to us. If the fees for music content
increase substantially or if significant music content becomes unavailable, our
ability to offer music content could be materially limited. We currently use
certain content without a formal license because we do not believe that such a
license is required under existing law. However, this area of law remains
uncertain and may not be resolved for a number of years. When this area of law
is resolved, we may be required to obtain formal

<PAGE>   20

licenses for such content. Such licenses may not be available on reasonable
terms, if at all. Any limit on our content offering could adversely affect our
business.

WE NEED NEW DISTRIBUTION TECHNOLOGIES TO INCREASE ACCESSIBILITY OF OR OUR
CONTENT, AND FAILURE OF SUCH TECHNOLOGIES TO ACHIEVE CONSUMER ACCEPTANCE COULD
LIMIT OUR GROWTH

To experience the full extent of our high-quality audio and full-motion video
content, consumers must access such content either from a CD-ROM, DVD-ROM or
over a high-bandwidth connection, such as cable or digital subscriber line modem
or satellite data broadcast. If such broadband distribution networks do not
achieve widespread consumer acceptance, we may be unable to effectively
distribute our audio and video content in its most compelling format. We cannot
assure you that broadband distribution networks will ever achieve consumer
acceptance, and if they do not, our growth may be limited.

WE DEPEND ON A LIMITED NUMBER OF ADVERTISERS, AND THE LOSS OF A NUMBER OF THESE
ADVERTISERS COULD ADVERSELY AFFECT OUR OPERATING RESULTS

Historically, a limited number of advertisers have accounted for a significant
percentage of our revenues in each period. We anticipate that our results of
operations in any given period will continue to depend to a significant extent
upon revenues from a small number of advertisers. In addition, particularly
because few advertisers are contractually obligated to purchase any advertising
in the future, we anticipate that the mix of advertisers in each fiscal period
will continue to vary. In order to increase our revenues, we will need to
attract additional significant advertisers on an ongoing basis. Our failure to
sell a sufficient number of advertisements or to engage a sufficient number of
advertisers during a particular period could adversely affect our results of
operations.

WE MUST MAINTAIN AND ESTABLISH STRATEGIC ALLIANCES TO INCREASE OUR AUDIENCE AND
ENHANCE OUR BUSINESS

In an attempt to increase audience, build brand recognition and enhance content,
distribution and commerce opportunities, we have entered into strategic
alliances with various media and Internet-related companies such as Sony Music,
Inc., America Online, Inc., Microsoft Corporation and Intel Corporation. Our
failure to maintain or renew our existing strategic alliances or to establish
and capitalize on new strategic alliances could have an adverse affect on our
business. Our future success depends to a significant extent upon the success of
such alliances. Occasionally, we enter into agreements with strategic partners
that may prohibit us from entering into similar arrangements with competitors of
our strategic partners. Such exclusivity provisions may limit our ability to
enter into favorable arrangements with complementary businesses and thereby
limit our growth. We cannot assure you that we will achieve the strategic
objectives of these alliances, that any party to a strategic alliance agreement
with Launch will perform its obligations as agreed upon or that such agreements
will be specifically enforceable by Launch. In addition, some of our strategic
alliances are short term in nature and may be terminated by either party on
short notice.

COMPETITION FROM TRADITIONAL AND ONLINE MEDIA AND OTHER COMPANIES FOCUSED ON
MUSIC COULD REDUCE OUR ADVERTISING SALES OR MARKET SHARE

Competition among media companies seeking to attract the active music consumer
is intense. Increased competition could result in advertising price reduction,
reduced margins or loss of market share, any of which could adversely affect our
business. Traditional media companies, such as television broadcasters, magazine
publishers and radio stations, are constantly refining their content and
strategies to increase their audiences and advertising revenues. Further, the
number of Web sites competing for the attention and spending of members, users
and advertisers has increased, and we expect it to continue to increase,
particularly because there are so few barriers to entry on the Web. We compete
for members, users and advertisers with the following types of companies:


<PAGE>   21

     o    publishers and distributors of traditional media, such as television,
          radio and print, including MTV, Clear Channel, CMT, Rolling Stone and
          Spin, and their Internet affiliates;

     o    online services or and Web sites targeted at music consumers, such as
          mp3.com, Artistdirect, MTVi, emusic.com and musicmaker.com;

     o    Web retrieval and other Web "portal" companies, such as Excite@Home,
          Inc., Infoseek Corporation, Lycos, Inc. and Yahoo, Inc.; and

     o    online music retailers, such as CDNow, Inc. and Amazon.com, Inc.

Because we compete for advertisers with traditional advertising media, our
business could be adversely affected if advertisers do not view digital media as
effective for advertising. Competition is likely to increase significantly as
new companies enter the market and current competitors expand their services.
Many of these potential competitors are likely to enjoy substantial competitive
advantages, including the following:

     o    larger audiences;

     o    larger technical, production and editorial staffs;

     o    greater name recognition;

     o    better access to content;

     o    more established Internet presence;

     o    larger advertiser bases; and

     o    substantially greater financial, marketing, technical and other
          resources.

If we do not compete effectively or if we experience any pricing pressures,
reduced margins or loss of market share resulting from increased competition,
our business could be adversely affected.

THE LOSS OF OUR CHIEF EXECUTIVE OFFICER, OUR PRESIDENT OR OTHER KEY PERSONNEL
COULD ADVERSELY AFFECT OUR BUSINESS BECAUSE THESE OFFICERS ARE IMPORTANT TO OUR
CONTINUED GROWTH

Our future success depends to a significant extent on the continued services of
our senior management and other key personnel, and particularly David B.
Goldberg, Launch's chief executive officer, and Robert D. Roback, Launch's
president. The loss of either of these individuals or certain other key
employees would likely have an adverse effect on our business. We have an
employment agreement with only two of our executive officers, and we do not
anticipate that other executive officers or key personnel will enter into
employment agreements. Competition for personnel throughout our industry is
intense. We may be unable to retain our current key employees or attract,
integrate or retain other highly qualified employees in the future. We have in
the past experienced, and we expect to continue to experience, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
If we do not succeed in attracting new personnel or retaining and motivating our
current personnel, our business could be adversely affected.

GROWTH IN OUR OPERATIONS, PARTICULARLY OUR SALES, MARKETING, FINANCIAL AND
ADMINISTRATIVE ORGANIZATIONS, IS PLACING A STRAIN ON OUR RESOURCES, AND FAILURE
TO MANAGE GROWTH EFFECTIVELY COULD HARM OUR BUSINESS



<PAGE>   22

We have experienced and are currently experiencing a period of significant
growth in our operations. This growth has placed, and our anticipated future
growth in our operations will continue to place, a significant strain on our
resources. As part of this growth, we will have to implement new operational
systems and procedures and controls to expand, train and manage our employee
base and to maintain close coordination among our technical, accounting,
finance, marketing, sales and production staffs. We will also need to continue
to attract, retain and integrate personnel in all aspects of our operations. To
the extent we acquire new businesses, we will also need to integrate new
operations, technologies and personnel. Failure to manage our growth effectively
could adversely affect our business.

ACCEPTANCE AND EFFECTIVENESS OF DIGITAL MEDIA FOR ADVERTISING ARE UNPROVEN,
WHICH MAY DISCOURAGE SOME ADVERTISERS FROM ADVERTISING ON LAUNCH

Our future is highly dependent on an increase in the use of the Internet and
other forms of digital media for advertising. If the Internet advertising market
fails to develop or develops more slowly than we expect, then our business could
be adversely affected. Moreover, the market for advertising on other forms of
digital media, such as broadband distribution, is even less developed than
Internet advertising, and if that market does not develop, then our growth may
be limited.

The Internet advertising market is new and rapidly evolving, and we cannot yet
gauge the effectiveness of advertising on the Internet as compared to
traditional media. As a result, demand for Internet advertising is uncertain.
Many advertisers have little or no experience using the Internet for advertising
purposes. The adoption of Internet advertising, particularly by companies that
have historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Such customers may find advertising on the
Internet to be undesirable or less effective for promoting their products and
services relative to traditional advertising media.

Different pricing models are used to sell Internet advertising. It is difficult
to predict which, if any, will emerge as the industry standard. This uncertainty
makes it difficult to project our future advertising rates and revenues. Any
failure to adapt to pricing models that develop or respond to competitive
pressures could adversely affect our advertising revenues. Moreover, "filter"
software programs that limit or prevent advertising from being delivered to an
Internet user's computer are available. Widespread adoption of this software
could adversely affect the commercial viability of Internet advertising.

TRACKING AND MEASUREMENT STANDARDS FOR ADVERTISING ARE EVOLVING AND CREATE
UNCERTAINTY ABOUT THE VIABILITY OF OUR BUSINESS MODEL

There are currently no standards for the measurement of the effectiveness of
advertising on the Internet and other digital media, and the industry may need
to develop standard measurements. The absence or insufficiency of these
standards could adversely impact our ability to attract and retain advertisers.
We cannot assure you that such standard measurements will develop. In addition,
currently available software programs that track Internet usage and other
tracking methodologies are rapidly evolving. We cannot assure you that the
development of such software or other methodologies will keep pace with our
information needs, particularly to support the growing needs of our internal
business requirements and advertising clients. For instance, DoubleClick, Inc.,
our third party ad server, reported that there were 6.4 million unique visitors
in March 2001 to Launch.com. Our advertisers may rely on this data or other
similar data to determine whether to advertise on Launch, and adverse data from
this or other sources in any particular period may cause advertisers not to
advertise on Launch.

It is important to our advertisers that we accurately measure the demographics
of our user base and the delivery of advertisements on our Web site. We depend
on third parties to provide certain of these measurement services. If they are
unable to provide these services in the future, we would need to perform them
ourselves or obtain them from another provider, if available. This


<PAGE>   23

could cause us to incur additional costs or cause interruptions in our business
during the time we are replacing these services. Companies may choose to not
advertise on Launch or may pay less for advertising if they do not perceive our
measurements or measurements made by third parties to be reliable.

WE MAY HAVE LIABILITY FOR NEGLIGENCE, DEFAMATION OR OTHER MATTERS FOR CONTENT
POSTED ON LAUNCH.COM OR TO CONSUMERS FOR PRODUCTS SOLD THROUGH LAUNCH.COM

Because users of our Web site may distribute our content to others, third
parties might sue us for defamation, negligence, copyright or trademark
infringement or other matters. These types of claims have been brought,
sometimes successfully, against online services in the past. Others could also
sue us for the content that is accessible from our Web sites through links to
other Web sites or through content and materials that may be posted by
launch.com members. Such claims might include, among others, that by directly or
indirectly hosting the personal Web sites of third parties, we are liable for
copyright or trademark infringement or other wrongful actions by such third
parties through such Web sites. It is also possible that if any third-party
content information provided on launch.com contains errors, third parties could
make claims against us for losses incurred in reliance on such information.

We may also enter into agreements that entitle us to receive a share of revenue
from the purchase of goods and services through direct links from our Web sites
to their Web sites. Such arrangements may subject us to additional claims,
including potential liabilities to consumers of such products and services,
based on the access we provide to such products or services, even if we do not
provide such products or services ourselves. While our agreements with these
parties may provide that we will be indemnified against such liabilities, such
indemnification, if available, may not be adequate. Our insurance may not
adequately protect us against these types of claims and, even if such claims do
not result in liability, we could incur significant costs in investigating and
defending against such claims.

WE EXPECT TO MAKE ACQUISITIONS THAT MAY DILUTE OUR STOCKHOLDERS' INTERESTS IN
LAUNCH OR RESULT IN AMORTIZATION OF SIGNIFICANT AMOUNTS OF INTANGIBLE ASSETS

As part of our business strategy, we expect to review acquisition prospects that
would complement our current content offerings, increase our market share or
otherwise offer growth opportunities. Such acquisitions could cause our
operating results or the price of our common stock to decline. We may acquire
businesses, products or technologies in the future. Because business
acquisitions typically involve significant amounts of intangible assets, future
operating results may be adversely affected by amortization of intangible assets
acquired. In the event of such future acquisitions or business combinations, we
could do the following:

     o    issue equity securities that would dilute current stockholders'
          percentage ownership in us;

     o    incur substantial debt; or

     o    assume contingent liabilities.

WE MAY BE UNABLE TO EFFECTIVELY INTEGRATE BUSINESSES WE ACQUIRE IN THE FUTURE,
AND ANY SUCH FAILURE COULD DIMINISH THE VALUE OF AN ACQUIRED BUSINESS OR CAUSE
DISRUPTIONS IN OUR ONGOING OPERATIONS

Acquisitions and business combinations entail numerous operational risks,
including the following:

     o    difficulties in the assimilation of acquired operations, technologies
          or products;

     o    diversion of management's attention from other business concerns;


<PAGE>   24

     o    risks of entering markets in which we have no or limited experience;
          and

     o    potential loss of key employees of acquired organizations.

We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could damage our business.

We may not be able to effectively integrate the operations of acquired
businesses with our ongoing operations. Such failure could harm our business by
diverting management and other resources. Further, the personnel of acquired
businesses may elect not to continue with Launch after completion of any
acquisition, which could diminish the value of any acquisition. In that regard,
we cannot assure you that the personnel of acquired businesses will continue as
employees of Launch.

WE NEED TO ADAPT TO RAPID TECHNOLOGICAL CHANGE IN SOFTWARE AND DISTRIBUTION
SYSTEMS TO REMAIN COMPETITIVE

Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. The recent
growth of digital media, and in particular, the Internet, and intense
competition in our industry exacerbate these market characteristics. To achieve
our goals, we need to effectively integrate the various software programs and
tools required to enhance and improve our product offerings and manage our
business. Our future success will depend on our ability to adapt to rapidly
changing technologies by continually improving the performance features and
reliability of our products and services. We may experience difficulties that
could delay or prevent the successful development, introduction or marketing of
new products and services. In addition, new enhancements must meet the
requirements of our current and prospective users and must achieve significant
market acceptance. We could also incur substantial costs if we need to modify
our service or infrastructures or adapt our technology to respond to these
changes.

GOVERNMENTAL REGULATION OF THE WEB RELATED TO COMMUNICATION, COMMERCE, SALES TAX
AND OTHER ISSUES MAY LIMIT THE GROWTH OF OUR BUSINESS AND DECREASE OUR MARKET
OPPORTUNITY

There are currently few laws or regulations that specifically regulate
communications or commerce on the Web. Laws and regulations may be adopted in
the future, however, that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting certain types of
information and content over the Web. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet service
providers and online services providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. Any imposition
of access fees could increase the cost of transmitting data over the Internet.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as property ownership, libel and personal privacy are
applicable to the Web. Any new laws or regulations relating to the Web could
adversely affect our business.

Launch generally does not collect sales or other taxes in respect of goods sold
to users on launch.com. However, one or more states may seek to impose sales tax
collection obligations on out-of-state companies, such as Launch, which engage
in or facilitate online commerce. A number of proposals have been made at the
state and local level that would impose additional taxes on the sale of goods
and services through the Internet. Such proposals, if adopted, could
substantially impair the growth of electronic commerce and could adversely
affect our opportunity to derive financial benefit from electronic commerce.
Moreover, if any state or foreign country were to successfully assert that
Launch should collect sales or other taxes on the exchange of merchandise on its
system, our results of operations could be adversely affected. Legislation
limiting the ability of states to impose taxes on Internet-based transactions
has been proposed in

<PAGE>   25

the U.S. Congress. We cannot assure you that this legislation will ultimately
become law or that the tax moratorium in the final version of this legislation
will be ongoing. Failure to enact or renew this legislation, once enacted, could
allow various states to impose taxes on Internet-based commerce, which could
adversely affect our business.

WE RELY ON THIRD PARTIES FOR OUR WEB SITE HOSTING FACILITIES AND INTERNET
CONNECTIVITY. IF THESE SYSTEMS FAIL, THEY COULD DISRUPT OR DELAY USER TRAFFIC,
WHICH COULD IMPAIR OUR BUSINESS

Substantially all of our launch.com communications and computer hardware are
located at Alchemy's facilities in Los Angeles, California. In addition, we
utilize the audio and video streaming services of iBEAM Broadcasting and Akamai.
iBEAM Broadcasting and Akamai have proprietary networks which delivers streaming
audio and video over the Internet. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and cause interruptions in our services. Computer viruses, electronic
break-ins or other similar disruptive problems could result in reductions or
termination of our services by our customers or otherwise adversely affect our
Web site. Our business could be adversely affected if our systems were affected
by any of these occurrences. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures or interruptions
in our systems. We do not presently have any backup systems or a formal disaster
recovery plan.

Our Web site must be able to accommodate a high volume of traffic and deliver
frequently updated information. Our Web site has experienced in the past and may
in the future experience slower response times or decreased traffic for a
variety of reasons. In addition, our users depend on Internet service providers,
online service providers and other Web site operators for access to our Web
site. Many of them have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems. Moreover, the Internet network infrastructure may not
be able to support continued growth. Any of these problems could adversely
affect our business.

BECAUSE OUR USERS PROVIDE US WITH PRIVATE INFORMATION, WE MAY BE SUBJECT TO
LIABILITY IF THIS INFORMATION WERE MISUSED

Our privacy policy provides that we will not willfully disclose any individually
identifiable information about any user to a third party without the user's
consent unless required by law. This policy is displayed to users of our
personalized services when they initially register and is easily accessible on
launch.com. Despite this policy, however, if third persons were able to
penetrate our network security or otherwise misappropriate our users' personal
information or credit card information, we could be subject to liability. We
also rely on a third-party provider for our e-commerce services. If we
experience service problems with our e-commerce transactions, we could also be
subject to liability. This liability could include claims for unauthorized
purchases with credit card information, impersonation or other similar fraud
claims. It could also include claims for other misuses of personal information,
such as for unauthorized marketing purposes. These claims could result in
litigation. In addition, the Federal Trade Commission, the European Union and
certain state and local authorities have been investigating certain Internet
companies regarding their use of personal information. We could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if these authorities choose to investigate our privacy practices.

Like most Web sites, we typically place certain information commonly referred to
as cookies on a user's hard drive without the user's knowledge or consent. We
use cookies for a variety of reasons, including enabling us to limit the
frequency with which a user is shown a particular advertisement. Certain
currently available Internet browsers allow users to modify their browser
settings to remove cookies at anytime or to prevent cookies from being stored on
their hard drives. In addition, some Internet commentators, privacy advocates
and governmental bodies have suggested limiting or eliminating the use of
cookies. Any reduction or limitation in the use of cookies could limit the
effectiveness of this technology.


<PAGE>   26

WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
OR TO DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT
SUCCESSFUL WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE REQUIRED TO PAY
SIGNIFICANT FEES

Copyrighted material that Launch develops internally, as well as trademarks
relating to the Launch brand and other proprietary rights, are important to our
success and our competitive position. We seek to protect our copyrights,
trademarks and other proprietary rights, but these actions may be inadequate.
Launch has trademark applications pending in several jurisdictions, but we
cannot guarantee that we will be able to register our trademarks in all
jurisdictions in which we intend to do business. We generally enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
proprietary information. We cannot assure you that the steps we have taken will
prevent misappropriation of our proprietary rights, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States. If third parties were to
use or otherwise misappropriate our copyrighted materials, trademarks or other
proprietary rights without our consent or approval, our competitive position
could be harmed, or we could become involved in litigation to enforce our
rights.

In addition, we rely on a third party to provide services enabling our
e-commerce transactions. We could become subject to infringement actions by
third parties based upon our use of intellectual property provided by our
third-party provider. There is no provision for indemnification of Launch by the
third-party provider. It is also possible that we could become subject to
infringement actions based upon the content licensed from third parties. Any
such claims or disputes could subject us to costly litigation and the diversion
of our financial resources and technical and management personnel. Further, if
our efforts to enforce our intellectual property rights are unsuccessful or if
claims by third parties against Launch are successful, we may be required to
change our trademarks, alter the content and pay financial damages. We cannot
assure you that such change of trademarks; alteration of content or payment of
financial damages will not adversely affect our business.

ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We maintain investment portfolio holdings of various issuers, types and
maturities whose values are dependent upon short-term interest rates. We
generally classify these securities as available for sale, and consequently
record them on the balance sheet at fair value with unrealized gains and losses
being recorded as a separate part of stockholders' equity. We do not currently
hedge these interest rate exposures.

Given Launch's current profile of interest rate exposures and the maturities of
its investment holdings, we believe that an unfavorable change in interest rates
would not have a significant negative impact on our investment portfolio or
statement of operations through March 31, 2001.



<PAGE>   27

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, Launch may be involved in litigation relating to claims
arising out of its operations. On January 31, 2001, WB Stellar Acquisitions, LLC
commenced an action against the Company in the Supreme Court of the State of New
York seeking rent and damages of $793,000 with respect to a lease for commercial
space that expired on July 31, 2000. The Company intends to defend the action
vigorously believing that it has meritorious defenses. As the Company is unable
to predict the outcome of this action, no expense has been recorded for the
possible adverse resolution of this action.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

"Not applicable."

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

"Not applicable."

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

"Not applicable."

ITEM 5. OTHER INFORMATION

"Not applicable."

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


(a) EXHIBITS:

     "Not applicable."

(b) Reports on Form 8-K

     "Not applicable."


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                   Dated  May 14, 2001
                                         ---------------

                                   LAUNCH MEDIA, INC.
                                   (Registrant)

                                   /s/ JEFFREY M. MICKEAL
                                   --------------------------------------------
                                   Jeffrey M. Mickeal
                                   Chief Financial Officer and Secretary
                                   (Principal Financial and Accounting Officer)