<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,1999

                                       OR

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

                         FOR THE TRANSITION PERIOD FROM

                               --------------- TO

                                --------------- .

                        COMMISSION FILE NUMBER: 000-25399

                            ------------------------
                             MPATH INTERACTIVE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                               94-3217317
     (STATE OR OTHER JURISDICTION
   OF INCORPORATION OR ORGANIZATION)        (IRS EMPLOYER IDENTIFICATION NO.)

                                665 CLYDE AVENUE
                         MOUNTAIN VIEW, CALIFORNIA 94043

                                 (650) 429-3900
               (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
               INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL

                               EXECUTIVE OFFICES)

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

Indicate by check mark whether the registrant (1) has filed all reports required
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. [X] Yes [ ] No

     The number of outstanding shares of the registrant's Common Stock, $0.00005
par value, was 23,919,490 as of October 29, 1999.

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

                                        1
<PAGE>

                             MPATH INTERACTIVE, INC.

                                      INDEX

                                                                            PAGE
                                                                            ----
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

   Unaudited Condensed Consolidated Balance Sheets - September 30,
     1999 and December 31, 1998 ............................................  3

   Unaudited and Condensed Consolidated Statements of Operations - Three
     Months and Nine Months Ended September 30, 1999 and 1998 ............    4

   Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months
     Ended September 30, 1999 and 1998 ...................................... 5

   Notes to Condensed Consolidated Financial Statements ..................... 6

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations .......................................  8

Item 3.  Qualitative and Quantitative Disclosure about Market Risk ......... 18

PART II: OTHER INFORMATION

Item 1.  Legal Proceedings ................................................. 18

Item 2.  Changes in Securities and Use of Proceeds ......................... 19

Item 3.  Defaults Upon Senior Securities ................................... 20

Item 4.  Submission of Matters to a Vote of Security Holders ............... 20

Item 5.  Other Information ................................................. 20

Item 6.  Exhibits and Reports on Form 8-K .................................. 20

Signatures ................................................................. 20


                                        2
<PAGE>

                             MPATH INTERACTIVE, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

                                                      SEPTEMBER 30, December 31,
                                                           1999       1998
                                                           ----       ----
                         ASSETS

Current assets:
   Cash and cash equivalents ........................    $ 45,790     $ 1,114
   Short-term investments ...........................      30,436          --
   Accounts receivable, net of allowance for doubtful
     accounts of $415 and $20 respectively ..........       3,220       2,226
   Prepaid expenses and other current assets ........       1,861         710
                                                         --------     -------
       Total current assets .........................      81,307       4,050
Restricted cash .....................................          --         170
Property and equipment, net .........................       3,357       1,878
Other assets ........................................         427          79
                                                         --------     -------
       Total assets .................................    $ 85,091     $ 6,177
                                                         ========     =======

    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Accounts payable .................................    $    514     $ 1,119
   Accrued payroll and related expenses .............       2,291       1,063
   Accrued expenses .................................       1,882         719
   Current portion of capital lease obligations .....         355         458
   Deferred revenue .................................         304         332
   Notes payable ....................................         230       2,426
                                                         --------     -------
       Total current liabilities ....................       5,576       6,117
Convertible note payable ............................          --       1,864
Capital lease obligations and notes payable, net
of current portion ..................................         180         326
                                                         --------     -------
       Total liabilities ............................       5,756       8,307
                                                         --------     -------
Commitments and contingencies

Stockholders' equity (deficit):
   Convertible preferred stock ......................          --           1
   Common stock warrants ............................           2           2
   Common stock .....................................           1          --
   Additional paid-in capital .......................     160,587      63,155
   Deferred stock based compensation ................      (9,986)    (11,263)
   Notes receivable from stockholders ...............      (2,328)     (1,020)
   Accumulated deficit ..............................     (68,941)    (53,005)
                                                         --------     -------
       Total stockholders' equity (deficit) .........      79,335      (2,130)
                                                         --------     -------
       Total liabilities and stockholders' equity ...    $ 85,091     $ 6,177
                                                         ========     =======


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


                                        3
<PAGE>

                             MPATH INTERACTIVE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                    THREE MONTHS            NINE MONTHS
                                                       ENDED                   ENDED
                                                    SEPTEMBER 30,            SEPTEMBER 30,
                                               ---------------------   ---------------------
                                                  1999        1998         1999        1998
                                                  ----        ----         ----        ----
<S>                                            <C>         <C>         <C>         <C>
Net revenues:
    Live Communities .......................   $  2,098    $    931    $  4,683    $  1,641
    HearMe Technology Products .............      2,034       1,287       4,809       3,524
                                               --------    --------    --------    --------
        Total net revenues .................      4,132       2,218       9,492       5,165
Cost of net revenues:
    Live Communities .......................        840         463       2,492       1,614
    Live Communities - warrant expense .....         --          --         849          --
    HearMe Technology Products .............        255         210         779         592
                                               --------    --------    --------    --------
        Total cost of net revenues .........      1,095         673       4,120       2,206
                                               --------    --------    --------    --------
            Gross profit ...................      3,037       1,545       5,372       2,959
                                               --------    --------    --------    --------
Operating expenses:
    Research and development ...............      1,901         779       5,167       2,325
    Sales and marketing ....................      4,142       2,058       9,941       5,806
    General and administrative .............      1,552         785       4,605       2,372
    Stock based compensation ...............        959         650       2,857       1,950
                                               --------    --------    --------    --------
             Total operating expenses ......      8,554       4,272      22,570      12,453
                                               --------    --------    --------    --------
                 Loss from operations ......     (5,517)     (2,727)    (17,198)     (9,494)
    Interest and other income (expense), net        757         (87)      1,262          44
                                               --------    --------    --------    --------
                 Net loss ..................   $ (4,760)   $ (2,814)   $(15,936)   $ (9,450)

Other comprehensive income:
            Unrealized gain on investments .        210          --         301          --
                                               --------    --------    --------    --------
                Comprehensive loss .........   $ (4,550)   $ (2,814)   $(15,635)   $ (9,450)

Net loss per common share:
    Basic and diluted ......................   $   (.22)   $  (1.14)   $  (1.20)   $  (4.35)
    Pro forma ..............................   $   (.22)   $   (.22)   $   (.84)   $   (.75)
Weighted average shares outstanding:
    Basic and diluted ......................     21,571       2,465      13,268       2,172
    Pro forma ..............................     21,571      12,882      19,085      12,588

</TABLE>

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


                                       4
<PAGE>

                             MPATH INTERACTIVE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                       NINE MONTHS ENDED
                                                                         SEPTEMBER 30,
                                                                     ---------------------
                                                                        1999       1998
                                                                        ----       ----
<S>                                                                  <C>         <C>
Cash used in operating activities ................................   $(11,526)   $(7,119)

Cash flows from investing activities:
    Investment in short-term investments .........................    (30,436)        --
    Acquisition of property and equipment ........................     (2,488)      (541)
                                                                     --------    -------
               Net cash used in investing activities .............    (32,924)      (541)
                                                                     --------    -------
Cash flows from financing activities:
    Proceeds from notes payable ..................................         --      2,043
    Payments of notes payable ....................................     (4,453)       (38)
    Payments under capital lease obligations .....................       (350)      (288)
    Issuance of notes payable insurance premium ..................        434         --
    Proceeds from exercise of common stock options
      and warrants, net of repurchase ............................        808        223
    Proceeds from issuance of Series E preferred  stock, net .....     18,797         --
    Proceeds from initial public offering, net of issuance costs .     73,890         --
                                                                     --------    -------
              Net cash provided by financing activities ..........     89,126      1,940
                                                                     --------    -------
              Net increase (decrease) in cash and cash equivalents     44,676     (5,720)
                                                                     --------    -------
Cash and cash equivalents, beginning of period ...................      1,114      9,132
                                                                     --------    -------
Cash and cash equivalents, end of period .........................   $ 45,790    $ 3,412

</TABLE>

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

                                         5
<PAGE>

                             MPATH INTERACTIVE, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                   (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the financial statements at September 30, 1999 and 1998 have been included.

The condensed consolidated financial statements include those of the Company and
its wholly-owned subsidiary. Intercompany balances and transactions have been
eliminated in consolidation.

Results for the three months and nine months ended September 30, 1999 are not
necessarily indicative of results for the entire fiscal year or future periods.
These financial statements should be read in conjunction with the consolidated
financial statements and the accompanying notes included in the Company's
Registration Statement on Form S-1 (No. 333-72437), including the related
prospectus dated April 29, 1999 as filed with the SEC.

Certain prior year amounts have been reclassified for consistency with current
year financial statement presentation.

The Company has adopted the accounting treatment prescribed by SFAS No. 130,
"Comprehensive Income." Unless otherwise noted, the components of the Company's
"Other comprehensive income" and "Comprehensive loss" have no tax effect as the
Company makes no provision for U.S. income taxes applicable to unrealized gains
on investments.

On September 28, 1999 the Company announced that it would commence doing
business under the name HearMe and changed the NASDAQ ticker symbol to HEAR.

NET LOSS PER SHARE

Historical basic and diluted net loss per share are calculated using the
weighted average shares of common stock outstanding, reduced for shares subject
to repurchase by the Company. Preferred stock, stock options, warrants and
unvested common stock are excluded from the calculation of diluted net loss per
share since their effect would be antidilutive.

PRO FORMA NET LOSS PER SHARE

Pro forma net loss per share is computed using the weighted average number of
common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, Series B, Series C, Series D and Series E
preferred stock into shares of the Company's common stock effective upon the
closing of the Company's initial public offering as if such conversion occurred
on January 1, 1998 for Series A, B, C and D and on January 19, 1999 for Series
E. Pro forma common equivalent shares, comprised of unvested common stock, and
incremental common shares issuable upon the exercise of stock options and
warrants, are not included in pro forma diluted net loss per share because they
would be anti-dilutive.


                                         6
<PAGE>

                                MPATH INTERACTIVE, INC.

                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1999
                                      (UNAUDITED)

ACCOUNTING FOR DERIVATIVES

In June 1998, the Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 is effective for fiscal years beginning after June 15, 1999. In July 1999,
FASB issued SFAS No. 137 (SFAS 137), "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of SFAS No. 133." SFAS 137
deferred the effective date of SFAS 133 until the first fiscal quarter beginning
after June 15, 2000. The Company does not believe the adoption of SFAS 133 and
SFAS 137 will have a material effect on the Company's consolidated results of
operations or financial condition.

2. SEGMENT INFORMATION

Operating losses for the Company's two segments, the Live Communities segment
and the HearMe Technology Products segment, formerly known as the Mpath
Foundation segment, were as follows:

                                      Three Months Ended      Nine Months Ended
                                         September 30,          September 30,
                                      ------------------      ------------------
                                        1999       1998       1999        1998
                                        ----       ----       ----        ----
Live Communities ..................   ($3,680)   ($1,955)   ($10,987)   ($7,179)
HearMe Technology Products ........      (879)      (122)     (3,354)      (365)
                                      -------    -------    --------    -------
Total Operating Loss ..............   ($4,559)   ($2,077)   ($14,341)   ($7,544)

Amounts do not reconcile to total operating loss since they exclude stock-based
compensation.

3. SUBSEQUENT EVENT - ACQUISITION OF RESOUNDING TECHNOLOGY, INC.

On October 20, 1999, the Company, completed its acquisition of Resounding
Technology, Inc., a Delaware corporation. This acquisition was accomplished by
the statutory merger (THE "MERGER") of ITR Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Mpath, with and into Resounding.
The Merger was accomplished pursuant to an Agreement and Plan of Merger dated as
of September 27, 1999, among Mpath, Resounding, and ITR Acquisition Corp., and a
related Certificate of Merger, following approval by the stockholders of
Resounding and satisfaction of other closing conditions. The acquisition, which
is being accounted for as a purchase transaction, was paid through the issuance
of 1,585,488 shares of Mpath common stock, the assumption of 153,048 stock
options, and payment in cash to certain of Resounding's stockholders in the
amount of $175,000. The portion of the consideration in the form of Mpath stock
was distributed using an exchange ratio of .331 for each share or option of
Resounding. Of the 1,585,488 shares of common stock, 317,098 shares are held by
an escrow agent to serve as security for the indemnity provided by certain
shareholders of Resounding. The Company will account for this acquisition in the
fourth quarter of fiscal 1999 using the purchase method of accounting. The
Company will evaluate the allocation of the purchase price to the net assets
acquired, which may include in-process technology that will be written-off in
the period acquired, and goodwill and other intangibles that will be amortized
over their benefit periods.


                                      7
<PAGE>

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

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Form 10-Q contain forward-looking  statements
that involve risks and uncertainties.  Words such as "anticipates,"  "believes",
"plans,"  "expects,"  "future,"  "intends",  and  similar  expressions  identify
forward-looking  statements.  These  statements  are not  guarantees  of  future
performance and are subject to certain risks and uncertainties  that could cause
actual results to differ materially from those expressed or forecasted.  Factors
that might  cause such a  difference  include,  but are not  limited  to,  those
discussed in the section entitled  "Certain  Business Risks" and those appearing
elsewhere in this Form 10-Q.  Readers are cautioned not to place undue  reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof.  We assume no  obligation  to update  these  forward-looking
statements  to reflect  actual  results  or  changes  in factors or  assumptions
affecting forward-looking statements.

OVERVIEW

   Mpath develops,  licenses and operates  technologies that enable us and other
Internet sites to create and manage Live  Communities.  We were incorporated and
commenced operations in January 1995. From inception through September 1996, our
activities  primarily  consisted of recruiting  employees  and raising  capital,
performing product and technology development,  engaging in marketing activities
and negotiating  strategic  relationships.  In November 1995, we entered into an
agreement with PSINet, Inc. for the deployment of a low-latency  network,  which
provided a platform for launching and operating the MPLAYER.COM service. Testing
of the  MPLAYER.COM  service began in February 1996 and the service was launched
commercially  in October  1996.  In April 1996,  we licensed our Live  Community
software  and network  services  to  SegaSoft  Networks,  Inc.,  which  occurred
concurrently with an equity investment by affiliates of SegaSoft's  parent,  CSK
Corporation.  In January 1999, we launched HEARME.COM, our second Live Community
service.  During the period from January 1995 to March 31, 1999, we raised gross
proceeds of  approximately  $54.9 million from the sale of equity  securities to
venture  capital  investors  and  strategic  partners.  The proceeds  from these
financings  were primarily used to finance our research and  development and the
sales and  marketing  of our  products and  services.  In May and June 1999,  we
raised gross  proceeds of  approximately  $80.7 million from the sales of common
stock through its initial public  offering.  A portion of the proceeds from this
offering  is being  used to  finance  research  and  development  and  sales and
marketing activities.

   In September  1999, we announced  that we would commence doing business under
the name HearMe.

    We generate  our revenues  from two business  units,  Live  Communities  and
HearMe Technology Products (formerly known as Mpath Foundation.) With respect to
Live  Communities,   we  derive  the  substantial   majority  of  revenues  from
advertising fees. While the MPLAYER.COM and the HEARME.COM services are free to
all registered members,  until September 1999, some users also paid subscription
fees to us in exchange for access to premium  services  such as special  events,
rankings and ratings,  contests,  magazine  subscriptions,  special features and
exclusive  games.  We also had a  subscription  plan that allowed the members to
purchase a year's  subscription  up front at a discounted  rate. As of September
1999, we terminated the  subscription fee program and extended our services free
to all of our  members.  Additionally,  we have  begun to derive  revenues  from
e-commerce  activities,   including  fees  from  special  event  promotions  and
merchandise  sales.  Advertising  revenue is recognized ratably over the term of
each particular  advertising  agreement.  E-commerce  revenue is recognized when
notification  of  shipment  has taken  place and the  revenue  has been  earned.
Subscription  revenue  through  September 1999 was  recognized  ratably over the
related  subscription  period.  Any unearned but paid member  subscription  fees
remaining at September 30, 1999 were  reimbursed to the members in October 1999.
With respect to HearMe  Technology  Products,  we derive revenues from licensing
fees for our  technology,  including our POP.X  product which enables  others to
create live communities, and related services. We also derive incremental HearMe
Technology Products revenues from service, maintenance and upgrade fees. Service
revenues  are  recognized  over the  period  in  which  services  are  provided.
Development  revenue is


                                        8
<PAGE>

recognized at the time services are completed or as  development  milestones are
achieved.  License revenue is recognized in the period earned.  Deferred revenue
consists primarily of monthly service revenue billed and paid in advance.

   Since we launched our first Live Community  service in October 1996 and began
negotiating  certain license agreements  through the HearMe Technology  Products
business unit, we have generated $20.4 million in net revenues through September
30, 1999. For the period from inception to September 30, 1999 we have incurred a
cumulative  net loss of  $68.9  million,  of which  $14.5  million  came  from a
one-time write-off of goodwill and in-process research and development  expenses
associated with our acquisition of Catapult.

   Cost of net revenues for Live Communities  consists  primarily of the cost of
operating the network  infrastructure and royalties paid to third-party  content
providers.  Cost  of  net  revenues  for  HearMe  Technology  Products  consists
primarily of network operating  expenses in conjunction with providing  services
to certain HearMe Technology Products customers.

   The Company's  operating  expenses  consist of sales and marketing  expenses,
research and development expenses and general and administrative expenses. Sales
and  marketing  expenses  consist  principally  of salaries paid to employees in
sales and marketing activities, advertising, promotional materials and programs,
public  relations costs and travel.  Research and development  expenses  consist
principally  of salaries  and  compensation  paid to employees  and  consultants
engaged in research and development activities and product testing.  General and
administrative expenses consist principally of salaries and compensation paid to
employees and consultants in the administrative  departments  including finance,
human resources and legal and costs relating to facilities,  infrastructure  and
related depreciation, in-house and outside legal and accounting fees and related
costs, and travel. All operating costs are expensed as incurred.

   We have a limited  operating  history  upon  which an  evaluation  of us, our
current business, and our prospects can be based. In addition, our revenue model
is  evolving  and  relies  substantially  upon  the sale of  advertising  on OUR
MPLAYER.COM AND HEARME.COM  services and the licensing OF OUR POP.X  technology.
Our business  must be  considered  in light of the risks,  expenses and problems
frequently  encountered  by  companies  in their  early  stages of  development,
particularly companies in new and rapidly evolving markets such as the Internet.
Our results of operations  and financial  condition may be subject to volatility
in future periods.

RESULTS OF OPERATIONS

  THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE
    MONTHS ENDED SEPTEMBER 30, 1998

   REVENUES.  Net revenues increased 86% from approximately $2.2 million for the
three  months ended  September  30, 1998 to  approximately  $4.1 million for the
three  months ended  September  30, 1999.  Net  revenues  from Live  Communities
increased 125% from $931,000 to $2.1 million. This increase was primarily driven
by  growth  in  advertising  revenues  associated  with an  expanding  number of
advertisers  and the growth of traffic  and usage time in our Live  Communities.
Net revenues from HearMe Technology  Products  increased 58% from  approximately
$1.3 million for the three months ended September 30, 1998 to approximately $2.0
million for the three months ended  September 30, 1999.  The increase was due to
increased  technology licensing fees earned from both new and existing customers
during the period.

   COST OF  REVENUES.  Cost of net  revenues  increased  63% from  approximately
$673,000, or 30% of net revenues,  for the three months ended September 30, 1998
to  approximately  $1.1 million,  or 27% of net  revenues,  for the three months
ended September 30, 1999. Cost of net revenues  decreased as a percentage of net
revenues  primarily due to advertising  revenues growing faster than the related
server and  network  costs  within the Live  Communities  segment  for the three
months ended  September 30, 1999. The absolute  increase in cost of revenues was
due to the significant  increase in Live  Communities  subscriber  usage and


                                        9
<PAGE>

the resulting  increase in server and network costs between 1998 and 1999.  Cost
of net revenues for Live Communities  increased from approximately  $463,000 for
the three  months ended  September  30, 1998 to  approximately  $840,000 for the
three  months  ended  September  30,  1999.  Cost  of net  revenues  for  HearMe
Technology  Products increased from approximately  $210,000 for the three months
ended  September 30, 1998 to  approximately  $255,000 for the three months ended
September 30, 1999.  The increase was  attributable  to server costs  associated
with hosting services provided to certain HearMe Technology Products customers.

   RESEARCH AND DEVELOPMENT.  Research and development  expenses  increased 144%
from approximately  $779,000, or 35% of net revenues, for the three months ended
September 30, 1998 to approximately  $1.9 million,  or 46% of net revenues,  for
the three  months  ended  September  30,  1999.  The  increase in  research  and
development  expenses was primarily due to an increase in salary expense in 1999
as  additional  engineers  were hired to support  the  development  of the POP.X
technology and  enhancements to the Company's Live  Communities  websites and to
additional  consulting  fees and  software  expenditures  associated  with these
projects.

   SALES  AND  MARKETING.  Sales  and  marketing  expenses  increased  101% from
approximately $2.1 million,  or 93% of net revenues,  for the three months ended
September 30, 1998, to approximately $4.1 million, or 100% of net revenues,  for
the  three  months  ended  September  30,  1999.  Sales and  marketing  expenses
increased as a percentage  of net revenues  primarily  due to the  initiation of
outbound  advertising and marketing  campaigns to promote the Company's  brands.
The absolute increase in sales and marketing  expenses was due to an increase in
headcount in the Live Communities marketing team, increases in advertising sales
headcount and related travel expenses and an increase in headcount of the HearMe
Technology Products marketing and sales force.

   GENERAL AND  ADMINISTRATIVE.  General and administrative  costs increased 98%
from approximately  $785,000, or 35% of net revenues, for the three months ended
September 30, 1998 to approximately  $1.6 million,  or 38% of net revenues,  for
the three months ended  September  30, 1999.  General and  administrative  costs
increased  primarily due to higher salary  expenses  resulting  from  additional
headcount in the finance, administrative and operations area required to support
our  expanded  infrastructure  and  additional  costs  relating  to the costs of
maintaining the Company as a public entity.

   STOCK BASED  COMPENSATION.  Stock based  compensation  costs  increased  from
approximately  $650,000,  or 29% of net  revenues,  in the  three  months  ended
September 30, 1998 to  approximately  $959,000,  or 23% of net revenues,  in the
three months ended  September 30, 1999.  The increase  related to an increase in
the  number of options  granted as we  continued  to hire  additional  employees
resulting  in a larger  cumulative  amount  of  options  granted.  The  increase
attributable  to these new  issuances  was added to the  expense  from grants in
previous years which continued to vest in 1999.

   INTEREST  AND  OTHER  INCOME  (EXPENSE),   NET.  Interest  and  other  income
(expense),  net includes interest income earned on the short-term  investment of
cash  and  interest  expense   primarily  related  to  capital  lease  and  debt
obligations.

   NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS
     ENDED SEPTEMBER 30, 1998

   REVENUES.  Net revenues increased 84% from approximately $5.2 million for the
nine months ended September 30, 1998 to approximately  $9.5 million for the nine
months ended  September 30, 1999. Net revenues from Live  Communities  increased
185% from $1.6 million to $4.7 million.  This  increase was primarily  driven by
growth  in  advertising   revenues   associated  with  an  expanding  number  of
advertisers  and the growth of traffic  and usage time in our Live  Communities.
Net revenues from HearMe Technology  Products  increased 36% from  approximately
$3.5 million for the nine months ended September 30, 1998 to approximately  $4.8
million for the nine months ended  September  30, 1999.  The increase was due to
increased  technology licensing fees earned from both new and existing customers
during the period.

   COST OF REVENUES.  Cost of net revenues increased 87% from approximately $2.2
million for the nine months  ended  September  30,  1998 to  approximately  $4.1
million,  for the nine months ended  September  30,


                                        10
<PAGE>

1999 and, as a percentage of revenues, remained flat at 43% of revenue from 1998
to 1999. The increase in costs of net revenues was mainly due to the significant
increase in Live  Communities  subscriber  usage and the  resulting  increase in
server and network  costs  between 1998 and 1999.  Cost of net revenues for Live
Communities  increased from approximately $1.6 million for the nine months ended
September  30, 1998 to  approximately  $2.5  million  for the nine months  ended
September 30, 1999 excluding  $849,000 of expense  incurred in connection with a
warrant for 120,000 shares granted to an internet  service provider in 1995, the
terms of which were finalized  during the nine months ended  September 30, 1999.
Cost of net revenues for HearMe Technology Products increased from approximately
$592,000 for the nine months ended September 30, 1998 to approximately  $779,000
for the nine months ended  September 30, 1999. The increase was  attributable to
server  costs  associated  with  hosting  services  provided  to certain  HearMe
Technology Products customers.

   RESEARCH AND DEVELOPMENT.  Research and development  expenses  increased 122%
from  approximately  $2.3 million,  or 45% of net revenues,  for the nine months
ended September 30, 1998 to approximately $5.2 million,  or 54% of net revenues,
for the nine months  ended  September  30,  1999.  The  increase in research and
development expenses in absolute terms and as a percentage of net revenues,  was
primarily due to an increase in salary  expense in 1999 as additional  engineers
were hired to support the HearMe  Technology  Products  development of the POP.X
technology  and  to  additional   consulting  fees  and  software   expenditures
associated with this development.

   SALES  AND  MARKETING.  Sales  and  marketing  expenses  increased  71%  from
approximately $5.8 million,  or 112% of net revenues,  for the nine months ended
September 30, 1998, to approximately $9.9 million, or 105% of net revenues,  for
the nine months ended September 30, 1999. Sales and marketing expenses decreased
as a percentage of net revenues primarily because of the substantial increase in
net revenues between 1998 and 1999. The increase in sales and marketing expenses
was primarily due to an increase in marketing and outbound  advertising  expense
incurred in order to grow advertising  revenues in our Live Communities business
unit,  increased  Live  Communities  marketing  headcount  and  an  increase  in
headcount of the HearMe Technology Products and Live Communities sales forces.

   GENERAL AND  ADMINISTRATIVE.  General and administrative  costs increased 94%
from  approximately  $2.4 million,  or 46% of net revenues,  for the nine months
ended September 30, 1998 to approximately $4.6 million,  or 49% of net revenues,
for the nine months ended September 30, 1999. General and  administrative  costs
increased  primarily  due  to  higher  salary  expenses  related  to  additional
headcount in the finance,  administrative  and operations  support area hired to
support our expanding infrastructure.  Higher reserves taken against receivables
during the nine months ended September 30, 1999 also contributed to the increase
over the prior year period.

   STOCK BASED  COMPENSATION.  Stock based  compensation  costs  increased  from
approximately  $2.0  million or 38% of net  revenues  in the nine  months  ended
September 30, 1998 to  approximately  $2.9 million or 30% of net revenues in the
nine months ended September 30, 1999. The increase related to an increase in the
number of options granted as we continued to hire additional employees resulting
in a larger cumulative amount of options granted.  The increase  attributable to
these new issuances was added to the expense from grants in previous years which
continued to vest in 1999.

   INTEREST  AND  OTHER  INCOME  (EXPENSE),   NET.  Interest  and  other  income
(expense),  net includes  interest expense  primarily  related to lease and debt
obligations and interest income earned on the short-term investment of cash.

LIQUIDITY AND CAPITAL RESOURCES

   As of September 30, 1999, we had approximately $76.2 million of cash and cash
equivalents and short-term investments.

    Net cash used in operating  activities  for the nine months ended  September
30, 1999 was $11.5  million  compared to $7.2  million in the nine months  ended
September 30, 1998. For both periods,  net cash


                                       11
<PAGE>

used in operating activities was primarily a result of funding ongoing expansion
of our  research  and  development  and  sales  and  marketing  efforts  and the
resulting larger infrastructure and support functions.

   Net cash used in investing  activities  was $32.9 million for the nine months
ended  September  30, 1999  compared to $0.5  million for the nine months  ended
September  30, 1998.  Net cash used in investing  activities  in each period was
primarily  related to purchase of  short-term  investments  and to  purchases of
property and equipment.

   Net cash provided by financing  activities in the nine months ended September
30,  1999 was $89.1  million  as  compared  to net cash  provided  by  financing
activities  in the nine months ended  September  30, 1998 of $2.0  million.  The
major sources of financing activities during the nine months ended September 30,
1999 was our initial  public  offering,  through which we raised net proceeds of
approximately $73.9 million and which was completed in May and June 1999 and our
sale of Series E preferred  stock in January  1999  through  which we raised net
proceeds of approximately $18.8 million.

   In 1995, we entered into a capital lease  agreement with  Lighthouse  Capital
and we drew down all available funds of approximately  $1.5 million.  We entered
into a Loan and Security  Agreement with Greyrock Business Credit, a Division of
NationsCredit  Commercial Corporation in July 1998. The agreement consisted of a
term loan for $1.5 million, an accounts receivable  revolving line of credit for
$1.5 million and a capital  equipment  loan of $1.0  million.  Amounts  borrowed
under these agreements are collateralized by substantially all our assets,  bear
interest  at the prime rate plus two  percent  and mature on June 30,  1999.  By
December  1998, we had drawn down $1.5 million  against the term loan  agreement
and  approximately  $1.0 million  against the capital  equipment  agreement.  In
January  1999,  we fully repaid the term loan with a portion of the net proceeds
from the sale of our Series E Preferred  Stock in January  1999.  In May 1999 we
fully  repaid the  equipment  loan from the  proceeds  of the IPO.  There are no
outstanding loans to Greyrock Business Credit.

   Upon the  acquisition  of Catapult  in 1996,  we assumed a  convertible  note
payable from Catapult  bearing  interest at prime and which is due together with
interest in November 2001. At December 31, 1998, we had  $1,864,000  outstanding
under  this note  payable.  On June 11,  1999,  we  elected  to pay off the loan
balance together with the accrued interest thereon, for a total of $2,265,000.

   We  currently  anticipate  that the net  proceeds of $73.9  million  from the
public  offering  which we  completed  in May 1999 and from the  issuance of the
underwriters'  overallotment  in June 1999,  together with our existing lines of
credit and available funds will be sufficient to meet our anticipated  needs for
working capital and capital expenditures for at least the next 12 months. We may
need to raise  additional  funds in the future in order to fund more  aggressive
brand promotions and more rapid expansion, to develop newer or enhanced products
or services, to fund acquisitions,  to respond to competitive  pressures,  or to
acquire  complementary  businesses,  technologies  or services.  There can be no
assurance that additional  financing will be available on terms favorable to us,
or at all.

YEAR 2000 COMPLIANCE

   Many currently  installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century  dates  from 20th  century  dates.  As a result,  computer  systems  and
software  used  by many  companies  and  governmental  agencies  may  need to be
upgraded to comply with such Year 2000  requirements  or risk system  failure or
miscalculations causing disruptions of normal business activities.

   STATE OF READINESS.  We have made an assessment of the Year 2000 readiness of
our information  technology ("IT") systems,  including the hardware and software
that  enable us to provide  and  deliver  our  products  and  services.  We have
completed our Year 2000  compliance  plan and contracted for the services of two
Year 2000 compliance consultants. Our assessment plan consists of:


                                       12
<PAGE>

       quality assurance testing of our internally developed proprietary
       software incorporated in our products;

       contacting  third-party  vendors and  licensors  of material  hardware,
       software and services that are both directly and indirectly  related to
       the delivery of our products and services;

       contacting vendors of material non-IT systems;

       assessment of repair or replacement requirements;

       repair or replacement;

       implementation; and

       creation of contingency plans in the event of Year 2000 failures.

   In accordance with our Year 2000 compliance plan we identified measures to be
taken to  avoid  Year  2000  disruptions  to our  business  operations.  We also
conducted an  assessment  of our systems and third party  products  that must be
verified for Year 2000  compliance.  Our Year 2000 compliance plan scheduled the
following activities:

       First quarter  1999--Began  engineering and operational work required to
       make our products Year 2000 compliant.

       Second quarter 1999--Completed component evaluation for Year 2000
       compliance.

       Third quarter 1999--Completed development of Year 2000 compliant systems.

       Third quarter 1999--Tested our systems in a constrained  environment for
       Year 2000 compliance.

       Fourth quarter 1999--Resolve remaining Year 2000 compliance issues.

   We have been informed by our hardware and software component vendors that the
products we use are  currently  Year 2000  compliant.  We will require our other
material  hardware and software  component vendors to provide assurance of their
Year  2000  compliance.  We will  complete  this  process  during  1999.  We are
currently  assessing  our non-IT  systems and will seek  assurance  of Year 2000
compliance  from  providers of material  non-IT  systems.  Until such testing is
complete and such vendors and  providers are  contacted,  we will not be able to
completely  evaluate  whether our IT systems or non-IT  systems  will need to be
revised or replaced.

   We have located and printed Year 2000 readiness disclosure statements for our
software and hardware vendors.  In accordance with our Year 2000 compliance plan
and  under  the  guidance  of our Year  2000  consultants  we will  contact  our
hardware,  software and service vendors concerning Year 2000 compliance. We will
contact by letter,  email or fax the vendors  that have not  provided  Year 2000
readiness disclosure statements.  This communication to the vendors will request
a written response  confirming that the vendor's  products and services are Year
2000  compliant.  At present we believe  there are upgrade  products for all the
significant  third party hardware  products,  software  products and services we
rely upon to operate our  business.  If the vendors are, in fact,  not Year 2000
compliant,  we may  experience  some short term  difficulty  procuring  software
applications,  computer  hardware  and  telecommunication  services  to  replace
non-compliant products and services.

   COSTS.  To date, we have incurred  approximately  $105,000 in connection with
identifying or evaluating Year 2000 compliance issues. Our expenses have related
to the operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. We anticipate our costs will
continue to include  employee  expenses and will  increase for purchases of Year
2000  compliant  upgrades to our existing  hardware and software  platforms.  We
estimate that these costs will


                                       13
<PAGE>

total between approximately $150,000 and $200,000 and approximately $100,000 for
two Year 2000 compliance consultants;  however, if these costs are substantially
higher  than  anticipated,  it  could  have a  material  adverse  effect  on our
business,  results of operations and financial condition.  The cost of Year 2000
compliance will be accounted for as an operating expense and funded from working
capital.

   RISKS.  We are not  currently  aware of any  Year  2000  compliance  problems
relating  to our  technology  or our IT or  non-IT  systems  that  would  have a
material  adverse  effect on our  business,  results of  operations or financial
condition,  without  taking into  account our efforts to avoid or fix  potential
problems.  We may discover Year 2000 compliance  problems in our technology that
will require substantial revisions. In addition,  third-party software, hardware
or services  incorporated into our material IT and non-IT systems may need to be
revised or replaced,  all of which could be time consuming and expensive.  If we
fail to fix our technology or to fix or replace third-party  software,  hardware
or services on a timely  basis,  the result  could be lost  revenues,  increased
operating costs, the loss of customers and other business interruptions,  any of
which  could  have a  material  adverse  effect  on  our  business,  results  of
operations and financial condition.  Moreover, the failure to adequately address
Year 2000  compliance  issues in our  technology,  and our IT and non-IT systems
could result in claims of mismanagement, misrepresentation or breach of contract
and related  litigation,  which could be costly and time-consuming to defend. In
addition, there can no assurance that governmental agencies,  utility companies,
Internet access companies,  third-party service providers and others outside our
control will be Year 2000  compliant.  The failure by these types of entities to
be Year 2000  compliant  could result in a systemic  failure beyond our control,
such as a prolonged Internet,  telecommunications  or electrical failure,  which
could  also  prevent  us  from  delivering  our  products  and  services  to our
customers,  decrease the use of the Internet or prevent users from accessing the
Web sites of our strategic partners,  which could have a material adverse effect
on our business, results of operations and financial condition.

   CONTINGENCY  PLAN. As discussed above, we are engaged in an ongoing Year 2000
assessment and the  development of  contingency  plans.  The results of our Year
2000 simulation testing and the responses received from third-party  vendors and
service  providers  will be taken  into  account in  determining  the nature and
extent of any contingency  plans. We have identified our worst-case  scenario as
the  interruption  of our  business  resulting  from  Year 2000  failure  of the
electric company or our ISPs to provide services.  We have not yet completed our
worst-case scenario  contingency plan. Without a worst-case scenario contingency
plan we may not have enough time to complete  remedial  measures  and  implement
contingency planning for the worst-case  scenario.  We completed our contingency
plan in  accordance  with our  compliance  plan and  under the  guidance  of our
consultants in July 1999.

   CERTAIN BUSINESS RISKS

   We have a limited  operating history making it difficult or impossible for us
to predict  future  results of  operations.  As a result,  you should not expect
future revenue growth to be comparable to our recent revenue growth.  We believe
that comparing different periods of our operating results is not meaningful,  as
you should not rely on the results for any period as an indication of our future
performance. We did not begin generating advertising or licensing revenues until
October 1996. Some of the risks and difficulties  that we face as an early stage
company in a new and rapidly evolving market include our ability to maintain and
to increase  levels of traffic on our Live  Communities,  our ability to develop
and extend  the  MPLAYER.COM,  HEARME.COM  AND POP.X  brands and our  ability to
increase demand for our products and services.

   We have had substantial  losses since our inception and our operating  losses
may increase in the future.  Accordingly, we cannot assure you that we will ever
become or remain profitable.  If our revenues fail to grow at anticipated rates,
our operating expenses increase without a commensurate  increase in our revenues
or we fail to adjust operating expense levels accordingly, our business, results
of  operations  and  financial  condition  will  be  adversely  affected.  As of
September 30, 1999, we had an accumulated deficit of $68.9 million.  Although we
have experienced growth in net revenues,  members,  customers and Internet reach
in recent  periods,  we cannot be certain that our growth rates will continue at
their current levels or increase in the future.


                                      14
<PAGE>

   We have not yet become  profitable  on a quarterly  or annual  basis,  and we
anticipate that we will continue to incur net losses for the foreseeable future.
The extent of these losses will be contingent,  in part, on the amount of growth
in our  revenues  from  advertising,  licensing  and  commerce.  We  expect  our
operating  expenses  to  increase  significantly,  especially  in the  areas  of
engineering,  sales and marketing and brand promotion, and, as a result, we will
need to generate increased quarterly revenues to become profitable.

   Our HearMe  Technology  Products  revenues  have  accounted for a significant
portion of our  revenues to date.  Historically,  we have  received  most of our
HearMeTechnology  Products  revenues from a limited  number of sales and license
agreements.  Therefore,  any  downturn  in the  business of these  customers  or
potential  customers  could have a material  adverse  effect on our revenues and
quarterly  results of  operations.  We believe  that a  customer's  decision  to
license our technology is relatively  discretionary  and, for large-scale users,
often  involves a significant  long-term  commitment of resources.  We currently
have fifteen HearMe Technology Products customers.

   Our HearMe Technology  Products  customers often take a long time to evaluate
our products and  services,  and many people are involved in the sales  process.
The long sales and  implementation  cycles for our products and services and the
timing of these  sales may cause  license  and service  revenues  and  operating
results to vary  significantly  from  period to  period.  We spend a lot of time
educating and providing  information to our prospective  customers regarding the
use and benefits of our products and  services.  Even after  deciding to license
our products,  our customers tend to deploy our products slowly and deliberately
depending  on the  expertise  of the  customer,  the  size  of  deployment,  the
complexity  of the  customer's  system  architecture,  the  quantity of hardware
involved,  and the degree of hardware  and software  configuration  necessary to
deploy our products.

        We  derive  a  significant  portion  of our  revenues  from  the sale of
advertising.  If  customers  cancel or defer  existing  advertising  or commerce
contracts or if we fail to obtain new  contracts in any quarter,  our  business,
results of  operations  and  financial  condition  for that  quarter  and future
periods will be adversely  affected.  A significant  number of these advertising
sales are made under  short-term  contracts  that average two to three months in
length. Consequently, many of our advertising customers can cease advertising on
our Web site quickly and without penalty.  As a result,  our quarterly  revenues
and operating  results  depend  heavily on  advertising  revenues from contracts
entered  into  within the  quarter  and on our  ability to adjust  spending in a
timely manner to compensate for any unexpected revenue shortfall.

   Furthermore,  our  advertising  revenues  are based in part on the  amount of
traffic on MPLAYER.COM and HEARME.COM. Accordingly, if the amount of traffic on
our Live  Communities  falls  below our  expectations  or those of  existing  or
potential  advertisers,   we  may  lose  advertising  customers.   In  addition,
substantially all of our advertising contracts require us to guarantee a minimum
number of  impressions.  In the event that we fail to deliver the minimum number
of  impressions,   we  could  be  required  to  provide  credit  for  additional
impressions  and we may have to reduce  advertising  rates in order to  maintain
existing advertisers and attract new advertisers.

   Our quarterly operating results may fluctuate  significantly in the future as
a result of a variety of  factors,  many of which are  outside  of our  control.
These  fluctuations  make it difficult to predict our financial  performance and
may  adversely  affect the  trading  price of our common  stock.  These  factors
include  demand for and market  acceptance  of our  products  and  services  and
Web-based  advertising,  budgeting  cycles of advertisers,  amount and timing of
capital  expenditures by our customers and other costs relating to the expansion
of our operations and future acquisitions,  engineering or development fees that
we may pay for new  Web  site  development  and  publishing  tools  and  general
economic conditions.

   As a strategic  response to changes in the  competitive  environment,  we may
from time to time make  certain  pricing,  service  or  marketing  decisions  or
business combinations that could have a material adverse effect on our business,
results of  operations  and  financial  condition.  In order to  accelerate  the
promotion of the MPLAYER.COM and HEARME.COM  brands,  we intend to significantly
increase our marketing  budget.  Such an increase in marketing  expenditures may
adversely affect our results of operations for a number of quarterly periods.


                                       15
<PAGE>

   Due to our relatively  short operating  history,  we have limited  meaningful
historical  financial  data upon which to base our planned  operating  expenses.
Accordingly,  our  expense  levels are based in part on our  expectations  as to
future   revenues  from   advertising,   software   licensing   fees,   commerce
revenue-sharing  arrangements and our anticipated growth in memberships and to a
large extent are fixed.  We cannot be certain that we will be able to accurately
predict our revenues,  particularly in light of the intense  competition for the
sale of Web-based advertisements, revenue-sharing opportunities and new members,
our limited  operating history and the uncertainty as to the broad acceptance of
the Web as an advertising and commerce medium. If we fail to accurately  predict
revenues  in  relation  to  fixed-expense  levels,  our  business,   results  of
operations and financial condition could be adversely affected.

            Although we view our strategic  relationships  with media,  Internet
and technology  companies as a key factor in our overall business  strategy,  we
cannot  be  certain  that we will be  successful  in  developing  new  strategic
relationships  or that our strategic  partners will view such  relationships  as
significant to their own business or that they will continue their commitment to
us in the future. Our business,  results of operations and financial  condition,
and our stock  price  may be  materially  adversely  affected  if any  strategic
partner discontinues its relationship with us for any reason. Additionally,  any
party to a  strategic  agreement  with us may fail to  perform  its  contractual
obligations  and we cannot be certain that we could enforce any such  agreement.
We do not generally establish minimum performance requirements for our strategic
partners but instead rely on their voluntary efforts. In addition, most of these
agreements may be terminated by either party with little notice.  Therefore,  we
cannot be certain that these relationships will be successful.

             We have derived a significant  portion of our revenues to date from
the sale of advertisements and intend to continue to do so in the future. If the
Web does not continue its development as an effective  advertising  medium, this
could have a material  adverse effect on our business,  financial  condition and
results of operations. Intense competition in the sale of advertising on the Web
has resulted in a wide variety of pricing  models,  rate quotes and  advertising
services,  making it difficult to project future levels of advertising  revenues
and rates.  It is also difficult to predict which pricing  models,  if any, will
achieve  broad  acceptance  among  advertisers.  Our  strategy is to continue to
emphasize  advertising as a method of generating revenues.  Our current business
model is  therefore  highly  dependent on the amount of traffic on our Web site.
This type of business model, however, is relatively unproven. The Internet as an
advertising  medium has not been  available  for a sufficient  period of time to
gauge our effectiveness as compared with traditional  advertising media. Many of
our  advertisers  have only limited  experience  with the Web as an  advertising
medium,  have not yet devoted a significant portion of their advertising budgets
to Web-based  advertising and may not find such  advertising to be effective for
promoting  their  products  and  services  relative  to  traditional  print  and
broadcast  media. To date,  advertising on the Web represented a nominal portion
of overall  advertising  revenues in the United States.  Our ability to generate
significant  advertising  revenues will also depend on, among other things,  our
ability to provide advertisers with a large base of users possessing demographic
characteristics  attractive to  advertisers as well as our ability to develop or
acquire effective advertising delivery and measurement systems.

            The process of managing  advertising within large,  high-traffic Web
sites such as ours is an  increasingly  important and complex task. Any extended
failure  of, or  material  difficulties  encountered  in  connection  with,  our
advertising  management system may expose us to "make good" obligations with our
advertisers,  which, by decreasing saleable  advertising  inventory would reduce
revenues  and  have a  material  adverse  effect  on our  business,  results  of
operations  and  financial  condition.  We  license  our  advertising  sales and
management  system from  DoubleClick  Inc.. Any replacement of this system could
disrupt our ability to manage our  advertising  operations for a period of time.
In  addition,  to the extent  that we  encounter  system  failures  or  material
difficulties  in the  operation  of this  system,  we could be unable to deliver
banner advertisements and sponsorships through our Web site.

   As part of our business strategy,  we review acquisition prospects that would
complement our existing business or enhance our technological  capabilities such
as  our  recently  completed  acquisition  of  Resounding   Technology.   Future
acquisitions  by us could  result in  potentially  dilutive  issuances of equity
securities,   large  and  immediate  write-offs,  the  incurrence  of  debt  and
contingent  liabilities or amortization  expenses  related to goodwill and other
intangible  assets,  any of which  could  materially  and  adversely  affect


                                        16
<PAGE>

our results of operations.  Furthermore,  acquisitions entail numerous risks and
uncertainties,   including  difficulties  in  the  assimilation  of  operations,
personnel,  technologies,  products and the information  systems of the acquired
companies,  diversion of  management's  attention from other business  concerns,
risks of entering geographic and business markets in which we have no or limited
prior experience, and potential loss of key employees of acquired organizations.

   Our future  success  depends in large part upon our ability to aggregate  and
deliver  compelling  content  over the  Internet.  If we fail to  aggregate  and
deliver  compelling  third-party  content to our users,  Web traffic to our site
might decrease and, as a result,  advertising revenue might decrease. This could
have a  material  adverse  effect on our  business,  results of  operations  and
financial  condition.  Although we create some of our own content  such as poker
and  chess,  we  also  rely  on  third-party  content  providers,  such  as game
developers,  for  entertaining  content.  Our ability to  aggregate  and deliver
compelling  content  provided by third  parties may be  adversely  impacted by a
number of factors, including the following: third-parties may increase the price
of the content they provide,  many of our third-party  content providers compete
with us for  members  and  advertising  and may  decide  not to  provide us with
content, our contracts with third-party content providers are usually short-term
and may be canceled if we do not fulfill our  obligations,  and our  competitors
and many of our third-party content providers provide content that is similar or
the same as our content and may do so at a lower cost.

   The   performance  of  our  server  and  networking   hardware  and  software
infrastructure  is critical to our  business and  reputation  and our ability to
attract Web users,  advertisers,  new members and commerce  partners to our Live
Communities.  If system  failures were  sustained or repeated,  our  advertising
revenues,  our  reputation  and the  attractiveness  of our brand  name could be
impaired. Because we have incorporated third-party software into our systems and
we depend upon Internet  service  providers to provide  consumers with access to
our  products  and  services,  we are limited in our  ability to prevent  system
failures.  We have sustained system failures for significant periods of time and
may  experience  similar  failures in the future.  Users have also  occasionally
experienced  difficulties due to system failures unrelated to our systems. These
system failures caused an interruption in our Live Community  services resulting
in less traffic.

   Despite  the  implementation  of  security  measures,  our  networks  may  be
vulnerable  to  unauthorized  and  illegal  access,  computer  viruses and other
disruptive problems. Eliminating computer viruses and alleviating other security
problems  may require  interruptions,  delays or  cessation  of service to users
accessing  our Web sites,  which  could have a  material  adverse  effect on our
business,  results of operations and financial condition. A party who is able to
circumvent  security measures could  misappropriate  proprietary  information or
cause interruptions in our Internet  operations.  Internet service providers and
online  service  providers have in the past  experienced,  and may in the future
experience,   interruptions  in  service  as  a  result  of  the  accidental  or
intentional  actions of Internet users,  current and former employees or others.
We may be required to expend  significant  capital or other resources to protect
against  the threat of  security  breaches or to  alleviate  problems  caused by
breaches. Although we intend to continue to implement industry-standard security
measures,  we cannot be  certain  that  measures  implemented  by us will not be
circumvented in the future.

   Our future success  depends upon our ability to enhance our current  products
and services and to develop and  introduce  new products and services  that will
achieve  market  acceptance.  If we do not  adequately  respond  to the  need to
develop and  introduce new products or services,  then our  business,  operating
results and financial condition will be adversely  affected.  The market for our
products is characterized by: rapid technological  advances,  evolving standards
in the Internet  and software  markets,  changes in customer  requirements,  and
frequent new product and service  introductions and  enhancements.  We cannot be
certain that we will be successful at integrating  new technology  into the Live
Communities and our HearMe  Technology  Products on a timely basis. In addition,
the  integration of new technology may degrade the  responsiveness  and speed of
the Live Communities and our HearMe Technology Products and we cannot be certain
that,  once  integrated,  the new  technology  will function as expected.  Major
product   enhancements   and  new  products  and  services  often  require  long
development and testing periods to achieve market acceptance.  In addition,  our
software  products are complex and, despite vigorous testing and quality control
procedures,  may contain  undetected  errors or "bugs" when first  introduced or
updated.  Any


                                        17
<PAGE>

inability to timely deliver quality  products and services could have a material
adverse effect on our business, results of operations and financial condition.

   We currently  sell the vast  majority of our HearMe  Technology  Products and
services  through our  internal  sales  staff.  If demand for our  products  and
services increases,  however,  we will need to enter into reseller  arrangements
with Web development firms,  enterprise  applications resellers and OEM partners
to distribute our products and technologies. If we do not adequately develop and
maintain a network of resellers and OEMs,  our  business,  results of operations
and  financial  condition  could  be  adversely  impacted.  Resellers  and  OEMs
frequently have exclusive sales territories pursuant to individually  negotiated
contracts,  which may limit our  ability  to build and  expand  our  network  of
resellers and OEMs. In addition,  some  resellers and OEMs may offer products of
one or more of our competitors, and they may emphasize our competitors' products
at the expense of our products.

          Also inherent in our business are additional risks, which include, but
are not limited to:  competition  in the market for Internet  users and for Live
Community  technology  and  services;  our  ability to  successfully  manage our
growth,  our  ability to hire and retain  personnel,  our ability to protect our
proprietary software and intellectual  property,  and patent,  product liability
and OTHER LITIGATION.  IN ADDITION,  POTENTIAL new government  regulations could
have an adverse  effect on our ability to target  product  offerings and attract
advertisers and would have a material adverse effect on our business, results of
operations and financial condition.

ITEM 3.QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

   Our exposure to market risk for changes in interest  rates relates  primarily
to the increase or decrease in the amount of interest  income we can earn on our
investment  portfolio  and on the increase or decrease in the amount of interest
expense we must pay with respect to our various  outstanding  debt  instruments.
The risk associated with fluctuating  interest expense is limited,  however,  to
the exposure related to those debt  instruments and credit  facilities which are
tied to market rates. We do not plan to use derivative financial  instruments in
our investment  portfolio.  We plan to ensure the safety and preservation of our
invested principal funds by limiting default risks, market risk and reinvestment
risk.  We plan to mitigate  default  risk by investing  in  high-credit  quality
securities.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

          In the matter  concerning  Steve Perlman,  a founder of Catapult,  the
Company  resolved  this matter on  September  24, 1999  through a  Non-Exclusive
Patent License Agreement signed by the Company, Catapult, Mr. Perlman, WebTV and
Microsoft.  The U.S.  Supreme Court petition for certiorari will be abandoned by
Microsoft,  WebTV,  Mr.  Perlman,  the Company  and  Catapult as a result of the
Non-Exclusive Patent License Agreement.

   The Company has filed a patent  infringment suit against Lipstream  Networks,
Inc. and Lipstream Networks,  Inc., dba Delaware Lipstream Networks, Inc. in the
United  States  District  Court,  Northern  District  of  California,  San  Jose
Division.  On October 13, 1998,  the Company was issued United States Patent No.
5,822,523,    entitled   "Server-Group    Messaging   System   for   Interactive
Applications".  The action alleges that Lipstream  infringes this patent through
the sale and licensing of its products.  The Company is seeking a court order to
enjoin  Lipstream  from further sale or licensing of infringing  products and is
also seeking to recover damages, attorneys fees and costs.

   From time to time we have been,  and  expect to  continue  to be,  subject to
legal  proceedings  and claims in the  ordinary  course of  business,  including
claims of alleged infringement of third-party


                                        18
<PAGE>

trademarks  and other  intellectual  property  rights  by us and our  licensees.
Claims like these,  even if not meritorious,  could result in the expenditure of
significant   financial  and  managerial  resources  and  could  materially  and
adversely affect our business, financial condition and results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     (c) Recent Sales of Unregistered Securities.

        None

      (d) Use of Proceeds from Sales of Registered Securities.

     On May 4, 1999,  the Company  completed an initial  public  offering of its
Common Stock, $0.00005 par value. The managing underwriters in the offering were
BancBoston  Robertson Stephens,  Thomas Weisel Partners LLC, Warburg Dillon Read
LLC and Wit Capital Corporation (the "Underwriters"). The shares of Common Stock
sold in the  offering  were  registered  under the  Securities  Act of 1933,  as
amended, on a Registration Statement on Form S-1 (the "Registration  Statement")
(Reg. No.  333-72437) that was declared  effective by the SEC on April 28, 1999.
The offering  commenced on April 29, 1999,  on which date,  3,900,000  shares of
Common Stock registered under the Registration Statement were sold at a price of
$18.00 per share.  The Underwriters  also exercised an  overallotment  option of
585,000  shares which closed on June 2, 1999. All 585,000  overallotment  shares
were sold at a price of $18.00 per share.  The  aggregate  price of the offering
amount registered and sold was $80,730,000. In connection with the offering, the
Company  paid  an  aggregate  of  $5,651,100  in   underwriting   discounts  and
commissions to the Underwriters. In addition, the following table sets forth the
other material expenses incurred in connection with the offering.

                                                                    AMOUNT PAID
                                                                    -----------
Securities and Exchange Commission registration fee ...........     $   50,000
NASD filing fee ...............................................          5,500
NASDAQ National Market listing fee ............................         95,000
Printing and engraving expenses ...............................        245,000
Legal fees and expenses .......................................        361,500
Accounting fees and expenses ..................................        189,700
Blue Sky qualification fees and expenses ......................          3,000
Transfer Agent and Registrar fees .............................          5,500
Miscellaneous fees and expenses ...............................        233,800
                                                                    ----------
Total .........................................................     $1,189,000
                                                                    ----------

        After  deducting  the  underwriting  discounts and  commissions  and the
offering  expenses  described  above, the Company received net proceeds from the
offering of  approximately  $73,900,000.  The Company has used the net  proceeds
from its initial public  offering of Common Stock to invest in interest  bearing
investment grade instruments and to fund the general  operations of the Company.
In addition, the Company currently expects to use the net proceeds primarily for
working capital and general corporate  purposes,  including  approximately  $5.0
million for funding  product  development  and  approximately  $5.0  million for
expanding its sales and marketing organization. In addition, the Company may use
a portion of the net  proceeds  for further  development  of its  product  lines
through  acquisitions  of products,  technologies  and  businesses.  None of the
Company's  net proceeds of the offering  were paid directly or indirectly to any
director,  officer, general partner of the Company or their associates,  persons
owning  10% or more of any  class of equity  securities  of the  Company,  or an
affiliate of the Company.


                                        19
<PAGE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     None

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits

       EXHIBIT
       NUMBER               DESCRIPTION
       -------              -----------
        27.1                Financial Data Schedule

     (b) Reports on Form 8-K

          On  October  22,  1999 the  Company  filed a report  on Form 8-K dated
September 28, 1999 with respect to Item 5 thereunder.

          On  November  5,  1999 the  Company  filed a report  on Form 8-K dated
October 20, 1999 with respect to Item 5 thereunder.

     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.

 MPATH INTERACTIVE, INC.



    By:  /s/ LINDA R. PALMOR                           Date: November 9, 1999
    ------------------------------------
     Linda R. Palmor
     Chief Financial Officer
    (Principal Accounting and Financial Officer)


                                       20