LAUNCH MEDIA INC, 424B4, 1999-04-26

LAUNCH MEDIA INC
424B4, 1999-04-26
COMMUNICATIONS SERVICES, NEC

Previous: MUNICIPAL INVESTMENT TR FD INVES GRDE PORT 11 BBB QUAL OR BE, 497, 1999-04-26

Next: NEC PROPERTIES INC, 10SB12G/A, 1999-04-26

<PAGE> 1
As filed pursuant to Rule 424(b)(4)
under the Securities Act of 1933
Registration No. 333-72433

PROSPECTUS

3,500,000 SHARES
[LAUNCH MEDIA LOGO]

COMMON STOCK

This is an initial public offering of common stock by Launch Media, Inc.
Launch is selling 3,500,000 shares of common stock. Under an agreement between
Launch and Sony Music Entertainment, Inc., Sony has agreed to purchase 45,454
shares in this offering at the initial public offering price. Intel Corporation,
a principal stockholder of Launch, has agreed to purchase directly from Launch,
at the initial public offering price less underwriting discounts and
commissions, 100,000 shares of common stock.

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

Prior to this offering, there has been no public market for the common
stock. The shares of common stock have been approved for quotation on the Nasdaq
National Market under the symbol LAUN.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................... $22.00 $74,800,000
Underwriting discounts and commissions...................... $ 1.54 $ 5,236,000
Price to Intel Corporation for 100,000 shares of common
stock..................................................... $20.46 $ 2,046,000
Proceeds to Launch, before expenses......................... $20.46 $71,610,000
</TABLE>

Launch has granted the underwriters an option for a period of 30 days to
purchase up to 510,000 additional shares of common stock. No underwriting
discounts or commissions will be paid and no over-allotment option has been
granted in connection with the sale of 100,000 shares by Launch directly to
Intel Corporation. The underwriters are severally underwriting the shares being
offered, other than any shares sold directly to Intel, on a firm commitment
basis.
------------------

INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

HAMBRECHT & QUIST
ALLEN & COMPANY INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC

April 23, 1999
<PAGE> 2

FRONT COVER

Discover LAUNCH on broadband
Moving from CD-ROM to broadband

Our history producing the monthly LAUNCH on CD-ROM positions us to help the
growing number of broadband users discover new music.

[Image from Launch on CD-ROM and consumer trials with MediaOne and @Home
depicting the interior of the area known as "The Hang." Includes images of
recording artist Canibus and Lee Jeans' advertising mascot Buddy Lee. Also
depicts a sign providing access to more information about recording artists
Barenaked Ladies and Natalie Inbruglia.]

[caption beneath photo] Currently on LAUNCH on CD-ROM and in trial with MediaOne
and @Home.

[Image depicting view of launch.com through Road Runner Beta Version.
Incorporates browser window with advertisements for Time Warner Cable, HBO and
Cyborgcasino.com. Also includes a still of a BackStreet Boys video.]

Road Runner Beta Version

[Image from Launch on CD-ROM and consumer trials with MediaOne and @Home
depicting an interactive advertisement for Surge. Includes images of
young adults playing street hockey in an urban setting.]

<PAGE> 3
GATEFOLD

On LAUNCH.com, music fans find the latest breaking news, exclusive artist
interviews, full-length music videos, free personalized home pages, user
reviews and live chats.

[Image depicting view of launch.com through browser window. Incorporates banner
advertisement for Lee Jeans and links to various music information on
launch.com. Also includes image of and information about the rock band Bush.]

The Destination For Music

LAUNCH.com combines personalized editorial content with access to a growing
community of music fans.

[Image depicting view of launch.com through browser window. Incorporates
advertisement for msn. Also includes image of recording artist Celine Dion and
information about the Grammy Awards.]

Through strategic alliances with leading internet players, LAUNCH.com reaches
over one million active music consumers.

[Images of logos for America Online, GO Network, Yahoo!, NBC.com and msn.]

[Image of a group of young adults from the Generation Y demographic group.]

[Image depicting view of launch.com through browser window. Incorporates
advertisement for Nintendo. Also includes personalized music news, information
and graphic for music videos on demand.]

Launch offers an interactive and engaging environment where leading brand
marketers, such as Coca-Cola, Nintendo, Lee Jeans and Visa, can target their
messages to an elusive audience that is making its early brand decisions.

[Image of Launch logo.]

LAUNCH(r)

launch.com. Discover New Music(TM)

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 23
Use of Proceeds............................................. 24
Dividend Policy............................................. 24
Capitalization.............................................. 25
Dilution.................................................... 26
Selected Financial Data..................................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Business.................................................... 44
Management.................................................. 64
Certain Transactions........................................ 72
Principal Stockholders...................................... 75
Description of Capital Stock................................ 79
Shares Eligible For Future Sale............................. 82
Underwriting................................................ 83
Plan of Distribution........................................ 86
Legal Matters............................................... 86
Experts..................................................... 86
Additional Information...................................... 86
Index to Financial Statements............................... F-1
</TABLE>

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

We maintain a worldwide Web site at www.launch.com. The reference to our
worldwide Web address does not constitute incorporation by reference of the
information contained at this site. LAUNCH and THE HANG are registered
trademarks of Launch. "Discover New Music" and www.launch.com are also
trademarks of Launch. All brand names and trademarks appearing in this
prospectus are the property of their respective holders.

2
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the financial statements,
before making an investment decision.

LAUNCH

Music is one of the most popular forms of entertainment and a multi-billion
dollar consumer industry. Consumers in the 10 to 34 age group purchased 62% of
the music sold in the U.S. in 1997. Historically, the music industry and music
consumers have looked to music media, such as MTV and radio, to serve as outlets
for marketing and discovering new music. For individuals in the 12 to 34 age
group, digital media such as the Internet are quickly becoming the media of
choice. We believe a significant opportunity exists to create a music brand in
digital media that serves as a single destination for the music consumer to
discover new music, the music industry to market new releases and the
advertising community to target a highly attractive demographic.

We create engaging music content focused on both new and established
artists, spanning almost all musical genres. We deliver personalized music
content, such as music news, exclusive artist interviews and performances,
concert reviews, music samples and music videos, to our members in an
interactive format based on members' musical tastes and preferences. Launch
works closely with many record labels, providing them an opportunity to market
new music to a broad market that can be difficult to reach through traditional
media. We have featured several of the biggest names in music, including Alanis
Morissette, Smashing Pumpkins, R.E.M., Matchbox 20, Wyclef Jean, Seal and Jewel,
and have introduced our audience to many new artists.

We design our music content to appeal to consumers in the 12 to 34 age
group because we believe that consumers in this group, and in particular those
who are members of Generation Y, identify strongly with the music they like and
value being the first to discover new music. We also believe that Generation Y
has been a critical factor in driving the success of new major acts, such as the
Spice Girls,
3
<PAGE> 6

Matchbox 20 and Hanson. Advertisers are beginning to realize, however, that
traditional brand marketing and advertising techniques may be less effective in
reaching this important group and are increasingly exploring new ways to attract
this demographic.

As part of our strategy to attract and retain registered members from our
target audience, we have created a vibrant community of users who help each
other discover new music by virtual word-of-mouth. Our music content encourages
our members to engage in community activities, such as creating home pages,
chatting online, listing friends and favorite artists, and developing online
friendships with others sharing similar tastes. This user-generated content
provides an additional source of music discovery and encourages regular, active
participation in the community. We believe that members with strong ties to the
community tend to spend significant amounts of time interacting with others and
are less likely to switch to a different music site. We also believe that the
growth of an active community based on personalized music tastes distinguishes
launch.com from other music Web sites.

We seek to attract and retain active music consumers with compelling music
content and community features. By aggregating 12 to 34 year old music
consumers, we believe we can create a valuable environment for advertisers,
merchants and record labels to market their products to an elusive, critical
audience. We intend to invest significant financial and management resources to
pursue our strategy, and it is possible that, for competitive or other reasons,
we will be unsuccessful.

RECENT EVENTS

On February 28, 1999, we completed the acquisition of Musicvideos.com. As a
result of this acquisition, we have significantly expanded our content by
offering streaming music videos on launch.com. In addition, on March 24, 1999,
we entered into an agreement with Sony Music to purchase SW Networks. SW
Networks produces editorial content and news features focused primarily on
music. SW Networks distributes this content for radio broadcast and Internet
syndication. We intend to continue to distribute SW Networks' content to
traditional media and to make this content available on launch.com. We believe
that this acquisition will enhance the content available on launch.com, and that
it will increase awareness of the Launch brand. As part of this acquisition
transaction, Sony has agreed to purchase 45,454 shares in this offering at the
initial public offering price.

ABOUT US

Our headquarters are located at 2700 Pennsylvania Avenue, Santa Monica,
California 90404, and our telephone number is (310) 526-4300.
4
<PAGE> 7

THE OFFERING

Common stock offered by Launch........... 3,500,000 shares

Common stock to be outstanding after this
offering............................... 12,014,188 shares(1)

Use of proceeds.......................... General corporate purposes,
including sales and marketing,
capital expenditures and working
capital.

Nasdaq National Market symbol............ LAUN
- ---------------
(1) Outstanding share information includes 681,818 shares to be issued to Sony
Music in connection with Launch's acquisition of SW Networks and 85,525
shares of common stock issuable upon conversion of outstanding convertible
notes. Outstanding share information excludes 1,372,472 shares subject to
outstanding options and warrants at a weighted average exercise price of
$3.04 per share and 448,437 shares issuable upon exercise of outstanding
warrants, which will terminate upon closing of this offering if not
exercised, at an exercise price of $20.46 per share. Unless otherwise
indicated, all information in the prospectus relating to outstanding shares
of Launch common stock or options or warrants to purchase Launch common
stock is based upon information as of March 31, 1999. See "Capitalization."

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

Unless otherwise noted, the information in this prospectus assumes the
following:

- completion of a 1-for-5 reverse stock split effected in March 1999;

- conversion of all outstanding shares of Launch's preferred stock into an
equal number of shares of common stock;

- conversion of outstanding convertible notes into shares of common stock;
and

- no exercise of the underwriters' over-allotment option.

Additionally, unless otherwise noted, the information in this prospectus,
other than historical financial information, reflects the acquisition of
Musicvideos.com in February 1999 and assumes completion of the SW Networks
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Recent Events" for a more complete description of
the terms of the Musicvideos.com and SW Networks acquisitions.
5
<PAGE> 8

The selected historical financial data presented below are derived from the
financial statements of Launch at the end of this prospectus. The financial
statements for each of the years in the three-year period ended December 31,
1998 have been audited by PricewaterhouseCoopers LLP, independent accountants.
The pro forma data summarized below give effect to the following:

- the conversion of all outstanding shares of Launch's preferred stock into
an equal number of shares of common stock, which will occur automatically
upon completion of this offering;

- the Musicvideos.com acquisition;

- the SW Networks acquisition; and

- the conversion of outstanding convertible notes into shares of common
stock, which will occur automatically upon completion of this offering.

The pro forma as adjusted balance sheet data summarized below reflects the
application of the estimated net proceeds from the sale of the 3,500,000 shares
of common stock offered hereby at the initial public offering price of $22.00
per share, after deducting underwriting discounts and commissions and estimated
offering expenses.

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PRO FORMA
------------------------------ YEAR ENDED
1996 1997 1998 DECEMBER 31, 1998
------- ------- -------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 1,375 $ 3,137 $ 5,014 $ 9,356
Loss from operations.......... (4,653) (6,675) (13,804) (23,249)
Net loss...................... $(4,488) $(6,692) $(13,419) $(22,866)
Basic and diluted net loss per
share(1)................... $ (5.37) $ (7.89) $ (16.36) $ (2.96)
Shares used in per share
calculation(1)............. 920 925 934 7,737
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................. $ 6,728 $ 7,935 $78,645
Working capital................................. 4,366 5,590 76,300
Intangible assets............................... 2,404 24,267 24,267
Total assets.................................... 13,164 37,977 108,687
Long-term obligations, net of current portion... 639 668 668
Mandatory redeemable convertible preferred
stock........................................ 36,707 -- --
Total stockholders' equity (deficit)............ (27,827) 33,566 104,276
</TABLE>

- ------------------------
(1) See note 2 of notes to financial statements for an explanation of the method
used to determine the number of shares used to compute per share amounts.
6
<PAGE> 9

RISK FACTORS

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

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

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

WE HAVE A HISTORY OF LOSSES. BECAUSE WE ANTICIPATE THAT OUR OPERATING EXPENSES
WILL GROW MORE QUICKLY THAN OUR REVENUES, AT LEAST IN THE SHORT TERM, WE
EXPECT INCREASED LOSSES

We incurred net losses of $4.5 million in 1996, $6.7 million in 1997 and
$13.4 million in 1998. As of December 31, 1998, our accumulated deficit was
$27.6 million. We have not achieved profitability and expect to incur operating
losses for the foreseeable future. We expect these operating losses to increase
for at least the next year. We will need to generate significant revenues to
achieve and maintain profitability, and we cannot assure you that we will be
able to do so. Even if we do achieve profitability, we cannot assure you that we
can sustain or increase profitability on a quarterly or an annual basis in the
future. If our revenues grow more slowly than we anticipate or if our operating
expenses exceed our expectations, our financial performance will likely be
adversely affected. See "Selected Financial Data" for more detailed information
regarding our historical operating and net losses.

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

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

7
<PAGE> 10

likely decline. Factors which may cause our revenues and operating results to
fluctuate include the following:

- our ability to attract and retain advertisers;

- our ability to increase the registered membership of launch.com and the
amount of time our audience members spend using launch.com;

- new Web sites, services or products introduced by us or by our
competitors;

- the timing and uncertainty of sales cycles;

- mix of online advertisements sold;

- seasonal declines in advertising sales, which typically occur in the
first and third calendar quarters;

- the level of Web and online services usage;

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

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

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

To attract and retain a larger audience, we plan to significantly increase
our expenditures for sales and marketing, content development, and technology
and infrastructure development. Many of these expenditures are planned or
committed in advance in anticipation of future revenues. Because advertising
orders are typically short term and subject to cancellation without penalty
until shortly before the advertisement runs, our quarterly operating results are
difficult to forecast. If our revenues in a particular quarter are lower than we
anticipate, we may be unable to reduce spending in that quarter. As a result,
any shortfall in revenues would likely adversely affect our quarterly operating
results.

BECAUSE WE DEPEND PRINCIPALLY UPON ADVERTISING REVENUES, IF WE DO NOT INCREASE
ADVERTISING SALES, ESPECIALLY SALES AGAINST THE LAUNCH.COM AUDIENCE, OUR
BUSINESS MAY NOT GROW OR SURVIVE

Our revenues for the foreseeable future will depend substantially on sales
of advertising. In 1997, advertising sales accounted for 59.3% of our net
revenues, and in 1998 they accounted for 60.6% of our net revenues. If we do not
increase advertising revenues, our business may not grow or survive. Increasing
our advertising revenues depends upon many factors, including our ability to do
the following:

- conduct successful selling and marketing efforts aimed at advertisers;

- increase the size of the launch.com audience;

- increase the amount of revenues per advertisement;

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

- increase awareness of the Launch brand among advertisers;

- target advertisements to appropriate segments of our audience;

8
<PAGE> 11

- make Launch available through evolving broadband distribution channels;
and

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

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

Advertising revenues are difficult to forecast, especially because the
market for advertising on digital media has emerged relatively recently. In
1998, we derived 26.8% of our net revenues from advertising barter transactions.
We have historically entered into barter transactions with advertisers that we
do not believe would pay cash for such advertisements. We expect to
substantially reduce both the dollar volume and frequency of such transactions
in future periods. In each quarterly period, we derive a significant portion of
our revenues from sales of advertising to a limited number of customers.
Accordingly, the loss of a key advertising relationship or the cancellation or
deferral of even a limited number of orders could adversely affect our quarterly
performance.

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

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

- continue to offer compelling music content;

- encourage our users to become part of our community;

- conduct effective marketing campaigns to acquire new members;

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

- update and enhance the features of launch.com;

- increase awareness of the Launch brand;

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

- offer targeted, relevant products and services.

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

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

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

9
<PAGE> 12

relationships. Moreover, we have paid in the past, and may pay in the future,
significant fees to establish these relationships.

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

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

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

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

- advertisers' budgetary constraints;

- internal acceptance reviews by advertisers and their agencies;

- the timing of completion of advertisements by advertisers; and

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

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

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

- quality of our editorial staff;

- technical expertise of our production staff;

- access to recording artists; and

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

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

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

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

10
<PAGE> 13

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

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

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

Historically, a limited number of advertisers has accounted for a
significant percentage of our revenues. Although no advertiser accounted for
more than 10% of total net revenues in 1998, our four largest advertisers
accounted for 23.5% of total net revenues. We anticipate that our results of
operations in any given period will continue to depend to a significant extent
upon revenues from a small number of advertisers. In addition, particularly
because few advertisers are contractually obligated to purchase any advertising
in the future, we anticipate that the mix of advertisers in each fiscal period
will continue to vary. In order to increase our revenues, we will need to
attract additional significant advertisers on an ongoing basis. Our failure to
sell a sufficient number of advertisements or to engage a sufficient number of
advertisers during a particular period could adversely affect our results of
operations.

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

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

11
<PAGE> 14

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

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

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

- online services and Web sites, including those targeted at music
consumers, such as SonicNet, mp3.com and UBL;

- Web retrieval and other Web "portal" companies, such as Excite, Inc.,
Infoseek Corporation, Lycos, Inc. and Yahoo! Inc.; and

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

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

- larger audiences;

- larger technical, production and editorial staffs;

- greater name recognition;

- better access to content;

- more established Internet presence;

- larger advertiser bases; and

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

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

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

Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, and particularly
David B. Goldberg, Launch's chief executive officer, and Robert D. Roback,
Launch's president. The loss of either of these individuals or certain other key
employees would likely have an adverse effect on our business. We have an
employment agreement with only one of our executive officers, and we do not
anticipate that other executive officers or key personnel will enter into
employment agreements. We expect that we will need to hire additional personnel
in all areas during 1999. Competition for personnel

12
<PAGE> 15

throughout our industry is intense. We may be unable to retain our current key
employees or attract, integrate or retain other highly qualified employees in
the future. We have in the past experienced, and we expect to continue to
experience, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. If we do not succeed in attracting new personnel or
retaining and motivating our current personnel, our business could be adversely
affected.

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

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

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

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

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

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

13
<PAGE> 16

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

There are currently no standards for the measurement of the effectiveness
of advertising on the Internet and other digital media, and the industry may
need to develop standard measurements. The absence or insufficiency of these
standards could adversely impact our ability to attract and retain advertisers.
We cannot assure you that such standard measurements will develop. In addition,
currently available software programs that track Internet usage and other
tracking methodologies are rapidly evolving. We cannot assure you that the
development of such software or other methodologies will keep pace with our
information needs, particularly to support the growing needs of our internal
business requirements and advertising clients. For instance, MediaMetrix, Inc.
has reported that, in December 1998, launch.com reached approximately 849,000
unique users, while it reached approximately 621,000 unique users in February
1999 and approximately 789,000 unique users in March 1999. Each unique user
represents one unduplicated person or household that accessed launch.com during
the relevant period. MediaMetrix determines the number of unique users reached
by a Website by extrapolating from a panel of users who report their usage to
MediaMetrix. We believe that the sampling method used by MediaMetrix to
determine these numbers may cause significant variations to occur on a
month-to-month basis and may cause the numbers to be potentially inaccurate.
However, our advertisers may rely on MediaMetrix data or other similar data to
determine whether to advertise on Launch, and adverse data from such sources in
any particular period may cause advertisers not to advertise on Launch.

It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our Web
site. We depend on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, we would
need to perform them ourselves or obtain them from another provider, if
available. This could cause us to incur additional costs or cause interruptions
in our business during the time we are replacing these services. Companies may
choose to not advertise on Launch or may pay less for advertising if they do not
perceive our measurements or measurements made by third parties to be reliable.

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

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

We may also enter into agreements that entitle us to receive a share of
revenue from the purchase of goods and services through direct links from our
Web sites to their Web sites. Such arrangements may subject us to additional
claims, including potential liabilities to consumers of such products and
services, based on the access

14
<PAGE> 17

we provide to such products or services, even if we do not provide such products
or services ourselves. While our agreements with these parties may provide that
we will be indemnified against such liabilities, such indemnification, if
available, may not be adequate. Our insurance may not adequately protect us
against these types of claims and, even if such claims do not result in
liability, we could incur significant costs in investigating and defending
against such claims.

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

As part of our business strategy, we expect to review acquisition prospects
that would complement our current content offerings, increase our market share
or otherwise offer growth opportunities. Such acquisitions could cause our
operating results or the price of our common stock to decline. To date, we have
had limited experience in these types of transactions. While we have no current
agreements or commitments with respect to any such acquisitions, other than the
pending acquisition of SW Networks, we may acquire businesses, products or
technologies in the future. Because business acquisitions typically involve
significant amounts of intangible assets, future operating results may be
adversely affected by amortization of intangible assets acquired. In the event
of such future acquisitions or business combinations, we could do the following:

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

- incur substantial debt; or

- assume contingent liabilities.

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

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

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

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

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

- potential loss of key employees of acquired organizations.

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

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

15
<PAGE> 18

The acquisition of SW Networks from Sony Music poses risks because
continuation of the SW Networks business requires us to integrate our content
development operations with those of SW Networks. Content developed by SW
Networks after the acquisition will be sold, in part, to radio stations
throughout the United States, and we have not previously sold content to
traditional media. As compensation for providing content to radio stations, we
will typically receive either on-air inventory of radio advertisements or direct
cash payments. To the extent that radio stations pay for our content with radio
advertisement inventory, we intend to continue SW Networks' practice of selling
the majority of this inventory to traditional radio advertisers. Selling radio
advertising is highly competitive. We will depend on Global Media, a third-party
advertising agency, to sell a majority of its radio advertisement inventory. We
will compete for traditional media advertising sales with national radio
networks and syndicators. National radio networks typically have larger and more
established sales organizations as compared to Launch. We cannot assure you that
Global Media will effectively sell our inventory of radio advertisements. In
addition, the competitive pressures of traditional media advertising sales may
adversely affect our business.

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

We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the 12 months
following the date of this prospectus.

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

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

- fund more rapid expansion;

- develop new or enhance existing services or products;

- fund distribution relationships;

- respond to competitive pressures; or

- acquire complementary products, businesses or technologies.

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

IF THE USE OF DIGITAL MEDIA, INCLUDING THE INTERNET, DOES NOT CONTINUE TO GROW,
OUR MARKET MAY NOT DEVELOP ADEQUATELY

Our market is new and rapidly evolving. If usage of digital media, and in
particular the Internet, does not continue to grow, our business will be
adversely

16
<PAGE> 19

affected. A number of factors may inhibit such usage, including, but not limited
to the following:

- inadequate network infrastructure;

- security concerns;

- inconsistent quality of service; and

- limited availability of cost-effective, high-speed access.

Even if digital media usage grows, the infrastructure necessary for such
growth may not be able to support the demands placed on it by this growth, and
its performance and reliability may decline. In addition, Web sites have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, digital media and, in
particular, Internet usage, as well as the usage of launch.com, could grow more
slowly than we expect or even decline.

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

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

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

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

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

Substantially all of our launch.com communications hardware and computer
hardware operations are located at Exodus Communications, Inc.'s facilities in
Irvine,

17
<PAGE> 20

California. Exodus provides Web site hosting services. Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins and similar
events could damage these systems and cause interruptions in our services.
Computer viruses, electronic break-ins or other similar disruptive problems
could result in reductions or termination of our services by our customers or
otherwise adversely affect our Web site. Our business could be adversely
affected if our systems were affected by any of these occurrences. Our insurance
policies may not adequately compensate us for any losses that may occur due to
any failures or interruptions in our systems. We do not presently have any
backup systems or a formal disaster recovery plan.

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

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

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

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

18
<PAGE> 21

SECURITY CONCERNS REGARDING CREDIT CARD OR OTHER CONFIDENTIAL INFORMATION
TRANSMITTED OVER THE WEB COULD LIMIT OUR GROWTH

A significant barrier to e-commerce and communications over the Internet
has been the need for secure transmission of confidential information. Internet
usage may not increase at the rate we expect unless some of these concerns are
adequately addressed and found acceptable by the market. Internet usage could
also decline if any well-publicized compromise of security occurred. We may
incur significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Any such protections may not be
available at a reasonable price or at all. If a third party were able to
misappropriate our users' personal information, users could sue us or bring
claims against us.

WE DEPEND UPON LICENSED MUSIC CONTENT THAT MAY NOT CONTINUE TO BE AVAILABLE
TO US ON REASONABLE TERMS

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

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

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

In addition, we rely on a third party to provide services enabling our
e-commerce transactions. We could become subject to infringement actions by
third parties based

19
<PAGE> 22

upon our use of intellectual property provided by our third-party provider.
There is no provision for indemnification of Launch by the third-party provider.
It is also possible that we could become subject to infringement actions based
upon the content licensed from third parties. Further, Sightsound.com, Inc. has
asserted to Launch that it owns patent rights covering the sale of music over
the Internet through digital downloads. To the extent that such patent rights
are enforceable and cover our activities, we may be required to obtain a license
to Sightsound.com's patents or to use non-infringing methods to accomplish our
activities with regard to digital downloads. It is possible that such a license
would not be available on reasonable terms, or at all, or that we would be
unable to pursue digital downloads in a non-infringing manner. Any such claims
or disputes could subject us to costly litigation and the diversion of our
financial resources and technical and management personnel. Further, if our
efforts to enforce our intellectual property rights are unsuccessful or if
claims by third parties against Launch are successful, we may be required to
change our trademarks, alter the content and pay financial damages. We cannot
assure you that such changes of trademarks, alteration of content or payment of
financial damages will not adversely affect our business.

IMPOSITION OF SALES AND OTHER TAXES ON E-COMMERCE TRANSACTIONS MAY IMPAIR OUR
ABILITY TO DERIVE FINANCIAL BENEFITS FROM E-COMMERCE

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

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

IF WE, OR THIRD PARTIES ON WHICH WE RELY, FAIL TO ACHIEVE YEAR 2000 COMPLIANCE,
OUR BUSINESS COULD BE IMPAIRED

Launch may discover Year 2000 compliance problems in its systems that will
require substantial revision. The failure of Launch to fix or replace its
systems on a timely basis could have a material adverse effect on Launch's
business. In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of Launch's control
may not be Year 2000 compliant. Failure of third parties to be Year 2000
compliant could also prevent Launch from publishing its content, decrease the
use of the Internet or prevent users from accessing launch.com, which could have
a material adverse effect on Launch's business. The failure by Launch's
advertisers to be Year 2000 compliant could cause them to defer or cancel
advertisements scheduled to appear in the Launch media properties, which could
adversely affect Launch's operating results.

20
<PAGE> 23

EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS OF LAUNCH WILL CONTROL
60.1% OF OUR COMMON STOCK AND WILL HAVE POWER TO INFLUENCE SIGNIFICANT
CORPORATE MATTERS, WHICH MAY DELAY, DETER OR PREVENT TRANSACTIONS THAT
COULD BENEFIT INVESTORS IN THIS OFFERING

After this offering, executive officers, directors and holders of 5% or
more of the outstanding Launch common stock will, in the aggregate, beneficially
own approximately 60.1% of our outstanding common stock. These stockholders
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying, deterring or preventing a change in control of
Launch and may make some transactions more difficult or impossible without the
support of these stockholders.

BECAUSE OUR SHARES HAVE NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING, AND
BECAUSE OF PRICE VOLATILITY RECENTLY ASSOCIATED WITH INITIAL PUBLIC
OFFERINGS FOR INTERNET BUSINESSES, THE INITIAL PUBLIC OFFERING PRICE MAY
NOT ACCURATELY REFLECT THE TRADING PRICE OF OUR STOCK, AND POTENTIAL
VOLATILITY OF OUR STOCK PRICE MAY SUBJECT US TO A RISK OF SECURITIES
LITIGATION

There has not previously been a public market for our common stock. We
cannot predict the extent to which investor interest in Launch will lead to the
development of a permanent trading market or how liquid that market might
become. The initial public offering price for the shares will be determined by
negotiations between us and the representatives of the Underwriters and may not
be indicative of prices that will prevail in the trading market.

The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. Investors may not be able
to resell their shares at or above the initial public offering price.

In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources.

SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET BY EXISTING INVESTORS MAY BEGIN
SHORTLY AFTER COMPLETION OF THIS OFFERING AND COULD CAUSE OUR STOCK PRICE
TO DECLINE

If our stockholders, option holders or warrant holders sell substantial
amounts of our common stock in the public market following this offering, the
market price of our common stock could decline. Sales in the public market also
might make it more difficult for us to sell our securities in the future at an
appropriate time and price. The number of shares of common stock available for
sale in the public market is limited by legal and contractual restrictions.
Holders of approximately 99% of Launch's stock have agreed that they will not
sell, pledge or otherwise dispose of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of Hambrecht &
Quist LLC. Hambrecht & Quist LLC may, in its sole discretion, release some or
all of the common stock from the restrictions of the lockup agreements before
the end of the 180-day period. After this offering, based upon shares
outstanding as of March 31, 1999, we will have outstanding 12,014,188 shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants after March 31, 1999. Of
these shares, the 3,500,000 shares sold in this offering will be freely tradable

21
<PAGE> 24

unless they are purchased by persons subject to contractual or legal
restrictions prohibiting resale. Of the remaining shares,

(a) 22,839 shares sold to certain employees of Launch may not be
transferred for two years after the closing of this offering without
the approval of Launch's board of directors,

(b) 7,670,929 are subject to the lock-up agreements and will become
eligible for resale 180 days after the date of this offering or earlier
with the written consent of Hambrecht & Quist,

(c) 85,525 shares issuable to two of Launch's stockholders upon conversion
of outstanding convertible notes will be eligible for resale in the
public market subject to volume and other restrictions set forth in
Rule 144, one year after issuance of the notes,

(d) 681,818 shares issuable to Sony Music will be eligible for resale in
the public market subject to volume and other restrictions set forth in
Rule 144, one year after the closing of this offering, and

(e) 53,077 shares will be eligible for resale in the public market
beginning on the date of this prospectus.

On or before the 180th day following the date of this prospectus, we intend
to register under federal securities laws an additional 276,094 shares of common
stock previously issued or reserved for issuance under our employee stock plans.

MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS OF THIS
OFFERING AND MAY FAIL TO USE SUCH FUNDS EFFECTIVELY TO EXPAND OUR SALES AND
MARKETING EFFORTS OR TO ACHIEVE OUR OTHER BUSINESS GOALS

We intend to use the net proceeds from the sale of the common stock offered
hereby principally for the following purposes:

- expansion of sales and marketing;
- brand promotion;
- working capital;
- content development;
- expansion of our offices; and
- possible acquisitions.

Accordingly, management will have significant flexibility in applying the
net proceeds of this offering. Until the proceeds are needed, we plan to invest
them in investment-grade, interest-bearing securities. The failure of management
to apply such funds effectively could adversely affect our business and
financial condition.

OUR CHARTER DOCUMENTS CONTAIN CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY
DISCOURAGE TAKEOVER ATTEMPTS THAT COULD INVOLVE A PREMIUM STOCK PRICE OR
OTHER BENEFITS TO OUR STOCKHOLDERS

Certain provisions of our certificate of incorporation and our bylaws will
specify certain procedures for nominating directors and submitting proposals for
consideration at stockholder meetings. These provisions and Delaware General
Corporation Law could discourage or delay potential acquisition or other change
of control proposals that could involve a premium stock price or other benefits
to our stockholders. These provisions may also prevent changes in the management
of Launch. See "Description of Capital Stock" for a more complete description of
our charter documents and the Delaware General Corporation Law.

22
<PAGE> 25

FORWARD-LOOKING STATEMENTS

This prospectus contains "forward-looking statements," which may include
the following:

- Launch's business strategy;

- timing of and plans for the introduction or phase-out of products,
services, enhancements;

- plans for hiring additional personnel;

- entering into strategic alliances; and

- the adequacy of anticipated sources of funds, including the proceeds from
this offering, to fund our operations for at least the 12 months
following the date of this prospectus.

Other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts may also be
forward-looking statements. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, actual
results could differ materially from those expressed or implied by these
forward-looking statements for a number of reasons, including those discussed
under "Risk Factors" and elsewhere in this prospectus. Launch assumes no
obligation to update any forward-looking statements.

23
<PAGE> 26

USE OF PROCEEDS

Launch will receive net proceeds of $70,710,000 from the sale of the
3,500,000 shares of common stock in the offering, after deducting estimated
offering expenses of $900,000 and underwriting discounts and commissions, at the
initial public offering price of $22.00 per share. If the underwriters exercise
their over-allotment option in full, Launch will receive net proceeds of
$81,144,600, after deducting estimated expenses of $900,000 and underwriting
discounts and commissions.

In the 12 months following this offering, we intend to use the net proceeds
from this offering principally for the following purposes:

- - approximately $10.0 million of the net proceeds for expansion for content and
product development;

- - approximately $23.0 million for sales and marketing, including approximately
$17.0 million for brand promotion, customer acquisition, distribution
agreements and related costs; and

- - the remainder for general corporate purposes, including approximately $1.0
million for capital expenditures.

The amounts actually expended for such purposes may vary significantly and
will depend on a number of factors, including the amount of our future revenues
and the other factors described under "Risk Factors." Accordingly, we will
retain broad discretion in the allocation of the net proceeds of this offering.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We currently
have no agreements or commitments with respect to any such acquisition, other
than our pending acquisition of SW Networks. Pending such uses, we intend to
invest the net proceeds of the offering in investment-grade, interest-bearing
securities.

DIVIDEND POLICY

We have never declared or paid cash dividends. We intend to retain any
future earnings for future growth and do not anticipate paying any cash
dividends in the foreseeable future.

24
<PAGE> 27

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1998:

- on an actual basis;

- on a pro forma basis to reflect

(a) the issuance of 875,556 shares of common stock in connection with the
acquisition of Musicvideos.com,

(b) the issuance of 681,818 shares of common stock in connection with the
acquisition of SW Networks,

(c) the conversion upon completion of the offering of all outstanding
shares of preferred stock into 5,918,230 shares of common stock and

(d) conversion of outstanding convertible notes into 85,525 shares of
common stock, which will occur automatically upon completion of this
offering; and

- on a pro forma basis as adjusted to reflect the sale of the common stock
offered hereby at the initial public offering price of $22.00 per share
and the application of the net proceeds therefrom.

The outstanding share information excludes

(a) 1,372,472 shares of common stock issuable upon the exercise of
outstanding stock options and warrants, at a weighted average exercise
price of $3.04 per share,

(b) 1,410,898 shares of common stock reserved for future grant under the
1998 stock option plan,

(d) 448,437 shares of common stock issuable upon the exercise of
outstanding warrants at an exercise price of $20.46 per share which
will terminate upon closing of this offering if not exercised.

Outstanding share information also excludes 18,726 shares issued upon
exercise of outstanding options subsequent to December 31, 1998. See notes 11
and 12 of notes to financial statements.

This information is qualified by, and should be read in conjunction with,
the more detailed financial statements of Launch and related notes thereto
appearing at the end of this prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings....................................... $ 760 $ 780 $ 780
======== ======== ========
Long-term debt, less current portion........................ $ 639 $ 668 $ 668
Mandatory redeemable convertible preferred stock:
Series A through D, $0.001 par value, 6,580,406 shares
authorized; 5,918,230 shares issued and outstanding,
actual; none issued and outstanding, pro forma and pro
forma as adjusted....................................... 36,707 -- --
Stockholders' equity:
Common stock, $0.001 par value, 75,000,000 shares
authorized actual, pro forma and pro forma as adjusted;
934,333 shares issued and outstanding, actual; 8,495,462
shares issued and outstanding, pro forma; and 11,995,462
shares issued and outstanding, pro forma as adjusted.... 1 9 12
Additional paid-in capital................................ 986 62,371 133,078
Unearned deferred compensation............................ (1,208) (1,208) (1,208)
Accumulated deficit....................................... (27,606) (27,606) (27,606)
-------- -------- --------
Total stockholders' equity (deficit)............... (27,827) 33,566 104,276
-------- -------- --------
Total capitalization............................... $ 9,519 $ 34,234 $104,944
======== ======== ========
</TABLE>

25
<PAGE> 28

DILUTION

As of December 31, 1998, Launch had a pro forma net tangible book value of
approximately $9.3 million, or $1.09 per share of common stock, after giving
effect to

(a) the conversion of the outstanding preferred stock into common stock
which will occur automatically upon completion of this offering,

(b) conversion of outstanding convertible notes into shares of common stock
which will occur automatically upon completion of this offering and

"Pro forma net tangible book value" per share represents the amount of
total pro forma tangible assets less total pro forma liabilities divided by the
total pro forma number of shares of common stock outstanding. Dilution in pro
forma net tangible book value per share represents the difference between the
per share amount paid by purchasers of common stock in this offering and the pro
forma net tangible book value per share of common stock immediately after the
completion of this offering.

Without taking into account any other change in the pro forma net tangible
book value after December 31, 1998, other than to give effect to the receipt by
Launch of the net proceeds from the sale of the 3,500,000 shares of common stock
offered hereby, the pro forma net tangible book value of Launch as of December
31, 1998 would have been approximately $80.0 million or $6.67 per share. This
represents an immediate increase in pro forma net tangible book value of $5.58
per share to existing stockholders and an immediate dilution of $15.33 per share
to new investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share................ $22.00
Pro forma net tangible book value per share before
the offering........................................ $1.09
Increase per share attributable to new investors..... 5.58
-----
Pro forma net tangible book value per share after this
offering.............................................. 6.67
------
Dilution per share to new investors.................... $15.33
======
</TABLE>

The following table summarizes on a pro forma basis as of December 31,
1998, the differences between the number of shares of common stock purchased
from Launch, the total consideration paid, or to be paid, and the average price
per share paid, or to be paid by, existing stockholders and by new investors,
before deducting estimated offering expenses and estimated underwriting
discounts and commissions:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 8,495,462 70.8% $ 59,471,615 43.6% $ 7.00
New investors............ 3,500,000 29.2 76,846,000 56.4 21.96
---------- ----- ------------ -----
Total............... 11,995,462 100.0% $136,317,615 100.0%
========== ===== ============ =====
</TABLE>

Information with respect to existing stockholders in the table above
includes 681,818 shares to be issued to Sony Music, in connection with the SW
Networks acquisition, for a stated consideration of $12.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Events" for more

26
<PAGE> 29

information regarding the issuance of shares to Sony Music. Other than as noted
above, the foregoing computations assume that no options or warrants have been
or are exercised after December 31, 1998 and exclude 18,726 shares of common
stock issued upon exercise of outstanding options subsequent to December 31,
1998. As of March 31, 1999, options and warrants were outstanding to purchase an
aggregate of 1,372,472 shares of common stock at a weighted average exercise
price of $3.04 per share. In addition, warrants to purchase 448,437 shares of
common stock are outstanding at an exercise price of $20.46 per share; however,
such warrants will terminate upon closing of this offering if not exercised. To
the extent that any shares are issued upon exercise of options or warrants that
are presently outstanding or granted in the future, there will be further
dilution to new investors. See notes 11 and 12 of notes to financial statements.

27
<PAGE> 30

SELECTED FINANCIAL DATA

The selected historical financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus. The statement
of operations data for each of the years in the three-year period ended December
31, 1998, and the balance sheet data at December 31, 1997 and 1998, are derived
from financial statements of Launch, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere
in this prospectus. The balance sheet data at December 31, 1994, 1995 and 1996
and the statement of operations data for each of the years in the two-year
period ended December 31, 1995, are derived from audited financial statements of
Launch not included herein. The pro forma financial data for the year ended
December 31, 1998 are derived from the unaudited Pro Forma Combined Financial
Information included elsewhere in this prospectus.

<TABLE>
<CAPTION>
PRO FORMA
YEAR
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------ DECEMBER 31,
1994 1995 1996 1997 1998 1998(1)
------- ------- ------- ------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Advertising............................... $ -- $ 720 $ 837 $ 1,859 $ 3,038 $ 6,632
Subscription.............................. -- 10 65 798 1,463 1,463
Merchandise and other..................... -- 390 473 480 513 1,261
------- ------- ------- ------- -------- --------
Total net revenues...................... -- 1,120 1,375 3,137 5,014 9,356
Operating expenses:
Cost of goods sold and distribution....... -- 373 812 1,735 3,185 3,185
Sales and marketing....................... -- 1,593 3,189 4,225 9,011 10,221
Content and product development........... 64 330 1,006 2,454 4,407 8,283
General and administrative................ 303 787 1,021 1,398 2,215 5,321
Amortization of excess purchase price..... -- -- -- -- -- 5,595
------- ------- ------- ------- -------- --------
Loss from operations........................ (367) (1,963) (4,653) (6,675) (13,804) (23,249)
Interest income (expense), net.............. -- (16) 167 (14) 389 387
------- ------- ------- ------- -------- --------
Loss before provision for income taxes...... (367) (1,979) (4,486) (6,689) (13,415) (22,862)
Provision for income taxes.................. (1) (1) (2) (3) (4) (4)
------- ------- ------- ------- -------- --------
Net loss.................................... (368) (1,980) (4,488) (6,692) (13,419) (22,866)
Accretion of mandatory redeemable
convertible preferred stock............... -- -- (456) (608) (1,851) --
------- ------- ------- ------- -------- --------
Net loss attributable to common
stockholders.............................. $ (368) $(1,980) $(4,944) $(7,300) $(15,270) $(22,866)
======= ======= ======= ======= ======== ========
Basic and diluted net loss per share(2)..... $ (0.46) $ (2.30) $ (5.37) $ (7.89) $ (16.36) $ (2.96)
======= ======= ======= ======= ======== ========
Weighted average shares outstanding used in
basic and diluted per share
calculation(2)............................ 808 862 920 925 934 7,737
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1997 1998
----- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 433 $ 78 $ 808 $ 644 $ 6,728
Working capital (deficit).............................. 412 (141) 3,038 (3,724) 4,366
Total assets........................................... 597 932 4,784 1,790 13,164
Long-term obligations, net of current portion.......... 16 32 58 77 639
Mandatory redeemable convertible preferred stock....... 660 2,403 10,458 11,065 36,707
Total stockholders' equity (deficit)................... (109) (2,053) (7,006) (14,186) (27,827)
</TABLE>

- ---------------
(1) The pro forma data include the effects of the conversion of all outstanding
shares of preferred stock into common stock upon completion of this offering
and the issuance of shares of common stock in connection with the
Musicvideos.com and SW Networks acquisitions.

(2) See note 2 of notes to financial statements for an explanation of the method
used to determine the number of shares used to compute per share amounts.

28
<PAGE> 31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with Launch's
financial statements and the notes thereto and the other financial information
appearing elsewhere in this prospectus. In addition to historical information,
the following discussion and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties. Launch's
actual results could differ materially from those anticipated by such
forward-looking information due to factors discussed under "Risk Factors,"
"Business" and elsewhere in this prospectus.

OVERVIEW

Launch is a digital media company focused on music. Launch leverages the
inherent advantages of digital media to offer consumers a compelling music
discovery experience while providing record labels, artists, advertisers and
merchants a valuable marketing platform. Our content is delivered on the
Internet at www.launch.com and on the monthly Launch on CD-ROM.

Launch was incorporated in February 1994, and we published the first issue
of Launch on CD-ROM in May 1995. Through July 1998, we distributed Launch on
CD-ROM bi-monthly, and since that time, we have distributed it monthly.
Launch.com was first made available in October 1997. As of March 1999,
launch.com had approximately 1.0 million registered members, and Launch on
CD-ROM had approximately 265,000 subscribers. DoubleClick, Inc., our third-party
ad server, reported that, in March 1999, there were approximately 1.0 million
unique visitors to launch.com.

Launch has incurred significant net losses and negative cash flows from
operations since its inception, and as of December 31, 1998, had an accumulated
deficit of approximately $27.6 million. Launch intends to continue to make
significant financial investments in marketing and promotion, content
development and technology and infrastructure development. As a result, Launch
believes that it will incur operating losses and negative cash flows from
operations for the foreseeable future, and that such losses and negative cash
flows will increase for at least the next year. See "Risk Factors -- We have a
limited operating history which makes an evaluation of our business difficult"
and "-- We have a history of losses. Because we anticipate that our operating
expenses will grow more quickly than our revenues, at least in the short term,
we expect increased losses."

To date, Launch's revenues have been derived primarily from the sale of
advertising, including sponsorships, and, to a lesser extent, from annual
subscriptions relating to Launch on CD-ROM. Launch derives revenue from
advertising sales against the total audience viewing content on both launch.com
and Launch on CD-ROM. Historically, Launch on CD-ROM has accounted for the
majority of Launch's audience, and, accordingly, Launch has derived the majority
of its revenues from advertising sales against the Launch on CD-ROM audience.
Launch expects that future growth, if any, in advertising revenue will largely
depend upon increasing the launch.com audience. Revenues for sponsorships across
the Launch media properties are recognized ratably over the sponsorship term
which is typically one month. Revenues from advertisements for Launch on CD-ROM
are recognized upon the release date of the issue in which the advertisement
appears. With respect to launch.com, revenues from advertisements are recognized
ratably in the period in which the advertisement is displayed, provided that no
significant Launch obligations

29
<PAGE> 32

remain. With respect to SW Networks' business, Launch will obtain on-air radio
advertising inventory in exchange for content. Launch intends to sell this
inventory for cash and will recognize revenue when the radio stations broadcast
the advertisement.

We derive subscription revenues from annual subscription fees for Launch on
CD-ROM. Advance payments for Launch on CD-ROM subscriptions are recognized as
revenue ratably over the term of the subscription.

Advertising revenues also include barter revenues, which represent an
exchange of advertising space on Launch on CD-ROM for reciprocal advertising
space on third parties' Web sites or for rights under online distribution
agreements. Revenues from these barter transactions are recorded as advertising
revenues at the lower of estimated fair value of the advertisements received or
delivered and are recognized upon publication of the advertisements on Launch on
CD-ROM. Barter expenses are also recorded at the lower of estimated fair value
of the advertisements received or delivered and are recognized when Launch's
advertisements run on the reciprocal media property, which is typically in the
same period in which the advertisements run on Launch on CD-ROM. Although Launch
believes these barter transactions have been important in the marketing of the
Launch brand, we expect to significantly decrease both the dollar value and
frequency of these transactions in the future.

We have entered into various license arrangements, strategic alliances and
business acquisitions in order to build our audience, provide music-specific
content, generate additional online traffic, increase subscriptions and
memberships and establish additional sources of revenue. These acquisitions,
arrangements and alliances have resulted in a variety of non-cash charges that
will affect our operating results over the next several fiscal periods. The
acquisition of Musicvideos.com will be accounted for using the purchase method
of accounting and, accordingly, the purchase price, estimated to be $9.3
million, will be allocated to net tangible and intangible assets acquired. The
excess purchase price over net tangible assets is estimated to be $9.2 million
and will be amortized over an expected estimated average useful life of 36
months. The acquisition of SW Networks will be accounted for using the purchase
method of accounting and, accordingly, the purchase price, estimated for
accounting purposes to be $14.3 million, will be allocated to net tangible and
intangible assets acquired. The excess purchase price over net tangible assets
is estimated to be $12.7 million and will be amortized over an expected
estimated average useful life of 60 months. The consideration for the NBC.com
and NBC Interactive Neighborhood strategic alliance and content agreement was
series D stock valued at $3.0 million. This non-cash amount is being amortized
over the 26-month term of the agreement. We expect that we will continue to
enter into such arrangements. Because Internet business acquisitions typically
involve significant amounts of intangible assets, future operating results may
be adversely affected by amortization of the intangible assets acquired.

30
<PAGE> 33

RESULTS OF OPERATIONS

The following table sets forth the results of operations for Launch
expressed as a percentage of net revenues:

<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
---------------------------- PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------------- DECEMBER 31,
1996 1997 1998 1998
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Advertising..................... 60.9% 59.3% 60.6% 70.9%
Subscription.................... 4.7 25.4 29.2 15.6
Merchandise and other........... 34.4 15.3 10.2 13.5
------ ------ ------ ------
Total net revenues...... 100.0 100.0 100.0 100.0
Operating expenses:
Cost of goods sold and
distribution................. 59.0 55.3 63.5 34.0
Sales and marketing............. 231.9 134.7 179.7 109.3
Content and product
development.................. 73.2 78.2 87.9 88.5
General and administrative...... 74.3 44.6 44.2 56.9
Amortization of excess purchase
price........................ -- -- -- 59.8
------ ------ ------ ------
Loss from operations.............. (338.4) (212.8) (275.3) (248.5)
Interest income (expense), net.... 12.2 (0.4) 7.8 4.1
------ ------ ------ ------
Loss before provision for income
taxes........................... (326.2) (213.2) (267.5) (244.4)
Provision for income taxes........ 0.2 0.1 0.1 0.1
------ ------ ------ ------
Net loss.......................... (326.4)% (213.3)% (267.6)% (244.5)%
====== ====== ====== ======
</TABLE>

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

Net Revenues

Net revenues increased 61% from $3.1 million in 1997 to $5.0 million in
1998. The increase in net revenues was primarily attributable to an increase in
advertising and subscription revenues. In addition, in 1998, we distributed two
additional issues of Launch on CD-ROM in connection with the transition from
bi-monthly to monthly distribution.

Advertising Revenues. Advertising revenues increased 58% from $1.9 million,
or 59.3% of net revenues, in 1997 to $3.0 million, or 60.6% of net revenues, in
1998. Advertising revenues increased in 1998 due to an increase in the number of
advertisers and number of advertisements sold. Launch expects advertising
revenue will continue to represent the most significant portion of its net
revenues for the forseeable future. Included in advertising revenues are
revenues recognized from barter transactions of $903,000 in 1997 and $1.3
million in 1998.

Subscription Revenues. Subscription revenues increased 88% from $798,000,
or 25.4% of net revenues, in 1997 to $1.5 million, or 29.2% of net revenues, in
1998. Subscription revenues increased in 1998 due to an increase in the paid
subscription base for Launch on CD-ROM. We intend to phase out Launch on CD-ROM
delivery, as more efficient broadband distribution systems achieve more
widespread consumer

31
<PAGE> 34

acceptance. As a result, Launch anticipates that subscription revenues from
Launch on CD-ROM will decline substantially over time.

Merchandise and Other Revenues. Merchandise and other revenues increased 7%
from $480,000, or 15.3% of net revenues, in 1997 to $513,000, or 10.2% of net
revenues, in 1998. Merchandise and other revenues increased in 1998 due
primarily to $269,000 earned under a nonrecurring development agreement with
Intel. The total amount to be paid to Launch under the Intel agreement is $1.0
million, and the development efforts under this agreement are expected to be
completed in 1999. Excluding this development agreement revenue, merchandise and
other revenues were $244,000 in 1998, reflecting a 49% decrease from 1997
primarily related to a decrease in single copy retail sales of Launch on CD-ROM.
This decrease was due to Launch's efforts to build circulation of Launch on
CD-ROM through subscriptions rather than single copy retail sales and to a
reduction in the retail sales price. At December 31, 1998, Launch had deferred
revenues of $482,000 consisting primarily of prepaid subscriptions for Launch on
CD-ROM.

Operating Expenses

Cost of Goods Sold and Distribution. Cost of goods sold and distribution
consist primarily of CD-ROM manufacturing and packaging costs and CD-ROM
subscription distribution costs. Cost of goods sold and distribution increased
88% from $1.7 million, or 55.3% of net revenues, in 1997 to $3.2 million, or
63.5% of net revenues, in 1998. As a percentage of net revenues, cost of goods
sold and distribution increased in 1998 due primarily to a one-time distribution
of one million copies of a customized issue of Launch on CD-ROM to college
students in August 1998 and, to a lesser extent, to a reduction in the retail
and subscription sales prices.

Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of advertising and marketing costs, promotional costs and the cost of
the direct marketing and advertising sales force. Sales and marketing expenses
increased 114% from $4.2 million, or 134.7% of net revenues, in 1997 to $9.0
million, or 179.7% of net revenues, in 1998. As a percentage of net revenues,
sales and marketing expenses increased in 1998 due to the cost of acquiring new
subscribers, the hiring of additional sales and marketing personnel, increased
marketing to promote the Launch brand and amortization of approximately $1.2
million of a $3.0 million non-cash deferred charge resulting from the issuance
of series D stock as consideration for a strategic alliance with NBC. The
remaining balance of the deferred charge will be amortized through April 2000.
Launch expects sales and marketing expenses to increase significantly in
absolute dollars as it pursues an aggressive marketing campaign to increase the
audience on launch.com, expands marketing of the Launch brand and hires
additional sales and marketing personnel.

Content and Product Development Expenses. Content and product development
expenses consist primarily of editorial, which includes video production and
editorial writers, art production and software and Web development costs.
Content and product development expenses increased 76% from $2.5 million, or
78.2% of net revenues, in 1997 to $4.4 million, or 87.9% of net revenues, in
1998. As a percentage of net revenues, content and product development expenses
increased in 1998 due to the costs of developing and enhancing the launch.com
Web site. Content and product development expenses in 1998 also included a
non-cash charge of $500,000 resulting from the issuance of series D stock to
Intel in consideration of the

32
<PAGE> 35

development by Intel of technology to enable delivery of Launch music content
through satellite data broadcast. Launch believes that significant investments
in content and product development are required to remain competitive.
Therefore, Launch expects that its content and product development expenses will
continue to increase in absolute dollars for the foreseeable future.

General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for general corporate functions,
including finance and accounting, facilities and fees for professional services.
General and administrative expenses increased 57% from $1.4 million, or 44.6% of
net revenues, in 1997 to $2.2 million, or 44.2% of net revenues, in 1998. The
absolute dollar increase in general and administrative expenses in 1998 was due
to an increase in the number of administrative personnel necessary to support
the growth of Launch's operations. Launch anticipates hiring additional
personnel and incurring additional costs related to being a public company,
including costs related to investor relations programs and professional service
fees. Accordingly, Launch anticipates that general and administrative expenses
will continue to increase in absolute dollars.

Interest Income (Expense), Net

Interest income (expense), net consists of interest earned on cash and cash
equivalents and short-term investments, offset by interest expense on
borrowings. Net interest expense was $14,000 in 1997, and net interest income
was $389,000 in 1998. The increase in net interest income in 1998 was the result
of interest earned on the net proceeds from Launch's sales of series D stock in
February and May of 1998.

Income Taxes

Launch's income taxes consist of minimum state franchise taxes. At December
31, 1998 Launch had approximately $26.8 million of federal and state net
operating loss carryforwards, respectively, available to offset future taxable
income. Launch's federal and state net operating loss carryforwards expire
beginning in 2009 and 1999, respectively. Due to the change in Launch's
ownership interests in connection with this offering and prior private
placements, future utilization of the net operating loss carryforwards may be
subject to certain annual limitations. See note 9 of notes to financial
statements.

Preferred Stock and Accretion

At December 31, 1998 the Company had outstanding four series of preferred
stock aggregating 5,918,230 shares. The shares of preferred stock are
convertible into common stock on a share-for-share basis. In addition, all
series of preferred stock are redeemable, at the option of the holders,
beginning on February 27, 2003. The shares are redeemable at the original
issuance price plus 6% per annum from February 27, 1998 through the redemption
date for series A, B and D stock and from March 29, 1996 through the redemption
date for series C stock. The carrying amount of the preferred stock is being
increased by periodic accretions so that the amount reflected in the balance
sheet will equal the mandatory redemption amount at the redemption date.
Accretions were $456,000, $608,000 and $1.9 million in 1996, 1997 and 1998,
respectively. The carrying amount of the preferred stock was $36.7 million

33
<PAGE> 36

at December 31, 1998. As a result of this offering, each outstanding share of
preferred stock will be converted into one share of common stock.

Unearned Compensation

In connection with the grant of stock options to employees in 1998, Launch
recorded unearned compensation of $1.4 million representing the difference
between the deemed value of Launch's common stock for accounting purposes and
the exercise price of such options at the date of grant. Such amount, net of
amortization, is presented as a reduction of stockholders' equity and amortized
over the four-year vesting period of the options. Amortization of unearned
compensation was $193,000 for the year ended December 31, 1998.

SELECTED OPERATING RESULTS OF SW NETWORKS FOR THE 12 MONTHS ENDED DECEMBER 31,
1998

Net Revenues. SW Networks derives revenue primarily from the sale of radio
advertising time and, to a lesser extent, from cash which it receives in
exchange for providing music information and news to radio stations. SW
Networks' net revenues for the 12 months ended December 31, 1998 were $4.1
million. SW Networks recognizes advertising revenues, net of agency and media
representation fees, when the advertisement is broadcast.

Sales and Marketing Expenses. Sales and marketing expenses for SW Networks
consist primarily of affiliate marketing staff who are responsible for selling
SW Networks' content to radio stations. Sales and marketing expenses were $1.2
million, or 29% of net revenues, for the 12 months ended December 31, 1998.

Content and Product Development Expenses. Content and product development
expenses for SW Networks consist primarily of editorial staff and production
costs for its music information and news. Content and product development
expenses were $3.7 million, or 91% of net revenues, for the 12 months ended
December 31, 1998.

General and Administrative Expenses. General and administrative expenses
for SW Networks consist primarily of salaries and related costs for general
corporate functions, including finance and accounting, facilities and fees for
professional services. General and administrative expenses were $2.7 million, or
66% of net revenues, for the 12 months ended December 31, 1998.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996

Net Revenues

Net revenues increased 121% from $1.4 million in 1996 to $3.1 million in
1997. The increase in net revenues was primarily attributable to an increase in
advertising and subscription revenues. In addition, during 1997, we increased
advertising rates for advertising on Launch on CD-ROM.

Advertising Revenues. Advertising revenues increased 127% from $837,000, or
60.9% of net revenues, in 1996 to $1.9 million, or 59.3% of net revenues, in
1997. Advertising revenues increased in 1997 due to an increase in the number of
advertisers and the number of advertisements sold. Included in advertising
revenues

34
<PAGE> 37

were revenues recognized from barter transactions of $131,000 in 1996 and
$903,000 in 1997.

Subscription Revenues. Subscription revenues increased from $65,000, or
4.7% of net revenues, in 1996 to $798,000, or 25.4% of net revenues, in 1997.
The increase in 1997 was due to an increase in the paid subscription base of
Launch on CD-ROM.

Merchandise and Other Revenues. Merchandise and other revenues increased 1%
from $473,000, or 34.4% of net revenues, in 1996 to $480,000, or 15.3% of net
revenues, in 1997. The decrease in 1997 as a percentage of net revenues was due
to the significant increases in both advertising and subscription revenues.

Operating Expenses

Cost of Goods Sold and Distribution. Cost of goods sold and distribution
increased 109% from $812,000, or 59.0% of net revenues, in 1996 to $1.7 million,
or 55.3% of net revenues, in 1997. As a percentage of net revenues, cost of
goods sold and distribution decreased in 1997 due to the growth in net revenues.

Sales and Marketing Expenses. Sales and marketing expenses increased 31%
from $3.2 million, or 231.9% of net revenues, in 1996 to $4.2 million, or 134.7%
of net revenues, in 1997. Sales and marketing expenses increased in absolute
dollars in 1997 due to the hiring of additional sales and marketing staff and
increased advertising and marketing activity. As a percentage of net revenues,
sales and marketing expenses decreased in 1997 due to the growth in net
revenues.

Content and Product Development Expenses. Content and product development
expenses increased 150% from $1.0 million, or 73.2% of net revenues, in 1996 to
$2.5 million, or 78.2% of net revenues, in 1997. Content and product development
expenses increased in absolute dollars in 1997 due to the increase in the
development costs for launch.com and remained relatively constant as a
percentage of net revenues.

General and Administrative Expenses. General and administrative expenses
increased 40% from $1.0 million, or 74.3% of net revenues, in 1996 to $1.4
million, or 44.6% of net revenues, in 1997. The absolute dollar increase in
general and administrative expenses in 1997 was due to an increase in the number
of administrative personnel necessary to support the growth of Launch's
operations.

Interest Income (Expense), Net

Net interest expense increased from net interest income of $167,000 in 1996
to net interest expense of $14,000 in 1997. The net interest expense in 1997 was
the result of interest expense incurred on bridge loans and a decrease in
interest income due to lower average balances of funds available for investment.

35
<PAGE> 38

SELECTED QUARTERLY OPERATING RESULTS

The following table sets forth certain unaudited statements of operations
data on an absolute basis and as a percentage of net revenues for Launch's six
most recent quarters. The information for each of these quarters has been
prepared on substantially the same basis as the audited financial statements
included elsewhere in this prospectus, and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
Historical results are not necessarily indicative of the results to be expected
in the future, and results of interim periods are not necessarily indicative of
results for the entire year.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
1997 1997 1998 1998 1998 1998
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Advertising.......................... $ 648 $ 709 $ 297 $ 554 $ 1,230 $ 958
Subscription......................... 141 346 251 514 268 430
Merchandise and other................ 95 162 63 42 58 349
------- ------- ------- ------- ------- -------
Total net revenues........... 884 1,217 611 1,110 1,556 1,737
Operating expenses:
Cost of goods sold and
distribution...................... 461 591 417 647 1,112 1,010
Sales and marketing.................. 1,022 1,315 1,515 2,218 2,723 2,555
Content and product development...... 524 824 625 1,102 1,112 1,567
General and administrative........... 348 440 405 476 593 742
------- ------- ------- ------- ------- -------
Loss from operations................... (1,471) (1,953) (2,351) (3,333) (3,984) (4,137)
Interest income (expense), net......... (15) (50) (38) 172 166 90
------- ------- ------- ------- ------- -------
Loss before provision for income
taxes................................ (1,486) (2,003) (2,389) (3,161) (3,818) (4,047)
Provision for income taxes............. -- -- (3) -- (1) --
------- ------- ------- ------- ------- -------
Net loss............................... $(1,486) $(2,003) $(2,392) $(3,161) $(3,819) $(4,047)
======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Advertising........................... 73.3% 58.3% 48.6% 49.9% 79.0% 55.2%
Subscription.......................... 16.0 28.4 41.1 46.3 17.2 24.8
Merchandise and other................. 10.7 13.3 10.3 3.8 3.8 20.0
------ ------ ------ ------ ------ ------
Total net revenues............ 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of goods sold and distribution... 52.1 48.6 68.2 58.3 71.5 58.2
Sales and marketing................... 115.6 108.1 248.0 199.8 175.0 147.1
Content and product development....... 59.3 67.7 102.3 99.3 71.5 90.2
General and administrative............ 39.4 36.1 66.3 42.9 38.1 42.7
------ ------ ------ ------ ------ ------
Loss from operations.................... (166.4) (160.5) (384.8) (300.3) (256.1) (238.2)
Interest income (expense), net.......... (1.7) (4.1) (6.2) 15.5 10.7 5.2
------ ------ ------ ------ ------ ------
Loss before provision for income
taxes................................. (168.1) (164.6) (391.0) (284.8) (245.4) (233.0)
Provision for income taxes.............. -- -- 0.5 -- -- --
------ ------ ------ ------ ------ ------
Net loss................................ (168.1)% (164.6)% (391.5)% (284.8)% (245.4)% (233.0)%
====== ====== ====== ====== ====== ======
</TABLE>

36
<PAGE> 39

The decrease in advertising revenues during the quarter ended March 31,
1998 was the result of releasing only one issue of Launch on CD-ROM during that
quarter. The significant increase in advertising revenues and the associated
increase in cost of goods sold in the quarter ended September 30, 1998 was
primarily the result of the release of an additional issue of Launch on CD-ROM,
which was customized for college students.

The decrease in subscription revenues during the quarter ended September
30, 1998 was the result of commencing monthly publication of Launch on CD-ROM in
August 1998 without changing the subscription price. Subscription revenue
declined because deferred revenue was amortized over an increased number of
units. The increase in the subscription revenue in the quarter ended December
31, 1998 was a result of releasing a greater number of issues of Launch on
CD-ROM in that quarter.

Sales and marketing expenses increased in the quarters ended June 30, 1998
and September 30, 1998 as a result of increased direct and brand marketing
designed to increase the Launch audience and brand awareness.

General and administrative expenses increased during the quarter ended
December 31, 1998 as a result of costs associated with moving to new corporate
facilities, increased depreciation relating to the purchase of computers, studio
and leasehold improvements and increased facility lease payments.

Our revenues and operating results are likely to vary significantly from
quarter to quarter in the future due to a number of factors, many of which are
outside of our control. These factors include: our ability to attract and retain
advertisers; our ability to attract and retain our audience; our ability to
attract and retain customers for our existing and future e-commerce businesses;
new sites, services or products introduced by us or by our competitors; the
timing and uncertainty of sales cycles; user traffic on launch.com; mix of
online advertisements sold; seasonal declines in advertising sales, which
typically occur in the first and third calendar quarters; the level of Web and
online services usage; our ability to attract, integrate and retain qualified
personnel; our ability to successfully integrate operations and technologies
from acquisitions or other business combinations; technical difficulties or
system downtime affecting the Internet generally or the operation of launch.com;
and general economic conditions, as well as economic conditions specific to
digital media and the music industry.

Our revenues for the foreseeable future will be substantially dependent on
advertising and sponsorships. Further, advertising orders are typically short
term and subject to cancellation without penalty until shortly before
publication. In each quarterly period, we derive a significant portion of our
revenues from sales of advertising to a limited number of customers.
Accordingly, the loss of a key advertising relationship, or the cancellation or
deferral of even a limited number of orders could adversely affect our quarterly
performance. As a result of these and other factors, you should not rely on
quarter-to-quarter comparisons of our operating results as an indication of
future performance.

37
<PAGE> 40

SELECTED QUARTERLY PRO FORMA OPERATING RESULTS

The following table sets forth certain unaudited pro forma statements of
operations data on an absolute basis and as a percentage of net revenues for the
four most recent quarters. The following pro forma data reflect the acquisitions
of Musicvideos.com and SW Networks as if such acquisitions had occurred as of
January 1, 1998. Pro forma historical results are not necessarily indicative of
the results to be expected in the future. See "Pro Forma Combined Financial
Information."

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31,
1998 1998 1998 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Advertising................................. $ 889 $ 1,347 $ 2,127 $ 2,328
Subscription................................ 251 514 268 430
Merchandise and other....................... 207 225 233 536
------- ------- ------- -------
Total net revenues.................. 1,347 2,086 2,628 3,294
Operating expenses:
Cost of goods sold and distribution......... 417 647 1,112 1,009
Sales and marketing......................... 1,773 2,539 3,023 2,886
Content and product development............. 1,592 2,072 2,075 2,543
General and administrative.................. 1,140 1,278 1,399 1,505
Amortization of excess purchase price....... 1,399 1,399 1,398 1,398
------- ------- ------- -------
Loss from operations.......................... (4,974) (5,849) (6,379) (6,047)
Interest income (expense), net................ (38) 172 166 87
------- ------- ------- -------
Loss before provision for income taxes........ (5,012) (5,677) (6,213) (5,960)
Provision for income taxes.................... (3) -- (1) --
------- ------- ------- -------
Net loss...................................... $(5,015) $(5,677) $(6,214) $(5,960)
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
---------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Advertising.................................. 66.0% 64.6% 80.9% 70.7%
Subscription................................. 18.6 24.6 10.2 13.0
Merchandise and other........................ 15.4 10.8 8.9 16.3
------ ------ ------ ------
Total net revenues................... 100.0 100.0 100.0 100.0
Operating expenses:
Cost of goods sold and distribution.......... 31.0 31.0 42.3 30.6
Sales and marketing.......................... 131.9 121.7 115.0 87.6
Content and product development.............. 118.2 99.3 79.0 77.2
General and administrative................... 84.3 61.2 53.1 45.7
Amortization of excess purchase price........ 103.4 67.0 53.2 42.5
------ ------ ------ ------
Loss from operations........................... (368.8) (280.2) (242.6) (183.6)
Interest income (expense), net................. (2.8) 8.2 6.3 2.6
------ ------ ------ ------
Loss before provision for income taxes......... (371.6) (272.0) (236.3) (181.0)
Provision for income taxes..................... (0.2) -- -- --
------ ------ ------ ------
Net loss....................................... (371.8)% (272.0)% (236.3)% (181.0)%
====== ====== ====== ======
</TABLE>

38
<PAGE> 41

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, Launch has financed its operations primarily through
private placements of preferred stock and, to a lesser extent, from the revenues
generated by operations. As of December 31, 1998, Launch had approximately $6.7
million in cash, cash equivalents and short-term investments. On February 15,
1999, Launch entered into a note purchase agreement in which it agreed to issue
a convertible subordinated promissory note in the amount of $1.0 million to
Avalon Technology LLC, a principal stockholder, and a convertible subordinated
promissory note in the amount of $500,000 to Goran Enterprises Limited, a
principal stockholder. The notes accrue interest at 8.5% per annum from the
issuance date and are due February 29, 2000. The notes automatically convert
into shares of Launch stock upon the earlier of (a) Launch's consummation of an
initial public offering with a sales price per share of at least $10.00 and
aggregate gross proceeds to Launch of at least $15.0 million, (b) an acquisition
transaction in which the stockholders of Launch prior to such transaction own
less than 50% of the voting securities of the surviving entity after such
transaction or (c) February 29, 2000. If Launch consummates an initial public
offering prior to August 31, 1999, the notes and any accrued interest thereon
automatically convert to common stock at a per share price equal to 80% of the
initial public offering price per share. In that event, the aggregate discount
from the initial public offering price will be recorded as additional interest
expense. If Launch does not consummate an initial public offering by August 31,
1999, then, at the option of the holder; which may be exercised at any time
between August 31, 1999 and February 29, 2000, the notes and any accrued
interest thereon are convertible into series D stock at a per share price equal
to $7.65. If the conversion occurs in connection with an acquisition
transaction, the notes and any accrued interest thereon automatically convert
into series D stock at a per share price equal to $7.65.

Net cash used in operating activities increased to $10.8 million for 1998
from $5.8 million for 1997. The increase in net cash used in operating
activities can be substantially attributed to the increased net loss, net of
adjustment for the increased non-cash charges.

Net cash used in investing activities increased to $6.9 million for 1998,
from net cash provided from investing activities of $2.6 million for 1997. The
increase in net cash used in investing activities resulted primarily from the
purchase of securities for investment purposes and, to a lesser extent, from the
purchase of property and equipment for the new corporate offices.

Net cash provided by financing activities increased to $18.8 million for
1998, from $3.0 million for 1997. The increase in net cash provided by financing
activities resulted primarily from the proceeds from the issuance of series D
stock.

Launch has a capital lease line of credit for $1.0 million. At December 31,
1998, $531,000 was outstanding under this line of credit. This facility bears
interest at the bank's prime rate, 7.75% at December 31, 1998. The leased assets
collateralize any borrowings under this line of credit.

Launch has experienced a substantial increase in its capital expenditures
and operating lease arrangements since its inception, consistent with the growth
in Launch's operations and staffing, and anticipates that this will continue for
the foreseeable future. Additionally, Launch will continue to evaluate possible

39
<PAGE> 42

investments in businesses, products and technologies, and plans to expand its
sales and marketing programs and conduct more aggressive brand promotions.
Launch currently expects that the net proceeds from this offering, together with
its existing capital lease line of credit and available funds, will be
sufficient to meet its anticipated needs for working capital and capital
expenditures for at least the next 12 months. There can be no assurance,
however, that the underlying assumed levels of revenues and expenses will prove
to be accurate. Launch may seek additional funding through public or private
financings or other arrangements prior to such time. Adequate funds may not be
available when needed or may not be available on terms favorable to Launch. If
additional funds are raised through the issuance of equity securities, dilution
to existing stockholders may result. If funding is insufficient at any time in
the future, Launch may be unable to develop or enhance its products or services,
take advantage of business opportunities or respond to competitive pressures,
any of which could have a material adverse effect on Launch's business,
financial condition and results of operations. See "Risk Factors -- We may need
additional financing to achieve our business objectives, and such financing may
not be available because of the condition of our business or the uncertain
nature of the financial markets."

YEAR 2000 COMPLIANCE

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

State of Readiness. Launch has made a preliminary assessment of the Year
2000 readiness of its operating financial and administrative systems, including
the hardware and software that support Launch's systems. Launch has developed an
assessment plan consisting of the following:

(a) quality assurance testing of its internally developed proprietary
software;

(b) contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to the
delivery of Launch's services to its users;

(d) assessing repair or replacement requirements;

(e) implementing repair or replacement; and

(f) creating of contingency plans in the event of Year 2000 failures.

Launch plans to perform a Year 2000 simulation on its systems during the
second quarter of 1999 to test system readiness. Based on the results of its
Year 2000 simulation test, Launch intends to revise its internally developed
systems as necessary to improve the Year 2000 compliance of such systems. Many
vendors of material hardware and software components of its systems have
indicated that the products used by Launch are currently Year 2000 compliant.
Launch intends to require vendors of its other material hardware and software
components of its

40
<PAGE> 43

systems to provide assurances of their Year 2000 compliance. Launch plans to
complete this process during the first half of 1999. Until such testing is
completed and such vendors and providers are contacted, Launch will not be able
to completely evaluate whether its systems will need to be revised or replaced.

Costs. To date, Launch has not incurred any material expenditures in
connection with identifying, evaluating or addressing Year 2000 compliance
issues. Most of Launch's expenses have related to, and are expected to continue
to relate to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. At this time,
Launch does not possess the information necessary to estimate the potential
costs of revisions to its systems should such revisions be required or of the
replacement of third-party software, hardware or services that are determined
not to be Year 2000 compliant. Although Launch does not anticipate that such
expenses will be material, such expenses, if higher than anticipated, could
adversely affect Launch's financial performance.

Risks. Launch is not currently aware of any Year 2000 compliance problems
relating to its systems that would have a material adverse effect on Launch's
business, results of operations and financial condition, without taking into
account Launch's efforts to avoid or fix such problems. There can be no
assurance that Launch will not discover Year 2000 compliance problems in its
systems that will require substantial revision. In addition, there can be no
assurance that third-party software, hardware or services incorporated into
Launch's material systems will not need to be revised or replaced, all of which
could be time-consuming and expensive. The failure of Launch to fix or replace
its internally developed systems or third-party software, hardware or services
on a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions, any of which could have a
material adverse effect on Launch's business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
compliance issues in its internally developed systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend. In addition, there can be no
assurance that governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of Launch's control
will be Year 2000 compliant. The failure by such entities to be Year 2000
compliant could result in a systemic failure beyond the control of Launch, such
as a prolonged Internet, telecommunications or electrical failure, which could
also prevent Launch from publishing its content, decrease the use of the
Internet or prevent users from accessing launch.com, which could have a material
adverse effect on Launch's business, results of operations and financial
condition. The failure by Launch's advertisers to be Year 2000 compliant could
cause them to defer or cancel advertisements scheduled to appear in the Launch
media properties, which could adversely affect Launch's operating results.

Contingency Plan. As discussed above, Launch is engaged in an ongoing Year
2000 assessment and has not yet developed any contingency plans. The results of
Launch's Year 2000 simulation testing and the responses received from
third-party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.

41
<PAGE> 44

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. Launch does not
anticipate that the adoption of SOP No. 98-1 will have a material impact on
Launch's financial statements.

In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. As Launch has expensed these
costs historically, the adoption of this standard will not have a significant
impact on Launch's financial statements.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Launch does not expect the adoption of this statement to
have a significant impact on its financial statements.

RECENT EVENTS

SW Networks Acquisition

Launch has entered into an agreement to purchase SW Networks. SW Networks
produces entertainment and news features focused on the music and entertainment
industry. SW Networks distributes this content for radio broadcast and Internet
syndication. Launch intends to continue to distribute SW Networks' content to
traditional media and to make this content available on launch.com. Launch
believes that this acquisition will significantly enhance the content available
on launch.com and that it will increase awareness of the Launch brand through
traditional radio media.

Launch intends to effect the acquisition of SW Networks by purchasing all
of the outstanding shares of SW Holdings, Inc., a subsidiary corporation of Sony
Music Entertainment, Inc. The purchase agreement relating to this acquisition
requires that Launch pay Sony Music a stated consideration of $12.0 million in
shares of Launch common stock. For purposes of the agreement, the shares to be
issued to Sony Music are to be valued at 80% of the initial public offering
price. Accordingly, Launch will be required to issue 681,818 shares of common
stock to Sony Music upon completion of this offering at an effective discount of
20% from the initial public offering price. Sony Music will have the right to
require registration of such shares beginning six months after the date of this
offering. Absent registration, Sony Music must hold such shares for a minimum of
one year from the completion of this offering. For accounting purposes, Launch
has estimated the fair value of such shares to be equal to the initial public
offering price less 5% due to the restrictions on resale. Accordingly, for
accounting purposes, Launch has estimated the purchase price of SW Networks to
be $14.3 million. The closing of this acquisition transaction is

42
<PAGE> 45

contingent upon completion of this offering with aggregate proceeds of at least
$20.0 million. In addition, as a condition of this acquisition, Sony Music, has
agreed to purchase 45,454 shares of Launch common stock in this offering at the
initial public offering price.

Musicvideos.com Acquisition

On January 15, 1999, Launch entered into a definitive agreement to acquire
AreohveeOnline Partnership, doing business as Musicvideos.com, a provider of
music videos over the Internet. Under the terms of the agreement, which has been
filed as Exhibit 2.1 to the Registration Statement of which this prospectus is a
part, Launch issued a total of 875,556 shares of its common stock and $301,944
in cash to the six partners of AreohveeOnline Partnership in exchange for all of
such partners' interests in the partnership. The transaction is intended to
qualify as a tax-free reorganization and closed February 28, 1999.

Both of these acquisitions will be accounted for using the purchase method
of accounting and, accordingly, the purchase price will be allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the acquisition date. See "Pro Forma Combined
Financial Information."

43
<PAGE> 46

BUSINESS

OVERVIEW

Launch is a digital media company that offers a compelling music discovery
experience for consumers and provides a valuable marketing platform for record
labels, artists, advertisers and merchants. Because our content is designed to
attract and retain an audience composed principally of consumers who are 12 to
34 years old, including the 12 to 20 year old segment that is part of Generation
Y, advertisers on Launch can target a valuable and elusive group of consumers.
We create engaging music content focused on both new and established artists,
spanning almost all musical genres. Launch's consumers are not confined to
receiving music content in the programmed, linear sequences broadcast by radio
and television. Instead, we deliver personalized music content to our users in
an interactive format based on their musical tastes and preferences. As part of
our strategy to attract and retain registered members from our target audience,
we have created a vibrant community of users who help each other discover new
music by virtual word-of-mouth. Our music content encourages our members to
engage in community activities, such as creating home pages, chatting online,
listing friends and favorite artists and developing online friendships with
others sharing similar tastes.

We commenced operations in February 1994 as 2Way Media, Inc. and changed
our name to Launch Media, Inc. in March 1998. In February 1999, we completed a
reorganization transaction in which we acquired all outstanding securities of
Launch Media, Inc., which became a subsidiary of this corporation, and which
changed its name to Launch Networks, Inc.

INDUSTRY BACKGROUND

The Music Industry

Marketing of New Music. Music is one of the most popular forms of
entertainment and a multi-billion dollar consumer industry. According to a
report, dated March 1997, by Soundata, Inc., a research firm focused on the
music industry, approximately 48% of all U.S. households contain at least one
person who purchased three or more CDs or cassettes in a six-month period. As
music consumers converted their record collections to CDs beginning in the
mid-1980's, domestic music shipments grew from $6.2 billion in 1988 to $12.2
billion in 1997, according to the Recording Industry Association of America.
With this conversion now largely complete, continued growth in music sales
depends on the industry's ability to create hit titles from its substantial
slate of new albums each year. According to Soundscan, Inc., a research firm
focused on the music industry, more than 32,000 new albums were released in the
U.S. in 1997, but fewer than 100 sold more than 500,000 copies. This same small
group of titles accounted for 47% of new album sales in the U.S. in 1997,
highlighting the significant ongoing challenge for the music industry to market
its new releases. Historically, the music industry has looked to music media
brands focused on consumers between the ages of 12 and 34 to serve as the
critical promotional outlets for new music.

Music Consumers. Consumers in the 10 to 34 age group purchased 62% of the
music sold in the U.S. in 1997. A core segment of this consumer group, aged 12
to 20, belongs to a demographic group known to marketers as Generation Y.
Generation Y has been characterized as the group consisting of approximately 60
million individuals between the ages of five and 20. Generation Y is the largest
and fastest growing segment of the population under age 65. We believe that
consumers in the

44
<PAGE> 47

12 to 34 age group, and those in Generation Y in particular, identify strongly
with the music they like and value being the first to discover new music. We
also believe that Generation Y has been a critical factor in driving the success
of major new acts, such as the Spice Girls, Matchbox 20 and Hanson. From an
advertising perspective, however, young music consumers are difficult to reach
and have demonstrated a resistance to traditional advertising techniques.
Advertisers are beginning to realize that traditional brand marketing and
advertising techniques may be less effective in this market and are increasingly
spending more money to attract this demographic.

The Role of Music Media. Increasingly, traditional music media have de-
emphasized the introduction of new music in favor of programming strategies
designed to aggregate the largest possible audience. Because many active music
consumers are inclined to change the channel when they hear a song that they
dislike, traditional media programmers are compelled to limit the amount and
range of music or videos they broadcast in order to keep consumers tuned in and
attract advertisers. We believe that music television brands such as MTV have
adopted half-hour programming strategies to avoid the symptomatic
channel-changing associated with programmed music videos. Similarly, radio
formats have become more segmented in an effort to target particular segments of
listeners for advertisers. As a result, fewer new music videos and songs receive
airplay, making it more difficult for record labels to market and for consumers
to discover new music. Compounding the challenge for traditional media, a number
of marketers believe Generation Y consumers respond to advertisements
differently from their older counterparts and prefer to encounter those
advertisements through more interactive and diverse media such as the Internet.

Growth of Digital Media

Significant growth in consumer use of personal computers and other
interactive devices has created new opportunities for digital media, such as the
Web. According to an August 1998 report by International Data Corporation, U.S.
home PC penetration has grown from 39.4% in 1996 to 45.5% in 1998 and is
projected to reach 53.1% by 2002. Almost all new PCs include modems for Internet
access and a high-speed CD-ROM or DVD-ROM drive. In addition, IDC projects that
worldwide Internet usage will grow from approximately 69 million users at the
end of 1997 to 320 million by the end of 2002. As a new mass medium, the
Internet is already attracting significant advertising spending. In a report
dated June 1998, Jupiter Communications, a market research firm, estimates
growth in advertising revenue of 42% from $1.9 billion in 1998 to $7.7 billion
by 2002.

The Internet has emerged as a significant mass medium by enabling features
and functions that are unavailable in traditional media. For example, consumers
can quickly access personalized information, and advertisers can target specific
demographic groups based on customer tastes and buying patterns. Digital media
such as the Internet are quickly becoming the media of choice for individuals in
the 12 to 34 age group. Generation Y consumers are particularly attracted to the
features of digital media that enable them to interact with other users who
share their interests. According to a March 1996 report from eMarketer, an
Internet research firm, the number of teens and college students who regularly
access the Internet will rise from an estimated 12.0 million in 1998 to 22.3
million by 2000, and, according to IDC, approximately 58% of Internet users are
between the ages of 12 and 34.

Despite the popularity of the Internet, most consumers cannot experience
high-quality audio and video over their relatively low-bandwidth Internet
connections. As

45
<PAGE> 48

bandwidth increases, consumers are likely to demand richer content in the form
of CD-quality audio and full-motion video, particularly in the entertainment
context where consumers are accustomed to such audio and video quality from
traditional media. New platforms, such as cable and DSL modem and satellite data
broadcast, are already being created to deliver high-speed access to digital
media. High speed Internet access providers @Home and MediaOne reported that
they had an aggregate of approximately 410,000 subscribers to their cable modem
services at the end of 1998.

The Opportunity for a Music Media Brand in Digital Media

We believe that the core group of active music consumers aged 12 to 34, and
particularly those in Generation Y, constitutes a valuable demographic segment
for advertisers because they tend to be early adopters and significant spenders.
Despite their common affinity for music, these consumers have diverse tastes and
interests, and advertisers typically find it difficult to cost-effectively
target them as a group. As traditional music media brands have moved to address
the changing viewing and listening habits of this audience for the benefit of
advertisers, such traditional vehicles have become less effective as outlets for
discovering or marketing new music. The limitations of traditional media have
encouraged (a) active music consumers to seek new ways to discover music, (b)
music industry participants to pursue alternative methods of promoting their new
releases and (c) advertisers to use new media vehicles to promote and sell their
products to an increasingly important demographic group. The rapid growth in
home PC penetration, Internet usage and high-speed Internet services presents
the opportunity to exploit the advantages of digital media to better promote new
music to the valuable demographic group seeking to discover it. Aggregating this
elusive audience in an interactive environment provides advertisers and
merchants the opportunity to target their most valuable consumer. We believe a
significant opportunity exists to create a music brand in digital media that
serves as a single destination for the music consumer to discover new music, the
music industry to promote new releases and the advertising community to target a
highly attractive demographic.

THE LAUNCH SOLUTION

Launch is a digital media company focused on creating the premier
destination for discovering new music. Leveraging the inherent advantages of
digital media, Launch offers a compelling music discovery experience for
consumers and provides a valuable marketing platform for record labels, artists,
advertisers and merchants. Because our content is designed to attract and retain
an audience composed principally of consumers who are 12 to 34 years old,
including the 12 to 20 year old consumers who are part of Generation Y,
advertisers on Launch can target a valuable and elusive group of consumers. We
create engaging music content focused on both new and established artists,
spanning almost all musical genres. Launch's consumers are not confined to
receiving music content in the programmed, linear sequences broadcast by radio
and television. Instead, we deliver personalized music content to our users in
an interactive format based on their musical tastes and preferences. We
currently deliver our content on the Internet at www.launch.com and on the
monthly Launch on CD-ROM. As broadband access to the Internet achieves greater
consumer acceptance and enables us to add our richest audio and video content to
launch.com, we intend to phase out delivery of Launch on CD-ROM.

46
<PAGE> 49

As of March 1, 1999, launch.com had approximately 1.0 million registered
users. DoubleClick, Inc., our third-party ad server, reported that, in March
1999, there were approximately 1.0 million unique visitors to launch.com. As of
March 1999, Launch on CD-ROM had approximately 265,000 subscribers.

We believe that Launch offers the active music consumer access to a greater
selection of music and artists than is typically available through traditional
media. In addition, our user-generated content, gathered at minimal cost to us,
provides an additional source of music discovery and encourages regular, active
participation in our community of users. Launch offers record labels the
opportunity to promote and sell new music to a broad market that can be
difficult to reach through traditional media. We work closely with most
independent and major record labels, including those of Sony Music
Entertainment, Warner Music Group, Universal Music Group, EMI Music and BMG.
Through these relationships, we have featured several of the biggest names in
music, including Alanis Morissette, Smashing Pumpkins, Matchbox 20, Wyclef Jean,
Seal, R.E.M. and Jewel, and have introduced our audience to many new artists.

Key elements of Launch's solution include:

Original and Compelling Music Content. Launch creates exclusive and
original music content, including video interviews and performances, news,
biographies and album and concert reviews. Launch also offers localized concert
and tour information as well as radio station play lists and on-demand music
videos. Our musical coverage spans all genres, including country, blues, jazz,
rap, R&B, folk, rock, excluding only classical. We can offer this broad range of
music content because digital media permit users to navigate to content that
interests them. As a promotional outlet for the music industry, Launch has
regular access to a broad range of artists who are the subjects of exclusive
video and audio content for Launch. The acquisition of SW Networks will expand
our content offering to include in depth music content across genres. Our
success with Launch on CD-ROM has allowed us to leverage our access to artists
to create compelling features for launch.com. We believe that our relationships
with the music industry as well as our expertise in digital media production
will provide us a strategic advantage in offering broadband music content to our
users as broadband distribution systems gain greater consumer acceptance.

Personalization of Content Based on Music Preference. Digital media
enables personalization that allows our members to focus on musical genres that
interest them and to avoid unappealing types of music without exiting Launch.
Our members register free with launch.com by providing zip code, age and gender
information. They also actively add information about their music preferences by
rating artists and albums and indicating favorites. We collect this data in a
database that grows as our members spend more time on the site. As of March 1,
1999, launch.com users had contributed over 14 million artist and album ratings.
We use this information to personalize our content for our members based on
their stated musical preferences. For example, a member interested in country
music but not heavy metal would receive targeted features and reviews on country
artists to the exclusion of heavy metal. We believe that personalization
increases the time a user spends on launch.com and discourages changing to
another site.

Active Membership and Community Participation. We have created a vibrant
community of users who help each other discover new music by virtual word-of-

47
<PAGE> 50

mouth. We believe that active music consumers consider musical tastes to be an
important part of personal identity. Music is a shared experience and a powerful
catalyst for community formation. Our music content encourages our members to
engage in community activities, such as creating home pages, chatting online,
listing friends and favorite artists and developing online friendships with
others sharing similar tastes. As of March 1, 1999, there were approximately 1.0
million registered members of launch.com. Our members can also post their
favorite artists and albums on their personalized launch.com home pages and
write their own reviews. This user-generated content, gathered at minimal cost
to us, provides an additional source of music discovery and encourages regular,
active participation in the community. We believe that members with strong ties
to the community tend to spend significant amounts of time interacting with
others and are less likely to switch to a different music site.

Powerful Promotional Outlet for Record Labels and Artists. Record labels
and artists can work with Launch to promote their new releases to the large
group of active music buyers who make up the Launch user community. Because
consumers can avoid music they dislike but still remain in the Launch
environment, Launch can cover a broader spectrum of musical genres and expose
users to a greater number of artists. Record companies, including Sony, Warner,
Universal, BMG and EMI, use Launch to introduce users to a variety of new
artists and to inform them of new releases from established artists. We often
feature established artists in order to draw users in to discover new names.
Because of the synergistic relationships we have developed with the record
labels, we have access to high-profile personalities in music. Since May 1995 we
have featured exclusive interviews and performances by popular recording artists
such as Alanis Morissette, Jewel, Smashing Pumpkins, R.E.M., Sheryl Crow, Aqua,
Matchbox 20, No Doubt and Wyclef Jean.

Attractive, Targeted Demographic Group. Launch focuses on the valuable 12
to 34 year old audience, including the 12 to 20 year old segment that is part of
Generation Y, who has begun spending more time using the Internet. Our research,
conducted by the audience research firm, Mediamark Research Inc. (MRI), in
December 1998, demonstrates that our audience is principally composed of members
of Generation Y and others in the 12 to 34 age group. We believe that our
audience members generally:

- spend substantial amounts of time learning about and listening to music;
- identify strongly with music they like;
- value being the first to discover new music;
- enjoy being a member of a community built around music; and
- adopt technological advancements early.

Advertisers who have difficulty reaching this audience can turn to Launch for
targeted advertising and direct marketing to this valuable, yet elusive group.

Effective Environment for Advertising and Commerce. Launch provides
advertisers with access to a highly desirable group of consumers in an active
entertainment environment. The Launch environment captures consumers for long
periods of time, and advertisements can be targeted to specific users. Launch
collects demographic and music preference information from its users that can be
used to target advertising and commerce opportunities. We believe that Launch's
access to a large audience of active music consumers will provide us a strategic
advantage in

48
<PAGE> 51

selling digitally downloaded music once the appropriate technology matures and
industry standards develop.

STRATEGY

Our objective is to establish Launch as the premier destination for
discovering new music. Our strategy to achieve that objective is to attract and
retain active music consumers with compelling music content and community
features, thereby creating a valuable environment for record labels, advertisers
and merchants to market their products. Key elements of Launch's strategy are:

Continue to Develop Compelling Music Content. Launch believes that
continuing to develop compelling new audio, visual and text content about music
is critical to expanding its audience. We plan to continue to increase our
offering of exclusive music features to attract and retain new consumers,
especially those in the Generation Y demographic group. We also intend to use
the music content generated by SW Networks on launch.com. Our editorial staff
focuses on identifying new artists that will likely appeal to our users as well
as established artists creating new music. We intend to emphasize video
production because we believe that video is the best way for our users to
experience new music. In addition, our expertise in digital media production
will better position Launch for broadband distribution. We are also committed to
adding new features and services, such as programmed streaming audio channels,
on launch.com.

Aggressively Grow Registered Membership. Launch believes that increasing
the size and loyalty of its launch.com audience is critical to its success. In
addition to continuing to provide compelling, personalized content and community
features, we believe that we can continue to build our audience through
distribution agreements with high-traffic Web sites and through a variety of
marketing techniques designed to increase awareness of Launch. We recognize that
our most valuable asset is the registered member who willingly provides
information about himself or herself, and who is more likely to spend
considerable time on Launch. These members help to increase traffic on
launch.com by building and promoting their launch.com home pages and encouraging
new registrations. To encourage launch.com users to become registered members,
we limit access to certain features of launch.com, including personalization and
community, to registered users.

Build Brand Awareness. Increasing awareness of the Launch brand is
essential to our ability to increase our audience and attract advertisers. We
intend to build brand awareness through online advertising and strategic
alliances with high traffic Web sites and through off-line advertising such as
print, television and billboard advertising. We also believe that our pending
acquisition of SW Networks will increase awareness of the Launch brand in the
music industry. To increase awareness of the Launch brand, we are developing a
half-hour television show. Our television concept leverages our expertise in
video production as well as our access to content to create an entertainment
show designed to drive traffic to launch.com. We also believe that increased
awareness of the Launch brand will enable us to increase our attractiveness to
advertisers who target the Launch audience of 12 to 34 year old consumers.

Increase Advertising Revenue by Capitalizing on Attractive Audience
Demographics. Launch seeks to increase its advertising revenues by offering
advertisers access to the Generation Y consumer group and other active music

49
<PAGE> 52

consumers. Our strategy is to focus on large consumer and direct marketers who
seek to target Generation Y in a relevant environment. Launch offers an
interactive and engaging environment where leading brand marketers, such as
Coca-Cola, Nintendo, Lee Jeans and Visa, can target their messages to an elusive
audience that is making its early brand decisions.

Leverage New Distribution Technologies. The increased commercial
availability of new technologies enabling broadband access to the Internet will
allow Launch to increase distribution of the rich content currently available
only on Launch on CD-ROM. We believe that our extensive experience in developing
high quality, rich media content will provide a competitive advantage over other
content providers as technologies permitting high-speed access to the Internet
become more widely available. Our intention is to phase out CD-ROM delivery as
these more efficient distribution systems achieve more widespread consumer
acceptance and enable us to migrate our richest video and audio content to
launch.com.

Generate E-Commerce Revenues. We are aggressively pursuing strategic and
marketing relationships with retailers focused on Web distribution to enable us
to exploit electronic commerce opportunities. We believe that, as standards for
digital downloads of music evolve, Launch will be well positioned to sell music
through digital downloads. Launch also intends to build on strategic
relationships with record labels, music distributors and concert promoters to
offer our users the ability to easily and economically purchase CDs, concert
tickets, clothing and music paraphernalia. In the meantime, Launch now offers
its visitors the opportunity to purchase music CDs and cassettes.

Pursue Strategic Alliances and Acquisitions. We believe that our strategic
relationships with NBC, Microsoft, Infoseek (Go Network), AOL and Snap! will
help attract users, facilitate advertising sales and increase access to
high-profile personalities. We also believe that acquisitions of complementary
businesses, such as Musicvideos.com and SW Networks, will help us to rapidly
expand our content offering. As opportunities arise, we may seek to increase
traffic on launch.com, market share and revenues through strategic acquisitions
in the music content business.

Pursue International Expansion. We believe the global popularity of music
and the growth of digital media in international markets present opportunities
to extend Launch globally. Accordingly, over the longer term, we intend to
create localized versions of Launch in international markets where digital media
is pervasive. In so doing, we believe that we can offer local advertisers a
valuable environment in which to reach their target consumers.

THE LAUNCH MEDIA PROPERTIES

Launch seeks to create the premier destination for music discovery. There
are currently two primary distribution platforms for Launch's music content and
community: launch.com and Launch on CD-ROM. We are also aggressively pursuing
several other broadband distribution alternatives, such as cable modems and
satellite data broadcast. Such systems will enable us to deliver electronically
the rich media content currently delivered on CD-ROM and to eliminate the
manufacturing and distribution of Launch on CD-ROM.

50
<PAGE> 53

Launch.com

Launch.com is the place for active music consumers to discover new music
and meet other music fans with similar tastes. The music content we produce for
launch.com consists of audio samples, music videos, text and photographs.
Launch.com enables users to personalize the content they view to focus on music
that appeals to them individually. Further, registered members of launch.com can
share their tastes and preferences with other members of the community by
creating reviews, rating artists and albums and setting up personalized home
pages that other members can visit. Launch covers all musical genres other than
classical. Some of the key features available on launch.com include the
following:

- music news updated daily;
- artists interviews and feature articles;
- concert reviews;
- album reviews;
- artist biographies, photographs and discographies;
- album artwork, track listings and song samples;
- new and upcoming album release information;
- concert tour information;
- radio station playlists;
- music videos; and
- CD and cassette purchasing.

Although we currently offer streaming audio and music videos, the music
content we produce for launch.com generally consists of text and photographs
because the slow connections most consumers use limit the quality of audio and
video available on the Internet. As more consumers gain faster access to the
Internet through broadband distribution systems, we intend to increase the
amount of higher-quality audio and video content available on launch.com.
Because we have created, and continue to produce, exclusive, high-quality audio
and visual content for Launch on CD-ROM, we believe that Launch will have a
strategic advantage in offering broadband music content to our users as
broadband distribution systems gain greater consumer acceptance.

Launch believes a large and active membership base is critical to its
success. Membership is free and available to launch.com visitors who disclose
their e-mail addresses, zip codes, ages and genders, and choose a member name
and password to be used throughout the site. Members form launch.com's core
audience and are its most valuable users. As of March 1999, Launch had
approximately 1.0 million registered members. Launch recognizes the importance
of maintaining confidentiality of member information and has established a
privacy policy to protect such information.

Registered members have the ability to enhance their Launch experience by
rating artists and albums according to their preferences. By providing Launch
with confidential, voluntary data based on musical tastes, members can enrich
their own content experience when interacting with the site. This information
also creates a robust community rating base.

51
<PAGE> 54

We believe that active music consumers consider musical tastes to be an
important part of personal identity. Music is a shared experience and a powerful
catalyst for community formation. Our goal is to make each registered member an
active participant in the Launch community. Key elements of our community
services that are available free to registered users include the following:

- personal home pages, plus simple tools for customizing the page;
- ability to mark artists or albums as favorites and display them on your
homepage;
- ability to mark other users as friends, list them on your home page, and
display when they, or their friends, are online;
- chats with artists and other users;
- instant messaging;
- internal message boxes; and
- ability to write and post artist or album reviews both on the page
dedicated to the artist/album and on your home page.

A key benefit of our community is that user-generated content is obtained
at minimal cost to us. In addition, we believe that users who have invested
considerable amounts of time developing community ties are less likely to switch
to another site for music content.

Launch on CD-ROM

Because fixed media such as CD-ROM do not share the Internet's bandwidth
limitations, we can offer rich graphics, CD-quality audio and full-motion video
in Launch on CD-ROM. The interface for Launch on CD-ROM is a graphically rich
virtual city where users navigate to particular content by visiting different
buildings. Various buildings such as "The Hang," housing most music content, and
devices such as "The Vibreaker," which contains album reviews, have become
consistent, recognized features of Launch's environment. Advertising on the
CD-ROM is principally in the form of television commercials, product placements
and interactive advertisements. The city environment permits conspicuous yet
natural advertising placements. The familiar look of billboards within the city
or, for example, candy in a theater concession stand encourages users to click
the branded icons to view the advertising. Many of the advertisements pop up in
the environment on video billboards. We track how users spend time within the
CD-ROM and which advertisements they see. Users voluntarily send this
information back to Launch, along with basic demographic information, so that we
can provide advertisers with a profile of our audience and which advertisements
they saw. Launch offers prizes and other incentives for users who furnish this
information.

Each issue of Launch on CD-ROM includes the following:

- album reviews with CD-quality song samples, photographs and album
artwork;
- exclusive video performances by popular recording artists;
- exclusive video interviews with recording artists presented in
distinctive three-dimensional environments where users can choose
interview topics;
- direct links to the Internet for downloading additional content, chatting
with other users, visiting launch.com or viewing an advertiser's Web site
related to an advertisement on the CD-ROM;
- interactive video interviews with movie actors, directors or producers;
- video game demonstrations; and
- television-quality advertisements.

52
<PAGE> 55

We published the first issue of Launch on CD-ROM in May 1995, and have
distributed it monthly since August 1998. We sell subscriptions to Launch on
CD-ROM for $19.95 annually and individual issues for $4.95 at retail outlets. As
of March 1999, total monthly distribution for the CD-ROM was approximately
300,000 units, including 265,000 subscription units. We intend to phase out
CD-ROM delivery as more efficient broadband distribution systems achieve more
widespread consumer acceptance and enable us to migrate our richest audio and
video content to launch.com.

Other Distribution Opportunities

We are committed to maximizing Launch's distribution through all viable
distribution systems for digital media. The proliferation of high-speed access
to the Internet through cable or DSL modem presents new opportunities to
distribute our most compelling content, including personalization and community
features, directly to consumers without publishing a CD-ROM. Launch is currently
part of consumer trials with both MediaOne and @Home for cable modem delivery of
Launch content. In March 1999, we entered into an agreement with Serviceco LLC,
doing business as Road Runner. Under that agreement, we will provide Road Runner
with music-related content for its high speed, cable modem service. The content
we provide will appear on co-branded pages which link back to launch.com. The
initial term of the agreement expires in March 2000 and may be renewed by the
parties. We believe that, by leveraging its access to content and video
production expertise, Launch will have a strategic advantage in providing true
broadband content. In addition, satellite data broadcasting of digital media
content downloaded directly to a consumer's hard drive will, when available,
allow Launch to deliver customized versions of its rich media content. We have
strategic alliances with Intel for technology development and with Echostar for
distribution using this data broadcast system. If such broadband distribution
systems do not achieve widespread consumer acceptance, we may be unable to
distribute our richest audio and video content in its most compelling form. See
"Risk Factors -- We need new distribution technologies to increase accessibility
of our content, and failure of such technologies to achieve consumer acceptance
could limit our growth."

After completion of our pending acquisition of SW Networks, we intend to
continue SW Networks' business of selling music content to radio stations
throughout the United States. Radio stations broadcast to their audiences the
music news and features that SW Networks creates. Radio stations pay for this
content either by making cash payments or by delivering on-air inventory of
radio advertising space that SW Networks resells.

CONTENT DEVELOPMENT

We have developed strong working relationships with most of the major and
independent record labels, including those of Sony Music, Warner Music,
Universal Music, EMI Music and BMG, and with many popular artists. Our core
editorial team is in regular contact with record labels and with independent
publicists who arrange for artists to spend time filming interviews and
performances for use in Launch. The Launch editorial team has extensive
experience in many facets of music journalism and also uses a diverse group of
freelance writers to contribute many of the written features in Launch. Our
strategy is to employ core groups of editors, artists, video producers and other
content creators on a full time basis and also capitalize on a talented network
of freelancers as needed. Although we create most of Launch's

53
<PAGE> 56

content, from time to time we license content from third parties. We have
licensed from Sony Music, on a non-exclusive basis, the rights to certain music
videos for streaming music video channels. We have no long-term contracts with
any record labels or recording artists, and we cannot assure you that labels or
artists will continue to make their content available to us on reasonable terms,
or at all. See "Risk Factors -- Limitations on the availability or increases in
the price of music content developed by third parties could harm our business."

At our headquarters in Santa Monica, California we operate a production
stage that doubles as a recording studio. We use this space to film and record
many of the artists appearing in Launch. Each session with an artist typically
results in content that we can use on both launch.com and Launch on CD-ROM. This
allows us to minimize our production costs while providing the artist with the
broadest possible exposure.

Launch has created exclusive video and text interviews and/or performances
with a variety of new and established artists across multiple genres including:

<TABLE>
<S> <C> <C>
311 Goo Goo Dolls Sarah McLachlan
Tori Amos Buddy Guy Alanis Morissette
Erykah Badu Natalie Imbruglia No Doubt
Ben Folds Five Chris Isaak Shaquille O'Neal
Blues Traveler Wyclef Jean Radiohead
Bush Jewel R.E.M.
The Cardigans B.B. King Joshua Redman
Paula Cole Korn Seal
Sheryl Crow Jonny Lang Smashing Pumpkins
Des'ree Live Third Eye Blind
Everclear Matchbox 20 The Verve Pipe
</TABLE>

Our pending acquisition of SW Networks will increase the quantity and
expand the scope of Launch's music content. SW Networks provides music news and
information in various format-specific genres, such as country, adult
contemporary and urban, to radio stations and Internet-based entertainment
companies. Launch also intends to use this content on launch.com. SW Networks'
reporting and news gathering infrastructure consists of approximately 20
full-time staff based at three bureaus located in New York, Los Angeles and
Nashville.

ADVERTISING AND SPONSORSHIPS

We sell advertising and sponsorships against the cumulative audience
viewing content on launch.com and Launch on CD-ROM. Launch sells advertisements
that include placement on both launch.com and Launch on CD-ROM. Specific
placement depends on the particular advertiser's media and creative goals. We
negotiate pricing based on the size of the unique audience for all Launch
properties, the extent of the placement and the length of the agreement. See
"Risk Factors -- If we fail to increase the size of our audience, we may not be
able to attract advertisers or strategic alliances." Launch's strategy is to
focus on large, consumer brand advertisers who seek to reach the active music
consumer in a relevant environment. Launch understands that advertisers aiming
to reach young consumers making first time brand decisions desire advertising
capable of making an emotional connection with the viewer. Launch offers
advertisers the opportunity to make such connections with their potential
consumers by delivering engaging advertising to a targeted audience or
sponsoring a relevant content area. Advertisers derive significant value from
targeted users who choose to spend time interacting with the content and the

54
<PAGE> 57

advertisement. Our research indicates that users who view advertisements in
Launch tend to remember those advertisements more than advertisements appearing
on traditional media. See "Risk Factors -- Acceptance and effectiveness of
digital media for advertising are unproven, which discourages some advertisers
from advertising on Launch."

Launch derives a portion of its advertising revenues from banner
advertisements that are prominently displayed at the top of pages throughout
launch.com. Banner advertisements are typically sold based on a
cost-per-thousand-impressions (CPM) basis. Targeted banners typically sell for
higher CPM's than run-of-site banners.
From each banner advertisement, viewers can hyperlink directly to the
advertiser's own Web site, thus providing the advertiser the opportunity to
directly interact with an interested customer. Advertisers have the opportunity
to purchase either run-of-site banners or banners specifically targeted to a
subset of Launch members based on zip code, age, gender or musical preference.
Launch charges premium advertising rates for any level of targeting.

Upon completion of Launch's pending acquisition of the business of SW
Networks from Sony Music, Launch intends to begin selling advertising to
traditional radio advertisers. SW Networks has been engaged in the production of
entertainment and news content regarding the music and entertainment industry
for radio broadcast and Internet syndication, and Launch intends to continue
this business. As compensation for providing such content to radio stations,
Launch will typically receive either on-air inventory of radio advertisements or
direct cash payments. To the extent that radio stations pay for Launch's content
with radio advertisement inventory, Launch intends to continue SW Networks'
practice of selling the majority of this inventory to traditional radio
advertisers. Launch will depend on Global Media, a third-party advertising
agency, to sell a majority of its radio advertisement inventory. See "Risk
Factors -- We may be unable to effectively integrate Musicvideos.com, SW
Networks or other businesses we may acquire in the future, and any such failure
could diminish the value of an acquired business or cause disruptions in our
ongoing operations."

Launch has derived a significant amount of its revenues to date from the
sale of advertising. In 1997, advertising sales accounted for 59.3% of our
revenues, and in 1998 they accounted for 60.6% of our revenues. Advertising
orders are short term and subject to cancellation without penalty until shortly
before the advertisement runs. Launch employs a direct sales force of nine
professionals, and we intend to increase our staff in 1999. Although no
advertiser accounted for more than 10% of net revenues in 1998, our four largest
advertisers accounted for 23.5% of net revenues. Accordingly, we depend upon a
limited number of advertisers in any quarterly period. The loss of a key
advertising relationship or the cancellation or deferral of even a limited
number of orders could adversely affect our quarterly financial performance. See
"Risk Factors -- We depend on a limited number of advertisers, and the loss of a
number of these advertisers could adversely affect our operating results."
Advertisers in Launch in 1997, 1998 and/or 1999 include the following:

<TABLE>
<S> <C> <C>
ABC Gillette Nestle
AT&T Intel Nintendo
Certs Jack Daniels Procter & Gamble
Citibank Jim Beam Sony
Coca-Cola Lee Jeans Toyota
Dentyne Levi's Universal Pictures
Dr. Pepper Mazda VH-1
Ford Merck Visa
The GAP Miller
</TABLE>

55
<PAGE> 58

Our revenues for the foreseeable future will depend substantially on sales
of advertising and this dependence subjects us to certain risks. See "Risk
Factors -- Because we depend principally upon advertising revenues, if we do not
increase advertising sales, especially sales against the launch.com audience,
our business may not grow or survive."

COMMERCE OPPORTUNITY

Launch currently sells pre-recorded music directly to consumers on both
launch.com and Launch on CD-ROM. Either independently or through partnerships
with leading merchants, Launch also intends to offer its users a variety of
music-related products such as concert tickets, artist merchandise, and
eventually digital downloads of music. In addition, Launch intends to pursue
opportunities to sell other lifestyle products relevant to its audience. We
believe that aggregating active music consumers and understanding their tastes
by leveraging our substantial database of information about our users positions
Launch to be a valuable channel for merchants who are focused on the 12 to 34
year old demographic group.

STRATEGIC ALLIANCES

Launch pursues strategic relationships to increase audience, build brand
recognition and enhance content and distribution opportunities. We currently
have strategic relationships in three principal areas: Media; Distribution; and
Content, Sponsorship and Technology. Our future success depends to a significant
extent upon the success of these alliances and the achievement of their
strategic objectives. See "Risk Factors -- We must maintain and establish
strategic alliances to increase our audience and enhance our business."

Media Arrangement

Launch is the exclusive branded music content provider for the
entertainment areas of NBC.com. Launch is also the primary provider of music
purchasing services for NBC Interactive Neighborhood. The alliance is designed
primarily to provide visitors to NBC.com a more robust entertainment experience
and to provide Launch with promotion and traffic for launch.com. NBC retains the
rights to publish music content that it owns or controls and to accept
sponsorships other than from identified competitors. In addition, the agreement
provides that NBC is the exclusive television network to which Launch has the
right to provide online music content.

NBC and Launch have jointly created a co-branded music site on NBC.com,
which is accessible both via the NBC.com homepage and through numerous
"gateways" within the NBC.com environment. Gateway pages exist within areas of
NBC.com that have an appropriate music component. For example, gateway pages
reside in the areas for The Tonight Show with Jay Leno, Late Night with Conan
O'Brien, Saturday Night Live, Homicide, and Teen NBC. In addition, special
content areas have also been or may be created within these gateways, such as
the upcoming "Kevin Eubanks' Jazz Pick of the Week" (Tonight Show with Jay
Leno), "Late Night Rocks! Trivia" (Late Night with Conan O'Brien), and a special
"60s" music area in support of NBC's miniseries event, "The '60s." This content
includes artist interviews and excerpts from recordings of live performances of
acoustic performances and music videos. Launch sells and the parties share
advertising revenue generated from the co-branded site. Launch receives
additional promotion for its content and site on NBC's Videoseeker site.
56
<PAGE> 59

Pursuant to the agreement, NBC agrees to make good faith efforts to provide
on-air time to promote the availability of music content on NBC.com. As
consideration for this agreement, NBC received 392,156 shares of Launch Series D
stock in February 1998, certain of which shares are subject to forfeiture if NBC
does not provide specified amounts of on-air promotion. The agreement expires in
April 2000 and can be extended by consent of the parties for an additional two
years if certain performance criteria are met. NBC may cancel the agreement upon
90 days notice, subject to certain penalties.

Distribution Agreements

In February 1999, Launch entered into a strategic alliance with AOL
pursuant to an interactive services agreement, which provides, among other
things, for Launch to be an anchor tenant on the AOL Music Channel and its genre
specific sub-channels. Launch has also been assigned specific keywords within
the AOL service. Launch pays AOL a fee and AOL guarantees Launch a minimum
number of impressions per year. In addition, the contract entitles AOL to a
portion of advertising revenues from the transition page between the AOL service
and launch.com. The agreement has a 14-month term.

In January 1999, Launch entered into a strategic relationship with
Microsoft pursuant to a promotion agreement that provides, among other things,
for Launch to be the primary provider of content for the music category on the
MSN Entertainment Channel. This agreement promotes launch.com on the MSN
Entertainment Channel and encourages users to visit launch.com. Launch provides
music content headlines on MSN which link to launch.com for the full story.
Certain pages where Launch provides content are co-branded and Microsoft retains
the advertising revenue. Launch pays Microsoft a fee and provides certain
promotion on Launch on CD-ROM. The agreement terminates in March 2000 and may be
extended by mutual agreement.

In September 1998, Launch entered into a distribution agreement with
Infoseek pursuant to which Launch provides content headlines to both the Go.com
and Infoseek entertainment and music sub-channels. Launch pays a fee to Infoseek
and provides certain promotion on Launch on CD-ROM in return for a guaranteed
minimum number of impressions. The agreement terminates in November 1999 or upon
60 days notice by either party, and may be extended by mutual agreement.

In January 1999, Launch entered into agreements with Snap! LLC, an Internet
search and portal service. Pursuant to these agreements, Launch provides Snap
with links to certain music content. The Launch content headlines can be found
on both My Snap (Snap's personalized home page) and on the Snap Entertainment
news headlines page. All links take the user to a co-branded Launch page. Either
agreement may be terminated by either party upon 30 days notice.

In February 1999, Launch entered into a further agreement with Snap! LLC to
provide Snap with music content for Snap!'s Project Cyclone, Snap's enhanced,
high-speed version of its general Internet search and portal service that
focuses on rich media content. All Launch music links and portions of content on
Cyclone take the user to either a Launch branded area on Cyclone or to a Launch
page. The initial term of the agreement expires in August 1999 and may be
terminated by either party at any time upon 15 days notice.

57
<PAGE> 60

Content, Sponsorship and Technology

Launch and Sony Music have agreed, concurrently with and contingent upon
the closing of the SW Networks acquisition, to enter into two other agreements:
a sponsorship and content license agreement and a music video license. Under the
sponsorship content license, Launch grants to Sony Music a nonexclusive license
to the content generated by SW Networks and supplied by Launch to radio
stations. In return, Sony Music will pay Launch a quarterly license fee of
$50,000. In addition, this license agreement provides that Sony Music and its
affiliates will purchase advertising and promotional spots on Web sites or other
media properties owned by Launch, in a minimum aggregate amount of $800,000 in
the first year of the agreement, $1.3 million in the second year of the
agreement and $1.3 million in each additional year of the agreement if renewed.
Any advertising or promotional purchases by Sony Music or certain affiliates of
Sony Music in excess of such minimum amounts shall be applied towards the next
year's minimum commitment. The initial term of this agreement is two years, with
extensions of three successive one-year terms at the option of Sony Music.

The music video license involves the nonexclusive license by Sony Music to
Launch of certain music videos for streaming video channels that Sony Music
makes generally available to third parties for exhibition. As part of this
license, Launch will share advertising, sponsorships and e-commerce revenues
generated in connection with Launch's music video content on launch.com. The
term of this Agreement is 12 months from the initial viewing of music videos
provided by Sony Music on launch.com, but in no event longer than 13 months from
the date of the initial execution of the agreement.

The music videos and audio channels available on launch.com use Microsoft's
Windows Media Player technology for displaying content. Launch has a strategic
alliance with Microsoft pursuant to which Microsoft is the premier sponsor for
Launch's programmed audio channels that use the Windows Media Player platform.

We are working closely with a number of strategic participants in the
technology and content fields to deliver Launch content over broadband
distribution channels as they achieve more widespread consumer acceptance. In
February 1998, Launch entered into a strategic agreement with Intel Corporation
pursuant to which Intel is developing technology to enable delivery of Launch
music content over broadband distribution systems such as cable modem and
satellite data broadcast. Prior to the completion of the development
contemplated by the agreement, either party may terminate this agreement upon
written notice. In consideration of Intel's entry into this agreement, Launch
issued 65,359 shares of series D stock to Intel. In addition, Intel acquired
516,340 additional shares in Launch's February 1998 financing.

MARKETING AND BRAND AWARENESS

Launch employs a variety of methods to increase its audience and build
brand recognition and loyalty. We believe that the most effective means of
consumer marketing is creating programs that allow a potential user the
opportunity to sample the product. As a result, Launch has used various direct
marketing techniques, such as the distribution agreements described above for
launch.com, and Internet and direct response television advertisements offering
no-risk subscriptions to Launch on

58
<PAGE> 61

CD-ROM. A portion of our marketing staff is dedicated to these types of direct
marketing programs.

In addition to direct marketing, certain of our marketing staff focuses on
other forms of brand awareness including traditional media advertising such as
print, radio and outdoor. Launch also has a dedicated public relations team
focused on generating press coverage in both trade and consumer media.

Launch is developing a half-hour, entertainment show for television
entitled Launch TV. The primary purposes of the show are to build brand
awareness for Launch and to drive traffic to our digital media properties. Much
of the video production for Launch on CD-ROM is similar to television
production, and we believe that we can effectively leverage our access to
content and production resources to create a high-quality television show that
increases Launch's audience.

OPERATIONS AND INFRASTRUCTURE

Launch.com's operating infrastructure has been designed and implemented to
support the reliable and swift delivery of millions of page views a day. Key
attributes of this infrastructure include scalability, performance and service
availability.

Web pages are generated and delivered, in response to end-users requests,
by any one of seventeen front-end Web and applications servers, and two database
servers. Launch's servers run on the Microsoft Windows NT operating system and
Microsoft's IIS Web server software. Launch uses a variety of Web-based
applications software to provide the services it offers. These currently include
Acuity Corporation, formerly iChat Inc., for real-time chat, NetPerceptions Inc.
for collaborative filtering, although originally built on Firefly, Microsoft
Site Server 3.0 Useage Analyst for Web-traffic measurement, and Microsoft's SQL
7.0 for databases. Launch utilizes DoubleClick's DART technology to deliver its
advertisements. Launch is in the process of implementing Vignette Story Server
4.0, a content managing and publishing system.

Launch maintains all of its launch.com production servers at the Irvine,
California Data Center of Exodus Communications, Inc. Launch's operations are
dependent upon Exodus's ability to protect its systems against damage from fire,
hurricanes, power loss, telecommunications failure, break-ins and other events.
Exodus provides comprehensive facilities management services including human and
technical monitoring of all production servers 24 hours per day, seven days per
week. Exodus provides the means of connectivity for Launch's servers to
end-users via the Internet through multiple DS3 and OC12 connections. These
connections link to many different parts of the Internet via a combination of
public and private peering agreements. The facility is connected to two
independent power grids, has two independent uninterruptible power supplies
("UPS"), which are battery-powered, as well as two independent diesel generators
designed to provide power to the UPS systems within seconds of a power outage.

All of Launch's production data are copied to backup tapes each night and
stored at a third-party, off-site storage facility. Launch is in the process of
developing a comprehensive disaster recovery plan to respond to system failures.
Launch keeps all of its production servers behind firewalls for security
purposes and does not allow outside access, at the operating systems level,
except via special secure channels. Strict password management and physical
security measures are followed. Computer

59
<PAGE> 62

Security Response Team alerts are read, and, where appropriate, recommended
action is taken to address security risks and vulnerabilities. See "Risk
Factors -- We rely on third parties for our Web site operations. If these
systems fail, they could disrupt or delay user traffic, which could impair our
business."

Launch services its subscribers to the CD-ROM through Centrobe, a full
service fulfillment company located in Boulder, Colorado. As our fulfillment
vendor, Centrobe is responsible for processing orders, generating billings and
renewals, processing payment, and providing effective customer service. Centrobe
manages the complete database of Launch on CD-ROM subscribers. Centrobe
generates detailed fulfillment, customer service, and circulation reports that
allow us to effectively analyze our direct marketing efforts.

COMPETITION

Competition among media companies seeking to attract the active music
consumer is intense. Traditional media companies such as television
broadcasters, magazine publishers and radio stations are constantly refining
their content and strategies to increase their audiences and capture advertising
expenditures. Further, the number of Web sites competing for the attention and
spending of members, users and advertisers has increased, and we expect it to
continue to increase, particularly because there are so few barriers to entry on
the Web. We compete for members, users and advertisers with the following types
of companies:

- publishers and distributors of traditional media, such as television,
radio and print, including MTV, CMT, Rolling Stone and Spin, and their
Internet affiliates;
- online services or Web sites targeted at music consumers, such as
SonicNet, mp3.com and UBL;
- Web retrieval and other Web "portal" companies, such as Excite, Inc.,
Infoseek Corporation, Lycos, Inc. and Yahoo! Inc.; and
- online music retailers, such as CDNow and Amazon.com.

Launch believes that the primary competitive factors in creating a music
destination that attracts a large audience composed of our target demographic
group are the following:

- quality and diversity of content;
- ability to personalize content;
- community experience; and
- brand awareness.

Increased competition could result in advertising price reductions, reduced
margins or loss of market share, any of which could adversely affect our
business. Because we compete for advertisers with traditional advertising media,
our business could suffer if advertisers do not view digital media as effective
for advertising. Competition is likely to increase significantly as new
companies enter the market and current competitors expand their services. Many
of these potential competitors are likely to enjoy substantial competitive
advantages, including the following:

- larger technical, production and editorial staffs;
- greater name recognition;
- better access to content;
- more established Internet presence;

60
<PAGE> 63

- larger customer bases; and
- substantially greater financial, marketing, technical and other
resources.

If we fail to compete effectively or if we experience any pricing pressures,
reduced margins or loss of market share resulting from increased competition,
our business could be adversely affected.

GOVERNMENTAL REGULATION

Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. The United States Congress
has enacted Internet laws regarding children's privacy, copyrights and taxation.
Such legislation could dampen the growth in use of the Internet generally and
decrease the acceptance of the Internet as a communications, commercial and
advertising medium. Although our transmissions originate in California, the
governments of other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. The
European Union recently enacted its own privacy regulations that may result in
limits on the collection and use of certain user information. The laws governing
the Internet, however, remain largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel and
taxation apply to the Internet and Internet advertising.

The growth and development of the market for Internet commerce may prompt
calls for more stringent consumer protection laws, both in the United States and
abroad, that may impose additional burdens on companies conducting business over
the Internet. Furthermore, the Federal Trade Commission has recently
investigated the disclosure of personal identifying information obtained from
individuals by Internet companies. In the event the Federal Trade Commission or
other governmental authorities adopt or modify laws or regulations relating to
the Internet, our business, results of operations and financial condition could
be adversely affected. See "Risk Factors-- Governmental regulation of the Web
related to communication, commerce and other issues may limit the growth of our
business and decrease our market opportunity."

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

61
<PAGE> 64

and other taxes on e-commerce transactions may impair our ability to derive
financial benefits from e-commerce."

INTELLECTUAL PROPERTY

The music and music videos featured in Launch are copyrighted works of
third parties, including record labels, artists and songwriters. Each piece of
music or music video content may have multiple copyright owners, some with
rights in the sound recording, covering the particular performance, others with
rights in the musical composition, covering the lyrics and music, and in the
case of music videos, others with rights to the visual content. Launch has
different licensing arrangements with these parties depending on how the song or
music video is used by Launch and the length of part of the song included. In
certain cases, we use content without a license because we do not believe a
license is required; however, the laws in this area are uncertain. Our
arrangements range from formal contracts to informal agreements based on the
promotional nature of the content. In some cases Launch pays a fee to the
licensor for use of the music or music video and in other cases the use is free.
Launch also uses other content, including images, that are copyrighted works of
others. We rely on our positive working relationships with copyright owners to
obtain licenses on favorable terms. Any changes in the nature or terms of these
arrangements, including any requirement for Launch to pay significant fees for
the use of the content, could have a negative impact on the availability of
content or our business.

Copyrighted material that Launch develops internally, as well as trademarks
relating to the Launch brand and other proprietary rights are important to our
success and our competitive position. We seek to protect our copyrights,
trademarks and other proprietary rights, but these actions may be inadequate. We
generally enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and generally control access to and
distribution of our proprietary information. We cannot assure you that the steps
we have taken will prevent misappropriation of our proprietary rights,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. If third
parties were to use or otherwise misappropriate our copyrighted materials,
trademarks or other proprietary rights without our consent or approval, our
competitive position could be harmed, or we could become involved in litigation
to enforce our rights. It is also possible that we could become subject to
infringement actions based upon the content licensed from third parties. Any
such claims or disputes could subject us to costly litigation and the diversion
of our financial resources and technical and management personnel. Further, if
our efforts to enforce our intellectual property rights are unsuccessful or if
claims by third parties against Launch are successful, we may be required to
change our trademarks, alter the content and pay financial damages. We cannot
assure you that such changes of trademarks, alteration of content or payment of
financial damages will not adversely affect our business. See "Risk
Factors -- We depend upon licensed music content that may not continue to be
available to us on reasonable terms."

EMPLOYEES

As of December 31, 1998, Launch had 73 full-time employees. Our future
performance depends in significant part on our ability to continue to attract,
retain and motivate highly qualified technical and management personnel, for
whom competition is intense. From time to time, Launch also employs independent

62
<PAGE> 65

contractors to support our research and development, marketing, sales and
support and administrative organizations. None of Launch's employees is
represented by any collective bargaining unit, and we have never experienced a
work stoppage. We believe that our relations with our employees are good.

FACILITIES

Our principal administrative, sales, marketing and production facilities
are located at our headquarters, which consists of approximately 21,375 square
feet of office and studio production space in Santa Monica, California. Our
sublease for the Santa Monica facility provides for rental payments of $365,704
per year and expires in June 2003. We have the option to renew the sublease for
one additional four year period. We also sublease approximately 2,300 square
feet of office space in New York, New York for use as an East Coast sales and
marketing office. The New York sublease provides for rental payments of $78,676
per year and expires in December 2003. We believe that our current facilities
will be adequate to meet our needs for the foreseeable future. We believe that
suitable additional facilities will be available in the future as needed on
commercially reasonable terms.

LEGAL PROCEEDINGS

From time to time, Launch may be involved in litigation relating to claims
arising out of its operations. As of the date of this prospectus, we are not
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business, financial
condition or results of operations.

63
<PAGE> 66

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of Launch as of March 31, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David B. Goldberg................... 31 Chairman of the Board of Directors
and Chief Executive Officer
Robert D. Roback.................... 31 President and Director
Jeffrey M. Mickeal.................. 38 Chief Financial Officer and
Secretary
James E. Hughes..................... 41 Senior Vice President, General
Manager, launch.com
Spencer A. McClung, Jr.............. 32 Senior Vice President, Broadband
Paige M. Arnof-Fenn................. 33 Senior Vice President, Marketing
Thomas C. Hoegh(1).................. 32 Director
Richard D. Snyder(1)(2)............. 40 Director
Sergio S. Zyman(2).................. 53 Director
Warren Littlefield.................. 46 Director designate
</TABLE>

- -------------------------
(1) Member of the audit committee.

(2) Member of the compensation committee.

David B. Goldberg has served as Launch's chairman of the board and chief
executive officer since he co-founded Launch in February 1994. Prior to that
time, from October 1991 to December 1993, Mr. Goldberg was director of marketing
strategy and new business development at Capitol Records, a major record label
in Hollywood, California. Mr. Goldberg was a consultant at Bain & Co., a major
strategy consulting firm, from September 1989 to September 1991. Mr. Goldberg is
a member of the National Academy of Recording Arts and Sciences. Mr. Goldberg
holds an A.B. in history and government from Harvard University.

Robert D. Roback has served as Launch's president and a director since he
co-founded Launch in February 1994. Prior to that time, from October 1992 to
February 1994, Mr. Roback was a securities attorney at Mayer, Brown & Platt, a
major international law firm in Chicago, Illinois. Mr. Roback holds a B.S. in
economics from The Wharton School of the University of Pennsylvania and is a
graduate of the University of Minnesota Law School.

Jeffrey M. Mickeal has served as Launch's chief financial officer and
secretary since April 1995. Prior to that time, from September 1982 to March
1995, Mr. Mickeal was a senior manager at Coopers & Lybrand L.L.P. in Los
Angeles, California in their entrepreneurial advisory services group. Mr.
Mickeal holds a B.A. in business/economics from the University of California,
Santa Barbara and is a Certified Public Accountant.

James E. Hughes has served as Launch's senior vice president and general
manager, launch.com since July 1998. From its creation in April 1996 until July
1998, Mr. Hughes was vice president of marketing and creative development of E!
Online, LLC, an Internet entertainment company. Mr. Hughes was one of the
founders of the CNET/E! Entertainment Television joint venture. From 1992 until
April 1996, Mr. Hughes was employed by E! Entertainment Television, first as a
writer/producer

64
<PAGE> 67

in the programming department, then as manager, news projects, and finally as
director, promotions, in the marketing department. From 1986 until 1991, Mr.
Hughes served as media communications consultant at Aetna Life & Casualty in
Hartford, Connecticut. Mr. Hughes holds a B.S. from Southern Connecticut State
University.

Spencer A. McClung, Jr. has served as Launch's senior vice president,
broadband, since July 1997. From July 1996 to June 1997, he served as Launch's
senior vice president, marketing. From January 1996 to July 1996, Mr. McClung
served as Launch's vice president, marketing. From July 1995, when he joined
Launch, to January 1996, he served as Launch's senior director, marketing. From
July 1991 to July 1993, he served as a senior financial analyst at the Walt
Disney Company. From June 1989 to July 1991, he served as a financial analyst at
Trammell Crow Ventures, a real estate development company. Mr. McClung holds a
B.A. from Texas A&M University and an M.B.A. from Harvard Business School.

Paige M. Arnof-Fenn has served as Launch's senior vice president,
marketing, since December 1997. Prior to that time, from May 1997 to December
1997, Ms. Arnof-Fenn was special assistant to the chief marketing officer of The
Coca-Cola Company. From September 1994 to April 1997, Ms. Arnof-Fenn was
director of the 1996 Olympic commemorative coin program. From August 1991 to
July 1994, Ms. Arnof-Fenn was in brand management at The Procter & Gamble
Company. Ms. Arnof-Fenn holds an A.B. from Stanford University and an M.B.A.
from Harvard Business School.

Thomas C. Hoegh has been a member of Launch's board of directors since June
1998. He has been managing director of Arts Alliance, a venture capital firm in
London, England, since July 1997. From August 1995 to June 1997, Mr. Hoegh was a
student at Harvard Business School. From January 1992 to August 1995, Mr. Hoegh
was an independent artistic director.

Richard D. Snyder has been a member of Launch's board of directors since
February 1998. He has been president of Avalon Investments, Inc., a venture
capital management company in Ann Arbor, Michigan, since September 1997. From
January 1996 to August 1997, Mr. Snyder was president and chief operating
officer of Gateway 2000, Inc., a computer manufacturer. He served as executive
vice president of Gateway 2000 from July 1991 until January 1996.

Sergio S. Zyman has been a member of Launch's board of directors since July
1998. He served as the Chief Marketing Officer of The Coca-Cola Company from
August 1993 to May 1998. Mr. Zyman serves as a director of The Gap, Coca-Cola
FEMSA and The HoneyBaked Ham Company.

Warren Littlefield has agreed to serve as a member of Launch's board of
directors commencing upon the closing of this offering. Mr. Littlefield
currently serves as president of the Littlefield Company, a joint venture with
the National Broadcasting Company. Prior to founding the Littlefield Company in
October 1998, Mr. Littlefield served as president of NBC Entertainment beginning
in July 1990.

Currently, all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Officers are elected by and serve at the discretion of the board of directors.
There are no family relationships among the directors or officers of Launch.

65
<PAGE> 68

BOARD COMMITTEES

We have established an audit committee and a compensation committee. The
audit committee, which currently consists of Mr. Hoegh and Mr. Snyder, reviews
the internal accounting procedures of Launch and consults with and reviews the
services provided by our independent auditors. The compensation committee, which
currently consists of Mr. Zyman and Mr. Snyder, reviews and recommends to the
board of directors the compensation and benefits of all officers of Launch and
establishes and reviews general policies relating to compensation and benefits
of employees of Launch.

DIRECTOR COMPENSATION

Launch reimburses members of its board of directors for out-of-pocket
expenses incurred in the performance of their duties as directors of Launch. No
member of our board of directors currently receives any additional cash
compensation for his services as a director of Launch. From time to time,
directors who are not employees of Launch receive options under Launch's stock
option plans as compensation for their services as directors. In July 1998, the
board of directors granted to Sergio S. Zyman an option to purchase 40,000
shares of common stock, at an exercise price of $2.00 per share, subject to
vesting. The board of directors has also approved the grant to Mr. Littlefield
of an option to purchase 20,000 shares of common stock at an exercise price of
$22.00 per share, subject to Mr. Littlefield's commencement of services as a
director.

EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS

In April 1995, Launch entered into an employment agreement with Jeff
Mickeal, Launch's chief financial officer. Pursuant to the terms of this
employment agreement, Launch agreed to pay Mr. Mickeal an annual salary of
$80,000, an amount that has since been increased annually by Launch's board of
directors, and grant Mr. Mickeal incentive stock options under the 1994 stock
option plan. The agreement contains customary provisions restricting Mr. Mickeal
from disclosing any secret or confidential information relating to Launch or its
business.

Mr. Mickeal's employment agreement also provides for certain change of
control provisions. If Mr. Mickeal's employment with Launch is terminated other
than for cause within six months of a change of control transaction, he will be
entitled to receive the following payments and benefits:

(a) his accrued but unpaid base salary for the period ending with the date
his employment is terminated;

(b) his earned but unpaid bonuses, if any, for the period ending with the
date his employment is terminated;

(c) payment for accrued but unpaid vacation days, determined as of the date
his employment is terminated in accordance with Launch's policy as in effect
from time to time; and

(d) his base salary as in effect on the date his employment is terminated
for the period of time commencing on his termination date and ending on the
earlier of the date five months after his date of termination, the date upon
which Mr. Mickeal violates various confidentiality or noncompetition provisions
of the employment agreement or the date of Mr. Mickeal's death.

66
<PAGE> 69

Under the 1998 stock option plan, in the event of a change of control
transaction in which (a) the option is not assumed or substituted for by the
acquiring corporation, or (b) the optionee's service is terminated other than
for cause within 12 months after the acquisition, or the optionee resigns for
good reason during such period, 50% of the unvested shares of stock subject to
the option will become fully exercisable as of the date of such event. See
"Stock Plans -- 1998 Stock Option Plan."

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation paid
by Launch to Launch's chief executive officer and each of its other executive
officers whose total compensation exceeded $100,000 (the "named executive
officers") during the fiscal year ended December 31, 1998:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
ANNUAL COMPENSATION ---------------
---------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
SALARY($) COMPENSATION($) OPTIONS/SARS(#)
--------- --------------- ---------------
<S> <C> <C> <C>
David B. Goldberg.............. $110,000 $15,789(1) 40,000
Chief Executive Officer
Robert D. Roback............... 110,000 -- 40,000
President
Jeffrey M. Mickeal............. 112,500 -- 13,000
Chief Financial Officer and
Secretary
Spencer A. McClung, Jr......... 105,000 -- 41,000
Senior Vice President,
Broadband
Paige M. Arnof-Fenn............ 100,000 -- 10,000
Senior Vice President,
Marketing
</TABLE>

- -------------------------
(1) Represents a note payable to Launch that was forgiven in December 1998.

67
<PAGE> 70

The following table provides information concerning grants of options to
purchase Launch's common stock made during the fiscal year ended December 31,
1998 to the CEO and the named executive officers:

OPTION GRANTS IN FISCAL YEAR 1998

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL DEEMED ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS VALUE PER STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE SHARE FOR FOR OPTION TERM (5)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION DATE ------------------------------
NAME GRANTED(1) FISCAL 1998(2) SHARE(3) DATE OF GRANT(4) 0% 5% 10%
---- ---------- -------------- --------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David B. Goldberg....... 40,000 12.2% $2.00 5/7/08 $6.10 $164,000 $317,450 $552,873
Robert D. Roback........ 40,000 12.2 2.00 5/7/08 6.10 164,000 317,450 552,873
Jeffrey M. Mickeal...... 5,000 1.5 2.00 3/12/08 6.10 20,500 39,681 69,109
8,000 2.4 3.00 9/15/08 7.65 37,200 75,688 134,737
Spencer A. McClung,
Jr. .................. 33,000 10.1 2.00 3/12/08 6.10 135,300 261,896 456,120
8,000 2.4 3.00 9/15/08 7.65 37,200 75,688 134,737
Paige M. Arnof-Fenn..... 10,000 3.1 3.00 9/15/08 7.65 46,500 94,610 168,421
</TABLE>

- -------------------------
(1) All options granted to the CEO and the named executive officers in 1998 were
granted under the 1998 stock option plan. Each option vests and becomes
exercisable over a period of four years. See "Stock Plans."

(2) Based on an aggregate of 326,800 shares subject to options granted in fiscal
1998.

(3) All options were granted at an exercise price equal to the fair market value
of Launch's common stock as determined by the board of directors of Launch
on the date of grant. In determining the fair market value of Launch's
common stock, the board of directors considered various factors, including
Launch's financial condition and business prospects, its operating results,
the absence of a market for its common stock and the risks normally
associated with technology companies. Launch's common stock was not publicly
traded at the time of the option grants to the named officers.

(4) The deemed value for the date of grant was determined after the date of
grant solely for financial accounting purposes.

(5) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the options if exercised at the end of the option term. The
assumed 0%, 5% and 10% rates of stock price appreciation are provided in
accordance with rules of the SEC and do not represent Launch's estimate or
projection of the future common stock price. The assumed rate of 0%
indicates the value at the effective date of the offering based on the
deemed value for financial accounting purposes less the exercise price.

68
<PAGE> 71

OPTION EXERCISES AND HOLDINGS

No options were exercised during the fiscal year ended December 31, 1998 by
the CEO or any of the named executive officers. The following table provides
information with respect to unexercised options held as of December 31, 1998 by
the CEO and each of the named executive officers:

FISCAL YEAR-END OPTIONS

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, OPTIONS AT DECEMBER 31,
1998(1) 1998(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David B. Goldberg........ 13,833 38,166 $ 95,916 $251,084
Robert D. Roback......... 29,833 46,166 211,916 309,084
Jeffrey M. Mickeal....... 52,437 17,562 378,592 111,158
Spencer A. McClung,
Jr. ................... 22,874 45,125 160,325 293,925
Paige M. Arnof-Fenn(3)... 4,625 25,375 32,438 167,563
</TABLE>

- -------------------------
(1) All options were granted under Launch's 1994 and 1998 stock option plans.
These options vest over four years and otherwise generally conform to the
terms of the option plans.

(2) Calculated on the basis of the deemed fair value of the underlying
securities on December 31, 1998 of $8.50 per share, determined for financial
accounting purposes, minus the exercise price.

(3) Of the options held by Ms. Arnof-Fenn, 20,000 become fully exercisable upon
completion of this offering. Any shares acquired upon exercise of such
options may not be sold or otherwise transferred prior to two years
following the date of this prospectus without the prior written consent of
the board of directors.

STOCK PLANS

1994 Stock Option Plan. Launch's 1994 stock option plan authorizes Launch
to grant stock options to employees, including officers, and directors of
Launch. Under the 1994 plan, Launch may grant incentive stock options to
employees or nonstatutory stock options to any person who provides services to
Launch. As of March 31, 1999, options to purchase an aggregate of 191,300 shares
of common stock at a weighted average price of $1.25 per share were outstanding
under the 1994 plan. The board of directors has determined not to grant options
under the 1994 plan in the future.

1998 Stock Option Plan. Launch's 1998 stock option plan was approved by the
board of directors and the stockholders in March 1998. The 1998 plan authorizes
Launch to grant incentive stock options to employees, and nonstatutory stock
options to employees, including officers, non-employee directors and
consultants. Because non-employee directors are eligible to receive grants under
the 1998 plan, Launch has not adopted a separate plan which provides for the
formula grant of stock options to non-employee directors.

69
<PAGE> 72

A committee of the Board of Directors administers the 1998 plan. The
administering committee has the authority to select the persons to whom options
are granted and determine the terms of each option, including

(a) the number of shares of common stock covered by the option,

(b) when the option becomes exercisable,

(c) the per share option exercise price, which must be at least 100% of the
fair market value of a share of common stock as of the date of grant or 110% of
such fair market value for incentive stock options granted to 10% stockholders,
and

(d) the duration of the option, which may not exceed 10 years, or, with
respect to incentive stock options granted to 10% stockholders, five years.

Generally, options granted under the 1998 plan become exercisable as the
underlying shares vest pursuant to a schedule established by the administering
committee. Options granted under the 1998 plan cannot be transferred except by
will or the laws of descent and distribution.

In the event of a change in control of Launch, 50% of the unvested shares
subject to an option granted under the 1998 plan will become vested if either
(a) the acquiring corporation does not assume or substitute for the option, or
(b) the optionee's service is terminated other than for cause within 12 months
after the acquisition or the optionee resigns for good reason during such
period.

The total number of shares reserved for issuance under the 1998 plan is
2,000,000 shares, of which, as of March 31, 1999, 9,628 shares have been issued
upon the exercise of options. Options to purchase of a total of 582,167 shares
of common stock at a weighted average exercise price of $2.34 per share were
outstanding and 1,417,833 shares were available for future option grants.

1999 Employee Stock Purchase Plan. Launch has reserved a total of 300,000
shares of common stock for issuance under the 1999 employee stock purchase plan.
Launch will not issue any of these shares prior to the effective date of this
offering. The purchase plan, which is intended to qualify under section 423 of
the Internal Revenue Code, is administered by the board of directors or by a
committee of the board. Employees, including officers and employee directors, of
Launch or any subsidiary designated by the board of directors for participation
in the purchase plan are eligible to participate in the purchase plan if they
are customarily employed for more than 20 hours per week and more than five
months per year. The purchase plan will be implemented by offerings, the first
of which will commence on the effective date of this offering and will terminate
on January 31, 2002 and will be divided into four purchase periods. After the
initial offering, offering periods under the purchase plan will have a duration
of six months and will generally begin on February 1 and August 1 of each year.
Participants will purchase shares on the last day of each purchase period during
the initial offering and the last day of each subsequent offering period. The
board of directors may change the dates or duration of one or more offerings,
but no offering may exceed 27 months. The purchase plan permits eligible
employees to purchase common stock through payroll deductions at a price no less
than 85% of the lower of the fair market value of the common stock on (a) the
first day of the offering, or (b) the purchase date. Participants generally may
not purchase stock having a value, as measured at the beginning of the offering,
greater than $25,000 in any calendar year. In the event of certain changes in
control

70
<PAGE> 73

of Launch, the board may accelerate the purchase date to a date prior to the
change in control unless the acquiring corporation assumes or replaces the
purchase rights outstanding under the purchase plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for (a) any breach of
their duty of loyalty to the corporation or its stockholders, (b) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions or (d) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.

Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether Delaware law would permit indemnification.

We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in Launch's bylaws. These
agreements, among other things, provide for indemnification of Launch's
directors and executive officers for certain expenses, including attorneys fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of Launch, arising
out of such person's services as a director or executive officer of Launch, any
subsidiary of Launch or any other company or enterprise to which the person
provides services at the request of Launch. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Launch
pursuant to the provisions of our charter documents, Delaware law or the
agreements described above, Launch has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.

71
<PAGE> 74

CERTAIN TRANSACTIONS

Since February 1, 1997 there has not been, nor is there currently, any
transaction or series of similar transactions to which Launch was or is a party
in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than five percent of Launch's capital stock
had or will have a direct or indirect material interest other than (a)
agreements which are described where required under the caption "Management" and
(b) the transactions described below.

In September 1997, Launch entered into a financial advisory services letter
agreement with Allen & Company Incorporated, pursuant to which Allen & Company
Incorporated provides financial advisory services to Launch. Pursuant to this
letter agreement, Launch issued Allen & Company Incorporated warrants to
purchase 292,704 shares of common stock in September 1997 and 287,501 shares of
common stock in May 1998, each at an exercise price of $1.25 per share. Of
these, warrants to purchase 35,709 shares of common stock are not exerciseable
until the warrants held by NBC Multimedia, Inc. and General Electric Capital
Corporation become exercisable. In connection with further services provided by
Allen & Company Incorporated in connection with Launch's sale of series D stock
in February 1998, Launch paid $315,000 to Allen & Company Incorporated. The
financial advisory services letter agreement expires on September 8, 2000. The
letter agreement with Allen & Company Incorporated has an initial term that runs
through September 7, 2000 and allows for Allen & Company Incorporated to receive
additional fees for future financial transactions involving Launch and a
third-party. Launch believes these fees would be consistent with the fees
charged by other nationally-recognized investment banking firms for similar
services.

In February 1998, Launch entered into a strategic alliance agreement and a
content provider agreement with NBC Multimedia, Inc., a principal stockholder.
Pursuant to the strategic alliance agreement, Launch agreed to supply music
content and information to NBC in connection with NBC's Web site, NBC.com. In
addition, Launch also agreed to issue a warrant to purchase 388,437 shares of
series D stock to NBC Multimedia, Inc. and a warrant to purchase 60,000 shares
of series D stock to General Electric Capital Corporation, an affiliate of NBC,
at a price equal to the lower of (1) $22.95 per share or (2) the per share
proceeds to Launch for shares of common stock issued in connection with this
offering. Each warrant becomes exercisable if:

(a) NBC offers to extend the term of the strategic alliance agreement for
an additional two years;

(b)(1) Launch completes an initial public offering, (2) NBC has provided
certain on-air, music-related promotions for Launch on NBC.com and (3) NBC
agrees to extend the term of the strategic alliance agreement for two years; or

The warrants terminate upon the earlier of (a) February 27, 2003 or (b) the
consummation of Launch's initial public offering in which shares of common stock
are issued at a per share price of at least $15.00 and Launch receives aggregate
proceeds of at least $15.0 million.

72
<PAGE> 75

In accordance with the terms of the second amended and restated investor
rights agreement, if Launch elects to repurchase shares of its capital stock,
NBC has the right to purchase all such shares until it holds 10% of Launch's
outstanding capital stock.

In February 1998 and May 1998, Launch issued an aggregate of 3,345,227
shares of series D stock at $7.65 per share in a preferred stock financing
transaction. The series D stock will convert into Launch common stock on a
one-for-one basis upon the closing of this offering. The following table
summarizes the shares of series D stock purchased in the financing by executive
officers, directors and 5% stockholders of Launch and persons and entities
associated with them. See "Principal Stockholders."

<TABLE>
<CAPTION>
INVESTORS SERIES D PREFERRED STOCK
--------- ------------------------
<S> <C>
Intel Corporation................................. 581,699
Avalon Technology LLC............................. 588,235
The Phoenix Partners III and IV Limited
Partnerships(1)................................. 522,875
Goran Enterprises Limited......................... 457,516
Digital Ventures Limited.......................... 410,586
NBC Multimedia, Inc............................... 392,156
General Electric Capital Corporation.............. 392,156
</TABLE>

- ---------------
(1) Of the 522,875 shares of series D stock purchased by The Phoenix Partners
III and IV Limited Partnerships, 417,657 of such shares were purchased by
The Phoenix Partners III Limited Partnership and 105,218 of such shares were
purchased by the Phoenix Partners IV Limited Partnership.

In February 1998, Launch entered into a software license and development
agreement with Intel Corporation, a principal stockholder, pursuant to which
Launch and Intel agreed to work together to create a music application using
broadband broadcast distribution and in consideration of this agreement, Launch
issued Intel 65,359 shares of series D stock.

In October 1998, Launch made a loan to Mr. Goldberg, Launch's chief
executive officer and chairman of the board of directors, in the principal
amount of $100,000. The loan is secured by 50,000 shares of Launch common stock
held by Mr. Goldberg. The loan accrues interest at a rate of 8% per year. At
February 28, 1999, approximately $102,650 of principal and accrued interest was
outstanding under the loan. Mr. Goldberg's loan will become due and payable upon
60 days written notice from Launch.

73
<PAGE> 76

(a) Launch's consummation of an initial public offering with a sales price
per share of at least $10.00 and aggregate gross proceeds to Launch of at least
$15.0 million;

(b) an acquisition transaction in which the stockholders of Launch prior to
such transaction own less than 50% of the voting securities of the surviving
entity after such transaction; or

If Launch consummates an initial public offering prior to August 31, 1999,
the notes and any accrued interest thereon automatically convert to common stock
at a per share price equal to 80% of the initial public offering price per
share. If Launch does not consummate an initial public offering by August 31,
1999, then, at the option of the holder which may be exercised at any time
between August 31, 1999 and February 29, 2000, the notes and any accrued
interest thereon are convertible into series D stock at a per share price equal
to $7.65. If the conversion occurs in connection with an acquisition
transaction, the notes and any accrued interest thereon automatically convert
into series D stock at a per share price equal to $7.65.

During 1997 and 1998, Launch received advertising revenue from Intel
Corporation of $12,000 and $219,000, respectively, of which $102,550 was
included in accounts receivable of Launch at December 31, 1998.

Launch has entered into a stock purchase agreement with Sony Music
Entertainment, Inc., and Launch and Sony have agreed to enter into a sponsorship
and content license agreement and a music video license agreement simultaneously
with the closing of this offering. This transaction is described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Events" and "Business -- Strategic Alliances."

Launch believes that all transactions with affiliates described above were
made on terms no less favorable to Launch than could have been obtained from
unaffiliated third parties. Launch's policy is to require that a majority of the
independent and disinterested outside directors on our board of directors
approve all future transactions between Launch and its officers, directors,
principal stockholders and their affiliates. Such transactions will continue to
be on terms no less favorable to Launch than it could obtain from unaffiliated
third parties.

74
<PAGE> 77

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of Launch's common
stock as of March 31, 1999 and as adjusted to reflect the sale of the shares of
common stock offered hereby by:

- each person or entity who is known by Launch to beneficially own more
than 5% of Launch's outstanding common stock;

- the CEO, each of the named executive officers and each of Launch's
directors; and

- all executive officers and directors as a group.

Unless otherwise indicated, the address for each of the named individuals
is c/o Launch Media, Inc., 2700 Pennsylvania Avenue, Santa Monica, California
90404. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them. The number of
shares in the table assumes no exercise of the underwriters' overallotment
option.

Applicable percentage ownership in the table is based on 7,746,845 shares
of common stock outstanding as of March 31, 1999 and 12,014,188 shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Shares of common stock subject to options that are
presently exercisable or exercisable within 60 days of March 31, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the person
or entity holding such options, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person or entity. To
the extent that any shares are issued upon exercise of options, warrants or
other rights to acquire Launch's capital stock that are presently outstanding or
granted in the future or reserved for future issuance under Launch's stock
plans, there will be further dilution to new public investors.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------
PRIOR TO OFFERING AFTER OFFERING
------------------- --------------
NUMBER PERCENT PERCENT
--------- ------- --------------
<S> <C> <C> <C>
THE CEO, NAMED EXECUTIVE OFFICERS AND DIRECTORS
David B. Goldberg(1)........................... 409,118 5.3% 3.4%
Robert D. Roback(2)............................ 220,250 2.8 1.8
Jeffrey M. Mickeal(3).......................... 67,270 * *
Spencer A. McClung, Jr.(4)..................... 30,894 * *
Paige M. Arnof-Fenn(5)......................... 7,832 * *
Thomas C. Hoegh(6)............................. 868,102 11.2 7.2
Richard D. Snyder(7)........................... 588,235 7.6 4.9
Sergio S. Zyman(8)............................. 22,222 * *
Warren Littlefield(9).......................... 20,000 * *
</TABLE>

75
<PAGE> 78

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------
PRIOR TO OFFERING AFTER OFFERING
------------------- --------------
NUMBER PERCENT PERCENT
--------- ------- --------------
<S> <C> <C> <C>
5% STOCKHOLDERS
The Phoenix Partners Limited Partnership(10)... 1,635,297 21.1 13.6
1000 Second Avenue, Suite 3600
Seattle, WA 98104
NBC Multimedia, Inc.(11)....................... 1,232,749 15.0 9.9
30 Rockefeller Plaza
Suite 1076E
New York, NY 10112
General Electric Capital Corporation(12)....... 1,232,749 15.0 9.9
120 Long Ridge Road
Stamford, CT 06927
Intel Corporation(13).......................... 792,225 10.2 6.6
Mail Stop SC-210
2200 Mission College Blvd.
Santa Clara, CA 95052
Sony Music Entertainment, Inc.(14)............. 727,272 9.4 6.0
550 Madison Avenue
New York, NY 10022
Lee Entertainment L.L.C.(15)................... 631,579 8.2 5.3
500, 5-GA, Namdaemoon-No
Chung-Ku, Seoul 100-095, Korea
Avalon Technology LLC.......................... 588,235 7.6 4.9
201 S. Main Street
Ann Arbor, MI 48104
Allen & Company Incorporated(16)............... 580,205 7.0 4.6
711 Fifth Avenue
New York, NY 10022
Goran Enterprises Limited(17).................. 457,516 5.9 3.8
Suite 2, Borough House,
Rue du Pre,
St. Peter Port,
Guernsey GY1 1EF
Channel Islands
SOFTBANK Ventures, Inc.(18).................... 421,052 5.4 3.5
1-16-8 Nihonbashi-Kakigaracho
Chuo-ku, Tokyo 103-0014, Japan
Digital Ventures Limited....................... 410,586 5.3 3.4
Suite 2, Borough House,
Rue du Pre,
St. Peter Port
Guernsey GY1 1EF
Channel Islands
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
(10 persons)(19)............................. 2,233,923 28.2 18.3
</TABLE>

76
<PAGE> 79

- -------------------------
* Less than 1%

(1) Includes 750 shares subject to options issued under the 1994 stock option
plan and 4,167 shares subject to options issued under the 1998 stock option
plan, all of which are exercisable within 60 days of March 31, 1999.

(2) Includes 27,750 shares subject to options issued under the 1994 stock
option plan and 12,500 shares subject to options issued under the 1998
stock option plan, all of which are exercisable within 60 days of March 31,
1999.

(3) Includes 55,854 shares subject to options issued under the 1994 stock
option plan and 3,416 shares subject to options issued under the 1998 stock
option plan, all of which are exercisable within 60 days of March 31, 1999.

(4) Represents 18,999 shares subject to options issued under the 1994 stock
option plan and 11,895 shares subject to options issued under the 1998
stock option plan, all of which are exercisable within 60 days of March 31,
1999.

(5) Represents 5,666 shares subject to options issued under the 1994 stock
option plan and 2,166 shares subject to options issued under the 1998 stock
option plan, all of which are exercisable within 60 days of March 31, 1999.

(6) Represents an aggregate of 868,102 shares registered in the name of Goran
Enterprises Limited and Digital Ventures Limited, of which Arts Alliance is
an investment advisor. Does not include shares issuable upon conversion of
a $500,000 convertible subordinated promissory note to be issued by Launch
to Goran Enterprises Limited pursuant to a note purchase agreement dated
February 15, 1999. Mr. Hoegh, a managing director of Arts Alliance, has
certain investment and voting power over all of the 868,102 shares. Mr.
Hoegh disclaims all such beneficial ownership except to the extent of his
pecuniary interest therein.

(7) Represents 588,235 shares registered in the name of Avalon Technology LLC.
Does not include shares issuable upon conversion of a $1.0 million
convertible subordinated promissory note to be issued by Launch to Avalon
Technology LLC pursuant to a note purchase agreement dated February 15,
1999. Mr. Snyder, the President, of Avalon Technology LLC, has certain
investment and voting power over the 588,235 shares. Mr. Snyder disclaims
all such beneficial ownership except to the extent of his pecuniary
interest therein.

(8) Represents 22,222 shares subject to options issued under the 1998 stock
option plan, all of which are exercisable within 60 days of March 31, 1999.

(9) Represents 20,000 shares subject to options approval for issuance under the
1998 stock option plan upon Mr. Littlefield's commencement of services as a
director, all of which would be exercisable within 60 days of March 31,
1999.

(10) Consists of 293,954 shares held by The Phoenix Partners II Liquidating
Trust ("PPII"), 502,367 shares held by The Phoenix Partners IIIB Limited
Partnership ("PPIIIB"), 627,957 shares held by The Phoenix Partners III
Liquidating Trust ("PPIII"), and 211,019 shares held by The Phoenix
Partners IV Limited Partnership ("PPIV"). Stuart C. Johnston is the Trustee
of PPII and PPIII, and is the Managing General Partner of Phoenix
Management Partners III, which is the General Partner of PPIIIB, and the
Managing Member of Phoenix Management IV, LLC, which is the General Partner
of PPIV. As such, Mr. Johnston has voting and investment power with respect
to the shares held by PPII, PPIII, PPIIIB, and PPIV and may be deemed to be
the beneficial

77
<PAGE> 80

owner of such shares. Mr. Johnston disclaims beneficial ownership of shares held
by PPII, PPIII, PPIIIB and PPIV, except to the extent of his proportionate
interest therein.

(11) Includes 388,437 shares subject to warrants exercisable within 60 days of
March 31, 1999. These warrants will expire upon the closing of this
offering. Also includes 392,156 shares held by General Electric Capital
Corporation and 60,000 shares subject to warrants held by General Electric
Capital Corporation which are exercisable within 60 days of March 31, 1999
and which will also expire upon the closing of this offering. NBC
Multimedia, Inc. and General Electric Capital Corporation are under common
control of entities affiliated with the General Electric Company.

(12) Includes 60,000 shares subject to warrants exercisable within 60 days of
March 31, 1999. These warrants will expire upon the closing of this
offering. Also includes 392,156 shares held by NBC Multimedia, Inc. and
388,437 shares subject to warrants held by NBC Multimedia, Inc. which are
exerciseable within 60 days of March 31, 1999 and which will also expire
upon the closing of this offering. NBC Multimedia, Inc. and General
Electric Capital Corporation are under common control of entities
affiliated with the General Electric Company.

(13) Does not include 100,000 shares that Launch has reserved for sale to Intel
in this offering. After the offering, Intel will beneficially own 892,225
shares, representing 7.4% of the outstanding common stock.

(14) Represents 681,818 shares issuable to Sony upon the closing of this
offering in connection with Launch's acquisition of SW Networks and the
45,454 shares that Sony has agreed to purchase in this offering.

(15) Mie Kyung Lee is the Executive Director of Lee Entertainment and has
certain investment and voting power over these shares.

(16) Represents 580,205 shares subject to warrants exercisable within 60 days of
March 31, 1999.

(17) Does not include shares issuable upon conversion of a $500,000 convertible
subordinated promissory note to be issued by Launch to Goran Enterprises
Limited pursuant to a note purchase agreement dated February 15, 1999.

(18) Yoshitaka Kitao is the president and chief executive officer of SOFTBANK
and has certain investment and voting power over these shares.

(19) Includes 109,019 shares subject to options issued under the 1994 stock
option plan and 76,366 shares subject to options issued under the 1998
stock option plan, all of which are exercisable within 60 days of March 31,
1999. Also includes an aggregate of 868,102 shares registered in the name
of Goran Enterprises Limited and Digital Ventures Limited and 588,235
shares registered in the name of Avalon Technology LLC.

78
<PAGE> 81

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, our authorized capital stock will consist
of 75,000,000 shares of common stock. The following summary of certain
provisions of the common stock and the preferred stock is subject to, and
qualified in its entirety by Launch's certificate of incorporation and bylaws
and by the provisions of applicable law.

COMMON STOCK

As of March 31, 1999, there were 1,828,615 shares of common stock
outstanding held of record by 35 stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the board
from time to time may determine in its sole discretion. Holders of common stock
are entitled to one vote for each share held on all matters submitted to a vote
of stockholders. Cumulative voting for the election of directors is not
authorized by Launch's certificate of incorporation, which means that the
holders of a majority of the shares voted can elect all of the directors then
standing for election. The common stock is not entitled to preemptive rights and
is not subject to conversion or redemption. Upon liquidation, dissolution or
winding-up of Launch, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation of any
preferred stock. Each outstanding share of common stock is, and all shares of
common stock to be outstanding upon completion of this offering will be, upon
payment therefor, duly and validly issued, fully paid and nonassessable.

PREFERRED STOCK

Upon completion of this offering, all outstanding shares of preferred stock
will be converted on a one-to-one one basis into 5,918,230 shares of common
stock. As a result of the conversion of all outstanding and authorized preferred
stock, Launch will have no shares of preferred stock authorized upon completion
of this offering.

WARRANTS

Pursuant to the financial advisory services letter agreement and related
letter agreement between Launch and Allen & Company Incorporated, Launch issued
to Allen & Company warrants to purchase 292,704 shares of common stock in
September 1997 and 287,501 shares of common stock in May 1998. Of these,
warrants to purchase 35,709 shares of common stock are not exercisable until the
warrants held by NBC Multimedia, Inc. and General Electric Capital Corporation
become exercisable. The warrants have an exercise price of $1.25 per share and
expire on September 8, 2002. All of these warrants remained outstanding on
February 28, 1999.

On February 27, 1998, Launch issued warrants to purchase 388,437 shares of
series D stock to NBC Multimedia, Inc. and warrants to purchase 60,000 shares of
series D stock to General Electric Capital Corporation. These warrants have an
exercise price of $20.46 per share and expire on the closing of this offering if
not exercised earlier.

79
<PAGE> 82

REGISTRATION RIGHTS OF CERTAIN HOLDERS

Following the sale of the common stock offered hereby, the holders of
approximately

(a) 5,368,549 shares of common stock,

(b) 1,054,637 shares of common stock issuable upon exercise of warrants,

(d) 681,818 shares issuable to Sony in connection with the SW Networks
acquisition,

will have certain rights to register those shares under the Securities Act
of 1933 pursuant to the second amended and restated investor rights agreement.
Subject to certain limitations in this rights agreement, the holders of (a) at
least 30% of such shares or (b) shares with an expected aggregate offering price
to the public of at least $5.0 million, may require, on three occasions, that
Launch use its best efforts to register such shares for public resale. Sony also
has the right, acting individually, to require, on one occasion, that Launch use
its best efforts to register its shares for resale to the public. If Launch
registers any of its common stock for its own account or for the account of
other security holders, the holders of such shares are entitled to include their
shares of common stock in the registration, subject to the ability of the
underwriters to limit the number of shares included in the offering. Any holder
or holders of such shares may also require Launch to register all or a portion
of their registrable securities on Form S-3 when Launch is eligible to use such
form, provided, among other limitations, that the proposed aggregate price to
the public is at least $1.0 million and that Launch shall not have effected two
such Forms S-3 in any 12-month period. Launch will bear all fees, costs and
expenses of such registration, other than underwriting discounts and
commissions.

DELAWARE LAW AND CERTAIN PROVISIONS OF LAUNCH'S CERTIFICATE OF INCORPORATION AND
BYLAWS

Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make more difficult the acquisition of Launch by means of a tender
offer, a proxy contest, or otherwise, and the removal of incumbent officers and
directors. These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of Launch to first negotiate with us. We believe that the
benefits of increased protection of Launch's potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or restructure
Launch outweighs the disadvantages of discouraging such proposals, including
proposals that are priced above the then current market value of our common
stock, because, among other things, negotiation of such proposals could result
in an improvement of their terms.

We are subject to Section 203 of the Delaware General Corporation Law. This
provision generally prohibits any Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date such stockholder became an interested stockholder, unless:

- prior to such date the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;

80
<PAGE> 83

- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or

- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 defines business combination to include:

(a) any merger or consolidation involving the corporation and the
interested stockholder;

(b) any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

(c) subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder;

(d) any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or

(e) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.

In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called at any time by the board of directors, the chairman of the board of
directors or the president and chief executive officer. These provisions may
have the effect of deterring hostile takeovers or delaying changes in control of
the management of Launch.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation.

81
<PAGE> 84

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for Launch's
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.

Upon completion of this offering, Launch will have outstanding 12,014,188
shares of common stock, assuming the issuance of 3,500,000 shares of common
stock offered hereby and no exercise of options after March 31, 1999. Of these
shares, the 3,500,000 shares sold in the offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act or by persons subject to other contractual or legal
restrictions on resale. Sales by affiliates would be subject to certain
limitations and restrictions described below.

The remaining 8,514,188 shares of common stock held by existing
stockholders were issued and sold by Launch in reliance on exemptions from the
registration requirements of the Securities Act. Of these shares, approximately
7,670,929 shares will be subject to "lock-up" agreements described below on the
effective date of the offering and 790,182 will be subject to similar
restrictions on transfer. On the effective date of the offering, 3,553,077
shares not subject to the lock-up agreements described below or similar
agreements will be eligible for sale. Upon expiration of the lock-up agreements
after the effective date of the offering, all remaining shares other than (a)
85,525 shares issuable to two of Launch's stockholders upon conversion of
outstanding convertible notes which will occur upon completion of this offering
and (b) 681,818 shares to be issued to Sony Music in connection with Launch's
acquisition of SW Networks will become eligible for sale in the public market
without restriction except in the case of affiliates. The 85,525 shares issuable
upon conversion of the notes will become eligible for sale in the public market,
subject to volume and other restrictions set forth in Rule 144, one year after
issuance of the notes while the 681,818 shares to be issued to Sony Music will
become eligible for sale in the public market, subject to the same restrictions,
one year after the closing of this offering. In addition, holders of stock
options may exercise such options and sell certain of the shares issued upon
exercise as described below.

As of March 31, 1999, there were a total of 191,300 shares of common stock
subject to outstanding options under our 1994 stock option plan, 130,852 of
which were vested and exercisable, and a total of 582,167 shares of common stock
subject to outstanding options under our 1998 stock option plan, 46,977 of which
were vested and exercisable. All of these shares are subject to lock-up
agreements or otherwise subject to restrictions on transfer. Immediately after
the completion of the offering, Launch intends to file a registration statement
on Form S-8 under the Securities Act to register all of the shares of common
stock issued or reserved for future issuance under our 1994 and 1998 stock
option plans and our 1999 employee stock purchase plan. After the effective
dates of the registration statement on Form S-8, shares purchased upon exercise
of options granted pursuant to the 1994 and 1998 stock option plans and the 1999
employee stock purchase plan generally would be available for resale in the
public market.

The officers, directors and the holders of approximately 99% of the
outstanding shares of Launch have agreed not to sell or otherwise dispose of any
of their shares for a period of 180 days after the date of the offering.
Hambrecht & Quist LLC, however, may in its sole discretion, at any time without
notice, release all or any portion of the shares subject to lock-up agreements.

82
<PAGE> 85

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
Allen & Company Incorporated and NationsBanc Montgomery Securities LLC, have
severally agreed to purchase from Launch the numbers of shares of common stock
set forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC....................................... 1,250,000
Allen & Company Incorporated................................ 625,000
NationsBanc Montgomery Securities LLC....................... 625,000
Morgan Stanley Dean Witter.................................. 100,000
PaineWebber Incorporated.................................... 100,000
Charles Schwab & Co., Inc. ................................. 100,000
Salomon Smith Barney Inc. .................................. 100,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 100,000
Jefferies & Company Inc. ................................... 50,000
Raymond James & Associates Inc. ............................ 50,000
Needham & Co. Inc. ......................................... 50,000
First Albany Corporation.................................... 50,000
U.S. BancCorp Piper Jaffray................................. 50,000
C.E. Unterberg, Towbin...................................... 50,000
EVEREN Securities, Inc. .................................... 50,000
Adams Harkness & Hill, Inc. ................................ 50,000
---------
Total............................................. 3,400,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions, including the absence of any
material adverse change in Launch's business and the receipt of certain
certificates, opinions and letters from Launch, its counsel and the independent
auditors. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered by this prospectus,
other than the 100,000 shares being sold directly to Intel, if any of these
shares are purchased.

83
<PAGE> 86

The following tables show the per share and total underwriting discounts
and commissions Launch will pay to the underwriters. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional shares.

UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY LAUNCH

<TABLE>
<CAPTION>
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------- -----------------------
<S> <C> <C>
Per Share......................... $ 1.54 $ 1.54
Total............................. $6,021,400 $5,236,000
</TABLE>

Launch estimates that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $900,000.

The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at that price less a concession not in
excess of $0.92 per share. The underwriters may allow and these dealers may
reallow a concession not in excess of $0.10 per share to certain other dealers.
After the initial public offering of the shares has been completed, the offering
price and other selling terms may be changed by the representatives of the
underwriters. The representatives have informed Launch that the underwriters do
not intend to confirm discretionary sales in excess of 5% of the shares of
common stock offered by this prospectus.

In connection with Launch's acquisition of SW Networks, Sony Music will
purchase, at the initial public offering price, 45,454 shares of common stock in
this offering. The number of shares available for sale to the general public in
the offering will be reduced by the number of shares sold to Sony.

Launch has granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to 510,000 additional
shares of common stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
Launch will be obligated, pursuant to the option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered by this prospectus.

The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

Launch has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect thereof.

Launch and certain other stockholders of Launch, including executive
officers and directors, who will collectively own 7,670,929 shares of common
stock after this

84
<PAGE> 87

offering, have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common
stock, options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into shares of common stock owned by them during
the 180-day period following the date of this prospectus. Launch has agreed that
it will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of common stock, options or warrants to
acquire shares of common stock or securities exchangeable for or convertible
into shares of common stock during the 180-day period following the date of this
prospectus, except that Launch may issue shares upon the exercise of options
granted prior to the date hereof, and may grant additional options under its
stock option plans, provided that, without the prior written consent of
Hambrecht & Quist LLC, these additional options shall not be exercisable during
such period.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock has been
determined by negotiation among Launch and the representatives of the several
underwriters. Among the factors considered in determining the initial public
offering price were prevailing market and economic conditions, revenues and
earnings of Launch, market valuations of other companies engaged in activities
similar to Launch, estimates of the business potential and prospects of Launch,
the present state of Launch's business operations, Launch's management and other
factors deemed relevant.

Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These activities by the Underwriters may
stabilize, maintain or otherwise affect the market price of the common stock. As
a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. Such transactions may be effected on
the Nasdaq National Market, in the over-the-counter market, or otherwise.
Stabilizing, if commenced, may be discontinued at any time.

85
<PAGE> 88

series D stock in February 1998, Launch paid $315,000 to Allen & Company
Incorporated. The financial advisory services letter agreement expires on
September 8, 2000.

PLAN OF DISTRIBUTION

Intel has agreed to purchase directly from Launch, pursuant to a
subscription agreement between Launch and Intel, 100,000 shares of common stock
at a price equal to the initial public offering price per share less
underwriting discounts and commissions. The purchase price for such shares will
be paid directly to Launch at or prior to the closing of sale of the other
shares offered hereby. Intel has agreed that any shares it purchases from Launch
in this offering will be subject to a lock-up agreement with the underwriters
under which Intel agrees not to sell such shares for 180 days after the date of
this prospectus. In the event and to the extent that Intel does not purchase
such shares, the underwriters will purchase those shares on the same terms and
conditions as the other shares being offered by this prospectus, and those
shares will be offered to the public at the initial public offering price per
share and otherwise on the same basis as the other shares offered hereby. The
underwriters will not receive any fees or commissions with respect to any shares
sold to Intel pursuant to the subscription agreement. The number of shares
available for sale to the general public in the offering will be reduced by the
number of shares sold to Intel.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Cooley Godward LLP, San Francisco, California.

EXPERTS

The financial statements of Launch Media, Inc. as of December 31, 1997 and
1998 and for each of the years in the three-year period ended December 31, 1998,
and the financial statements of SW Networks Inc. as of March 31, 1998 and
December 31, 1998 and for the year ended March 31, 1998 and the nine months
ended, December 31, 1998 included herein and in the registration statement are
included in reliance upon the reports of PricewaterhouseCoopers LLP, independent
accountants, appearing elsewhere herein, which reports are given upon the
authority of said firm as experts in accounting and auditing.

The financial statements of AreohveeOnline Partnership dba Musicvideos.com
as of December 31, 1997 and 1998 and for the period from inception (August 1,
1997) through December 31, 1997 and for the year ended December 31, 1998,
included herein and in the registration statement are included in reliance on
the reports of Moss Adams LLP, independent accountants, appearing elsewhere
herein, which reports are given upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the SEC a Registration Statement on Form SB-2 under the
Securities Act with respect to the shares of common stock offered hereby. This
prospectus, which constitutes a part of the Registration Statement, does not
contain

86
<PAGE> 89

all of the information set forth in the Registration Statement and the exhibits
and schedule filed therewith. For further information with respect to Launch and
the common stock, reference is made to the Registration Statement and the
exhibits and schedules filed therewith. With respect to statements contained in
this prospectus regarding the contents of any agreement or any other document,
in each instance, reference is made to the copy of such agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.

For further information with respect to Launch and the common stock,
reference is made to the registration statement and the exhibits and schedules
thereto. You may read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Our SEC filings are also available to the public from the SEC's
Web site at http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's Web site, which is described above.

87
<PAGE> 90

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
LAUNCH MEDIA, INC.:
Report of Independent Accountants......................... F-2
Balance Sheets at December 31, 1997 and 1998.............. F-3
Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998.................................... F-4
Statements of Stockholders' Equity (Deficiency) for the
Years Ended December 31, 1996, 1997 and 1998........... F-5
Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998.................................... F-6
Notes to Financial Statements............................. F-7
PRO FORMA COMBINED FINANCIAL INFORMATION:
Overview.................................................. F-22
Pro Forma Combined Statement of Operations for the Year
Ended December 31, 1998 (Unaudited).................... F-24
Pro Forma Combined Balance Sheet at December 31, 1998
(Unaudited)............................................ F-25
Notes to Pro Forma Combined Financial Information
(Unaudited)............................................ F-26
AREOHVEE ONLINE PARTNERSHIP DBA MUSICVIDEOS.COM:
Report of Independent Accountants......................... F-28
Balance Sheets at December 31, 1997 and 1998.............. F-29
Statements of Operations for the Period from Inception
(August 1, 1997) through December 31, 1997 and for the
Year Ended December 31, 1998........................... F-30
Statements of Changes in Partners' Deficiency for the
Period from Inception (August 1, 1997) through December
31, 1997 and for the Year Ended December 31, 1998...... F-31
Statements of Cash Flows for the Period from Inception
(August 1, 1997) through December 31, 1997 and for the
Year Ended December 31, 1998........................... F-32
Notes to Financial Statements............................. F-33
SW NETWORKS INC:
Report of Independent Accountants......................... F-36
Balance Sheets at March 31 and December 31, 1998.......... F-37
Statements of Operations for the Year Ended March 31, 1998
and the Nine Months Ended December 31, 1998............ F-38
Statements of Changes in Owners' Equity for the Year Ended
March 31, 1998 and the Nine Months Ended December 31,
1998................................................... F-39
Statements of Cash Flows for the Year Ended March 31, 1998
and for the Nine Months Ended December 31, 1998........ F-40
Notes to the Financial Statements......................... F-41
</TABLE>

F-1
<PAGE> 91

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Launch Media, Inc.

In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity (deficiency) and cash flows present fairly,
in all material respects, the financial position of Launch Media, Inc. (the
"Company") at December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. 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 financial statements in accordance
with generally accepted auditing standards 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.

/s/ PricewaterhouseCoopers LLP

Woodland Hills, California
February 5, 1999, except for
Note 14 as to which the
date is March 24, 1999

F-2
<PAGE> 92

LAUNCH MEDIA, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------
PRO FORMA
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 643,910 $ 1,734,864
Short-term investments............................ -- 4,992,721
Accounts receivable, net of allowances of $485,036
(1997) and $321,719(1998)...................... 32,132 568,590
Inventory......................................... 49,478 124,476
Prepaids and other current assets................. 384,485..... 590,139
------------ ------------
Total current assets...................... 1,110,005 8,010,790
Property and equipment, net......................... 655,848 2,587,212
Intangible and other assets......................... 24,210 2,566,000
------------ ------------
Total assets...................................... $1,790,063... $ 13,164,002
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Current liabilities:
Accounts payable.................................. $ 1,159,861 $ 1,619,177
Accrued expenses.................................. 221,318 783,920
Deferred revenue.................................. 262,852 481,794
Notes payable and accrued interest................ 3,149,866 529,504
Capital lease obligations, current portion........ 40,600 230,150
------------ ------------
Total current liabilities......................... 4,834,497 3,644,545
Notes payable....................................... 47,783 200,846
Capital lease obligations, net of current portion... 28,756 438,362
------------ ------------
Total liabilities................................. 4,911,036 4,283,753
------------ ------------
Commitments and contingencies (Note 10)
Series A, B, C and D mandatory redeemable
convertible preferred stock, $.001 par value;
shares authorized 2,573,004 (1997) and 6,580,406
(1998); shares issued and outstanding 2,573,004
(1997) and 5,918,230 (1998); liquidation
preference of approximately $10,124,000 (1997) and
$35,715,000(1998)................................. 11,064,983 36,706,546 $ --
Stockholders' equity (deficiency):
Common stock, $.001 par value, authorized
75,000,000 shares; shares issued and
outstanding, 932,672 (1997), 934,333 (1998),
and 6,852,563 (1998) on a pro forma basis...... 933 935 6,853
Additional paid-in capital........................ -- 986,280 37,686,908
Unearned compensation............................. -- (1,207,862) (1,207,862)
Accumulated deficit............................... (14,186,889) (27,605,650) (27,605,650)
------------ ------------ ------------
Total stockholders' equity (deficiency)........... (14,185,956) (27,826,297) $ 8,880,249
------------ ------------ ============
Total liabilities and stockholders' equity
(deficiency)................................. $ 1,790,063 $ 13,164,002
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 93

LAUNCH MEDIA, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues:
Advertising........................ $ 837,337 $ 1,859,172 $ 3,038,163
Subscription....................... 64,842 798,026 1,463,017
Merchandise and other.............. 473,004 479,811 512,981
----------- ----------- ------------
1,375,183 3,137,009 5,014,161
Operating expenses:
Cost of goods sold and
distribution.................... 811,854 1,734,515 3,185,319
Sales and marketing................ 3,189,361 4,224,789 9,011,482
Content and product development.... 1,006,017 2,454,470 4,407,018
General and administrative......... 1,020,897 1,398,543 2,214,789
----------- ----------- ------------
Loss from operations................. (4,652,946) (6,675,308) (13,804,447)
Interest income (expense):
Interest income.................... 178,149 89,884 523,214
Interest expense................... (10,717) (103,944) (133,932)
----------- ----------- ------------
Loss before provision for
income taxes............ (4,485,514) (6,689,368) (13,415,165)
Provision for income taxes........... (2,776) (2,774) (3,596)
----------- ----------- ------------
Net loss................... (4,488,290) (6,692,142) (13,418,761)
Accretion of mandatory redeemable
convertible preferred stock........ (455,560) (607,404) (1,851,582)
----------- ----------- ------------
Net loss attributable to common
stockholders....................... $(4,943,850) $(7,299,546) $(15,270,343)
=========== =========== ============
Basic and diluted net loss per common
share.............................. $ (5.37) $ (7.89) $ (16.36)
=========== =========== ============
Weighted average shares outstanding
used in per share calculation...... 920,453 924,788 933,502
Pro forma basic and diluted net loss
per common share................... $ (2.17)
============
Weighted average shares outstanding
used in pro forma per share
calculation........................ 6,179,816
</TABLE>

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

F-4
<PAGE> 94

LAUNCH MEDIA, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL UNEARNED ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL COMPENSATION DEFICIT TOTAL
---------- -------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996.................. 924,000 $ 924 $ 294,076 $ -- $ (2,348,400) $ (2,053,400)
Stock options
exercised............. 5,537 6 6,915 -- -- 6,921
Repurchase of common
stock................. (12,631) (13) (15,777) -- -- (15,790)
Accretion of mandatory
redeemable convertible
preferred stock....... -- -- (285,214) -- (170,346) (455,560)
Net loss................ -- -- -- -- (4,488,290) (4,488,290)
---------- -------- ----------- ----------- ------------ ------------
Balance, December 31,
1996.................. 916,906 917 -- -- (7,007,036) (7,006,119)
Issuance of warrants to
purchase common
stock................. -- -- 100,000 -- -- 100,000
Stock options
exercised............. 15,766 16 19,693 -- -- 19,709
Accretion of mandatory
redeemable convertible
preferred stock....... -- -- (119,693) -- (487,711) (607,404)
Net loss................ -- -- -- -- (6,692,142) (6,692,142)
---------- -------- ----------- ----------- ------------ ------------
Balance, December 31,
1997.................. 932,672 933 -- -- (14,186,889) (14,185,956)
Stock options
exercised............. 1,661 2 2,152 -- -- 2,154
Unearned compensation
related to stock
options granted....... -- -- 1,400,710 (1,400,710) -- --
Compensation related to
stock options
vested................ -- -- -- 192,848 -- 192,848
Issuance of warrants to
purchase common
stock................. -- -- 1,435,000 -- -- 1,435,000
Accretion of mandatory
redeemable convertible
preferred stock....... -- -- (1,851,582) -- -- (1,851,582)
Net loss................ -- -- -- -- (13,418,761) (13,418,761)
---------- -------- ----------- ----------- ------------ ------------
Balance, December 31,
1998.................. 934,333 935 986,280 (1,207,862) (27,605,650) (27,826,297)
Assumed conversion of
mandatory redeemable
convertible preferred
stock................. 5,918,230 5,918 36,700,628 -- -- 36,706,546
---------- -------- ----------- ----------- ------------ ------------
Balance, December 31,
1998 pro forma........ 6,852,563 $ 6,853 $37,686,908 $(1,207,862) $(27,605,650) $ 8,880,249
========== ======== =========== =========== ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 95

LAUNCH MEDIA, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,488,290) $(6,692,142) $(13,418,761)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 114,810 143,778 321,425
Non-cash charges for issuance of equity securities...... -- 100,000 1,653,846
Allowance for bad debts and sales returns............... 13,540 (307,576) (163,317)
Write-off of deferred costs............................. 440,507 -- --
Amortization of deferred compensation................... -- -- 192,848
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable......... (196,403) 589,922 (373,141)
Decrease (increase) in inventory................... (69,533) 20,055 (74,998)
Increase in prepaids and other current assets...... (64,077) (237,895) (205,654)
Increase in accounts payable....................... 339,690 505,783 459,316
Increase in accrued expenses....................... 226,735 53,466 562,602
Increase in deferred revenue....................... 147,206 43,153 218,942
----------- ----------- ------------
Net cash used in operating activities.............. (3,535,815) (5,781,456) (10,826,892)
----------- ----------- ------------
Cash flows used from investing activities:
Decrease (increase) in short-term investments............. (2,974,160) 2,974,160 --
Purchases of property and equipment....................... (272,267) (335,936) (1,570,229)
Purchases of securities................................... -- -- (44,652,900)
Maturities of securities.................................. -- -- 39,660,179
Increase in intangible and other assets................... (9,370) -- (288,290)
----------- ----------- ------------
Net cash used in investing activities.............. (3,255,797) 2,638,224 (6,851,240)
----------- ----------- ------------
Cash flows from financing activities:
Payments under capital lease obligations.................. (67,677) (40,871) (83,404)
Payments under notes payable.............................. -- -- (119,042)
Proceeds from notes payable............................... 500,000 3,000,000 739,750
Proceeds from issuance of mandatory redeemable convertible
preferred stock......................................... 7,098,602 -- 18,229,628
Repurchase of common stock................................ (15,790) -- --
Proceeds from exercise of stock options................... 6,921 19,709 2,154
----------- ----------- ------------
Net cash provided by financing activities.......... 7,522,056 2,978,838 18,769,086
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents... 730,444 (164,394) 1,090,954
Cash and cash equivalents, beginning of year............ 77,860 808,304 643,910
----------- ----------- ------------
Cash and cash equivalents, end of year.................. $ 808,304 $ 643,910 $ 1,734,864
=========== =========== ============
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 10,717 $ 6,420 $ 55,203
Taxes................................................... $ 1,170 $ 2,774 $ 3,596
Supplementary disclosure of noncash transactions:
Equipment under capital leases.......................... $ 105,566 $ 16,491 $ 682,560
Notes payable issued for assets acquired................ $ -- $ 108,354 $ 407,346
Issuance of Series C Stock through conversion of notes
payable.............................................. $ 505,111 $ -- $ --
Issuance of Series D Stock through conversion of notes
payable.............................................. $ -- $ -- $ 3,495,353
Issuance of Series D Stock under strategic alliances.... $ -- $ -- $ 3,500,000
Issuance of warrants in connection with sale of Series D
stock................................................ $ -- $ -- $ 1,435,000
</TABLE>

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

F-6
<PAGE> 96

LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS

1. GENERAL:

Launch Media, Inc. ("the Company") was incorporated in Delaware in February
1994 and is a digital media company focused on creating the premier destination
for promoting and discovering new music. The Company creates music content
available in an interactive format that enables music buyers to explore new
music from new and established artists. The music content is delivered on the
Internet at www.launch.com and on Launch on CD-ROM. Both launch.com and Launch
on CD-ROM are advertiser supported and include original content that takes
advantage of the personal computer's interactive multimedia technology.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET

In December 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission that would
permit the Company to sell shares of the Company's common stock in connection
with a proposed initial public offering ("IPO"). If the IPO is consummated under
the terms presently anticipated, upon the closing of the proposed IPO all of the
then outstanding shares of the Company's Mandatory Redeemable Convertible
Preferred Stock will automatically convert into shares of common stock on a
one-for-one basis. The conversion of the Mandatory Redeemable Convertible
Preferred Stock has been reflected in the accompanying unaudited pro forma
balance sheet as if it had occurred on December 31, 1998.

In addition, in connection with the proposed IPO, the Company effected a
one-for-five reverse stock split. All share and per share information in the
accompanying financial statements have been retroactively restated to reflect
the effect of this stock split.

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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

REVENUE RECOGNITION

Through 1998, the Company's revenues have been derived primarily from the
sale of advertising and sponsorships, annual subscriptions relating to Launch on
CD-ROM and single copy retail sales of Launch on CD-ROM. Revenues for
sponsorships across the Launch media properties are recognized ratably over the
sponsorship term which is typically one month. Revenues from advertisements for
Launch on CD-ROM are recognized upon the release date of the issue in which the
advertisement

F-7
<PAGE> 97
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

appears. With respect to launch.com, revenues from advertisements are recognized
ratably in the period in which the advertisement is displayed, provided that no
significant Launch obligations remain.

Advance payments for Launch on CD-ROM subscriptions are deferred and
recognized over the term of the related subscription, typically 12 months.

The Company recognizes revenue from retail and other merchandise sales upon
shipment. Estimated product return reserves are provided when shipments are made
to reflect the net estimated sell-through. As of December 31, 1997 and 1998, the
allowance for sales returns was approximately $485,000 and $322,000,
respectively.

Advertising revenues also include barter revenues, which represent an
exchange by Launch of advertising space on Launch on CD-ROM for reciprocal
advertising space on other Web sites. Revenues and expenses from barter
transactions are recorded at the lower of estimated fair value of the
advertisements received or delivered based on advertising rates currently in
effect. Barter revenues are recognized when the advertisements are run on the
Launch media properties. Barter expenses are recognized when Launch's
advertisements are run on the reciprocal Web sites or other advertising medium,
which is typically in the same period as when the advertisements are run on the
Launch media properties. Revenues and expenses recognized from barter
transactions were approximately $131,000, $903,000 and $1,345,000 in 1996, 1997
and 1998, respectively. The Company did not enter into any barter transactions
with affiliates or related parties in 1996, 1997 or 1998.

CASH AND CASH EQUIVALENTS

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

SHORT-TERM INVESTMENTS

The Company invests excess cash in commercial banker acceptances. The
investments are stated at cost, as it is the intent of the Company to hold these
securities until maturity. The investments are recorded at their amortized cost
on the balance sheet which approximates fair value.

PREPAID PRODUCTION COSTS

The Company defers all production costs associated with a particular issue
of Launch on CD-ROM and reflects these costs as an expense upon the release of
the related issue. Prepaid production costs included in prepaids and other
current assets were approximately $90,000 and $118,000 at December 31, 1997 and
1998.

F-8
<PAGE> 98
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INVENTORY

Inventory consists primarily of merchandise and is recorded at the lower of
cost (first in, first out) or market.

PROPERTY AND EQUIPMENT

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

<TABLE>
<S> <C>
Equipment............................................. 5 years
Furniture and fixtures................................ 5 years
Leasehold improvements................................ 5 years
Equipment under capital leases........................ 3 years
</TABLE>

Maintenance and repairs are charged to expense as incurred while renewals
and improvements are capitalized. Upon the sale or retirement of fixed assets,
the accounts are relieved of the cost and the related accumulated deprecation,
with any resulting gain or loss included in the statements of operations.

LONG-LIVED ASSETS

The Company evaluates the recoverability of its long-lived assets whenever
events or changes in circumstances result in the carrying amount of the assets
exceeding the sum of the expected future undiscounted cash flows associated with
such assets. The measurement of the impairment losses to be recognized is to be
based on the difference between the fair values and the carrying amounts of the
assets. To date, no such impairment has been recorded.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

CONTENT AND PRODUCT DEVELOPMENT

Content and product development costs include expenses incurred by the
Company to develop, enhance, manage, monitor and operate the Company's Web site.
Product development costs are expensed as incurred.

ADVERTISING

Advertising costs are expensed as incurred and were approximately $588,000,
$1,234,000 and $3,144,000 in 1996, 1997 and 1998, respectively.

F-9
<PAGE> 99
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Retail sales are made through distribution agreements, and sales under
these agreements are due from net 60 to 120 days, with certain agreements
providing advances to the Company based on historical sell-through. The Company
sells advertising to major advertising agencies representing their clients and
directly to large, well established, companies.

The Company's customers are concentrated in the United States. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally does not require collateral. Estimated credit losses and returns have
been provided for in the financial statements and, to date, have generally been
within management's expectations.

For the years ended December 31, 1996, 1997 and 1998 sales to any one
advertiser did not exceed 10% of revenues and as of December 31, 1998 amounts
due from one advertiser represented 18% of accounts receivable.

INCOME TAXES

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

STOCK BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective vesting
period based on the difference, on the date of grant, between the fair value of
the Company's common stock and the grant price.

COMPUTATION OF HISTORICAL NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE

In accordance with SFAS No. 128, "Computation of Earnings Per Share", basic
earnings per share is computed using the weighted average number of shares
outstanding during the period and diluted earnings per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the conversion of the Mandatory
Redeemable

F-10
<PAGE> 100
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Convertible Preferred Stock (using the if-converted method) and shares issuable
upon exercise of outstanding stock options and warrants, using the treasury
stock method. Common equivalent shares are excluded from the calculation if
their effect is anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued for nominal consideration,
prior to the anticipated effective date of an IPO, are required to be included
in the calculation of basic and diluted net loss per share as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.

Diluted net loss per share for 1996, 1997 and 1998, does not include the
effect of options and warrants to purchase 244,616, 536,404 and 1,112,555 shares
of common stock, respectively; 2,573,004, 2,573,004 and 5,918,230 shares of
Mandatory Redeemable Convertible Preferred Stock on an "as-if-converted" basis,
or for 1998, warrants to purchase 448,437 of Series D Stock respectively, as the
effect of their inclusion is anti-dilutive during each period.

Pro forma net loss per share for the year ended December 31, 1998 assumes
that the common stock issuable upon conversion of the outstanding Mandatory
Redeemable Convertible Preferred Stock had been outstanding during the year or
from date of issuance.

COMPREHENSIVE INCOME

Effective January 1, 1998 the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use", which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. Launch does not
anticipate that the adoption of SOP No. 98-1 will have a material impact on the
Company's financial statements.

In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP No. 98-5"). SOP 98-5, which is effective for fiscal
years beginning after December 15, 1998, provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. As the
Company has expensed these costs historically, the adoption of this standard
will not have a significant impact on the Company's financial statements.

F-11
<PAGE> 101
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect the adoption of this statement to have a
significant impact on the Company's financial statements.

3. INTANGIBLE AND OTHER ASSETS:

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
------- ----------
<S> <C> <C>
Deferred charge.................................. $ -- $1,846,154
Intangible asset................................. -- 557,346
Deposits......................................... 24,210 162,500
------- ----------
$24,210 $2,566,000
======= ==========
</TABLE>

The deferred charge represents the value of Series D Stock issued in
connection with a strategic alliance and content agreement and is being
amortized over the 26-month term of the agreement. Accumulated amortization at
December 31, 1998 was approximately $1,154,000.

The intangible asset represents the cost (net of discount on the related
note payable) of the domain name launch.com which the Company purchased from a
third party effective December 31, 1998 and which will be amortized over its
estimated useful life of two years.

4. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
--------- ----------
<S> <C> <C>
Leasehold improvements......................... $ -- $ 929,965
Equipment, furniture and fixtures.............. 770,880 1,420,989
Equipment under capitalized leases............. 130,754 803,908
--------- ----------
901,634 3,154,862
Accumulated depreciation and amortization
(including $39,900 (1997) and $88,241 (1998)
for equipment under capital leases).......... (245,786) (567,650)
--------- ----------
$ 655,848 $2,587,212
========= ==========
</TABLE>

Depreciation expense was approximately $70,000, $144,000 and $321,000 in
1996, 1997 and 1998, respectively.

F-12
<PAGE> 102
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. ACCRUED EXPENSES:

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Vacation......................................... $ 66,219 $133,003
Royalties........................................ 121,833 130,723
Distribution..................................... -- 248,913
Other............................................ 33,266 271,281
-------- --------
$221,318 $783,920
======== ========
</TABLE>

6. RELATED PARTY TRANSACTIONS:

Advertising revenues for 1996, 1997 and 1998 include approximately $62,000,
$12,000 and $219,000, respectively, in revenues received from a corporate
shareholder of the Company. At December 31, 1997 and 1998, approximately $0 and
$103,000, respectively, of those amounts are included in accounts receivable.

In November 1998, Launch entered into an architectural development and
assistance agreement with Intel Corporation. Pursuant to the terms of these
agreements, Launch agreed to develop a product which is able to use the
capabilities of a processor developed by Intel. In consideration, Intel has
agreed to pay Launch certain amounts and to provide technical assistance, and
Launch has agreed to pay Intel a portion of revenues derived from the developed
product. Through December 31, 1998 approximately $269,000 in development revenue
has been recognized using the percentage of completion method on a cost to cost
basis. The development revenue is included in merchandise and other revenues in
the 1998 statement of operations.

In October 1998, the Board of Directors approved a loan of $100,000 to an
officer/director of the Company, which is due upon demand, bears interest at 8%
per annum and is collateralized by shares of the Company's common stock held by
the officer/director. The note receivable and accrued interest thereon is
included in prepaids and other current assets at December 31, 1998.

In February 1998, in conjunction with its Series D Stock sale, the Company
entered into a strategic alliance and content provider agreement with a
corporate shareholder and a technical assistance agreement with another
corporate shareholder. Under the strategic alliance and content provider
agreement, the Company will share equally with its strategic partner all net
revenues, as defined in the agreements, generated through the alliance.

7. OBLIGATIONS UNDER CAPITAL LEASES:

The Company has a capital lease line of credit for $1.0 million, expiring
in November 1999. The Company has borrowed approximately $531,000 under this
line of credit as of December 31, 1998. This facility bears interest at the
bank's prime

F-13
<PAGE> 103
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

rate (7.75% at December 31, 1998). The leased assets collateralize any
borrowings under this line of credit.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- ---------
<S> <C> <C>
Total obligations under capital leases.......... $ 69,356 $ 668,512
Current maturities.............................. (40,600) (230,150)
-------- ---------
Non-current portion of capital leases........... $ 28,756 $ 438,362
======== =========
</TABLE>

8. NOTES PAYABLE:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
----------- ---------
<S> <C> <C>
Note payable, principal and interest of $5,000
due monthly, interest at 10% per annum due
October 1999................................ $ 100,126 $ 83,254
Note payable, principal and interest of $5,094
due monthly, interest at 10% per annum due
December 2003............................... -- 239,750
Note payable due and payable in full December
1999 (present value at imputed interest of
10%)........................................ -- 407,346
Convertible subordinated promissory notes
payable and accrued interest to preferred
stockholders, interest only at 8% per annum,
due March 31, 1998 (converted to Series D
Stock in 1998).............................. 1,517,633 --
Convertible subordinated promissory notes
payable and accrued interest to preferred
stockholder, interest only at 7% increasing
to 10% per annum, due March 31, 1998
(substantially all of the notes converted to
Series D Stock in 1998)..................... 1,579,890 --
----------- ---------
3,197,649 730,350
Less: current portion......................... (3,149,866) (529,504)
----------- ---------
Non-current portion of notes payable.......... $ 47,783 $ 200,846
=========== =========
</TABLE>

F-14
<PAGE> 104
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES:

The provision for income taxes for 1996, 1997 and 1998 represents minimum
state franchise taxes.

The tax effected amounts of temporary differences as of December 31, 1997
and 1998 are as follows:

<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.......... $ 5,140,000 $ 10,716,000
Allowances............................... 194,000 129,000
Accrued vacation......................... 26,000 53,000
----------- ------------
Total deferred tax assets........ 5,360,000 10,898,000
Valuation allowance........................ (5,303,000) (10,578,000)
----------- ------------
Net deferred tax assets.......... 57,000 320,000
Deferred tax liability:
Fixed assets............................. (57,000) (320,000)
----------- ------------
Net deferred taxes............... $ -- $ --
=========== ============
</TABLE>

The Company has net operating loss carryforwards as of December 31, 1998
available to offset future taxable income for federal and California state
income tax purposes of approximately $26.8 million, which begin to expire in
2009 and 1999, respectively. Utilization of the net operating loss carryforwards
may be subject to an annual limitation due to a change in ownership as defined
under Section 382 of the Internal Revenue Code. Due to the net operating losses
incurred to date, the Company has provided a full valuation allowance against
its net deferred tax assets.

10. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company is committed to minimum rental payments under capital leases
and noncancelable facility operating leases as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ --------- ----------
<S> <C> <C>
1999........................................... $ 306,524 $ 458,000
2000........................................... 279,918 473,000
2001........................................... 218,303 489,000
2002........................................... -- 505,000
2003........................................... -- 296,000
--------- ----------
Total minimum lease payments................... 804,745 $2,221,000
==========
Less amount representing interest.............. (136,233)
---------
Present value of capital lease payments........ $ 668,512
=========
</TABLE>

F-15
<PAGE> 105
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Company has an option to renew its primary facility operating lease for
an additional four-year term. Rent expense was approximately $182,000, $343,000
and $512,000 for 1996, 1997 and 1998, respectively.

DEVELOPMENT CONTRACT

The Company had a Development Agreement dated October 3, 1994, as amended,
(the "Agreement") governing the initial design and production of Launch on
CD-ROM. The Company terminated the Agreement and for a one-time payment of
$25,000 received a complete release from any future obligations under the
Agreement. As a result, the Company wrote-off $440,507 in unamortized deferred
costs in 1996, which were previously paid under the terms of the Agreement and
which, prior to termination of the Agreement, were recoupable against future
royalties.

11. CAPITALIZATION:

The authorized capital stock of the Company consists of 75,000,000 shares
of common stock, $.001 par value, and 6,580,406 shares of preferred stock, $.001
par value, of which 380,160 shares have been designated Series A Stock, 612,820
shares have been designated Series B Stock, 1,580,023 shares have been
designated Series C Stock and 4,007,403 shares have been designated Series D
Stock.

As of December 31, 1998, the Company had four series of Mandatory
Redeemable Convertible Preferred Stock (collectively "Preferred Stock")
authorized and outstanding. The holders of the various series of Preferred Stock
generally have the same rights and privileges; significant difference are
discussed below.

The holders of the Preferred Stock are entitled to a discretionary,
noncumulative dividend and are entitled to the number of votes equal to the
number of shares of common stock that could be converted on the date of the
vote. Upon liquidation, the holders of Preferred Stock receive, prior and in
preference to the holders of the common stock, their liquidation preference plus
accrued dividends at the stated rate. Redemption, at the option of the holders
of Preferred Stock, may be elected beginning on February 27, 2003 at the stated
redemption preference, plus 6% per annum from February 27, 1998 through the
redemption date for Series A, B and D Stock and from March 29, 1996 through the
redemption date for Series C Stock. One-fifth of the redemption price is payable
on the redemption date and one-fifth of the redemption price, plus interest at
6% per annum, is payable on each of the four anniversaries following the
redemption date. At the option of the holders of Preferred Stock, each share of
Preferred Stock is convertible to common stock at the stated conversion price
per share, subject to adjustment as defined in the Certificate of Incorporation.
In October 1994, the Company issued 380,160 shares of Series A Stock for
$660,000. In August, 1995, the Company issued 552,839 shares of Series B Stock
for $1,766,754 and issued, for $2,999, Series B Preferred Stock Purchase
Warrants ("Series B Warrants") entitling the holder to purchase 59,981 shares of
Series B Stock at $3.20 per share. During the period March 1996 through July
1996, the Company issued 1,580,023 shares of Series C Stock for $7,505,111. In
March 1996,

F-16
<PAGE> 106
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

the Series B Warrants were exercised and 59,981 shares of Series B Stock were
issued for $191,689. In February and May 1998, the Company issued an aggregate
of 3,345,227 shares of Series D Stock for $25,590,983. In connection with
financial advisory services and the Series D Stock offering, the Company issued
warrants in 1997 and 1998 to purchase an aggregate of 580,205 shares of common
stock to an investment banker. Each warrant is exercisable at $1.25 per share
and expires on September 8, 2002. Included in the Series D Stock issuance above
is $3,500,000 of Series D Stock issued as consideration for a strategic alliance
and content provider agreement. As additional consideration, the Company issued
Series D Preferred Stock Purchase Warrants to purchase an aggregate of 448,437
shares of Series D Stock at the lower of $22.95 per share or the per share
proceeds to the Company for shares of common stock of the Company that are
issued in connection with an initial public offering. The Warrants expire the
earlier of the IPO date or February 27, 2003 and are only exercisable if the
strategic partner elects to extend the term of the underlying agreement and
other conditions of the agreement are satisfied.

Rights of Preferred Stock as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
DIVIDEND LIQUIDATION REDEMPTION
PREFERENCE PREFERENCE PREFERENCE
---------- ----------- ----------
<S> <C> <C> <C>
Series A Stock................... $0.170 $1.74 $1.74
Series B Stock................... $0.190 $3.20 $3.20
Series C Stock................... $0.285 $4.75 $4.75
Series D Stock................... $0.460 $7.65 $7.65
</TABLE>

Each share of Preferred Stock shall automatically be converted into shares
of common stock at the then effective conversion rate immediately upon the
closing of an underwritten public offering of common stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
with a sales price per share of common stock (as adjusted for combinations,
stock dividends, subdivisions or split-ups) of at least $10.00 and with
aggregate gross proceeds, at the public offering price, of at least $15,000,000.

No dividends on common or Preferred Stock have been declared as of December
31, 1998. The carrying amount of the Preferred Stock is being increased by
periodic accretions so that the amount reflected in the balance sheet will equal
the mandatory redemption amount at the redemption date. Such increases are
reflected in the calculation of net loss per common share in the same manner as
dividends on nonredeemable preferred stock.

At December 31, 1998, the Company has reserved 5,918,230 shares of common
stock for the future conversion of Series A through D Stock.

12. STOCK OPTIONS:

Under the Company's 1994 and 1998 Stock Option Plans (the "Plans"), the
Company has been authorized to grant options to purchase a maximum of 1,103,266
shares of common stock.

F-17
<PAGE> 107
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Company's Plans provide for the issuance of both non-statutory and
incentive stock options to employees, officers, directors and consultants of the
Company. Incentive stock options may be granted at no less than 100% of the fair
market value of the Company's common stock on the date of grant as determined by
the Board of Directors (110% if granted to an employee who owns 10% or more of
the common stock). Options granted under the 1994 Stock Option Plan vest ratably
over a five-year period and options granted under the 1998 Stock Option Plan
vest ratably over a four-year period, except that new employees shall vest 25%
of their shares after 12 months of employment. Options are exercisable for a
period no longer that 10 years from date of grant. In the event option holders
cease to be employed by the Company, all unvested options are forfeited.

The following table summarizes the stock option activity for the years
ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.... 244,616 $1.25 243,700 $1.25
Granted -- price equals fair
value............................. 23,000 $1.25 -- --
Granted -- price less than fair
value............................. -- -- 326,800 $2.35
Exercised........................... (15,766) $1.25 (1,661) $1.30
Cancelled........................... (8,150) $1.25 (36,489) $1.35
------- -------
Outstanding at year-end............. 243,700 $1.25 532,350 $1.90
======= =======
Options exercisable at year-end..... 183,596 $1.45
=======
Options available for future
grant............................. 557,347
=======
</TABLE>

At December 31, 1998 the Company had reserved a total of 1,089,697 shares
of common stock for issuance to its stock option holders.

In connection with its grants of options, the Company recorded unearned
deferred compensation of approximately $1,400,000 for the year ended December
31, 1998. The amount is being amortized over the vesting period of four years
from date of grant and approximately $193,000 was expensed during the year ended
December 31, 1998.

F-18
<PAGE> 108
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- -------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.25 210,467 7.24 $1.25 141,333 $1.25
$2.00 211,283 9.31 $2.00 36,902 $2.00
$3.00 110,600 9.71 $3.00 5,361 $3.00
------- -------
532,350 8.58 $1.90 183,596 $1.45
======= =======
</TABLE>

The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." If compensation expense for the stock options had been determined
using "fair value" at the grant date for awards in 1996, 1997 and 1998,
consistent with the provisions of Statement of Financial Accounting Standards
No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C> <C>
Net loss................. As reported $4,488,290 $6,692,142 $ 13,418,761
Pro forma $4,497,341 $6,706,857 $ 13,474,805
Basic net loss per common
share.................. As reported $ 5.37 $ 7.89 $ 16.36
Pro forma $ 5.38 $ 7.91 $ 16.42
</TABLE>

The fair value of each option granted was estimated on the date of grant
using the minimum value method with the following assumptions (i) risk-free
interest rate of 5.6% to 6.9%, (ii) expected option life of 5 years, (iii)
forfeiture rate of zero and (iv) no expected dividends. The insignificant impact
of applying SFAS No. 123 is not indicative of future amounts.

13. 401(k) SAVINGS PLAN:

The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their pretax earnings up to the Internal Revenue Services annual
contribution limit. The Company is not required to contribute to the Savings
Plan and has made no contributions since inception of the Savings Plan.

F-19
<PAGE> 109
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. SUBSEQUENT EVENTS:

On January 15, 1999, the Company entered into an exchange agreement to
acquire all the partnership interests of AreohveeOnline Partnership, dba
Musicvideos.com. Musicvideos.com is a provider of music videos over the
Internet. The acquisition closed on February 28, 1999 and will be accounted for
using the purchase method of accounting and, accordingly, the purchase price
will be allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
The total purchase price of approximately $9.3 million is comprised of 875,556
shares of the Company's common stock with an estimated fair value of
approximately $8.9 million, and a cash payment of approximately $300,000.

On February 15, 1999, Launch entered into a note purchase agreement in
which it agreed to issue a convertible subordinated promissory note in the
amount of $1.0 million to Avalon Technology LLC, a stockholder, and a
convertible subordinated promissory note in the amount of $500,000 to Goran
Enterprises Limited, a stockholder. The notes accrue interest at 8.5% per annum
from the issuance date and are due February 29, 2000. The notes automatically
convert into shares of Launch stock upon the earlier of (a) Launch's
consummation of an initial public offering with a sales price per share of at
least $10.00 and aggregate gross proceeds to Launch of at least $15.0 million,
(b) an acquisition transaction in which the stockholders of Launch prior to such
transaction own less than 50% of the voting securities of the surviving entity
after such transaction or (c) February 29, 2000. If Launch consummates an
initial public offering prior to August 31, 1999, the notes and any accrued
interest thereon automatically convert to common stock at a per share price
equal to 80% of the initial public offering price per share. In that event, the
aggregate discount from the initial public offering price will be recorded as
additional interest expense. If Launch does not consummate an initial public
offering by August 31, 1999, then, at the option of the holder which may be
exercised at any time between August 31, 1999 and February 29, 2000, the notes
and any accrued interest thereon are convertible into Series D Stock at a per
share price equal to $7.65. If the conversion occurs in connection with an
acquisition transaction, the notes and any accrued interest thereon
automatically convert into Series D Stock at a per share price equal to $7.65.

In February 1999, the Company adopted the 1999 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 300,000 shares of common stock for
issuance under the Purchase Plan.

Also in February 1999, the Company increased the number of shares
authorized for issuance under its 1998 Stock Option Plan by approximately
910,000 shares, subject to stockholder approval.

F-20
<PAGE> 110
LAUNCH MEDIA, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In March 1999, the Company entered into an agreement to purchase the
outstanding shares of SW Networks Inc. SW Networks is a provider of
entertainment information/news content to radio stations and Internet-based
entertainment companies. The acquisition will close concurrently with the
Company's IPO. The purchase agreement relating to this acquisition requires that
Launch pay Sony Music a stated consideration of $12.0 million in shares of
Launch common stock. For purposes of the agreement, the shares to be issued to
Sony Music are to be valued at 80% of the initial public offering price.
Accordingly, Launch will be required to issue 681,818 shares of common stock to
Sony Music upon completion of this offering at an effective discount of 20% from
the initial public offering price. Sony Music will have the right to require
registration of such shares beginning six months after the date of this
offering. Absent registration, Sony Music must hold such shares for a minimum of
one year from the completion of this offering. For accounting purposes, Launch
has estimated the fair value of such shares to be equal to the initial public
offering price less 5% due to the restrictions on resale. Accordingly, Launch,
for accounting purposes, has estimated the purchase price of SW Networks to be
$14.3 million. The acquisition will be accounted for using the purchase method
of accounting and, accordingly, the purchase price will be allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the acquisition date.

F-21
<PAGE> 111

LAUNCH MEDIA, INC.

PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW

ACQUISITION OF MUSICVIDEOS.COM

On February 26, 1999, the Company acquired all of the partnership interests
of Areohvee Online Partnership, dba Musicvideos.com. Musicvideos.com is a
provider of music videos over the Internet. The acquisition is being accounted
for using the purchase method of accounting and, accordingly, the purchase price
will be allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.

The total purchase price of approximately $9.3 million is comprised of
875,556 shares of the Company's common stock with an estimated fair value of
approximately $8.9 million, a cash payment of approximately $300,000 and assumed
liabilities and transaction costs of approximately $100,000. For purposes of
this pro forma combined financial information, the excess purchase price over
net tangible assets acquired is estimated to be approximately $9.2 million and
is being amortized over a preliminary estimated average useful life of 36
months.

ACQUISITION OF SW NETWORKS, INC.

On March 26, 1999, the Company entered into an agreement to purchase all of
the outstanding shares of SW Networks Inc., an entertainment information/news
content provider to radio stations and Internet-based entertainment companies.
The acquisition will close concurrently with the completion of the Company's
initial public offering. The purchase agreement relating to this acquisition
requires that Launch pay Sony Music a stated consideration of $12.0 million in
shares of Launch common stock. For purposes of the agreement, the shares to be
issued to Sony Music are to be valued at 80% of the initial public offering
price. Accordingly, Launch will be required to issue 681,818 shares of common
stock to Sony Music upon completion of this offering at an effective discount of
20% from the initial public offering price. Sony Music will have the right to
require registration of such shares beginning six months after the date of this
offering. Absent registration, Sony Music must hold such shares for a minimum of
one year from the completion of this offering. For accounting purposes, Launch
has estimated the fair value of such shares to be equal to the initial public
offering price less 5% due to the restrictions on resale. Accordingly, for
accounting purposes, Launch has estimated the purchase price of SW Networks to
be $14.3 million. The acquisition will be accounted for using the purchase
method of accounting and, accordingly, the purchase price will be allocated to
the tangible and intangible assets acquired and liabilities assumed on the basis
of their respective fair values on the acquisition date. For purposes of this
pro forma combined financial information, the excess purchase price over net
tangible assets acquired is estimated to be approximately $12.7 million and is
assumed to be amortized, on a preliminary basis, over an estimated average
useful life of 60 months.

F-22
<PAGE> 112

The acquisitions have been structured as a tax free exchange of stock;
therefore, the differences between the recognized fair values of acquired
assets, including intangible assets, and their historical tax bases are not
deductible for tax purposes.

The following unaudited pro forma combined statement of operations gives
effect to these acquisitions as if they had occurred on January 1, 1998, by
combining the results of operations of Musicvideos.com for the year ended
December 31, 1998 and of SW Networks for the twelve months ended December 31,
1998 with the results of operations of Launch Media, Inc. for the year ended
December 31, 1998. The following unaudited pro forma combined balance sheet
gives effect to the acquisitions as if they had occurred on December 31, 1998 by
combining the balance sheets of the three companies as of December 31, 1998.

The unaudited pro forma combined statement of operations is not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of the period presented and
should not be construed as being representative of future operating results.

The historical financial statements of the Company, Musicvideos.com and SW
Networks are included elsewhere in this Prospectus and the unaudited pro forma
combined financial information presented herein should be read in conjunction
with those financial statements and related notes.

F-23
<PAGE> 113

PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
LAUNCH MEDIA,
INC. MUSICVIDEOS.COM SW NETWORKS INC.(1) ADJUSTMENTS PRO FORMA
------------- --------------- ------------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 5,014,161 $257,649 $ 4,103,930 $ (20,000)(A) $ 9,355,740
Operating expenses:
Cost of goods sold and
distribution.............. 3,185,319 -- 3,185,319
Sales and marketing......... 9,011,482 22,013 1,206,938 (20,000)(A) 10,220,433
Content and product
development............... 4,407,018 126,756 3,748,578 8,282,352
General and
administrative............ 2,214,789 99,076 2,722,180 285,000(B) 5,321,045
Amortization of excess
purchase price............ -- -- -- 3,056,514(C)_ 5,595,237
2,538,723(D)
------------ -------- ----------- ------------
Income (loss) from
operations.................. (13,804,447) 9,804 (3,573,766) (23,248,646)
Interest income (expense),
net......................... 389,282 (3,432) -- 385,850
------------ -------- ----------- ------------
Loss before provision for
income taxes................ (13,415,165) 6,372 (3,573,766) (22,862,796)
Provision for income taxes.... (3,596) -- -- (3,596)
------------ -------- ----------- ------------
Net loss...................... (13,418,761) 6,372 (3,573,766) (22,866,392)
Accretion of mandatory
redeemable convertible
preferred stock............. (1,851,582) -- -- (1,851,582)
------------ -------- ----------- ------------
Net loss attributable to
common stockholders......... $(15,270,343) $ 6,372 $(3,573,766) $(24,717,974)
============ ======== =========== ============
Basic and diluted net loss per
share....................... $ (16.36) $ (9.92)
============ ============
Weighted average shares
outstanding used in per
share calculation........... 933,502 2,490,876
============ ============
Pro forma basic and diluted
net loss per share.......... $ (2.17) (E) $ (2.96)
============ ============
Weighted average shares
outstanding used in pro
forma per share
calculation................. 6,179,816 (E) 7,737,190
============ ============
</TABLE>

See accompanying notes to Pro Forma Combined Financial Information.
F-24
<PAGE> 114

PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 1998

ASSETS

<TABLE>
<CAPTION>
LAUNCH MEDIA, SW NETWORKS
INC. MUSICVIDEOS.COM INC. ADJUSTMENTS PRO FORMA
------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.... $ 1,734,864 $ 9,505 $ 1,000 $ (301,944)(F) $ 1,442,425
(1,000)(G)
Short-term investments....... 4,992,721 -- -- 4,992,721
Accounts receivable, net..... 568,590 118,283 1,427,133 (1,427,133)(G) 686,873
Inventory.................... 124,476 -- -- 124,476
Prepaids and other current
assets..................... 590,139 -- 86,454 (86,454)(G) 590,139
------------ --------- ------------ ------------
Total current
assets.............. 8,010,790 127,788 1,514,587 7,836,634
Property and equipment, net.... 2,587,212 65,631 1,556,384 4,209,227
Excess purchase price.......... -- -- -- 9,169,542(H) 21,863,158
12,693,616(H)
Other assets................... 2,566,000 1,600 -- 2,567,600
------------ --------- ------------ ------------
Total assets.......... $ 13,164,002 $ 195,019 $ 3,070,971 $ 36,476,619
============ ========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable............. $ 1,619,177 $ 21,142 $ 174,821 $ (174,821)(G) $ 1,640,319
Accrued expenses............. 783,920 25,000 1,037,462 (1,037,462)(G) 845,125
36,205(H)
Deferred revenue............. 481,794 -- -- 481,794
Notes payable and accrued
interest................... 529,504 -- -- 529,504
Capital lease obligations,
current portion............ 230,150 20,359 -- 250,509
------------ --------- ------------ ------------
Total current
liabilities......... 3,644,545 66,501 1,212,283 3,747,251
Related party payables......... -- 200,237 -- (200,237)(I) --
Notes payable.................. 200,846 -- -- 200,846
Capital lease obligations, net
of current portion........... 438,362 29,240 -- 467,602
------------ --------- ------------ ------------
Total liabilities..... 4,283,753 295,978 1,212,283 4,415,699
------------ --------- ------------ ------------
Mandatory redeemable
convertible preferred
stock........................ 36,706,546 -- -- 36,706,546
Stockholders' equity
(deficiency):
Capital stock................ 987,215 -- 55,033,421 (55,033,421)(J) 24,167,886
8,930,671(H)
14,250,000(H)
Partners' deficiency......... -- (100,959) -- 100,959(J) --
Unearned deferred
compensation............... (1,207,862) -- -- (1,207,862)
Accumulated deficit.......... (27,605,650) -- (53,174,733) 53,174,733(J) (27,605,650)
------------ --------- ------------ ------------
Total stockholders'
deficiency.......... (27,826,297) (100,959) 1,858,688 (4,645,626)
------------ --------- ------------ ------------
Total liabilities and
stockholders'
equity.............. $ 13,164,002 $ 195,019 $ 3,070,971 $ 36,476,619
============ ========= ============ ============
</TABLE>

See accompanying notes to Pro Forma Combined Financial Information.
F-25
<PAGE> 115

LAUNCH MEDIA, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)

1. The historical statement of operations for SW Networks Inc. has been derived
by combining the statement of operations for the nine months ended December 31,
1998, included elsewhere in this prospectus, with that for the three months
ended March 31, 1998 as follows:

<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998 TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
Net revenues.............................. $ 3,370,671 $ 733,259 $ 4,103,930
Operating expenses:
Sales and marketing..................... 948,830 258,108 1,206,938
Content and product development......... 2,785,738 962,840 3,748,578
General and administrative.............. 2,069,340 652,840 2,722,180
----------- ----------- -----------
Net loss.................................. $(2,433,237) $(1,140,529) $(3,573,766)
=========== =========== ===========
</TABLE>

2. The following adjustments were applied to the Company's historical financial
statements and those of Musicvideos.com and SW Networks Inc. to arrive at the
pro forma combined financial information.

(A) To eliminate intercompany sales.

(B) To record compensation for partners in Musicvideos.com who provided
services at no charge to Musicvideos.com and who will continue as employees of
the Company following the acquisition.

(C) To record amortization of the estimated excess purchase price of
$9,169,542 for Musicvideos.com over the preliminary estimated average useful
life of 36 months.

(D) To record amortization of the estimated excess purchase price of
$12,693,616 for SW Networks Inc. over the preliminary estimated average useful
life of 60 months.

(E) Pro forma basic net loss per share for the year ended December 31, 1998
is computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
series A, series B, series C and series D mandatory redeemable convertible
preferred stock into shares of the Company's common stock effective upon the
closing of this offering as if such conversion occurred on January 1, 1998, or
at date of original issuance, if later.

(F) Adjustment to cash, for the cash portion of the Musicvideos.com
acquisition price of $301,944.

(G) Adjustment to eliminate the assets and liabilities of SW Networks not
being acquired by the Company.

F-26
<PAGE> 116

(H) Adjustment to record intangible assets as a result of the acquisitions
of Musicvideos.com and SW Networks Inc.:

<TABLE>
<CAPTION>
MUSICVIDEOS.COM SW NETWORKS
--------------- -----------
<S> <C> <C>
Total consideration:
Common stock........................................ $8,930,671 $14,250,000
Cash................................................ 301,944 --
Other............................................... 36,205 --
---------- -----------
9,268,820 14,250,000
Less net assets....................................... (99,278) (1,556,384)
---------- -----------
Total intangibles................................... $9,169,542 $12,693,616
========== ===========
</TABLE>

The actual allocations of the purchase prices will be based on the
estimated fair values of the net tangible and intangible assets acquired at the
dates of purchase. For purposes of the unaudited pro forma combined balance
sheet, the preliminary purchase price allocation has been estimated as follows:

<TABLE>
<CAPTION>
MUSICVIDEOS.COM SW NETWORKS
--------------- -----------
<S> <C> <C>
Membership database................................... $6,769,542 $ --
Goodwill and other.................................... 2,400,000 12,693,616
---------- -----------
$9,169,542 $12,693,616
========== ===========
</TABLE>

(I) Adjustment to eliminate amounts due to Musicvideos.com partners.

(J) Adjustment to reflect the elimination of all of the Musicvideos.com
partners' deficiency and SW Network's stockholder deficiency balances.

F-27
<PAGE> 117

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners
Areohvee Online Partnership

We have audited the accompanying balance sheets of Areohvee Online
Partnership dba Musicvideos.com as of December 31, 1997 and 1998, and the
related statements of operations, changes in partners' deficiency, and cash
flows for the period from inception (August 1, 1997) through December 31, 1997
and the year ended December 31, 1998. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Areohvee Online Partnership
as of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception (August 1, 1997) through December 31, 1997
and the year ended in December 31, 1998 in conformity with generally accepted
accounting principles.

/s/ Moss Adams LLP

Costa Mesa, California
January 18, 1999

F-28
<PAGE> 118

AREOHVEE ONLINE PARTNERSHIP
DBA MUSICVIDEOS.COM

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
CURRENT ASSETS
Cash.................................................... $ 67 $ 9,505
Accounts receivable..................................... -- 118,283
------- --------
Total current assets............................ 67 127,788
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization........................... 21,229 65,631
DEPOSITS.................................................. 1,600 1,600
------- --------
$22,896 $195,019
======= ========

LIABILITIES AND PARTNERS' DEFICIENCY

CURRENT LIABILITIES
Accounts payable........................................ $ -- $ 21,142
Accrued expenses........................................ -- 25,000
Amounts due to partners................................. 6,232 26,705
Current portion of capital lease obligations............ -- 20,359
------- --------
Total current liabilities....................... 6,232 93,206
NOTES PAYABLE TO PARTNERS................................. 60,400 173,532
CAPITAL LEASE OBLIGATIONS, net of current portion......... -- 29,240
COMMITMENTS (Note 5)
PARTNERS' DEFICIENCY...................................... (43,736) (100,959)
------- --------
$22,896 $195,019
======= ========
</TABLE>

See accompanying notes.
F-29
<PAGE> 119

AREOHVEE ONLINE PARTNERSHIP
DBA MUSICVIDEOS.COM

STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1997) THROUGH
DECEMBER 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
NET REVENUES............................................. $ 1,399 $257,649
-------- --------
OPERATING EXPENSES
Cost of revenues....................................... 4,430 126,756
Sales and marketing.................................... 4,445 22,013
General and administrative............................. 11,210 99,076
-------- --------
TOTAL OPERATING EXPENSES................................. 20,085 247,845
-------- --------
INCOME (LOSS) FROM OPERATIONS............................ (18,686) 9,804
INTEREST EXPENSE......................................... -- 3,432
-------- --------
NET INCOME (LOSS)........................................ $(18,686) $ 6,372
======== ========
</TABLE>

See accompanying notes.
F-30
<PAGE> 120

AREOHVEE ONLINE PARTNERSHIP
DBA MUSICVIDEOS.COM

STATEMENTS OF CHANGES IN PARTNERS' DEFICIENCY
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1997) THROUGH
DECEMBER 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
BALANCE, Inception (August 1, 1997)......................... $ --
Distributions............................................... (25,050)
Net loss.................................................... (18,686)
---------
BALANCE, December 31, 1997.................................. (43,736)
Distributions............................................... (63,595)
Net income.................................................. 6,372
---------
BALANCE, December 31, 1998.................................. $(100,959)
=========
</TABLE>

See accompanying notes.
F-31
<PAGE> 121

AREOHVEE ONLINE PARTNERSHIP
DBA MUSICVIDEOS.COM

STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (AUGUST 1, 1997) THROUGH
DECEMBER 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................................... $(18,686) $ 6,372
Noncash items included in net income (loss):
Depreciation and amortization....................... 1,797 17,507
Changes in:
Accounts receivable................................. -- (118,283)
Deposits............................................ (1,600) --
Accounts payable.................................... -- 21,142
Accrued expenses.................................... -- 25,000
-------- --------
Net cash used in operating activities.......... (18,489) (48,262)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for acquisition of property and equipment..... (23,026) --
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and amounts due
to partners......................................... 66,632 133,606
Distributions to partners.............................. (25,050) (63,595)
Payments on capital lease obligations.................. -- (12,311)
-------- --------
Net cash provided by financing activities...... 41,582 57,700
-------- --------
NET INCREASE IN CASH..................................... 67 9,438
CASH, beginning of period................................ -- 67
-------- --------
CASH, end of period...................................... $ 67 $ 9,505
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest................. $ -- $ 3,432
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Capital lease obligations incurred during the period..... $ -- $ 61,909
======== ========
</TABLE>

See accompanying notes.
F-32
<PAGE> 122

AREOHVEE ONLINE PARTNERSHIP
DBA MUSICVIDEOS.COM

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- NATURE OF BUSINESS AND RISK FACTORS

Areohvee Online Partnership dba Musicvideos.com (the Company) is an
internet company that provides online music videos. The Company's web site
(musicvideos.com) enables consumers to view full length videos on their personal
computer over the internet. In addition the Company produces a local, Los
Angeles market, cable television show featuring music videos called AreOhVee.
The Company is a California general partnership that began operations in August
1997.

The Company has limited operating history and did not begin to generate
significant revenues until July 1998. Management's efforts to date have been
focused primarily on developing the Company's web site and establishing brand
recognition in the market place. As such, the Company is subject to the risks
and uncertainties associated with a new business. The success of the Company's
future operations is dependent, in part, upon the Company's ability to (i)
further establish brand recognition for its web site, (ii) strengthen strategic
alliances with other companies within the industry, and (iii) obtain additional
third-party financing.

In December 1998, the partners of the Company entered into a letter of
intent with Launch Media, Inc. (Launch) to sell their interests in the Company
in a cash and stock transaction (Note 7). The transaction, which is subject to
completion of certain contracted obligations, is expected to be completed by
February 28, 1999. In the event that this transaction is not completed, the
Company may need to seek alternative third-party financing to fund future
operations. There can be no assurances that such financing will be available
with terms acceptable to the Company.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION -- Substantially all of the Company's revenues to date
have been derived through the sale of online advertisement on the Company's web
site. Advertisement revenue is recognized in the period that the advertisement
is provided by the Company. The Company utilizes two outside service companies
to sell advertising. Such companies are paid a commission ranging from 30% to
45%. Commission expense totaled $79,211 for the year ended December 31, 1998 and
is included in cost of revenues in the accompanying financial statements.

The Company also receives revenue for referring customers from its web site
to other internet companies. Referral revenue is recorded in the period that the
referral is made.

DEPRECIATION AND AMORTIZATION -- Depreciation and amortization of property
and equipment is computed using straight-line methods over the estimated useful
lives of the assets of three to five years. Depreciation and amortization
expense for 1997 and 1998 amounted to $1,797 and $17,507, respectively.

CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially
subject the Company to credit risk consist principally of accounts receivables
and cash. The

F-33
<PAGE> 123
AREOHVEE ONLINE PARTNERSHIP
DBA MUSICVIDEOS.COM

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Company utilizes outside service companies to sell its advertisement to
businesses across several industries. The Company does not require collateral.
During 1998, approximately 75% of the Company's revenue was derived from
advertisements sold by two outside service companies. These two companies also
provide billing and collections for the Company for any advertisement that they
sell. At December 31, 1998, the Company had $75,763 in accounts receivable from
these two companies.

INCOME TAXES -- As a partnership, the Company does not pay federal or state
income taxes. The Company's income or loss is allocated to the partners based on
the partners' ownership interests and is included on their respective personal
income tax returns.

ACCOUNTING ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted auditing principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

NOTE 3 -- NOTES PAYABLE AND AMOUNTS DUE TO PARTNERS

At December 31, 1997 and 1998, the Company had notes payable to its
partners that totaled $60,400 and $173,532, respectively. These notes bear no
interest and are due and payable in full upon demand, but no earlier than
December 31, 2001.

At December 31, 1997 and 1998, the Company also had amounts due to partners
for the reimbursement of business expenses that totaled $6,232 and $26,705,
respectively. Such amounts are payable on demand.

NOTE 4 -- PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Computer equipment under capital leases............ $ -- $61,909
Equipment, furniture and fixtures.................. 23,026 23,026
------- -------
23,026 84,935
Accumulated depreciation and amortization.......... (1,797) (19,304)
------- -------
$21,229 $65,631
======= =======
</TABLE>

NOTE 5 -- LEASE OBLIGATIONS

The Company leases certain computer equipment under capital leases which
expire in various periods through November 2001.

F-34
<PAGE> 124
AREOHVEE ONLINE PARTNERSHIP
DBA MUSICVIDEOS.COM

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following is a summary of minimum annual payments under all capital
leases:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................... $25,572
2000........................................... 22,655
2001........................................... 9,870
-------
Total minimum lease payments..................... 58,097
Less amount representing interest................ (8,498)
-------
Present value of minimum lease payments.......... 49,599
Current portion................................ (20,359)
-------
Long-term portion.............................. $29,240
=======
</TABLE>

The Company also rents its corporate office space under a month-to-month
lease arrangement for $809 per month. Rent expense totaled $3,245 and $8,833 for
1997 and 1998, respectively.

NOTE 6 -- PARTNERS' DEFICIENCY AND RELATED PARTY TRANSACTIONS

The majority of the Company's operating labor is provided by the partners
of Areohvee Online Partnership. These partners provide their services at no
charge to the Company. The Partnership Agreement allows such partners to take
cash distributions at the mutual consent of the other partners. The Company made
cash distributions to its partners totaling $25,050 and $63,595 during 1997 and
1998, respectively.

NOTE 7 -- SUBSEQUENT EVENT

On January 15, 1999, the partners of the Company entered into an exchange
agreement with Launch. The exchange agreement calls for the partners of the
Company to transfer all of their interests in the Company to Launch in exchange
for $301,944 in cash and an aggregate of 875,557 shares of Launch common stock.
During 1998, the Company generated revenue from Launch totaling approximately
$20,000.

F-35
<PAGE> 125

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder of SW Networks Inc.,

In our opinion, the accompanying balance sheets and the related statements
of operations, owners equity and cash flows present fairly, in all material
respects, the financial position of SW Networks Inc., (the "Company") at
December 31, 1998 and March 31, 1998, and the results of its operations and its
cash flows for the nine-month period ended December 31, 1998 and for the year
ended March 31, 1998, in conformity with generally accepted accounting
principles. 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 financial
statements in accordance with generally accepted auditing standards 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.

As discussed in Note 1, the sale of the Company is being negotiated.

As discussed in or referenced from Note 9, the Company is a member of a
group of affiliated companies and, as discussed in the financial statements, has
certain transactions and relationships with members of the group.

/s/ PricewaterhouseCoopers LLP

New York, New York
March 12, 1999

F-36
<PAGE> 126

SW NETWORKS INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------ ------------
<S> <C> <C>
Current assets
Cash.......................................... $ 1,000 $ 1,000
Accounts receivable (net of allowance for
doubtful accounts of $145,183 and $28,843,
respectively).............................. 1,427,133 724,104
Prepaid expenses.............................. 86,454 111,196
------------ ------------
Total current assets....................... 1,514,587 836,300
Property and equipment, net (Note 4)............ 1,556,384 1,924,926
------------ ------------
Total assets............................... $ 3,070,971 $ 2,761,226
============ ============

LIABILITIES AND OWNER'S EQUITY
Current liabilities
Accounts payable.............................. $ 174,821 $ 163,156
Accrued expenses.............................. 735,161 1,220,118
Accrued workforce related costs (Note 5)...... 302,301 376,435
------------ ------------
Total current liabilities.................. 1,212,283 1,759,709
Commitments and contingencies (Note 8).......... -- --
Owner's equity
Common stock, par value $.10; authorized 100
shares; issued and outstanding 100
shares..................................... 10 10
Additional paid-in-capital.................... 55,033,411 51,743,003
Accumulated deficit........................... (53,174,733) (50,741,496)
------------ ------------
Total owner's equity....................... 1,858,688 1,001,517
------------ ------------
Total liabilities and owner's equity....... $ 3,070,971 $ 2,761,226
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.
F-37
<PAGE> 127

SW NETWORKS INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998
------------ -------------
<S> <C> <C>
OPERATING REVENUES
Advertising revenue............................... $ 4,335,570 $ 4,909,298
Less: Agency and media rep fees................. 1,509,807 1,737,166
----------- -----------
Net advertising revenue......................... 2,825,763 3,172,132
Other revenues.................................... 544,908 449,009
----------- -----------
Total operating revenues........................ 3,370,671 3,621,141
----------- -----------
Operating Expenses
Costs of services and products.................. 2,785,738 5,636,426
General and administrative...................... 1,584,340 2,492,221
Selling and marketing........................... 948,830 1,642,148
Depreciation and amortization................... 485,000 700,346
Restructuring costs............................. -- 1,427,240
----------- -----------
Total operating expenses........................ 5,803,908 11,898,381
----------- -----------
Gain on sale of programming rights (Note 3)....... -- 125,000
----------- -----------
OPERATING LOSS.................................... (2,433,237) (8,152,240)
Interest expense (Note 9)......................... -- (88,752)
----------- -----------
LOSS BEFORE INCOME TAXES.......................... (2,433,237) (8,240,992)
Income taxes...................................... -- --
----------- -----------
NET LOSS.......................................... $(2,433,237) $(8,240,992)
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.
F-38
<PAGE> 128

SW NETWORKS INC.

STATEMENT OF CHANGES IN OWNERS' EQUITY

<TABLE>
<CAPTION>
PARTNER'S PARTNER'S
CAPITAL CAPITAL COMMON ADDITIONAL
(DEFICIT) (DEFICIT) STOCK PAID-IN ACCUMULATED TOTAL OWNERS'
SDR CPE PAR VALUE CAPITAL DEFICIT EQUITY
----------- ----------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- MARCH 31, 1997.... $ 729,913 $ 729,913 $-- $ -- $ -- $ 1,459,826
Net loss for the period April
1, 1997 -- October 31,
1997....................... (3,382,146) (3,382,146) (6,764,292)
Merger with and into CPE
Management Inc. -- November
1, 1997
(Note 1)................... 2,652,233 2,652,233 10 43,960,320 (49,264,796) --
Net loss for the period
November 1, 1997 -- March
31, 1998................... (1,476,700) (1,476,700)
Capital contributions........ 7,782,683 7,782,683
----------- ----------- --- ----------- ------------ -----------
BALANCE -- MARCH 31, 1998.... -- -- 10 51,743,003 (50,741,496) 1,001,517
Net loss for the period April
1, 1998 -- December 31,
1998....................... (2,433,237) (2,433,237)
Capital contributions........ 3,290,408 3,290,408
----------- ----------- --- ----------- ------------ -----------
BALANCE -- DECEMBER 31,
1998....................... $ -- $ -- $10 $55,033,411 $(53,174,733) $ 1,858,688
=========== =========== === =========== ============ ===========
</TABLE>

The accompanying notes are an integral part of these statements.
F-39
<PAGE> 129

SW NETWORKS INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...................................... $(2,433,237) $(8,240,992)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization............ 485,000 700,346
Provision for doubtful accounts.......... 116,340 22,655
Gain on sale of programming rights....... -- (125,000)
Decrease (increase) in operating assets:
Accounts receivable...................... (819,369) (127,598)
Other current assets..................... -- 153,424
Prepaid expenses......................... 24,742 (90,112)
Other assets............................. -- 21,181
Increase (decrease) in operating
liabilities:
Accounts payable......................... 11,665 88,104
Accrued expenses......................... (484,957) (125,031)
Accrued workforce related costs (Note
5)..................................... (74,134) 12,047
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES......... (3,173,950) (7,710,976)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property and equipment......... (116,458) (196,698)
Proceeds from sale of programming rights.... -- 125,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES......... (116,458) (71,698)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Capital contributions (Note 7).............. 3,290,408 7,782,674
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES..... 3,290,408 7,782,674
----------- -----------
Net change in cash............................ -- --
Cash at beginning of period................... 1,000 1,000
----------- -----------
CASH AT END OF PERIOD......................... $ 1,000 $ 1,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.
F-40
<PAGE> 130

SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS

1. ORGANIZATION

SW Networks ("SWN" or the "Company"), a 50/50 general partnership, was
equally owned by Sony Digital Radio Inc. ("SDR") and CPE Management Inc.
("CPE"), both indirect, wholly owned subsidiaries of Sony Corporation of America
("SCA"). The primary purpose of SWN was to develop, produce, acquire and
distribute advertiser-supported music and entertainment related long-form and
network radio programming.

On November 1, 1997, CPE acquired, from SDR, the remaining 50% interest in
SWN. In connection with CPE attaining 100% ownership of SWN, the partnership of
SWN was dissolved and its operations were merged with and into CPE. Also on
November 1, 1997, Sony Music Entertainment Inc. ("SMEI"), a wholly owned
subsidiary of SCA, acquired all of the issued and outstanding common stock of
CPE.

Prior to November 1, 1997, CPE had no assets or operations other than its
investment in SWN. CPE, which is now known as SWN, legally changed its name to
SW Networks Inc. in January 1999.

Immediately prior to the above outlined activity the Company adopted a plan
to sell and/or discontinue its long-form and twenty-four hour programming, and
to restructure its operations. Refer to Note 3 -- Restructuring, for a further
discussion of the restructuring activity.

Subsequent to the restructuring, the Company's primary focus is to develop,
produce, acquire and distribute entertainment information/news to radio
stations, and more recently to Internet-based entertainment companies. The
Company currently provides entertainment information in 10 format-specific
genres (e.g., country, adult contemporary, urban) and has over 1,000 agreements
to provide content to affiliated radio stations.

The Company's network of radio station affiliates primarily contracts for
information in exchange for commercial broadcast advertising time. The Company
then sells the advertising time via a media rep agency. Less than 2% of the
total affiliates pay for their content in cash as opposed to exchanging
advertising time as described above.

The Company's reporting and news gathering infrastructure consists of three
bureaus located in New York, Los Angeles and Nashville. Information is
distributed to the affiliated radio stations via satellite, an ISDN line, or the
Internet, as well as through more traditional means.

In addition, the Company provides various engineering services, mainly
comprised of studio rental and CD duplication.

SMEI is currently negotiating the sale of the Company.

F-41
<PAGE> 131
SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP"). 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.

ADVERTISING REVENUES

The Company's revenues are primarily derived from selling advertising on
commercial radio broadcasts. Advertising revenues are recognized, net of agency
and media rep fees, when the related advertisement is broadcast. The Company
obtains its advertising time in exchange for providing daily music and
entertainment news and/or information to its network of affiliated radio
stations.

OTHER REVENUES

Other revenues consist primarily of cash sales of music and entertainment
news, studio rental income, CD duplication fees and other ancillary operating
income. Revenues are recognized as services are rendered.

COST OF SERVICES AND PRODUCTS

Costs of developing, producing, acquiring and distributing music and
entertainment news consists of mainly workforce related costs (refer to Note 5)
and expenses incurred to distribute its content via satellite, an ISDN line, the
Internet and other more traditional means. Expenses are recognized as incurred.

ADVERTISING COSTS

Advertising costs, primarily consisting of print advertisements, are
expensed as incurred. These costs, recorded within selling and marketing
expense, amounted to approximately $77,000 and $162,000 for the nine-month
period ending December 31, 1998 and the year ended March 31, 1998, respectively.

COMPREHENSIVE INCOME

The Company does not have any items that would be classified as other
comprehensive income.

F-42
<PAGE> 132
SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. The cost of additions and improvements are capitalized, while
maintenance and repairs are charged to expense when incurred. Depreciation is
calculated on a straight-line basis, principally over the estimated useful lives
of the related assets ranging from 3 to 7 years.

INCOME TAXES

Income taxes are provided using the liability method in accordance with the
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 provides that deferred tax assets and liabilities
are recognized based on differences between the book and tax bases of assets and
liabilities using presently enacted tax rates. The provision for income taxes is
the sum of the amount of taxes paid or payable for the year as determined by
applying the provisions of enacted tax laws to taxable income for that year and
the net changes during the year in the Company's deferred tax assets and
liabilities. Refer to Note 6 for further discussion of the Company's change in
tax status.

CONCENTRATION OF RISK

As described in Note 1, SWN barters its music and entertainment information
and news gathering service in exchange for advertising time with its network of
affiliated radio stations. The Company has an exclusive agreement with a media
rep agency, which is solely responsible for selling this commercial broadcast
time to advertisers and collecting the associated revenues. The risk of
uncollected debt is somewhat limited because of the large number of advertisers
that comprise the amounts due from the media representative.

Effective January 1, 1999, the Company changed its media rep agency to
another major agency. The new agreement expires on December 31, 1999.

The Company distributes a majority of its information through a single
third party distributor. The distributor provides proprietary software and
technical support to the Company and its affiliates, which enables the
distribution of programming content electronically. Should the Company lose the
ability to distribute its information via this distributor without finding a
comparable replacement, the additional cost of distributing via other means
could be significant.

3. RESTRUCTURING

In October 1997, the Company adopted a plan to sell and/or discontinue its
long-form and twenty-four hour music programming, and to restructure its
operations. As a result of said plan, the Company recorded a liability of
approximately $1,427,240 in the third quarter of fiscal 1998 to provide for
associated costs. The charge represented approximately $683,100 related to
workforce termination costs, $424,040 related to the write-off of leasehold
improvements and programming related

F-43
<PAGE> 133
SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

assets which had no further economic benefit as of the date of the plan and
$320,100 related to other costs. Other costs primarily related to the cost of
future lease payments attributable to floor space that became idle as a result
of the plan, as well as other documented contractual services. Approximately 31
programming, engineering, marketing and administrative members of the workforce
were affected by the plan, of which 30 were terminated as of March 31, 1998. The
final member was terminated as of December 31, 1998.

Movements in the restructuring reserve, which is recorded within accrued
expenses, were as follows (amounts in thousands):

<TABLE>
<CAPTION>
WORKFORCE ASSET OTHER
RELATED WRITE-OFFS COSTS TOTAL
--------- ---------- ----- -------
<S> <C> <C> <C> <C>
Original reserve..................... $ 683 $ 424 $ 320 $ 1,427
Utilized through March 1998.......... (543) (424) (246) (1,213)
----- ----- ----- -------
Balance at March 31, 1998............ 140 -- 74 214
Utilized through December 1998....... (140) -- (74) (214)
----- ----- ----- -------
Balance at December 31, 1998......... $ -- $ -- $ -- $ --
===== ===== ===== =======
</TABLE>

In connection with the Company's restructuring plan, certain long-form
programming was sold, resulting in a gain of $125,000 recorded within operating
results. None of the assets that were written down within the restructuring
charge of $424,040 were related to the programs sold.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------ ----------
<S> <C> <C>
Machinery & Equipment................. $2,166,122 $2,166,122
Computer Equipment.................... 806,547 803,047
Leasehold Improvements................ 753,073 635,923
Furniture & Fixtures.................. 248,642 252,834
---------- ----------
3,974,384 3,857,926
Less: accumulated depreciation and
amortization........................ 2,418,000 1,933,000
---------- ----------
$1,556,384 $1,924,926
========== ==========
</TABLE>

5. WORKFORCE

The Company has no employees. The Company has, historically, contracted for
the services of its workforce with Sony Corporation of America or wholly owned
subsidiaries of Sony Corporation of America. The associated salary and bonus
related costs incurred by these related parties are recharged to the Company
based upon actual amounts incurred. The costs of any fringe benefits provided to
the workforce by their employer, including any related employee taxes, are
charged to the

F-44
<PAGE> 134
SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Company based upon estimates of actual amounts incurred. For the nine months
ended December 31, 1998 and the year ended March 31, 1998, total workforce
charges approximated $2,877,000 and $5,300,000, respectively.

6. INCOME TAXES

Effective November 1, 1997, the Company changed its tax status from a
nontaxable enterprise, a partnership, to a taxable enterprise, a corporation. As
a result of the change in tax status, the Company recognized a net deferred tax
asset of $2,600,000 and a corresponding valuation allowance for the same amount
at the date of change, in accordance with generally accepted accounting
principles.

The Company has been included in consolidated federal, state and local
income tax returns filed by SCA. However, the tax benefit/(expense) reflected in
the Statements of Operations and deferred tax assets/liabilities reflected in
the Balance Sheets have been prepared as if such expense/(benefits) were
computed on a separate return basis. The tax losses generated by the Company
have been included by SCA in its consolidated net operating loss or used by SCA
to reduce its consolidated taxable income. Currently, no tax sharing agreement
exists between the Company and SCA. The Company's tax year-end is October 31, in
accordance with the SCA tax year-end.

The Company has $9,376,000 and $6,759,000 of net operating loss
carry-forwards as of the nine-month period ended December 31, 1998 and the year
ended March 31, 1998, respectively. These losses begin to expire in 2018. A full
valuation allowance has been provided against these net operating losses since
the Company believes that it is more likely than not that these tax benefits
will not be realized. As a result, there is no income tax benefit or expense for
the period ended March 31, 1998 and the period ended December 31, 1998.

A reconciliation of the U.S Federal statutory tax rate to the Company's
effective tax rate on income (losses) before income taxes is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------ ---------
<S> <C> <C>
Statutory U.S. tax rate................................. 35% 35%
State and local taxes, net of federal benefit........... 11% 2%
Partnership income not subject to tax................... 0% (29)%
Valuation allowance..................................... (46)% (8)%
--- ---
Effective tax rate...................................... 0% 0%
=== ===
</TABLE>

F-45
<PAGE> 135
SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

The following is a summary of the deferred tax accounts in accordance with
SFAS 109:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------ -----------
<S> <C> <C>
Deferred tax asset:
Reserves & accrued expenses........................ $ 155,400 $ 251,500
Net operating loss carry-forwards.................. 4,927,600 3,514,600
----------- -----------
Total gross deferred tax asset.................. 5,083,000 3,766,100
Valuation allowance.................................. (4,397,600) (3,280,400)
----------- -----------
685,400 485,700
----------- -----------
Deferred tax (liability):
Book/tax basis differences in fixed assets......... (121,600) (83,600)
State & Local deferred tax benefit................. (563,800) (402,100)
----------- -----------
Total gross deferred tax (liability)............ (685,400) (485,700)
----------- -----------
Net deferred tax asset/(liability)................... -- --
=========== ===========
</TABLE>

7. CAPITAL CONTRIBUTIONS

Net operating losses funded by SCA or SMEI are invested in the Company and
have been reflected as additional paid-in-capital in the Statement of Changes in
Owners' Equity. As of December 31, 1998 and March 31, 1998, contributed capital
approximating $55,033,411 and $51,743,003, respectively, has been invested in
the Company. SMEI confirmed their present intention to provide sufficient
financial resources to the Company to enable it to meet its obligations as they
fall due and to carry on its business without significant curtailment of
operations as long as it continues to be a wholly owned subsidiary of SMEI.

8. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases certain facilities in New York and Nashville under
agreements that are classified as operating leases. Future minimum payments in
the aggregate, under the aforementioned leases with the initial remaining terms
in excess of one year as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
MINIMUM LEASE PAYMENTS
----------------------
<S> <C>
Three months ended March 31,
1999.......................... $ 269,000
Year ended March 31:
2000.......................... 1,076,000
2001.......................... 365,000
2002.......................... 2,000
Thereafter...................... --
----------
Total........................... $1,712,000
==========
</TABLE>

F-46
<PAGE> 136
SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

The Company's New York lease expires on July 31, 2000. The lease for the
Company's news bureau facility located in Nashville, Tennessee, expires in June
2001. Lease payments are subject to adjustment if real estate taxes exceed
certain base levels.

In connection with the restructuring discussed in Note 3, the Company
vacated one floor of its premises in New York. Associated rental expense of
$141,300 was included in the restructuring charge for the period November 1,
1997 through March 31, 1998. On April 1, 1998, SCA, or a wholly-owned subsidiary
of SCA, effectively assumed the obligation of the lease of this space through
July 31, 2000, representing approximately $563,000 of the remaining minimum
lease payments outlined above.

Rental expense for the nine months ended December 31, 1998 and the year
ended March 31, 1998 was approximately $576,000 and $1,054,000, respectively.
The rental expense for the year ended March 31, 1998 is net of amounts included
in the restructuring charge of $141,300.

WORKFORCE AGREEMENTS

Several key members of the workforce have agreements pursuant to which
approximately $683,000 is required to be paid through March 31, 2000.

LITIGATION

The Company is party to several routine legal claims involving employment
matters in the ordinary course of business. Management believes that any
liability resulting from these claims will not have a material adverse effect on
the Company's financial condition, results of operation or liquidity.

9. RELATED PARTY TRANSACTIONS

The Company recognized advertising revenues of $98,100 and $22,050 during
the nine months ended December 31, 1998 and the year ended March 31, 1998,
respectively, in connection with the sale of commercial broadcast time to
related companies. Pursuant to the Company's media rep agreement, SWN is not
charged for agency or media rep commissions on related party advertisement
sales, as there is no sales effort put forth by either the media rep or an
advertising agency in connection with these sales.

Additionally, the Company recognized $100,000 in Other Revenues for the
cash sale of entertainment information to a related company during the nine
months ended December 31, 1998. The Accounts Receivable balance as of December
31, 1998 includes a $35,000 receivable in connection with the above-mentioned
transaction. There are no such transactions or balances in the year ended March
31, 1998.

Related companies provide various accounts payable and payroll processing
services, as well as general corporate and/or support services (e.g., finance,
legal,

F-47
<PAGE> 137
SW NETWORKS INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

tax) to the Company. The Company is charged for such services based upon
allocations applicable to the related charges. For the nine months ended
December 31, 1998 and the year ended March 31, 1998, such charges amounted to
$227,000 and $166,000, respectively.

The Company's telecommunication services are provided under a third party
agreement entered into with SMEI. The Company is charged amounts based upon
actual usage and costs. Telecommunication costs for the nine months ended
December 31, 1998 and the year ended March 31, 1998 approximated $178,500 and
$288,900, respectively.

The Company leases office space from a related company on a month-to-month
basis. Total rental expense approximated $23,000 and $7,100 for the nine months
ended December 31, 1998 and the year ended March 31, 1998, respectively.

Exclusive of the amounts discussed above, expenses approximating $193,000
were incurred by the Company primarily in connection with CD duplication
services rendered by related companies during the year ended March 31, 1998.
There were no such expenses incurred during the nine months ended December 31,
1998.

Through October 31, 1997, the Company was charged interest on its
outstanding loan balances from an indirect, wholly-owned subsidiary of SCA. In
connection with the merger with and into CPE as discussed in Note 1, all
outstanding loan balances and the related accrued interest were converted into
contributed capital on November 1, 1997, upon which, interest expense was no
longer charged to the Company. Interest expense amounted to $88,752 for the year
ended March 31, 1998 based upon an average annual rate of approximately 6%.

Refer to Notes 1, 5, 7 and 8 for other related party transactions.

F-48
<PAGE> 138

================================================================================
3,500,000 SHARES
[LAUNCH MEDIA LOGO]

COMMON STOCK

------------------
PROSPECTUS
------------------

HAMBRECHT & QUIST

ALLEN & COMPANY INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------

April 23, 1999
------------------

You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.

Until May 18, 1999, all dealers that buy, sell or trade in our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE> 139

BACKCOVER

[Image of male youth slouched in a chair with a remote control in his hand.]

Zach watched 1,826 hours of music television last year hoping to discover new
music.

[Image of recording artist Canibus.]

[The following phrases are presented in a semi-circle.]

Breaking music news, exclusive artist reviews, free music home pages, album
reviews, sound samples, music videos on-demand, buzzing music community, live
artist chats, local concert information, special offers and contests, radio play
lists.

You just need to log on

[Image of Launch logo.] LAUNCH.com