<PAGE>

================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-K
                              --------------------
          [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended: December 31, 1999
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number: 0-25520

                      CENTERSPAN COMMUNICATIONS CORPORATION
             (Exact name of registrant as specified in its charter)

                   OREGON                                   93-1040330
(State or other jurisdiction of incorporation    (I.R.S. Employer Identification
              or organization)                                 No.)

       7175 NW EVERGREEN PARKWAY #400
              HILLSBORO, OREGON                             97124-5839
  (Address of principal executive offices)                  (Zip Code)


        Registrant's telephone number, including area code: 503-615-3200

        Securities registered pursuant to Section 12(b) of the Act: NONE
    Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
                               -------------------
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ X ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $159,080,380 as of February 29, 2000 based upon the last sales
price as reported by the Nasdaq National Market System.

The number of shares outstanding of the Registrant's Common Stock as of February
29, 2000 was 6,148,034 shares.

                       -----------------------------------
                       DOCUMENTS INCORPORATED BY REFERENCE
The Registrant will incorporate into Part III of Form 10-K by reference portions
of its Proxy Statement for its 2000 Annual Meeting of Shareholders.

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

<PAGE>

                      CENTERSPAN COMMUNICATIONS CORPORATION
                          1999 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
<S>        <C>                                                                                  <C>
                                           PART I

Item 1.    Business                                                                               2

Item 2.    Properties                                                                             5

Item 3.    Legal Proceedings                                                                      6

Item 4.    Submission of Matters to a Vote of Security Holders                                    6

                                           PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters                  7

Item 6.    Selected Financial Data                                                                8

Item 7.    Management's Discussion and Analysis of Financial Condition and Results
           of Operations                                                                          9

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                             15

Item 8.    Consolidated Financial Statements and Supplementary Data                               16

Item 9.    Changes in and Disagreements With Accountants on Accounting and
           Financial Disclosure                                                                   32

                                          PART III

Item 10.   Directors and Executive Officers of the Registrant                                     32

Item 11.   Executive Compensation                                                                 32

Item 12.   Security Ownership of Certain Beneficial Owners and Management                         32

Item 13.   Certain Relationships and Related Transactions                                         32

                                           PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K                        33

Signatures                                                                                        36
</TABLE>


                                       1
<PAGE>

ITEM 1.  BUSINESS

OVERVIEW

CenterSpan Communications Corporation (the "Company") was originally
incorporated in 1990 as ThrustMaster, Inc., an Oregon corporation. The Company
changed its name to CenterSpan Communications Corporation in October 1999.

The Company has historically been a developer and marketer of realistic, high
quality game controllers for the home personal computer ("PC") and video console
markets, which comprised the Company's hardware business. The Company sold this
portion of its business in July 1999 (see "Sale of Hardware Business
-Discontinued Operations"). The Company is now pursuing an Internet e-commerce
transaction business model, with revenue expected to be generated from Internet
and e-commerce partners.

The Company's new Internet community, collaboration and communications business
develops and markets Internet software products based on three cutting-edge
technologies developed by the Intel Architecture Labs. These technologies
facilitate PC-to-PC text messaging and multi-point audio over the Internet,
enabling communication and collaborative information sharing. The Company's new
Internet community, collaboration and communications product is nearing
commercial release.

SALE OF HARDWARE BUSINESS - DISCONTINUED OPERATIONS

On July 26, 1999, the Company entered into an agreement for the sale of the
Company's hardware business assets and its related sales and return warranty
reserves to Guillemot Corporation, S.A. ("Guillemot") for $15 million in cash,
subject to certain adjustments. The Company's hardware business had historically
comprised the bulk of the Company's assets, liabilities, revenues and expenses.
From its founding in 1990 through 1997, the Company was a leader in designing
and marketing innovative PC game controller products. However, commencing in
1997, many larger competitors with greater economies of scale entered the game
controller market, creating an extremely competitive environment characterized
by declining prices and increased marketing costs. The Company's management
determined that the Company could not achieve the economies of scale necessary
to be profitable in the game controller market in the foreseeable future and
concluded that the Company should sell the hardware business and invest the
proceeds in the Company's Internet community, collaboration and communications
business.

INTERNET COMMUNICATIONS SOFTWARE BUSINESS - CONTINUING OPERATIONS

On May 31, 1998 the Company entered into a license agreement with Intel
Corporation that licensed to the Company certain software source code technology
related to voice communications over the Internet. The scope of the license was
limited primarily to the PC gaming and entertainment market where the bulk of
the Company's historical business activity was conducted. In December 1998, the
Company re-negotiated the license agreement and secured additional terms
allowing it to use the technology in additional market segments outside of PC
gaming and entertainment.


                                       2
<PAGE>

In January 1999, the Company shipped its first Internet communications software
product into the distribution and retail channels. The product, called Talk n'
Play, incorporated the Intel technology and allowed up to four people in
separate locations to conduct a four-way voice conference over the Internet
while they played on-line games. In June 1999, the Company shipped its second
Internet communications product, iConference, into the distribution and retail
channels, targeting the small-office/home-office market. iConference provided
the same four-way Internet voice conferencing capability as Talk n' Play and
added the ability for up to four people to transfer files, share files or share
a white board while they were engaged in their voice conference. The Company is
no longer selling either of these products.

In August 1999, the Company entered into a second license agreement with Intel
Corporation that licensed to the Company additional software source code for
development of its next generation Internet community, collaboration and
communications products. The Company intends to target these new products at the
home PC market.

The Company's first next generation product was released as a beta phase product
in the first quarter of 2000. The new product, called Socket-TM-, is distributed
via free downloads from certain Internet sites as well as through free compact
disks distributed to select target markets. The Company is also pursuing a
strategy of partnering with software developers, Internet service providers and
hardware manufacturers to provide a distribution of Socket-TM-. Socket-TM-
incorporates Intel's technologies to allow for multi-point audio, presence
detection, comparing and sharing of data and applications with designated
on-line users on a "buddy list" and "launch and connect" capabilities with other
on-line participants from a user's buddy list. See "Product Development and
Technology" below.

The Company believes that Internet community, collaboration and communications
by the mass market is in an early stage of development but that increasing
demand for these services will develop with the convergence of real-time data,
voice and video multimedia interactivity over the Internet. Currently, most of
this technology is "server based." This requires a provider of these services to
buy additional computer equipment in order to constantly "scale-up" to meet the
increased demands of its subscribers or visitors. The technology the Company
licensed from Intel Corporation provides for "PC-to-PC" solutions. This
technology allows a provider to offer a desktop client software solution that
will allow its subscribers or visitors to engage in real-time multimedia
communications without being "tied" to the provider's server. The Company
believes that the future of Internet community, collaboration and communications
will be driven by open, standards-based, "PC-to-PC" technology and solutions.

PRODUCT DEVELOPMENT AND TECHNOLOGY

The Company is developing a unique, desktop-based "Internet Activity Hub" called
Socket"TM", targeted at small groups of mainstream Internet users, with the
power and functionality to also appeal to experienced early adopters. The hub is
built around a core technology, currently licensed from Intel Corporation, that
encompasses the following areas:
-    Buddy List - technology that enables work groups or friends to seamlessly
     find and connect with one
     another and form work and play communities on the Internet.
-    Instant Messaging and Group Text Chat - technology that permits real time
     person-to-person and group text communication.


                                       3
<PAGE>

-    Multi-Point Audio - PC-to-PC technology that enables multiple users to have
     a full duplex voice conference over the Internet while simultaneously
     engaging in other activities, e.g., group web surfing, collaborative
     business applications, or multi-player online games.
-    Launch and Connect - technology that allows groups to launch multi-person
     collaborative activities (e.g. online games and shared whiteboards) while
     continuing to communicate through text or voice during the activity.
-    Compare and Share - technology that enables a group to share details of
     their computer systems, software and other items to identify common and
     uncommon applications and other items. Users are prompted to make purchases
     of uncommon applications and other items from the Company's partners via
     e-commerce, generating commission revenue.

PRODUCT USE SCENARIO

A product use scenarios for Socket-TM- is as follows: A group of friends who
have started a voice conference using the Company's software decide to play a
multi-player Internet game. The software allows the group to see who has the
game, with those who do not currently own the game being prompted to point and
click to be immediately linked to an affiliate partner to purchase the game.
Commissions from the affiliate partner provide an e-commerce source of revenue
for both the Company and its partner. The host launches the entire group into
the game with a point and click. The same scenario works for any compatible
multi-user Internet software.

RESEARCH AND ENGINEERING

The Company spent $782,000, $162,000 and $0 on research and engineering
activities related to its continuing operations during 1999, 1998 and 1997,
respectively. In addition, the Company incurred $2.5 million for the license of
certain technology from Intel during 1999, which was written off at the end of
1999. The Company expects to continue to make significant investments in
research and engineering in 2000.

SALES, DISTRIBUTION AND MARKETING

The Company is using an Internet e-commerce transaction business model, which
the Company believes will generate revenue from Internet and e-commerce partners
by facilitating purchases through individual and group communications. The
Company's Socket-TM- product is distributed via free downloads from certain
Internet sites as well as through free compact disks distributed to select
target markets. The Company is also pursuing a strategy of partnering with
software developers, Internet service providers and hardware manufacturers to
provide a distribution of Socket-TM-.

The Company intends to use strategic partners, word-of-mouth, or "viral
expansion," and a comprehensive marketing campaign to help in attracting users
of its software. The Company anticipates that viral expansion will become its
largest distribution channel.

The Company spent $159,000 on advertising related to its continuing operations
during 1999. No amounts were spent in 1998 or 1997 related to advertising for
the Company's Internet software business.


                                       4
<PAGE>

COMPETITION

The market for Internet online services is highly competitive. The Company's
primary competitors are Internet service providers, such as America Online,
Inc., Microsoft Corporation and Yahoo!, all of which have resources and brand
recognition that are substantially greater than that of the Company. There are
no significant barriers to entry for offering Internet online services.
Consequently, numerous Web-based service companies have built significant
businesses in areas such as e-mail, electronic commerce and directories.

The Company believes the main competitive factors in the market for Internet
online services are ease of use, level of services provided and ability to reach
end-use customers.

INTELLECTUAL PROPERTY

Some of the intellectual property rights used in the development of the
Company's software products are licensed from Intel Corporation under a three
year, nonexclusive license, expiring in August 2002. The Company has applied for
registration of the names CenterSpan-TM- and Socket-TM-. The Company relies on
trademark and copyright law, trade secret protection and confidentiality
agreements with it employees, strategic partners and others to protect its
proprietary rights. Although the Company believes that its products, processes
and trademarks do not infringe on the rights of others, third parties may assert
infringement or other related claims against the Company in the future. Any
infringement claim or related litigation against the Company, or any challenge
to the validity of the Company's own intellectual property rights, and the
expense and effort of defending the same, could materially and adversely affect
the Company's business, financial conditions and results of operations.

EMPLOYEES

As of December 31, 1999, the Company had a total of 35 full-time employees. At
times, the Company supplements its workforce with temporary contract workers.
None of the Company's employees are represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.

ITEM 2.  PROPERTIES

The Company maintains its headquarters and warehouse and distribution facilities
in Hillsboro, Oregon, in approximately 60,000 square feet of leased space under
two leases expiring in September 2003. The Company has negotiated a sublease for
approximately 15,000 square feet and is currently attempting to sublease an
additional 23,000 square feet of the 60,000 square feet. The Company also leases
approximately 16,000 square feet of space in Surrey, England under a lease
expiring in September 2007. The Company is no longer utilizing this space and is
also negotiating a sublease of all of this space. The Company believes its
facilities are adequate for its immediately foreseeable needs and that suitable
additional or alternative space will be available on commercially reasonable
terms if needed.


                                       5
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

From time to time, the Company has been, and expects to continue to be, subject
to legal proceedings and claims in the ordinary course of its business. Such
claims, even if lacking merit, could result in the expenditure of significant
financial and managerial resources. The Company is not currently a party to, nor
is it aware of, any legal proceeding or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the Company or on
its financial condition or results of operations.

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

The annual meeting of the shareholders of the Company was held on December 15,
1999, at which the following actions were taken:

1.   The shareholders elected five nominees for director to the Board of
     Directors of the Company. The five directors elected, along with the voting
     results and their term of service are as follows:

<TABLE>
<CAPTION>

Name                                Term          No. of Shares Voting For      No. of Shares Withheld Voting
----                                ----          ------------------------      -----------------------------
<S>                            <C>                <C>                           <C>
Gen. Merrill A. McPeak         Expiring in 2002            2,892,027                         900
C. Norman Winningstad          Expiring in 2002            2,892,027                         900
Frank G. Hausmann              Expiring in 2002            2,892,027                         900
David Billstrom                Expiring in 2001            2,890,527                       2,400
Jerome J. Meyer                Expiring in 2001            2,891,027                       1,900
</TABLE>

2.   The shareholders approved the appointment of KPMG LLP as the independent
     accountants of the Company for the year ending December 31, 1999 (2,892,618
     shares were voted affirmatively, 309 shares were voted negatively and no
     shares abstained from voting).


                                       6
<PAGE>

                                     PART II

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

The Company's Common Stock is traded on the Nasdaq National Market. Until
October 29, 1999, it traded under the symbol TMSR and thereafter under the
symbol CSCC. The high and low sales prices for the two years in the period ended
December 31, 1999 were as follows:

<TABLE>
<CAPTION>

          1998                                                High              Low
          -------------------------------------------      ---------         ---------
          <S>                                           <C>              <C>
          Quarter 1                                     $     14.00      $      10.50
          Quarter 2                                           12.88              7.13
          Quarter 3                                            7.25              3.38
          Quarter 4                                           16.00              2.75

<CAPTION>

          1999                                                High              Low
          -------------------------------------------      ---------         ---------
          <S>                                           <C>              <C>
          Quarter 1                                     $     16.75       $      9.75
          Quarter 2                                           25.50             16.25
          Quarter 3                                           24.00             15.50
          Quarter 4                                           32.38             13.56
</TABLE>

The approximate number of beneficial shareholders and shareholders of record at
February 29, 2000 were 2,700 and 64, respectively.

There were no cash dividends declared or paid in 1999 or 1998. The Company does
not anticipate declaring cash dividends in the foreseeable future. The Company's
line of credit facility restricts the Company's ability to pay dividends.

There were no sales of unregistered securities during 1999 that have not been
previously reported.


                                       7
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financial data relating to the Company
should be read in conjunction with the Company's consolidated financial
statements and the related notes thereto. On July 26, 1999, the Board of
Directors of the Company approved the sale of the Company's hardware business
assets. The Company has presented the hardware business as a discontinued
operation in the selected consolidated financial data presented below.

<TABLE>
<CAPTION>

IN THOUSANDS
(EXCEPT PER SHARE AMOUNTS)                           1999           1998          1997          1996          1995
----------------------------------------------     ----------     ---------     ---------     ---------     ---------
<S>                                            <C>            <C>           <C>           <C>            <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues                                       $         787  $          -  $          -  $          -   $         -
Cost of goods sold                                       569             -             -             -             -
                                                   ----------     ---------     ---------     ---------     ---------
   Gross profit                                          218             -             -             -             -
Operating expenses:
   Research and engineering                              782           162             -             -             -
   Selling, general and administrative                 2,474           935           495           440           397
   Special charge                                      2,500             -             -             -             -
                                                   ----------     ---------     ---------     ---------     ---------
     Total operating expenses                          5,756         1,097           495           440           397
                                                   ----------     ---------     ---------     ---------     ---------
Loss from operations                                  (5,538)       (1,097)         (495)         (440)         (397)
Interest income                                          417            64           304           466           404
Loss from beneficial conversion feature                 (987)            -             -             -             -
                                                   ----------     ---------     ---------     ---------     ---------
Income (loss) from continuing operations
  before income taxes                                 (6,108)       (1,033)         (191)           26             7
Provision for income taxes                            (4,532)            -             -             -             -
                                                   ----------     ---------     ---------     ---------     ---------
Income (loss) from continuing operations             (10,640)       (1,033)         (191)           26             7
Income (loss) from discontinued operations,
   net of tax provision (benefit) of $0,
   $(5,792), $1,615, $1,370 and $687                  (5,207)       (8,023)        3,388         2,233         1,354
Gain on disposal of discontinued operations
                                                           6             -             -             -             -
                                                   ----------     ---------     ---------     ---------     ---------
Net income (loss)                              $     (15,841) $     (9,056) $      3,197  $      2,259   $     1,361
                                                   ==========     =========     =========     =========     =========
Income (loss) per share from continuing
   operations:
       Basic                                   $       (2.11) $      (0.24) $      (0.04) $       0.01   $      0.00
                                                   ==========     =========     =========     =========     =========
       Diluted                                 $       (2.11) $      (0.24) $      (0.04) $       0.01  $       0.00
                                                   ==========     =========     =========     =========     =========
Income (loss) per share from discontinued
   operations:
       Basic                                   $      (1.03)  $      (1.83) $       0.79  $       0.53   $      0.37
                                                   ==========     =========     =========     =========     =========
       Diluted                                 $      (1.03)  $      (1.83) $       0.73  $       0.50   $      0.33
                                                   ==========     =========     =========     =========     =========
Net income (loss) per share:
       Basic                                   $      (3.14)  $      (2.07) $       0.75  $       0.54   $      0.37
                                                   ==========     =========     =========     =========     =========
       Diluted                                 $      (3.14)  $      (2.07) $       0.69  $       0.51   $      0.33
                                                   ==========     =========     =========     =========     =========
Shares used in per share calculations:
       Basic                                           5,038         4,380         4,268         4,182         3,647
                                                   ==========     =========     =========     =========     =========
       Diluted                                         5,038         4,380         4,660         4,468         4,060
                                                   ==========     =========     =========     =========     =========
CONSOLIDATED BALANCE SHEET DATA
Working capital                                $      15,535  $     10,685  $     18,361  $     15,253   $    12,836
Total assets                                          19,357        25,954        26,092        20,896        14,910
Total liabilities                                      3,397        14,401         6,812         4,998         1,599
Shareholders' equity                                  15,960        11,553        19,280        15,898        13,311
</TABLE>


                                       8
<PAGE>

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

GENERAL
This management's discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto, included elsewhere in this
Form 10-K.

FORWARD LOOKING INFORMATION
The discussion and analysis below as well as other items and attachments to this
Form 10-K contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as
forward-looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact that the
Company makes in this Report on Form 10-K are forward-looking. In particular,
statements regarding the adequacy of funds to meet the Company's current or
future cash needs; the development of the Company's software products; the
Internet community, collaboration and communications market; and the Company's
future results of operations or financial position are forward-looking
statements. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," and similar expressions identify
forward-looking statements. However, the absence of these words does not mean
the statement is not forward-looking. The Company cannot guarantee any of the
forward-looking statements, which are subject to risks, uncertainties and
assumptions that are difficult to predict. Actual results may differ materially
from those the Company forecasts in forward-looking statements due to a variety
of factors, including some of those set forth in the Company's quarterly report
on Form 10-Q for the quarterly period ended September 30, 1999 and those set
forth elsewhere within this discussion. The Company does not intend to update
any forward-looking statements due to new information, future events or
otherwise.

SALE OF THE HARDWARE BUSINESS - DISCONTINUED OPERATIONS
On July 26, 1999, the Company entered into an agreement to sell substantially
all of the assets of the hardware business including related sales and return
warranty reserves. This transaction closed on October 1, 1999 for $15.0 million
in cash, $2.25 million of which remains in an escrow account and is scheduled to
be released at various dates through May 31, 2000. The entire $2.25 million may
not be received by the Company in certain circumstances that relate to the
ability of the purchaser to renew a certain contract, collect accounts
receivable and sell through inventory that existed at the date of purchase. The
Company recorded a gain on the disposal of its hardware business of $6,000 in
the fourth quarter of 1999. The hardware business has historically comprised the
bulk of the Company's assets, liabilities, revenues and expenses. From its
founding in 1990 through 1997, the Company was a leader in designing and
marketing innovative PC game controller products. However, commencing in 1997,
many larger competitors with greater economies of scale entered the game
controller market creating an extremely competitive environment characterized by
declining prices and increased marketing costs. The Company's Board of Directors
determined that the Company could not achieve the economies of scale necessary
to be profitable in the game controller market in the foreseeable future, and
concluded that the Company should sell the hardware business and invest the
proceeds in the Company's new Internet community, collaboration and
communication software business.


                                       9
<PAGE>

INTERNET COMMUNICATIONS SOFTWARE BUSINESS - CONTINUING OPERATIONS
On May 31, 1998 the Company entered into a license agreement with Intel
Corporation that licensed to the Company certain software source code technology
related to voice communications over the Internet. The scope of the license was
limited primarily to the PC gaming and entertainment market where the bulk of
the Company's historical business activity was conducted. In December 1998, the
Company re-negotiated the license agreement and secured additional rights
allowing it to use the technology in additional market segments outside of PC
gaming and entertainment.

In January 1999, the Company shipped its first Internet communications software
product into the distribution and retail channels. The product, called Talk n'
Play, incorporated the Intel technology and allowed up to four people in
separate locations to conduct a four-way voice conference over the Internet
while they played on-line games. The product also allowed the user to
participate in certain Internet communities. In June 1999, the Company shipped
its second Internet communications product, iConference, into the distribution
and retail channels, targeting the small-office/home-office market. iConference
provided the same four-way Internet voice conferencing capability as Talk n'Play
and added the ability for up to four people to transfer files, share files or
share a white board while they are engaged in their voice conference. The
Company is no longer selling these products.

In August 1999, the Company entered into a second license agreement with Intel
Corporation that licensed to the Company additional software source code that
the Company believes will enable it to accelerate the development of its next
generation Internet communications and collaboration products. Most of the
Company's revenue from its new Internet software business was generated in the
computer retail channel.

The Company believes that Internet communications and collaboration by the mass
market is in an early stage of development and that increasing demand for these
services will drive the convergence of real-time data, voice and video
multimedia interactivity over the Internet. Currently, most of this technology
is "server based." This requires a provider of these services to buy additional
computer equipment in order to constantly "scale-up" to meet the increased
demands of its subscribers or visitors. The audio technology the Company
licensed from Intel Corporation provides a "PC-to-PC" solution. This technology
allows a provider to offer a desktop client software solution that will allow
its subscribers or visitors to engage in real-time multimedia communications
without being "tied" to the provider's server. The Company believes that a
significant trend in the future of Internet community, collaboration and
communications will be driven by open, standards-based, "PC-to-PC" technology
and solutions.


                                       10
<PAGE>

RESULTS OF CONTINUING OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998
The continuing operations of the Company consist of its software business, which
began in mid-1998 and has generated revenues beginning in 1999. The results of
the Company's continuing operations for the year ended December 31, 1999 are
discussed below.

REVENUES
Revenues for 1999 were generated from the sale of two products, Talk n'Play and
iConference, and totaled $787,000. The Company discontinued the retail sale of
these products in the fourth quarter of 1999. In the first quarter of 2000, the
Company released a Beta version of its new product, Socket(TM). The Company
anticipates 2000 to be an investment year, in which the focus will be on the
distribution of Socket(TM) to end-users and does not expect to generate
significant revenue until 2001. The Company is pursing an Internet e-commerce
transaction business model, with revenue expected to be generated from Internet
and e-commerce partners.

GROSS PROFIT
Gross profit for 1999 was $218,000 (27.7% of revenues) and was generated from
the retail sale of Talk n'Play and iConference products and is net of the cost
of production and inventory adjustments.

RESEARCH AND ENGINEERING
Research and engineering expenses consist principally of salaries and related
personnel expenses, consultant fees and the cost of software used in product
development. Research and engineering expenses were $782,000 (99.4% of revenues)
in 1999. The Company made significant investments in research and engineering in
1999 and anticipates making significant investments in research and engineering
in 2000 as well.

SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist of salaries and related
expenses for personnel engaged in direct sales, partner development, consultant
fees, advertising, promotional materials, executive, legal, accounting and
administrative personnel, professional services and general corporate expenses.
Selling, general and administrative expenses increased to $2.5 million in 1999
from $935,000 in 1998 as a result of expanding the workforce and other
activities related to the Internet community, collaboration and communications
software business.

SPECIAL CHARGE
The $2.5 million non-cash special charge for purchased in-process technology in
1999 relates to the write-off of technology purchased from Intel Corporation in
exchange for two warrants exercisable for a total of 288,988 shares of the
Company's Common Stock. Given the shift in the Company's revenue model during
late 1999, under which it provides its software to users at no cost, the Company
determined that there were no future cash flows to support maintaining the value
of this technology on its balance sheet and therefore expensed the entire
amount.

INTEREST EXPENSE
Interest expense was allocated to the hardware business.


                                       11
<PAGE>

INTEREST INCOME
Interest income increased to $417,000 in 1999 from $64,000 in 1998 as a result
of increased cash balances, which resulted primarily from private placements of
debt and equity securities during 1999 and the sale of the hardware business in
October 1999 for $15.0 million.

LOSS FROM BENEFICIAL CONVERSION FEATURE
On June 9, 1999, the Company issued and sold to two investors $6.0 million
aggregate principal amount of the Company's zero coupon Convertible Debentures
due June 9, 2002 for $6.0 million in cash. The Convertible Debentures were
recorded as debt. The beneficial conversion feature was recorded as additional
paid in capital and as a discount against long-term debt. The beneficial
conversion feature of $987,000 was recognized over 90 days using the effective
interest method. The debt was converted to equity prior to December 31, 1999.

PROVISION FOR INCOME TAXES
The Company's tax provision for 1999 includes the establishment of a full
valuation allowance of $8.4 million on the Company's deferred tax asset due to
the change in the Company's business. A valuation allowance has been recorded
for the full amount of deferred tax assets, as a result of uncertainty regarding
the realization of the asset balance.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997

GENERAL
The Company did not derive any revenue from its continuing operations in 1998 or
1997. The hardware business has been accounted for as discontinued operations,
but certain expenses have been allocated to continued operations, based on the
number of employees remaining with the software business, their related employee
costs and overhead for facilities and other related costs and corporate overhead
expenses that are expected to represent continuing expenses.

RESEARCH AND ENGINEERING
Research and engineering expenses were $162,000 for 1998, an increase of 100%
compared to 1997. This increase was a result of software engineers and related
costs allocated to the software business in 1998.

SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $935,000 in 1998 from
$495,000 in 1997. The increase in selling, general and administrative expenses
in 1998 was a result of more employee costs and expenses allocated to continuing
operations during 1998 since there were more employees focused on the software
business during this period compared to 1997.

INTEREST INCOME
Interest income for 1998 was $64,000. This compares with interest income of
$304,000 in 1997. Interest income represents earnings from the investment of the
cash balances of the Company, which were significantly higher during 1997
compared to 1998.


                                       12
<PAGE>

RESULTS OF DISCONTINUED OPERATIONS

1999 COMPARED TO 1998 AND 1997
The sale of the hardware business has been accounted for as discontinued
operations and, accordingly, its operations are segregated in the statements of
operations included elsewhere in this Form 10-K. Revenues from discontinued
operations were $13.5 million, $25.9 million and $45.5 million for the years
ended December 31, 1999, 1998, and 1997, respectively. Certain expenses have
been allocated to continuing operations, based on the number of employees
remaining with the software business, their related employee costs and overhead
for facilities and other related costs and corporate overhead expenses that were
expected to represent continuing expenses.

Loss from discontinued operations was $5.2 million in 1999 compared to loss from
discontinued operations of $8.0 million in 1998 and income from discontinued
operations of $3.4 million in 1997. The income/loss from discontinued operations
represents the net activity of the discontinued hardware business, including
revenues and associated expenses and the resulting tax provision (benefit) for
the years ended December 31, 1999, 1998 and 1997, respectively. Income (loss)
from discontinued operations includes the entire tax provision (benefit) of the
Company for the years ended December 31, 1998 and 1997 as management determined
that income taxes (benefits) were primarily associated with the hardware
business because the software business had limited activity in 1998 and 1997.

The significant loss incurred in 1998 in comparison to 1997 is primarily due to
the influx of several large competitors late in 1997 with greater economies of
scale, creating an extremely competitive environment resulting in declining
sales prices and increased marketing costs. Leading up to and during part of
1997, the Company was one of the leaders in the game controller market and was
generating positive net income.

The Company realized a gain on the disposal of its discontinued operations of
$6,000 in 1999. The gain was the difference between the estimated proceeds of
the sale and the Company's basis in the net assets sold and related expenses.

LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date with a combination of cash flow
from operations, borrowed funds, proceeds from the sale of its hardware business
and proceeds from the sale of equity securities. At December 31, 1999, the
Company had $15.5 million of working capital and its current ratio was 5.6:1.0

In late 1998, the Company entered into a demand discretionary $16.0 million line
of credit. The Company did not utilize the line as expected. On July 30, 1999,
the Company paid off the balance of the line of credit and the Company and the
lender terminated the line of credit.

On January 28, 1999, the Company issued to three investors an aggregate of
250,000 shares of the Company's Common Stock (subject to adjustment as described
below) and warrants to acquire 70,754 shares of Common Stock for an aggregate of
$4.0 million. The exercise price applicable to 50% of the shares issuable upon
exercise of the warrants is $20.00 per share; the exercise price for the
remaining warrant shares is $22.40 per share. The Common Stock warrants are
exercisable until January 28, 2004. The Company also agreed to issue to the
investors "adjustment" shares of its Common Stock for no additional
consideration depending upon the market price of the Company's Common Stock
during


                                       13
<PAGE>

specified periods following the investment. The adjustment periods lapsed in
July 1999 and the Company was not required to issue any additional shares.

On June 9, 1999, the Company issued and sold to two investors $6.0 million
aggregate principal amount of the Company's zero coupon Convertible Debentures
due June 9, 2002 (the "Debentures"). The Debentures were converted into 492,011
shares of the Company's Common Stock in December 1999.

On August 31, 1999, the Company sold 273,853 shares of the Company's Common
Stock for $18.258 per share to a single investor, receiving $5.0 million in
proceeds. In connection with the sale, the Company issued a warrant for 30,000
shares of the Company's Common Stock to the investor's financial consultant as a
finder's fee. The exercise price for this warrant is $18.258 per share and is
exercisable at any time before August 30, 2004.

In August 1999, the Company issued a warrant to acquire 200,000 shares of its
Common Stock for $18.09 per share to Intel Corporation in exchange for certain
technology that was subsequently written off (see "Purchased In-Process
Technology" above). The warrant is exercisable until August 9, 2004.

Net cash provided by operating activities was $5.7 million in 1999 primarily as
a result of the sale of the hardware business assets and $8.8 million of
non-cash operating expenses, offset by a net loss of $15.8 million and a
decrease in payables and accrued liabilities of $5.2 million. This compares to
net cash used in operating activities of $5.0 million in 1998.

Accounts payable decreased $6.1 million to $1.1 million at December 31, 1999
from $7.2 million at December 31, 1998 primarily as a result of the sale of the
hardware business and the related decrease in trade purchases.

The Company believes that available funds generated by the sale of the hardware
business on October 1, 1999 in the amount of $15.0 million and the receipt of
$16.3 net proceeds in connection with the issuance of additional equity during
1999 will be adequate to meet the Company's cash needs during the next twelve
months. The Company may require additional capital beyond the amounts currently
forecasted by the Company. Any such required additional capital may not be
available on reasonable terms, if at all, at such time or times as required by
the Company.

YEAR 2000
The Company has not incurred any material problems with its information systems,
products, suppliers, service providers or customers related to the year 2000.

The Company spent approximately $47,000 on year 2000 issues and anticipates
spending an additional $8,700 on a new year 2000 compliant voice mail system.


                                       14
<PAGE>

NEW ACCOUNTING PRONOUNCEMENT
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
137"). SFAS 137 is an amendment to Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
137 establishes accounting and reporting standards for all derivative
instruments. SFAS 137 is effective for fiscal years beginning after June 15,
2000. The Company does not currently have any derivative instruments and,
accordingly, does not expect the adoption of SFAS 137 to have an impact on its
financial position or results of operations.

RISK FACTORS

THE COMPANY MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS AT ANTICIPATED RATES
The Company intends to use strategic partners, word-of-mouth or "viral
expansion" and a comprehensive marketing campaign to help in attracting users of
its software. Once attracted, the Company must retain its customers. In order to
do this, the Company must provide an excellent first experience, continuously
improve its product features, create high switching costs and build a foundation
for viral expansion. The Company's revenue model is driven off of volume
activity with strategic partners. Without a sufficient customer base, the
Company may not be able to achieve the revenue levels it needs to attain
profitable operations.

THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY EFFECT VIRAL EXPANSION
The Company anticipates that word-of-mouth, or viral expansion, will become its
largest distribution channel. The Company anticipates that it will be able to
attract a significant number of customers through viral expansion. If this does
not happen as the Company anticipates, it may need to determine other acceptable
methods of distribution for its products.

THE COMPANY MAY NOT BE ABLE TO ATTRACT AND RETAIN STRATEGIC PARTNERS
The Company's business model is based on an Internet e-commerce transaction
business model, with revenue expected to be generated from Internet and
e-commerce partners. If the Company does not attract and retain Internet and
e-commerce partners, it may not be able to generate sufficient levels of revenue
to support the Company's operations.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Substantially all of the Company's liquid investments as of December 31, 1999
were at fixed interest rates and had original maturities of 90 days or less. As
a result, the Company believes that the market risk arising from its holdings of
financial instruments is minimal.


                                       15
<PAGE>


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA


Independent Auditors' Report


The Board of Directors
CenterSpan Communications Corporation


We have audited the accompanying consolidated balance sheet of CenterSpan
Communications Corporation and subsidiaries (formerly ThrustMaster, Inc.) as of
December 31, 1999, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The accompanying consolidated
financial statements of CenterSpan Communications Corporation for the years
ended December 31, 1998 and 1997 were audited by other auditors whose report
thereon dated January 25, 1999 expressed an unqualified opinion on those
statements.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CenterSpan
Communications Corporation and subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.




KPMG LLP

Portland, Oregon
February 19, 2000


                                       16
<PAGE>

                         Report of Independent Accountants

To the Shareholders and Board of Directors
of Centerspan Communications Corporation:

In our opinion, the consolidated balance sheet as of December 31, 1998 and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the two years in the period ended
December 31, 1998 present fairly, in all material respects, the financial
position, results of operations and cash flows of Centerspan Communications
Corporation and subsidiaries at December 31, 1998 and for each of the two
years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Centerspan Communications Corporation
and subsidiaries for any period subsequent to December 31, 1998.


PricewaterhouseCoopers LLP
January 25, 1999


                                       17
<PAGE>

                      CENTERSPAN COMMUNICATIONS CORPORATION
                          (FORMERLY THRUSTMASTER, INC.)
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                   -----------------------------------------
                                                                                         1999                    1998
                                                                                   ------------------      -----------------
<S>                                                                              <C>                     <C>
                                 ASSETS
Current assets:
    Cash and cash equivalents                                                    $            16,467     $              460
    Restricted cash                                                                            2,282                      -
    Accounts receivable, net                                                                       4                      -
    Prepaid expenses and other                                                                   179                    134
    Net assets from discontinued operations                                                        -                 17,737
    Income taxes receivable                                                                        -                  2,078
    Deferred tax assets                                                                            -                  4,677
                                                                                   ------------------      -----------------
        Total current assets                                                                  18,932                 25,086

Plant and equipment, net                                                                         400                    843
Other assets                                                                                      25                     25
                                                                                   ------------------      -----------------
        Total assets                                                             $            19,357     $           25,954
                                                                                   ==================      =================


                  LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Operating line of credit                                                     $                 -     $            5,821
    Accounts payable                                                                           1,055                  7,202
    Accrued liabilities                                                                        2,342                  1,378
                                                                                   ------------------      -----------------
        Total current liabilities                                                              3,397                 14,401
                                                                                   ------------------      -----------------

Commitments

Shareholders' equity:
    Preferred stock, no par value, 5,000,000 shares authorized;
      none issued or outstanding                                                                   -                      -
    Common stock, no par value, 25,000,000 shars authorized;
      5,950,120 and 4,597,333 shares issued and outstanding                                   31,736                 14,846
    Common stock warrants                                                                      3,530                      -
    Accumulated deficit                                                                      (19,306)                (3,262)
    Accumulated other comprehensive loss                                                           -                    (31)
                                                                                   ------------------      -----------------
       Total shareholders' equity                                                             15,960                 11,553
                                                                                   ------------------      -----------------
       Total liabilities and shareholders' equity                                $            19,357     $           25,954
                                                                                   ==================      =================
</TABLE>


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


                                       18
<PAGE>

                      CENTERSPAN COMMUNICATIONS CORPORATION
                          (FORMERLY THRUSTMASTER, INC.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>

                                                                         1999                  1998                  1997
                                                                   -----------------     -----------------     -----------------
<S>                                                              <C>                   <C>                   <C>
Revenue                                                          $              787    $                -    $                -
Cost of goods sold                                                              569                     -                     -
                                                                   -----------------     -----------------     -----------------
Gross profit                                                                    218                     -                     -

Operating expenses:
    Research and engineering                                                    782                   162                     -
    Selling, general and administrative                                       2,474                   935                   495
    Special charge                                                            2,500                     -                     -
                                                                   -----------------     -----------------     -----------------
                                                                              5,756                 1,097                   495
                                                                   -----------------     -----------------     -----------------
Loss from operations                                                         (5,538)               (1,097)                 (495)


Interest income                                                                 417                    64                   304
Expense from beneficial conversion feature                                     (987)                    -                     -
                                                                   -----------------     -----------------     -----------------
                                                                               (570)                   64                   304
                                                                   -----------------     -----------------     -----------------
Loss from continuing operations before taxes                                 (6,108)               (1,033)                 (191)
Provision for income taxes                                                    4,532                     -                     -
                                                                   -----------------     -----------------     -----------------
Loss from continuing operations                                             (10,640)               (1,033)                 (191)
Loss from discontinued operations:
  Income (loss) from discontinued operations, net
    of tax provision (benefit) of $0, ($5,792) and $1,615                    (5,207)               (8,023)                3,388
  Gain from disposal of discontinued operations                                   6                     -                     -
                                                                   -----------------     -----------------     -----------------
Net income (loss)                                                $          (15,841)   $           (9,056)   $            3,197
                                                                   =================     =================     =================

Basic and diluted loss per share from continuing
  operations                                                     $            (2.11)   $            (0.24)   $            (0.04)
                                                                   =================     =================     =================

Income (loss) per share from discontinued operations:
  Basic                                                          $            (1.03)   $            (1.83)   $             0.79
                                                                   =================     =================     =================
  Diluted                                                        $            (1.03)   $            (1.83)   $             0.73
                                                                   =================     =================     =================

Net income (loss) per share:
  Basic                                                          $            (3.14)   $            (2.07)   $             0.75
                                                                   =================     =================     =================
  Diluted                                                        $            (3.14)   $            (2.07)   $             0.69
                                                                   =================     =================     =================

Shares used for per share calculations:
  Basic                                                                       5,038                 4,380                 4,268
                                                                   =================     =================     =================
  Diluted                                                                     5,038                 4,380                 4,660
                                                                   =================     =================     =================
</TABLE>


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


                                       19
<PAGE>

                      CENTERSPAN COMMUNICATIONS CORPORATION
                          (FORMERLY THRUSTMASTER, INC.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>

                                                                            1999                  1998                   1997
                                                                       ----------------      ----------------       ----------------
<S>                                                                  <C>                   <C>                    <C>
Cash flows from operating activities:
   Loss from continuing operations                                   $         (10,640)    $          (1,033)     $            (191)
   Gain (loss) from discontinued operations                                     (5,207)               (8,023)                 3,388
   Gain from sale of discontinued operations                                         6                     -                      -
                                                                       ----------------      ----------------       ----------------
     Net income (loss)                                                         (15,841)               (9,056)                 3,197
   Adjustments to reconcile net income (loss) to net cash flows
      provided by (used in) operating activities:
         Depreciation                                                              607                 1,124                    471
         Deferred income taxes                                                   4,677                (4,332)                  (127)
         Beneficial conversion feature on debt                                     987                     -                      -
         Warrants issued for technology                                          2,500                     -                      -
   Changes in operating assets and liabilities
         Restricted cash                                                        (2,282)                    -                      -
         Accounts receivable                                                        (4)                    -                      -
         Prepaid expenses and other assets                                         363                   (94)                  (181)
         Income taxes receivable                                                 2,078                (2,078)                     -
         Accounts payable and accrued liabilities                               (5,152)                2,942                    792
         Net assets from discontinued operations                                17,737                 6,474                (10,494)
                                                                       ----------------      ----------------       ----------------
               Net cash provided by (used in) operating activities               5,670                (5,020)                (6,342)

Cash flows from investing activities:
   Payments for purchase of plant and equipment                                   (172)                 (359)                  (793)

Cash flows from financing activities:
   Proceeds from (payments on) operating line of credit, net                    (5,821)                4,711                  1,110
   Payments on long-term debt                                                        -                     -                    (10)
   Proceeds from issuance of convertible debt                                    6,000                     -                      -
   Proceeds from issuance of common stock and warrants                          10,330                   679                     64
                                                                       ----------------      ----------------       ----------------
               Net cash provided by financing activities                        10,509                 5,390                  1,164
                                                                       ----------------      ----------------       ----------------

Increase (decrease) in cash and cash equivalents                                16,007                    11                 (5,971)

Cash and cash equivalents:
   Beginning of period                                                             460                   449                  6,420
                                                                       ----------------      ----------------       ----------------
   End of period                                                     $          16,467     $             460      $             449
                                                                       ================      ================       ================

Cash paid during the year for:
   Income taxes                                                      $               -     $           1,025      $           1,531
</TABLE>


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


                                       20
<PAGE>

                      CENTERSPAN COMMUNICATIONS CORPORATION
                          (FORMERLY THRUSTMASTER, INC.)
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                                                 Retained
                                                                        Common Stock               Common        Earnings
                                                             ------------------------------------  Stock       (Accumulated
                                                                 Shares           Amount          Warrants       Deficit)
                                                             ---------------    ------------     -----------    -----------
<S>                                                          <C>              <C>              <C>            <C>
Balance at December 31, 1996                                          4,240   $      13,301    $          -   $      2,597

Proceeds from issuance of common stock                                   54              64               -              -
Tax benefits from stock options exercised                                 -             121               -              -
Net income                                                                -               -               -          3,197
                                                             ---------------    ------------     -----------    -----------
Balance at December 31, 1997                                          4,294          13,486               -          5,794

Proceeds from issuance of common stock                                  303             679               -              -
Tax benefits from stock options exercised                                 -             681               -              -
Comprehensive loss:
  Cumulative translation adjustment                                       -               -               -              -
Net loss                                                                  -               -               -         (9,056)
                                                             ---------------    ------------     -----------    -----------
Balance at December 31, 1998                                          4,597          14,846               -         (3,262)

Proceeds from issuance of common stock                                  848           9,270           1,030              -
Tax benefits from stock options exercised                                 -              30               -              -
Beneficial conversion feature on debt                                     -             987               -              -
Conversion of convertible debt                                          492           6,000               -              -
Warrants provided to common shareholders                                 13             203               -           (203)
Warrants issued in exchange for goods and services                        -               -           2,500              -
Non-cash compensation expense                                             -             400               -              -
Comprehensive income:
  Cumulative translation adjustment                                       -               -               -              -
Net loss                                                                  -               -               -        (15,841)
                                                             ---------------    ------------     -----------    -----------
Balance at December 31, 1999                                          5,950   $      31,736    $      3,530   $    (19,306)
                                                             ===============    ============     ===========    ===========

<CAPTION>
                                                                   Accumulated
                                                                      Other          Total
                                                                  Comprehensive   Shareholders'
                                                                  Income (Loss)      Equity
                                                               --------------------------------
<S>                                                          <C>                 <C>
Balance at December 31, 1996                                 $              -    $      15,898

Proceeds from issuance of common stock                                      -               64
Tax benefits from stock options exercised                                   -              121
Net income                                                                  -            3,197
                                                               ---------------     ------------
Balance at December 31, 1997                                                -           19,280

Proceeds from issuance of common stock                                      -              679
Tax benefits from stock options exercised                                   -              681
Comprehensive loss:
  Cumulative translation adjustment                                       (31)             (31)
Net loss                                                                    -           (9,056)
                                                               ---------------     ------------
Balance at December 31, 1998                                              (31)          11,553

Proceeds from issuance of common stock                                      -           10,300
Tax benefits from stock options exercised                                   -               30
Beneficial conversion feature on debt                                       -              987
Conversion of convertible debt                                              -            6,000
Warrants provided to common shareholders                                    -                -
Warrants issued in exchange for goods and services                          -            2,500
Non-cash compensation expense                                               -              400
Comprehensive income:
  Cumulative translation adjustment                                        31               31
Net loss                                                                    -          (15,841)
                                                               ---------------     ------------
Balance at December 31, 1999                                 $              -    $      15,960
                                                               ===============     ============
</TABLE>


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


                                       21
<PAGE>

                      CENTERSPAN COMMUNICATIONS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1.  THE COMPANY

CenterSpan Communications Corporation was originally incorporated in 1990 as
ThrustMaster, Inc., an Oregon Corporation. The Company changed its name to
CenterSpan Communications Corporation in October 1999.

The Company has historically been a developer and marketer of realistic, high
quality game controllers for the home personal computer ("PC") and video console
markets, which comprised the Company's hardware business. The Company sold this
portion of its business in July 1999. See Note 3. The Company is now pursuing an
Internet e-commerce transaction business model, with revenue expected to be
generated from Internet and e-commerce partners.

The Company's new Internet community, collaboration and communications business
develops and markets Internet software products based on three cutting-edge
technologies developed by the Intel Architecture Labs. These technologies
facilitate PC-to-PC text messaging and multi-point audio over the Internet,
enabling communication and collaborative information sharing. The Company's new
Internet community, collaboration and communications product is nearing
commercial release.

The consolidated financial statements include the accounts of CenterSpan
Communications Corporation (the "Company"), an Oregon corporation, and its
wholly-owned subsidiaries, ThrustMaster (Europe) Limited and ThrustMaster
(Deutschland) GmbH.

NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS. Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less.

RESTRICTED CASH. Restricted cash includes $2,250 held in escrow related to the
sale of the Company's hardware business. The $2,250 is scheduled to be released
at various dates through May 31, 2000. The entire $2,250 may not be received by
the Company in certain circumstances that relate to the ability of the purchaser
to renew a certain contract, collect accounts receivable and sell through
inventory that existed at the date of purchase.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments consist
of accounts receivable and accounts payable. For the periods presented, the fair
value of the Company's financial instruments is equal to the carrying value of
the financial instruments.

PLANT AND EQUIPMENT. Plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives (three to seven
years). Replacements and improvements which extend the useful life are
capitalized. Maintenance and repairs and routine replacements are expensed as
incurred. Upon disposal, costs and related accumulated depreciation of the
assets are removed from the accounts and resulting gains and losses are
reflected in operations.


                                       22
<PAGE>

INCOME TAXES. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial reporting and
tax bases of assets and liabilities and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period of change.

REVENUE RECOGNITION. Revenue for software sold in the retail channel was
recognized at the time of product shipment. Beginning in 2000, revenue generated
by the Company's new product, Socket(TM), will be recognized at the time an
end-user transaction is completed with one of the Company's Internet affiliate
partners.

RESEARCH AND ENGINEERING EXPENSE. Research and engineering costs, including
software development costs, are charged to operations as incurred and totaled
$782, $162 and $0 for continuing operations in 1999, 1998 and 1997,
respectively.

SOFTWARE DEVELOPMENT COSTS. Development costs related to software products are
expensed until technological feasibility of the product has been established.
Based on the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have not been significant, and, accordingly, no costs
have been capitalized.

TECHNOLOGY. The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, and changing customer needs.
The Company believes that its future success will depend, in part, upon its
ability to enhance its current products and develop new products on a timely and
cost-effective basis, and to respond to changing customer needs and
technological developments. An inability of the Company to generate demand for
its products, whether as a result of competition, technological change or other
factors, could have a material adverse effect on the Company's financial
condition and results of operations.

ADVERTISING. Advertising costs, which include cooperative advertising and
marketing development funds, are expensed as incurred and totaled $159 for
continuing operations in 1999 and zero in 1998 and 1997.

STOCK BASED COMPENSATION. The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." ("APB No. 25")
and complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is based on
the difference, if any, on the date of grant between the exercise price of the
instrument granted and the fair value of the underlying stock. Non-employee
stock-based compensation is determined in accordance with SFAS No. 123,
utilizing the Black Scholes valuation methodology. Stock-based compensation is
amortized over the vesting period of the related securities.


                                       23
<PAGE>

EARNINGS PER SHARE DATA. Basic earnings per common share is computed using the
weighted average number of shares of common stock outstanding for the period.
Diluted earnings per common share is computed using the weighted average number
of shares of common stock and dilutive common equivalent shares outstanding
during the year. Common equivalent shares from stock options and other common
stock equivalents are excluded from the computation when their effect is
antidilutive.

COMPREHENSIVE INCOME (LOSS). The Company has adopted the accounting treatment
prescribed by Financial Accounting Standards Board SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
comprehensive income (loss) and its components in financial statements.
Comprehensive income (loss), as defined, includes all changes in equity during a
period from non-owner sources. Comprehensive income (loss) was $(15,810),
$(9,087) and 3,197 for the years ended December 31, 1999, 1998 and 1997,
respectively.

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

NOTE 3.  DISCONTINUED OPERATIONS: DISPOSAL OF HARDWARE BUSINESS ASSETS

On July 26, 1999, the Company entered into an agreement to sell substantially
all of the assets of its hardware business including related sales and return
warranty reserves. This transaction closed on October 1, 1999 for $15,000 in
cash, $2,250 million of which remains in an escrow account and is scheduled to
be released at various dates through May 31, 2000. The entire $2,250 may not be
received by the Company in certain circumstances that relate to the ability of
the purchaser to renew a certain contract, collect accounts receivable and sell
through inventory that existed at the date of purchase. The Company recorded a
gain on the disposal of its hardware business of $6 in the fourth quarter of
1999. Revenues applicable to the discontinued operations were $13,452, $25,905
and $45,494 for the years ended December 31, 1999, 1998 and 1997, respectively.

The components of net assets from discontinued operations included in the
consolidated balance sheet at December 31, 1998 were as follows:

<TABLE>
<S>                                                   <C>
Accounts receivable, net                              $       10,581
Inventories, net                                               6,786
Prepaid expenses and other                                       118
Tooling, net                                                   1,507
Sales return and warranty reserves                            (1,255)
                                                         --------------
                                                      $       17,737
                                                         ==============
</TABLE>


                                       24
<PAGE>

NOTE 4.  CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

The financial instrument which potentially subjects the Company to concentration
of credit risk is accounts receivable. The Company's accounts receivable are
primarily from a small number of computer wholesale distributors and software
specialty stores located in the United States, Canada, and western Europe.
Management believes that any risk of loss is significantly reduced by its
ongoing credit evaluations of its distributors' financial condition

Two distributors accounted for 89% and 10%, respectively, of the Company's total
revenue from continuing operations in 1999. These distributors accounted for 75%
and 0%, respectively, of the accounts receivable balance at December 31, 1999.
The Company did not have any revenue from continuing operations in 1998 or 1997.

NOTE 5.  PLANT AND EQUIPMENT

Plant and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                1999             1998
                                                             ------------     ------------
<S>                                                      <C>              <C>
Computers and other equipment                            $        634     $        844
Tooling                                                             3                -
Furniture and fixtures                                            364              393
                                                             ------------     ------------
                                                                1,001            1,237
Less:  Accumulated depreciation                                  (601)            (394)
                                                             ------------     ------------
                                                         $        400     $        843
                                                             ============     ============
</TABLE>

NOTE 6.  ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                                     1999              1998
                                                                                 -------------     -------------
<S>                                                                          <C>               <C>
Accrued bonuses                                                              $          300    $           35
Accrued sublease costs                                                                  297                 -
Other accrued expenses related to discontinued operations                             1,553                 -
Other liabilities                                                                       192             1,343
                                                                                 -------------     -------------
                                                                             $        2,342    $        1,378
                                                                                 =============     =============
</TABLE>

NOTE 7.  COMMITMENTS AND CONTINGENCIES

The Company leases facilities and equipment under non-cancelable operating
leases. Certain of the facility leases contain escalation clauses. The following
is a schedule by years, through expiration of the facilities leases, of future
minimum lease payments required under these leases as of December 31, 1999:

<TABLE>
<S>                                                                  <C>
                       For the year ending December 31,
                       2000                                          $            243
                       2001                                                       248
                       2002                                                       255
                       2003                                                       180
                                                                         ---------------
                                                                     $            926
                                                                         ===============
</TABLE>


                                       25
<PAGE>

Under the agreements for the lease of its office, production, and distribution
facilities, the Company is obligated to the lessors for its share of certain
expenses related to the use, operation, maintenance and insurance of the
property. These expenses, payable monthly in addition to the base rent, are not
included in the amounts shown above. Rental expense totaled $222, $222 and $133
for the years ended December 31, 1999, 1998, and 1997, respectively.

From time to time, the Company is involved in various claims arising from the
operation of the business. Management does not believe that the items
outstanding at December 31, 1999 will have a material adverse impact on the
financial position of the Company.

NOTE 8.  CHANGES IN EQUITY

On January 28, 1999, the Company issued to three investors an aggregate of 250
shares of the Company's Common Stock (subject to adjustment as described below)
and warrants to acquire 71 shares of Common Stock for an aggregate of $4,000.
The exercise price applicable to 50% of the shares issuable upon exercise of the
warrants is $20.00 per share; the exercise price for the remaining warrant
shares is $22.40 per share. The Common Stock warrants are exercisable until
January 28, 2004. The Company also agreed to issue to the investors "adjustment"
shares of its Common Stock for no additional consideration depending upon the
market price of the Company's Common Stock during specified periods following
the investment. The adjustment periods lapsed in July 1999 and the Company was
not required to issue any additional shares.

On June 9, 1999, the Company issued and sold to two investors $6,000 aggregate
principal amount of the Company's zero coupon Convertible Debentures due June 9,
2002 (the "Debentures"). The Debentures were converted into 492 shares of the
Company's Common Stock in December 1999.

On August 31, 1999, the Company sold 274 shares of the Company's Common Stock
for $18.258 per share to a single investor, receiving $5,000 in proceeds. In
connection with the sale, the Company issued a warrant for 30 shares of the
Company's Common Stock to the investor's financial consultant as a finder's fee.
The exercise price for this warrant is $18.258 per share and is exercisable at
any time before August 30, 2004.

In August 1999, the Company issued a warrant to acquire 200 shares of its Common
Stock for $18.09 per share to Intel Corp. in exchange for certain technology
that was subsequently written off as a special charge. The warrant is
exercisable until August 9,2004.

NOTE 9.  STOCK OPTION PLANS AND WARRANTS

OPTIONS
The Company has adopted a stock option plan for employees and directors (the
"1998 Stock Option Plan"). The Company has reserved 1,000 shares for issuance
under the 1998 Stock Option Plan. Subject to shareholder approval at the
Company's 2000 Annual Meeting, the number of shares reserved for issuance will
increase by 500 to a total of 1,500. The plan provides for incentive stock
options and nonqualified options to be granted. The Company previously made
grants under the 1994 Stock Option Plan, the 1994 Directors' Stock Option Plan,
and a nonqualified plan adopted in 1990 under which 1,200 shares had been
reserved. In May 1998, any ungranted options and any future forfeitures under
the 1994 and 1990


                                       26
<PAGE>

option plans were transferred to the 1998 Stock Option Plan. At December 31,
1999, the Company had 1,492 shares reserved for issuance under the 1998 Stock
Option Plan and all previous plans combined. The Company has also issued options
outside of the 1998 Stock Option Plan for which it had 110 shares reserved for
issuance at December 31, 1999.

The stock option plans generally require the price of options to be at the
estimated fair market value of the stock at the date of grant. Options have a
maximum duration of ten years (five years under certain circumstances) and may
be exercised in varying amounts over the vesting periods. During 1998, the Board
of Directors approved a stock option repricing for all executives and employees
of the Company. Included in the options granted and options cancelled in 1998
are 278 options related to this repricing. The repricing was effective as of
October 1, 1998.

The following table summarizes all stock option transactions:

<TABLE>
<CAPTION>
                                                                                                    Weighted
                                                                                                     Average
                                                                    Shares           Shares         Exercise
                                                                  Available        Subject to         Price
                                                                  for Grant          Options        Per Share
                                                                 -------------     ------------   --------------
<S>                                                              <C>               <C>            <C>
Balances, December 31, 1996                                            426              734           $ 2.69
  Options granted                                                    (243)              243             9.82
  Options cancelled                                                     40             (40)             7.61
  Options exercised                                                      -             (41)             1.55
                                                                 -------------     ------------   --------------
Balances, December 31, 1997                                            223              896             4.54
  Additional shares reserved                                         1,060                -                -
  Options granted                                                    (811)              811             6.25
  Options cancelled                                                    358            (358)             9.37
  Options exercised                                                      -            (303)             2.24
                                                                 -------------     ------------   --------------
Balances, December 31, 1998                                            830            1,046             4.11
  Additional shares reserved                                            50                -                -
  Options granted                                                    (752)              752            14.31
  Options cancelled                                                    293            (293)             7.87
  Options exercised                                                      -            (324)             4.35
                                                                 -------------     ------------   --------------
Balances, December 31, 1999                                            421            1,181           $10.01
                                                                 =============     ============   ==============
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                          Options Outstanding                                      Options Exercisable
------------------------------------------------------------------------    ----------------------------------
                                            Weighted
                                             Average          Weighted                            Weighted
     Range of                               Remaining         Average          Number of           Average
     Exercise              Number          Contractual        Exercise          Shares            Exercise
      Prices            Outstanding        Life (years)        Price          Exercisable           Price
------------------    ---------------     -------------     ------------    ---------------    ---------------
<S>                   <C>                 <C>               <C>             <C>                <C>
    $ 0.27 - 5.34           457               7.3               $3.03              455             $ 3.03
     7.40 - 13.69           311               9.6               12.86               21               8.84
    15.00 - 17.50           413               9.8               15.58               80              15.47
------------------    ---------------     -------------     ------------    ---------------    ---------------
    $0.27 - 17.50         1,181               8.8              $10.01              556             $ 5.04
==================    ===============     =============     ============    ===============    ===============
</TABLE>

At December 31, 1998 and 1997, 308 and 494 options, respectively, were
exercisable at weighted average exercise prices of $2.73 per share and $2.25 per
share, respectively.


                                       27
<PAGE>

WARRANTS
All warrants are exercisable for shares of the Company's Common Stock. The
following table summarizes warrant transactions:

<TABLE>
<CAPTION>
                                                                     Warrant                          Weighted
                                                      Shares          Shares                          Average
                      Shares          Warrant        Acquired      Outstanding                        Exercise
     Date           Subject to        Shares           Upon        at December       Expiration        Price
    Issued            Warrant        Cancelled       Exercise        31, 1999           Date         Per Share
---------------   ---------------   ------------    -----------   ---------------   -------------   -------------
<S>               <C>               <C>             <C>           <C>               <C>             <C>
     03/03/95           117             14               13              90           02/24/00           7.57
     05/04/98            89              -               -               89           12/04/03           4.81
     08/09/99           200              -               -              200           08/09/04          18.09
     08/30/99            30              -               -               30           08/30/04          18.26
     01/28/99            35              -               -               35           01/28/04          20.00
     01/28/99            35              -               -               35           01/28/04          22.40
                                                                  ---------------                   -------------
                                                                        479                            $14.11
                                                                  ===============                   =============
</TABLE>

At December 31, 1999, 1998 and 1997 warrants covering 479, 206 and 117 shares of
the Company's Common Stock, respectively, were exercisable at weighted average
exercise prices of $14.11, $6.38 and $7.57 per share, respectively.

SFAS 123
The Company applies APB opinion No. 25 and related interpretations in accounting
for its stock based compensation plans. However, in accordance with SFAS 123,
pro forma disclosures as if the Company adopted the fair value method
requirements under SFAS 123 for all awards subsequent to January 1, 1995, are
presented below.

The weighted average per share fair value of options and warrants granted during
1999, 1998 and 1997 was $6.37 $0.66 and $2.04, respectively. The fair value of
each option and warrant granted during the years ended 1999, 1998 and 1997 was
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions:

<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                     ---------------------------------------------------------
                                          1999                1998                 1997
                                     ----------------    ----------------    -----------------
<S>                                  <C>                 <C>                 <C>
Risk-free interest rate                    4.6%-5.9%           4.1%-5.6%           5.9%-6.8%
Expected dividend yield                           0%                  0%                  0%
Expected lives (years)                            5                 3.3                 3.3
Volatility                                   76%-78%               33.9%               26.7%
</TABLE>


                                       28
<PAGE>

Had compensation cost for the Company's stock option plans and warrants been
determined consistent with SFAS 123, the Company's net income (loss) would have
been adjusted to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                   -------------------------------------------
                                                                      1999            1998            1997
                                                                   -----------     -----------     -----------
<S>                                                             <C>             <C>             <C>
Loss from continuing operations:
   As reported                                                  $    (10,640)   $     (1,033)   $       (191)
   Pro forma                                                         (11,277)         (1,033)           (191)
Basic and diluted loss per share from continuing operations:
   As reported                                                         (2.11)          (0.24)          (0.04)
   Pro forma                                                           (2.24)          (0.24)          (0.04)

Income (loss) from discontinued operations:
   As reported                                                        (5,201)         (8,023)           3,388
   Pro forma                                                          (5,340)         (8,288)           3,178
Basic income (loss) per share from discontinued operations:
   As reported                                                         (1.03)          (1.83)            0.79
   Pro forma                                                           (1.06)          (1.89)            0.74
Diluted income (loss) per share from discontinued operations:
   As reported                                                         (1.03)          (1.83)            0.73
   Pro forma                                                           (1.06)          (1.89)            0.68

Net income (loss):
   As reported                                                       (15,841)         (9,056)           3,197
   Pro forma                                                         (16,617)         (9,321)           2,987
Basic net income (loss) per share:
   As reported                                                         (3.14)          (2.07)            0.75
   Pro forma                                                           (3.30)          (2.13)            0.70
Diluted net income (loss) per share:
   As reported                                                         (3.14)          (2.07)            0.69
   Pro forma                                                           (3.30)          (2.13)            0.64
</TABLE>

The effect of applying SFAS 123 in this pro forma disclosure is not indicative
of future amounts.

NOTE 10.  INCOME TAXES

The provision for (benefit from) income taxes from continuing operations in 1999
and discontinued operation in 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                         Year ended December 31,
                             -------------------------------------------------
                                 1999              1998              1997
                             -------------     -------------     -------------
<S>                       <C>               <C>              <C>
Current:
  Federal                 $       (145)     $      (2,224)   $       1,535
  State                              -                  -              207
                             -------------     -------------     -------------
                                     -             (2,224)           1,742
Deferred:
  Federal                        4,166             (2,591)            (105)
  State                            511               (977)             (22)
                             -------------     -------------     -------------
                                 4,677             (3,568)            (127)
                             -------------     -------------     -------------
                          $      4,532      $      (5,792)   $       1,615
                             =============     =============     =============
</TABLE>


                                       29
<PAGE>

The provision for (benefit from) income taxes differs from the amount of income
taxes determined by applying the statutory federal income tax rate to income
from continuing operations for 1999 and discontinued operations for 1998 and
1997 due to the following:

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                  -----------------------------------------
                                                                     1999            1998           1997
                                                                  -----------     -----------     ---------
<S>                                                               <C>             <C>             <C>
Statutory federal income tax rate                                      (34.0) %        (34.0) %       34.0  %
State taxes, net of federal income taxes                               (4.4)            (4.4)          2.2
Change in valuation allowance                                          108.0
Research and development tax credit and other                              -            (3.5)         (3.9)
                                                                  -----------     -----------     ---------
Effective tax rate                                                      69.6  %        (41.9) %       32.3  %
                                                                  ===========     ===========     =========
</TABLE>

Deferred tax assets (liabilities) are comprised of the following components:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                  -----------------------------
                                                                                      1999             1998
                                                                                  -------------     -----------
<S>                                                                            <C>                <C>
Deferred tax assets:
  Expenses and allowances not currently deductible                             $          627     $     1,158
  Net operating loss carryforwards                                                      7,155           2,938
  Credit carryforwards                                                                    581             581
                                                                                  -------------     -----------
Net deferred income taxes                                                               8,363           4,677
Valuation allowance                                                                    (8,363)              -
                                                                                  -------------     -----------
                                                                               $            -     $     4,677
                                                                                  =============     ===========
</TABLE>

The valuation allowance for deferred tax assets as of January 1, 1997 was $0.
The net change in total valuation allowance for the years ended December 31,
1999, 1998 and 1997 was an increase of $8,363, $0 and $0, respectively.

The Company has federal, state and foreign net operating loss carryforwards of
$12,100, $20,015 and $6,550, respectively, that expire from 2013-2019. The
Company has accumulated unused federal and state research and experimentation
credits of approximately $461 that expire from 2003-2019. The Company also has
Alternative Minimum Tax (AMT) credits in the amount of $163, which may be
carried forward indefinitely.

NOTE 11.  EARNINGS PER SHARE

Shares used for basic and diluted earnings per share ("EPS") are the same for
1999 and 1998 since the Company was in a loss position. The difference between
the 4,268 shares used for the basic EPS calculation in 1997 and the 4,660 shares
used for the diluted EPS calculation in 1997 is a result of 392 dilutive common
stock equivalents related to stock options and warrants.

Potentially dilutive securities that were not included in the diluted net loss
per share calculations because they would be antidilutive were as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                         -----------------------------------------------
                                            1999             1998              1997
                                         ------------    --------------     ------------
<S>                                      <C>             <C>                <C>
Stock options                                1,181            1,046               40
Stock warrants                                 479              117                -
                                         ------------    --------------     ------------
  Total                                      1,660            1,163               40
                                         ============    ==============     ============
</TABLE>


                                       30
<PAGE>

NOTE 12.  401 (k) PLAN

The Company has a 401(k) Plan (the "Plan") covering substantially all employees
meeting minimum service requirements. The Plan allows the Company to make
discretionary matching contributions. The Company provided discretionary
contributions of $30, $46, and $45 for the years ended December 31, 1999, 1998,
and 1997, respectively.

NOTE 13.  QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected unaudited quarterly financial data for each of the eight quarters in
the two-year period ended December 31, 1999 is as follows:

<TABLE>
<CAPTION>

IN THOUSANDS, EXCEPT PER SHARE DATA             1ST QUARTER        2ND QUARTER       3RD QUARTER       4TH QUARTER
------------------------------------            -----------        -----------       -----------       -----------
<S>                                             <C>                <C>               <C>               <C>
1998
----
Revenue                                             $     -            $     -           $     -           $     -
Gross profit                                              -                  -                 -                 -
Loss from continuing operations                        (203)              (203)             (244)             (383)
Loss from discontinued operations                    (1,038)            (2,626)           (3,038)           (1,321)
Net loss                                             (1,241)            (2,829)           (3,282)           (1,704)
Loss per share from continuing operations
       Basic                                          (0.05)             (0.05)            (0.06)            (0.09)
       Diluted                                        (0.05)             (0.05)            (0.06)            (0.09)
Loss per share from discontinued
   operations
       Basic                                          (0.24)             (0.60)            (0.69)            (0.29)
       Diluted                                        (0.24)             (0.60)            (0.69)            (0.29)

1999
----
Revenue                                             $   346            $   375           $    85           $   (19)
Gross profit                                            246                235                71              (334)
Loss from continuing operations                        (202)            (5,113)           (1,724)           (3,601)
Gain (loss) from discontinued operations
                                                       (196)            (5,011)                -                 6
Net loss                                               (398)           (10,124)           (1,724)           (3,595)
Loss per share from continuing operations
       Basic                                          (0.04)             (1.05)            (0.34)            (0.66)
       Diluted                                        (0.04)             (1.05)            (0.34)            (0.66)
Gain (loss) per share from discontinued
   operations
       Basic                                          (0.04)             (1.03)                -                 -
       Diluted                                        (0.04)             (1.03)                -                 -
</TABLE>


                                       31
<PAGE>

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

PricewaterhouseCoopers LLP ("PWC") was the Company's independent auditors for
its fiscal year ended December 31, 1998. On November 17, 1999, with the approval
of the Audit Committee of the Board of Directors, the Company dismissed PWC as
its independent auditors. PWC's reports on the Company's financial statements
for the last two fiscal years did not contain an adverse opinion or a disclaimer
of opinion and the reports were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's last two fiscal years
and during the current year through November 17, 1999, there were not any
disagreements with PWC on any matter of auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PWC, would have caused it
to make a reference to the subject matter of the disagreement in connection with
its reports.

PWC filed a letter dated November 17, 1999 indicating its concurrence with these
statements.

The Company engaged KPMG LLP ("KPMG") as its new independent accountants as of
November 17, 1999. During the two most recent fiscal years and through November
17, 1999, the Company had not consulted with KPMG on items which: 1) were or
should have been subject to SAS 50; or 2) concerned the subject matter of a
disagreement or reportable event with the former auditor (as described in
Regulation S-K Item 304 (a) (2)).


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item will be included under the captions ELECTION
OF DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE, respectively, in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this item will be included under the caption
EXECUTIVE COMPENSATION in the Company's Proxy Statement for its 2000 Annual
Meeting of Shareholders and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will be included under the caption
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's
Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated
herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


                                       32
<PAGE>

                                     PART IV


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

FINANCIAL STATEMENTS AND SCHEDULES
The Consolidated Financial Statements, together with the report thereon of KPMG
LLP, are included on the pages indicated below:

<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
<S>                                                                                         <C>
Independent Auditors' Report                                                                 16

Report of Independent Public Accountants                                                     17

Consolidated Balance Sheets as of December 31, 1999 and 1998                                 18

Consolidated Statements of Operations for the years ended December 31, 1999,1998
  and 1997                                                                                   19

Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998
  and 1997                                                                                   20

Consolidated Statements of Shareholders' Equity for the years ended December 31,
  1999, 1998 and 1997                                                                        21

Notes to Consolidated Financial Statements                                                   22
</TABLE>

There are no schedules required to be filed herewith.

REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the quarter ended December
31, 1999:
     -   Form 8-K dated  October 1, 1999 and filed  October 18, 1999 under
         Item 2,  Acquisition  or  Disposition  of Assets;
     -   Form 8-K dated November 17, 1999 and filed November 23, 1999 under
         Item 4, Change in Registrant's Certifying Accountant; and
     -   Form 8-K dated December 17, 1999 and filed December 21, 1999 under
         Item 5, Other Events.


                                       33
<PAGE>

EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:

<TABLE>
<CAPTION>

    Exhibit No.
    -----------
    <S>              <C>
         2           Asset Purchase Agreement dated July 26, 1999 among
                     Guillemont Corporation, S.A., as the Purchaser, and
                     Thrustmaster, Inc., as the Seller (Incorporated by
                     reference to Exhibit A to the Company's definitive proxy
                     statement for the September 27, 1999 Special Meeting of
                     Shareholders)

     3.1(1)          Articles of Incorporation, as amended

     3.2(2)          Amended and Restated Bylaws

     4.1(1)          Description of Capital Stock contained in the Articles of
                     Incorporation, as amended (see Exhibit 3.1)

     4.2(2)          Description of Rights of Security Holders contained in the
                     Amended and Restated Bylaws (see Exhibit 3.2)

     4.3(1)          Form of Certificate for Shares of Common Stock

     4.4(1)          Form of Representatives' Warrant Agreement among the
                     Company, Cruttenden Roth and Black & Company, Inc.

     4.5(4)          Securities Purchase Agreement dated as of January 28, 1999
                     among the Company and the Purchasers party thereto

     4.6(4)          Form of Callable Warrant

     4.7(4)          Registration Rights Agreement dated as of January 28, 1999
                     among the Company and the Purchasers party thereto

     4.8(6)          Common Stock Purchase Agreement, dated as of August 6,
                     1999, between the Company and Peter R. Kellogg

     4.9(6)          Form of Warrant issued to Lucas Capital Management

     10.1            1998 Stock Option Plan (Incorporated by reference to
                     Exhibit A to the Company's definitive proxy statement for
                     the 1998 Annual Meeting of Shareholders)

     10.2(1)         1994 Incentive Compensation Plan, dated December 21, 1993

     10.3(3)         Directors' Nonqualified Stock Option Plan, dated July 19,
                     1994, as amended

     10.4(3)         1994 Stock Option Plan, dated July 19, 1994, as amended

     10.5            1990 Stock Option Plan (incorporated by reference to
                     Exhibit 4.3 to the Registration Statement on Form S-8 filed
                     on June 5, 1995 (File No. 33-93082))


                                       34
<PAGE>

<CAPTION>

    Exhibit No.
    -----------
    <S>              <C>
     10.6(2)         Leases, dated March 13, 1996, between Pacific Realty
                     Associates, L.P. and the Company, as amended

     10.7(5)         Lease dated January 7, 1998 between Stargas Nominees
                     Limited and the Company

     10.8            Form of Change-in-Control Agreement for all officers of
                     CenterSpan Communications Corporation

     10.9            Software Development and License Agreement dated August 9,
                     1999 between Intel Corporation and the Company
                     (confidential treatment requested for portions of this
                     exhibit).

     16(7)           Letter re Change in Certifying Accountant.

     21(1)           Subsidiaries of the Registrant

     23.1            Consent of KPMG LLP

     23.2            Consent of PricewaterhouseCoopers LLP

     27              Financial data schedule
</TABLE>

    (1) Incorporated by reference to the Company's Registration Statement on
        Form SB-2 filed on January 5, 1995, as amended on February 7, 1995 and
        February 24, 1995 (File No. 33-88252-LA)
    (2) Incorporated by reference to the Company's Report on Form 10-K for the
        year ended December 31, 1996.
    (3) Incorporated by reference to the Company's Registration Statement on
        Form SB-2 filed on January 5, 1995, as amended on February 7, 1995 and
        February 24, 1995 (File No. 33-88252-LA); the amendment to the document
        is incorporated by reference to the Company's Report on Form 10-K for
        the year ended December 31, 1997.
    (4) Incorporated by reference to the Company's Current Report on Form 8-K
        filed on February 16, 1999.
    (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
        for the quarter ended March 31, 1998.
    (6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
        for the quarter ended September 30, 1999.
    (7) Incorporated by reference to the Company's Form 8-K dated November 17,
        1999 and filed November 23, 1999 under Item 4, Change in Registrant's
        Certifying Accountant.


                                       35
<PAGE>

SIGNATURES

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

Date:  March 27, 2000                  CENTERSPAN COMMUNICATIONS CORPORATION


                                       By /s/ Frank G. Hausmann, Jr.
                                         --------------------------------
                                       Frank G. Hausmann, Jr.
                                       President, Chief Executive Officer and
                                       Chairman of the Board


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 27, 2000:

<TABLE>
<CAPTION>

Signature                                   Title
---------                                   -----
<S>                                         <C>
/s/ Frank G. Hausmann, Jr.                  President, Chief Executive Officer and
--------------------------                  Chairman of the Board (Principal Executive Officer)
Frank G. Hausmann, Jr.


/s/ Mark B. Conan                           Vice President of Finance, Administration and CFO
-----------------------                     (Principal Financial and Accounting Officer)
Mark B. Conan


/s/ David Billstrom                         Director
-----------------------
David Billstrom


/s/ Merrill A. McPeak                       Director
-----------------------
Merrill A. McPeak


/s/ Lee E. Mikles                           Director
-----------------------
Lee E. Mikles


/s/ Jerome J. Meyer                         Director
-----------------------
Jerome J. Meyer


/s/ G. Gerald Pratt                         Director
-----------------------
G. Gerald Pratt


/s/ Frederick M. Stevens                    Director
-----------------------
Frederick M. Stevens
</TABLE>


                                       36