MPATH INTERACTIVE INC/CA, S-1, 1999-02-16

MPATH INTERACTIVE INC/CA
S-1, 1999-02-16

Previous: R TEC TECHNOLOGIES INC, S-1, 1999-02-16

Next: CDNOW N2K INC, S-4, 1999-02-16

<PAGE>

As filed with the Securities and Exchange Commission on February 16, 1999
Registration No. 333-

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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

MPATH INTERACTIVE, INC.
(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C> <C>
Delaware 7310 94-3217317
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
</TABLE>

665 Clyde Avenue
Mountain View, CA 94043
(650) 429-3900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)

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

LYNN HEUBLEIN
Chief Operating Officer
MPATH INTERACTIVE, INC.
665 Clyde Avenue
Mountain View, California 94043
(650) 429-3900
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)

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

Copies to:
<TABLE>
<CAPTION>
<S> <C>
Joshua L. Green Nora L. Gibson
Jeffrey Y. Suto Randall M. Lake
David T. Sobota Lindsay C. Freeman
George A. Kellerman BROBECK, PHLEGER & HARRISON LLP
VENTURE LAW GROUP Spear Street Tower
A Professional Corporation One Market
2800 Sand Hill Road San Francisco, CA 94105
Menlo Park, CA 94025
</TABLE>

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

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. _________ [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________ [_]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________ [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Class of Each Class Of Securities Maximum Aggregate Amount of
To Be Registered Offering Price(1) Registration Fee
- --------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.00005 per
share... $46,000,000 $12,788
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1999

(logo)

MPATH INTERACTIVE, INC.
Shares
Common Stock

We are offering shares of our common stock. This is our initial
public offering, and no public market currently exists for our shares. We have
applied to have the shares we are offering approved for quotation on the Nasdaq
National Market under the symbol "MPTH." We anticipate that the initial public
offering price will be between $ and $ per share.

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

Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.

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

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Mpath............................................... $ $
</TABLE>

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 1999.

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

BancBoston Robertson Stephens
Thomas Weisel Partners LLC
Warburg Dillon Read LLC
Wit Capital Corporation
as e-Manager(TM)

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

The date of this prospectus is , 1999.
<PAGE>

You should rely only on the 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. In this prospectus, references
to the "Company," "Mpath," "we," "us" and "our" refer to Mpath Interactive,
Inc., and its subsidiary.

Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 6
How We Intend to Use the Proceeds from this Offering.................... 20
Dividend Policy......................................................... 20
Capitalization.......................................................... 21
Dilution................................................................ 22
Selected Consolidated Financial Data.................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 24
Business................................................................ 32
Management.............................................................. 48
Certain Transactions.................................................... 56
Principal Stockholders.................................................. 59
Description of Capital Stock............................................ 61
Shares Eligible for Future Sale......................................... 63
Underwriting............................................................ 65
Legal Matters........................................................... 67
Experts................................................................. 67
Additional Information.................................................. 67
Index to Financial Statements........................................... F-1
</TABLE>

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

We own or have rights to trademarks or tradenames that we use in conjunction
with the sale of our products and services. Mpath Interactive and Mplayer are
registered trademarks owned by us. "Active communities," "people-to-people
communities," Mpath, the Mpath logo, Mplayer.com, the Mplayer.com logo, hearme,
HearMe.com, the HearMe.com logo, and POP.X are trademarks that are owned by us.
XOOM.com is a trademark of XOOM.com. This prospectus also makes reference to
trademarks of other companies.

This prospectus includes statistical data regarding the Internet industry.
Such data is taken or derived from information published by sources including
Jupiter Communications, LLC, a media research firm focusing on the Internet
industry and International Data Corporation, a provider of market and strategic
information for the information technology industry. Although we believe that
such data are generally indicative of the matters reflected therein, such data
are inherently imprecise and you are cautioned not to place undue reliance on
such data.

2
<PAGE>

[INSIDE FRONT COVER]

Title: "Mpath Interactive, Inc., Leading Technology Solutions for Live Internet
Communities"

Block of text on left side:
"Mpath Interactive, Inc., develops, licenses and operates technologies that
enable Internet sites to create and manage live Internet communities. These
communities are characterized by real-time interaction among multiple
simultaneous users. Mpath operates leading live communities, such as HearMe.com
and Mplayer.com, serving over 2.5 million registered users."

Overlaying the images described below is an arrow leading from "Conventional
Communities," going through "Technologies for Live Communities," ending on top
of "Live Communities," and pointing at "Benefits of Live Communities."

Graphics on left side bottom:
Four small graphic images creating a circle around the phrase "Conventional
Communities." The images include:
1. Image of an envelope with text "Email"
2. Image of a memo with text "Bulletin Boards"
3. Image of hands shaking with text "Text Chat"
4. Image of globe with text "Web Hosting"

Text and Graphics on right side bottom:
"Technologies for Live Communities. POP.X allows you to deploy and operate
multi-participant Internet applications quickly and easily." POP.X logo.

Graphics on right side center:
Five small graphic images creating a circle around the phrase "Live
Communities." The images include:
1. Image of two people talking to each other with text "Real-time Audio Chat
(with text and instant messaging)"
2. Image of a gavel and a block of wood with text "Live Auctions"
3. Image of race car with text "Multi-participant Games"
4. Image of microphone with text "Live Music Events"
5. Image of computer with text "Help Desk Applications"

Block of text on right side top:
"Benefits of Live Communities:
. Highly engaging experiences
. Lengthy member session times
. Rich media advertising
. Integrated, targeted advertising
. High leverage of member-created content"
<PAGE>

[GATE 1]

Title:
"Live Communities" with text centered below title reading: "Live Communities
reach millions of people, offering them the ability to interact in real-time,
while utilizing rich media tools such as audio chat, game play, graphics, text
chat and instant messaging and paging."

Text and graphics on left side of page:
Mplayer.com logo with text "Internet Multi-Participant Entertainment
Communities" and "www.mplayer.com." Five images of Mplayer.com Web pages that
show visitors to the site the steps involved in utilizing Mplayer.com's
services. The text associated with such images of Mplayer.com's Web pages is as
follows:

"1. Becoming a member of Mplayer.com takes a few simple steps and begins at the
www.mplayer.com site."

"2. To get started, sign up and download the Mplayer.com software. It's free
and installs automatically. Then choose a member name and password. Other
Mplayer.com members will know you by your member name."

"3. Log-on to the Mplayer.com Service. Click on the `Games' navigation button
and it will take you to the Main Menu. There are dozens of games to choose
from. You can visit one of the many chat rooms by clicking on the title."

"4. Once you have entered a Game Lobby, you may enter a Game Room and join in
the fun, or create your own room and invite others to join you. There are a
variety of tournaments, events, contests, sweepstakes and drawings in which to
participate. There are also many prizes to win, some awarded for skill, others
at random."

"5. Members can choose to participate in Mplayer.com's premium service, which
offers Ratings and Rankings that display an icon next to the player's name to
demonstrate their ranking in a particular game. Premium service also includes
special events, contests, magazine subscriptions, special features and exclusive
games."

Text and graphics on right side of page:
HearMe.com logo with text "Live Internet Audio Communities" and
"www.hearme.com." Five images of HearMe.com Web pages that show visitors to the
site the steps involved in utilizing HearMe.com's services. The text associated
with such images of HearMe.com's Web pages is as follows:

"1. Joining the Live Audio Communities on HearMe.com involves a few quick steps
and the process begins by visiting www.hearme.com."

"2. To start, download the free HearMe.com self-installing software. It will
allow you to enter live audio chat rooms. You'll only need to download the
first time you join."

"3. Now you can select a Lobby to enter. There are several communities to
choose from to suit all tastes."

"4. Inside the Lobby, join a specific audio room that suits your mood or create
you own room. Using your PC microphone and speakers, you can hold personal
conversations or conference calls with friends and family. These private live
audio communities allow you to lock or password protect your chat. Musically-
inclined members are invited to the On Stage community to perform or to sit back
and listen."

"5. You can use the HearMe.com pager to see if your friends and family are on
the service and page them to join you in an audio room You can also send them
instant messages if they're on the service or a telegram will be waiting for
them the next time they sign on."
<PAGE>

PROSPECTUS SUMMARY

Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock. This prospectus assumes that
the underwriters have not exercised the over-allotment option and that all
shares of preferred stock have been converted into shares of common stock.

Our Company

Mpath develops, licenses and operates technologies that enable Internet sites
to create and manage live communities characterized by real-time interaction
among multiple simultaneous users. We also operate our own leading live
communities serving over 2.6 million registered users with over 50,000 unique
daily visitors generating over 100 minutes of average daily usage per visitor,
as of January 1999. Our robust and scaleable technology solutions include
graphics, text and sound interactivity, such as voice and music over the
Internet, as well as integrated network and site management capabilities. We
leverage our proprietary technology by licensing third party site operators
software products and providing services for building live communities that may
be self-managed or hosted by us on an outsourced basis. The real-time nature of
live communities creates highly engaging environments that drive long usage
times and strong user loyalty, demonstrated by frequent repeat visits. Our
technologies offer Internet advertisers a differentiated opportunity to reach
targeted audiences participating in absorbing, memorable activities and to do
so with message formats that go beyond the simple "banner" ads common to the
Web. We believe we thereby deliver high value solutions that significantly
enhance the impact of a broad range of e-business sales and marketing efforts.

The Internet is an increasingly significant global interactive medium for
communications, content and commerce. According to International Data
Corporation ("IDC"), the number of Web users worldwide will grow from 97
million at the end of 1998 to 320 million by the year 2002. The Internet now
represents the fastest growing form of media in history. As Internet
accessibility, usage and functionality grow, the Internet is increasingly being
used as a medium for direct communication as well as a rapidly growing sales
and marketing channel. Jupiter Communications estimates that total online
advertising revenue in the U.S. in 1997 was $940 million and expects this
amount to grow to $4.4 billion by 2000. Although sites representative of the
early stages of Internet commercialization provide valuable services, they did
not initially enable Web users to interact or communicate with other
individuals. As a result, people-to-people communities have emerged to satisfy
user demand for interaction and communication. We believe an opportunity exists
to create, operate and enable higher quality people-to-people communities
characterized by real-time simultaneous interaction among multiple users, which
we call live communities. Creating successful live communities presents
numerous technological challenges, requiring high standards of scalability,
performance, accessibility, ease-of-use, security and content management. Given
the attractiveness live communities offer users, advertisers and e-businesses,
and given the time and effort required to build such communities, we believe a
significant opportunity exists for delivering proven online technologies and
services that enable rapid creation and management of full-featured live
communities on the Internet.

Through our Mpath Foundation business unit, we are a leading provider of
enabling technology and services to a growing customer base of online companies
seeking to create and operate live communities on the Internet. With its
innovative POP.X technology system, Mpath Foundation offers its customers broad
technological expertise in networks, operations, information systems,
integration technologies, and the customer support capabilities necessary to
deploy live community applications rapidly and manage large Internet
communities. In addition, we provide fully-functional online game services
through our first generation product and we provide log-in, account management,
billing and database management services to companies operating online content
through our Customer Management System service. Customers of Mpath Foundation
consist of a growing base of leading online entertainment companies such as CSK
Sega, Eidos Interactive, Electronic Arts, Fujitsu, GTECH, LG Internet,
Macromedia and Sony.

3
<PAGE>

Through our Live Communities business unit we have developed and operate two
services, Mplayer.com and HearMe.com. In October 1996, we launched Mplayer.com,
a premier live entertainment service on the Internet. The Mplayer.com service
now consists of three active communities that are built around common interests
and offers over 100 of the most popular online multi-participant games. Total
usage time on Mplayer.com exceeds 200 million user minutes per month, as of
January 1999, compared to 67 million user minutes as of January 1998. After
less than two years of operations, Mplayer.com has become the number eleven
Internet site in terms of total usage time per month according to our usage
data. In January 1999, we launched HearMe.com, our second live community
service. HearMe.com is currently comprised of seven live communities, making
live audio interaction available to people whose interests extend beyond
entertainment. We intend to build the HearMe.com services through relationships
with Web sites that want to offer live audio communities to their members. We
intend to continue to expand this business unit by creating additional services
and live communities.

To maintain our leadership position in providing enabling technologies for
companies seeking to build live communities on the Internet and in operating
our own premier live communities, we have adopted the following strategies:

. expand our sales and marketing efforts;

. promote membership growth and usage;

. maintain and extend technology leadership and expertise;

. maximize value for advertisers and e-businesses; and

. pursue multiple revenue streams.

We have assembled an impressive group of corporate partners, including
Infoseek, XOOM.com, Intel, Yahoo!, Excite, Macromedia, GTECH, Sega and Cox
Enterprises. These partners bring capital, brand recognition, promotional
strength and technology expertise to our service offering and facilitate the
growth of our overall business.

Our principal executive offices are located at 665 Clyde Avenue, Mountain
View, California 94043. Our telephone number at that location is (650) 429-
3900. Information contained on our Web sites at http://www.mpath.com,
http://www.mplayer.com and http://www.hearme.com do not constitute part of this
prospectus.

The Offering

<TABLE>
<C> <S>
Common stock offered by Mpath...................... shares
Common stock to be outstanding after the offering.. shares(1)
Use of proceeds.................................... Working capital and
general corporate
purposes(2)
Proposed Nasdaq National Market symbol............. MPTH
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1998. Includes
the conversion of 10,416,615 shares of preferred stock outstanding at
December 31, 1998 and the conversion of 3,035,306 shares of preferred stock
we sold to certain investors in January 1999. Also includes the exercise
and subsequent conversion to common stock of warrants for 77,422 shares of
Series E Preferred Stock issued in January 1999 and assumed to be exercised
immediately before completion of this offering. Excludes (a) shares
issuable upon conversion of a promissory note, in the principal amount of
$1,864,000 that is convertible upon a sale of us or this offering, (b)
1,673,410 shares subject to outstanding options under our 1995 Stock
Option/Stock Issuance Plan, (c) 1,986,282 shares subject to outstanding
warrants, (d) 2,500,000 shares reserved for issuance under our 1999 Stock
Incentive Plan, (e) 300,000 shares reserved for issuance under our 1999
Directors' Stock Option Plan, (f) 750,000 shares reserved for issuance
under our 1999 Employee Stock Purchase Plan. See "Management--Stock Plans"
and the notes to our consolidated financial statements.

(2) Please see "How We Intend to Use the Proceeds from this Offering."

4
<PAGE>

Summary Consolidated Financial Information
(in thousands, except per share data)

In the following summary consolidated financial data, the consolidated
statement of operations data for the years ended December 31, 1996, 1997 and
1998 and consolidated balance sheet data as of December 31, 1998 are derived
from and qualified in their entirety by the annual consolidated financial
statements of Mpath. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1997 1998
-------- -------- --------------
<S> <C> <C> <C>
Statement of Operations Data:
Net revenues:
Live Communities.......................... $ 12 $ 686 $ 3,022
Foundation................................ 112 2,041 5,005
-------- -------- --------
Total revenues.......................... 124 2,727 8,027
Cost of net revenues:
Live Communities.......................... 35 1,808 2,221
Foundation................................ 90 620 790
-------- -------- --------
Total cost of revenues.................. 125 2,428 3,011
-------- -------- --------
Gross profit (loss)................... (1) 299 5,016
Operating expenses.......................... 25,328 13,852 16,848
Loss from operations........................ (25,329) (13,553) (11,832)
Net loss.................................... $(25,039) $(13,648) $(11,945)
Basic and diluted net loss per share........ $ (3.99)
Weighted average shares outstanding used in
basic and diluted net loss per share
calculation................................ 2,992
<CAPTION>
December 31, 1998
----------------------------------
1996 1997 1998
-------- -------- --------------
<S> <C> <C> <C>
Selected Non-Financial Data:
Total registered users..................... -- 317 2,340
Total user minutes per month............... -- 45,917 181,341
<CAPTION>
December 31, 1998
----------------------------------
Pro Pro Forma
Actual Forma(1) As Adjusted(2)
-------- -------- --------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................... $ 1,114 $ 20,158
Working capital............................. (2,067) (18,477)
Property and equipment, net................. 1,878 1,878
Total assets................................ 6,177 25,221
Long term notes payable..................... 1,864 1,864
Stockholders' deficit (equity).............. (4,348) 16,196
</TABLE>
- -------
(1) Reflects (i) the sale of 3,035,306 shares of preferred stock we sold to
certain investors in January 1999 for an aggregate purchase price of
$20.0 million, (ii) the proceeds of $510,985 from the exercise of warrants
to purchase 77,422 shares of stock that will be exercised effective as of
the closing of this offering (iii) the repayment of $1,500,000 in notes
payable upon the sale of preferred stock in January 1999 and (iv) the
conversion of all outstanding shares of preferred stock into shares of
common stock upon the closing of this offering.
(2) Reflects the receipt of the net proceeds from the sale of the shares of
common stock sold in this offering at an assumed initial public offering
price of $ per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses. Please see "How We Intend
to Use the Proceeds from this Offering" and "Capitalization."

Unless otherwise indicated, all information in this prospectus assumes (1)
the sale of 3,035,306 shares of preferred stock in January 1999, (2) the
exercise and subsequent conversion into common stock of warrants to purchase
77,422 shares of preferred stock, (3) the repayment of $1,500,000 in notes
payable upon the sale of preferred stock in January 1999 and (4) the conversion
of each outstanding share of preferred stock into one share of common stock,
all of which will occur on or before the closing of this offering. In addition,
all information in this prospectus assumes no exercise of the Underwriters'
over-allotment option.

5
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision in our company. In addition, you should keep in mind that
the risks described below are not the only risks that we face. Additional risks
not presently known to us, or risks that we currently believe are immaterial,
may also impair our business operations. Moreover, you should refer to the
other information contained in this prospectus for a better understanding of
our business.

Our business, financial condition, or results of operations could be
adversely affected by any of the following risks. If we are adversely affected
by such risks, then the trading price of our common stock could decline, and
you could lose all or part of your investment.

This prospectus contains forward-looking statements that relate to future
events or to our future financial performance. These statements are only
predictions. Actual events or performance results may differ significantly from
those anticipated in the forward-looking statements.

We have a limited operating history upon which to base your investment decision

We were was founded in January 1995 and have a limited operating history. We
did not begin generating advertising or licensing revenues until October 1996.
For the year ended December 31, 1997, we generated revenues of $2.7 million,
and for the year ended December 31, 1998, we generated revenues of $8.0
million. As an investor in our common stock, you should consider the risks and
difficulties that we face as an early stage company in a new and rapidly
evolving market. Some of the specific risks we face include our:

. ability to maintain and to increase levels of traffic on our live
communities;

. ability to develop and extend the Mplayer.com and HearMe.com brands;

. ability to increase demand for our products and services;

. substantial dependence on software licensing revenues;

. ability to maintain projected advertising rates;

. ability to adapt to rapidly changing technologies and developing
markets;

. ability to manage rapidly expanding operations and increasing Internet
traffic effectively;

. ability to attract, retain, and motivate qualified personnel;

. substantial dependence on products that have limited market acceptance;
and

. ability to compete in a highly competitive market.

In addition, we depend on the growing use of the Internet for commerce,
communication and advertising. We also depend on the sale of advertising on the
Mpath live communities and the licensing of our POP.X technology for future
revenue growth. We cannot be certain that our business strategy will be
successful or that we will successfully address these risks.

Due to our limited operating history, it is difficult or impossible for us to
predict future results of operations. As a result, you should not expect future
revenue growth to be comparable to our recent revenue growth. We believe that
period-to-period comparisons of our operating results are not meaningful and
you should not rely on the results for any period as an indication of future
performance.

We have had a history of losses

We have had substantial losses since our inception, and we cannot assure you
that we will ever become or remain profitable. As of December 31, 1998, we had
an accumulated deficit of $53.0 million, which includes a write-off of $14.5
million of goodwill and in-process research and development expenses incurred
in connection with our acquisition of Catapult Entertainment in 1996. Although
we have experienced growth in net revenues, members, customers and Internet
reach in recent periods, we cannot be certain that such growth rates will
continue at their current levels or increase in the future.

6
<PAGE>

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

If our revenues fail to grow at anticipated rates, our operating expenses
increase without a commensurate increase in our revenues or we fail to adjust
operating expense levels accordingly, our business, results of operations and
financial condition will be adversely affected. Our operating losses may
increase in the future and we cannot be certain that we will ever become or
remain profitable.

The sales and implementation cycle(s) for our Mpath Foundation products and
services is long

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

We depend on advertising contracts and most of these contracts are short-term

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

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

The unpredictability of our quarterly results may adversely affect the trading
price of our common stock

Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. These
factors include:

. demand for and market acceptance of our products and services and Web-
based advertising;

. long sales cycles for our Mpath Foundation products and services;

. budgeting cycles of advertisers;

. amount and timing of capital expenditures and other costs relating to
the expansion of our operations and future acquisitions;

. introduction of new or enhanced products and services by us or our
competitors;

. loss of one or more of our key advertising contracts or relationships;

7
<PAGE>

. changes in our pricing policy or those of our competitors;

. engineering or development fees that we may pay for new Web site
development and publishing tools;

. technical difficulties with our live communities; and

. general economic conditions.

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

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

We face intense competition

Mpath Live Communities

The market for Internet users and advertisers is new and rapidly evolving.
Competition is intense and is expected to increase significantly in the future.
In addition, barriers to entry are relatively insubstantial. We believe that
the principal competitive factors for companies seeking to create live
communities on the Internet include the following:

. critical mass and functionality;

. brand recognition;

. member affinity and loyalty;

. broad demographic focus; and

. open access for visitors.

Other companies creating Web-based live communities on the Internet are
Cendant, E-Pub Services (Uproar.com), Lipstream, Microsoft, SegaSoft and Sony.
We will also likely face competition in the future from Web directories, search
engines, shareware archives, online communities, Internet telephony, content
sites, commercial online service providers, sites maintained by Internet
service providers and other entities that attempt to or establish communities
on the Internet either by developing their own community or acquiring one of
our competitors.

8
<PAGE>

information, search and content sites or services, such as America Online,
CNET, CNN/Time Warner, Excite, Infoseek, Lycos, Microsoft, Netscape and Yahoo!.
We also compete with the foregoing companies, as well as traditional forms of
media such as newspapers, magazines, radio and television, for advertisers and
advertising revenues. We believe that the principal competitive factors in
attracting advertisers include the amount of traffic on our Web site, brand
recognition, customer service, the demographics of our members and viewers, our
ability to offer targeted audiences and the overall cost-effectiveness of the
advertising medium we offer. We believe that the number of Internet companies
relying on Web-based advertising revenue will increase substantially in the
future. Accordingly, we will likely face increased competition, resulting in
increased pricing pressures on our advertising rates which could in turn have a
material adverse effect on our business, results of operations and financial
condition.

Many of our existing and potential competitors, including Web directories and
search engines and large traditional media companies, have longer operating
histories in the Web market, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than we
have. Such competitors can undertake more extensive marketing campaigns for
their brands and services, adopt more aggressive advertising pricing policies
and make more attractive offers to potential employees, distribution partners,
commerce companies, advertisers and third-party content providers. Advertisers
may perceive Internet content providers and Internet service providers,
including Web directories, search engines, shareware archives, sites that offer
professional editorial content, commercial online services and sites maintained
by Internet service providers as more desirable Web sites for placement of
advertisements.

In addition, substantially all of our current advertising customers and
strategic partners also have established collaborative relationships with
certain of our competitors or potential competitors, and other high-traffic Web
sites. Accordingly, we cannot be certain that we will be able to grow our
membership base, traffic levels and advertiser customer base at historical
levels or retain our current members, traffic levels or advertiser customers.
Advertisers may find other Web sites more attractive if Web traffic grows at a
faster rate on the Web sites of competitors. and our strategic partners may
decline to renew their agreements with us. We may not be able to compete
successfully against our current or future competitors and competition could
have a material adverse effect on our business, results of operations and
financial condition.

Mpath Foundation

The market for software and services for the Internet is relatively new,
constantly evolving and intensely competitive and we expect that competition
will only intensify in the future. As part of our business, we sell and license
products and services for people-to-people community applications. Our
principal competitors in this market include Acuity Software and in-house
developers of such applications. Competitive factors in this market include the
following:

. quality and reliability of software;

. features for creating, editing and adapting content;

. ease of use and interactive user features;

. scaleability and cost per user; and

. compatibility with the user's existing network components and software
systems.

To expand our user base and further enhance the user experience, we must
continue to innovate and improve the performance of our POP.X technology. Many
of our existing and potential competitors have longer operating histories,
greater name recognition and significantly greater financial, technical and
marketing resources than we do. We are committed to continued market
penetration of our brand, products and services and we may implement pricing,
licensing, service or marketing changes as a strategic response to changes in
the competitive environment in an effort to extend our current brand and
technology franchise. If we make price concessions or if our pricing and
distribution strategies emerge from our competitors, our business, financial
condition and results of operations may be adversely affected.

9
<PAGE>

We rely on our ability to maintain and develop strategic relationships

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

Our Mpath Foundation business unit has a limited number of customers upon whom
we rely

Mpath Foundation revenues have accounted for the majority of our revenues to
date. Historically, we have received a significant portion of our Mpath
Foundation revenues from a limited number of sales and license agreements. We
believe that a customer's decision to license our technology is relatively
discretionary and, for large-scale users, often involves a significant long-
term commitment of resources. Therefore, any downturn in the business of
potential customers could have a material adverse effect on our revenues and
quarterly results of operations. We currently have eight Mpath Foundation
customers, two of which accounted for approximately 35% and 11% of our total
revenues during 1997, and three of which accounted for approximately 23%, 12%
and 10% of our total revenues during 1998.

We rely on advertising revenue and our results of operations could be adversely
affected if the Web does
not continue its development as an effective advertising medium

Intense competition in the sale of advertising on the Web has resulted in a
wide variety of pricing models, rate quotes and advertising services, making it
difficult to project future levels of advertising revenues and rates. It is
also difficult to predict which pricing models, if any, will achieve broad
acceptance among advertisers. We have derived a significant portion of our
revenues to date from the sale of advertisements. Our strategy is to continue
to emphasize advertising as a method of generating revenues. Our current
business model is therefore highly dependent on the amount of traffic on our
Web site. This type of business model, however, is relatively unproven. The
Internet as an advertising medium has not been available for a sufficient
period of time to gauge our effectiveness as compared with traditional
advertising media. Many of our advertisers have only limited experience with
the Web as an advertising medium, have not yet devoted a significant portion of
their advertising budgets to Web-based advertising and may not find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. For 1998, advertising on the Web
represented a nominal portion of overall advertising revenues in the United
States. Our ability to generate significant advertising revenues will also
depend on, among other things, our ability to provide advertisers with a large
base of users possessing demographic characteristics attractive to advertisers
as well as our ability to develop or acquire effective advertising delivery and
measurement systems.

The process of managing advertising within a large, high-traffic Web site
such as ours is an increasingly important and complex task. We license our
advertising sales and management system from NetGravity. Any replacement of
this system could disrupt our ability to manage our advertising operations for
a period of time. In addition, to the extent that we encounter system failures
or material difficulties in the operation of this system, we could be unable to
deliver banner advertisements and sponsorships through our Web site.

Any extended failure of, or material difficulties encountered in connection
with, our advertising management system may expose us to "make good"
obligations with our advertisers, which, by displacing saleable advertising
inventory, among other consequences, would reduce revenues and have a material
adverse effect on our business, results of operations and financial condition.

10
<PAGE>

We rely on our intellectual property and proprietary rights and may be unable
to protect these rights

Our success depends in part on our ability to protect our proprietary
software and other intellectual property. To protect our proprietary rights, we
rely generally on patent, copyright, trademark and trade secret laws,
confidentiality agreements with employees and third parties, and license
agreements with consultants, vendors and customers, although we have not signed
such agreements in every case. Despite our efforts to protect our proprietary
rights, unauthorized third parties could, copy or otherwise obtain and use our
products or technology, or develop similar technology. Other parties may breach
confidentiality agreements and other protective contracts we have entered into.
As a result we may not become aware of, or have adequate remedies in the event
of, such a breach.

We currently have six issued patents in the U.S. with expiration dates
ranging from 2014 to 2016, two allowed patents and 16 patents pending (one of
which is a provisional patent). We cannot be certain that any pending or future
patent applications will be granted, that any existing or future patent will
not be challenged, invalidated or circumvented, or that the rights granted
under any patent that has issued or may issue will provide competitive
advantages to us. Many of our current and potential competitors dedicate
substantially greater resources than we do to protection and enforcement of
intellectual property rights, especially patents. If a blocking patent has
issued or issues in the future, we would need to either obtain a license or
design around the patent. We cannot be certain that we would be able to obtain
such a license on acceptable terms, if at all, or to design around the patent.
We pursue the registration of certain of our trademarks and service marks in
the U.S. and in certain other countries, although we have not secured
registration of all our marks. As of February 11, 1999, we had four registered
U.S. and four foreign trademarks or service marks, and had applications pending
for an additional five U.S. and six foreign trademarks or service marks, and
one intent to use trademark application in the U.S.

Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any of our proprietary rights or of similar rights of
other companies within this market. We cannot be certain that the steps taken
by us will prevent misappropriation or infringement of our proprietary
information.

Any such infringement or misappropriation, should it occur, could have a
material adverse effect on our business, results of operations and financial
condition. In addition, we are currently involved in litigation and additional
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation might result in substantial
costs and diversion of resources and management attention and could have a
material adverse effect on our business, results of operations and financial
condition. Furthermore, it is possible that our business activities may
infringe upon the proprietary rights of others, or that other parties may
assert infringement claims against us.

From time to time, we have been, and expect to continue to be, subject to
claims in the ordinary course of our business including claims of alleged
infringement of the trademarks, service marks and other intellectual property
rights of third parties by us and the content generated by our members.
Although such claims have not resulted in any significant litigation or had a
material adverse effect on our business to date, such claims and any resultant
litigation, should it occur, might subject us to significant liability for
damages. In addition, even if such claims are not meritorious, they could be
time consuming and expensive to defend. Finally, as a result of such claims,
our proprietary rights could be invalidated. Any of the foregoing could result
in the diversion of management time and attention, any of which might have a
material adverse effect on our business, results of operations and financial
condition.

We also rely on certain technology and content that we license from third
parties, including software that is integrated with our internally developed
software and used in our products and Web site, to perform key functions.
Although we are generally indemnified against claims that such third-party
technology or content

11
<PAGE>

infringes the proprietary rights of others, such indemnification is not always
available for all types of intellectual property rights (for example, patents
may be excluded), and in some cases the scope of such indemnification is
limited. Even if we receive broad indemnification, third-party indemnitors are
not always well capitalized and may not be able to indemnify us in the event of
infringement, resulting in substantial exposure to us.

Infringement or invalidity claims arising from the incorporation of third-
party technology or content, and claims for indemnification from our customers
resulting from such claims, may be asserted or prosecuted against us. As a
result of such claims, even if not meritorious, we could incur expenditures of
significant financial and managerial resources in addition to potential product
redevelopment costs and delays, all of which could materially and adversely
affect our business, financial condition and results of operations. See
"Business--Proprietary Rights."

We will need to manage our expanding business effectively

We have experienced and may continue to experience rapid growth, which has
placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. We are required to manage multiple
relationships with various strategic partners, technology licensors, members,
POP.X licensees, advertisers and other third parties.

These requirements will be exacerbated in the event of our further growth or
in the number of third-party relationships, and we cannot be certain that our
systems, procedures or controls will be adequate to support our operations or
that our management will be able to manage any growth effectively. To
effectively manage our potential growth, we must continue to implement and
improve our operational, financial and management information systems and to
expand, train and manage our employee base. As of December 31, 1998, we had
grown to 111 full-time employees from 97 as of December 31, 1997, and we
anticipate that the number of our employees will increase significantly in the
next 12 months.

We depend on certain key personnel

Our performance is substantially dependent on the performance of our senior
management and other key employees. Three members of the management team have
only been employed by us for less than three months. We do not currently have
"key person" life insurance policies on any of our employees. The loss of the
services of any of our executive officers or other key employees could have a
material adverse effect on the business, results of operations and financial
condition. Competition for senior management, experienced media sales and
marketing personnel, software developers, qualified engineers and other
employees is intense, and we cannot be certain that we will be successful in
attracting and retaining such personnel.

We have experienced difficulty from time to time in hiring and retaining the
personnel necessary to support the growth of our business, and we may
experience similar difficulty in the future. Our failure to successfully manage
our personnel requirements would have a material adverse effect on our
business, results of operations and financial condition.

We will face risks if we make acquisitions

As part of our business strategy, we review acquisition prospects that would
complement our existing business or enhance our technological capabilities.
Although we do not currently have any agreement with respect to any material
acquisitions, we may make acquisitions of complementary businesses, products or
technologies in the future. However, we may not be able to locate suitable
acquisition opportunities. Future acquisitions by us could result in
potentially dilutive issuances of equity securities, large and immediate write-
offs, the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
materially and adversely affect our results of operations.

12
<PAGE>

Furthermore, acquisitions entail numerous risks and uncertainties, including
difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies, diversion of
management's attention from other business concerns, risks of entering
geographic and business markets in which we have no or limited prior
experience and potential loss of key employees of acquired organizations.
Except for our acquisition of Catapult, we have not made any material
acquisitions in the past. We cannot be certain that we would be able to
successfully integrate any businesses, products, technologies or personnel
that might be acquired in the future, and our failure to do so could have a
material adverse effect on our business, results of operations and financial
condition.

We depend on access to commercial content and must pay for that access

Our future success depends in large part upon our ability to aggregate and
deliver compelling content over the Internet. Although we create some of our
own content such as poker and chess, we also rely on third-party content
providers, such as game developers, for entertaining content. Our ability to
aggregate and deliver compelling content provided by third parties may be
adversely impacted by a number of factors, including the following:

. third-parties may increase the price of the content they provide;

. many of our third-party content providers compete with us for members
and advertising and may decide not to provide us with content;

. our contracts with third-party content providers are usually short-term
and may be canceled by such providers if we do not fulfill our
obligations; and

. our competitors and many of our third-party content providers provide
content that is similar or the same as our content and may do so at a
lower cost.

If we fail to aggregate and deliver compelling third-party content to our
users, Web traffic to our site might decrease and, as a result, advertising
revenue might decrease. This could have a material adverse effect on our
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

System failure may cause interruption of our services

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

Our disk storage is configured to survive multiple drive failures without
data loss. To ensure backup and restoration of all production data, our system
is comprised of several dedicated servers and tape libraries that have the
capacity to backup the Mpath live communities sites every 24 hours. We rotate
backup media into offsite archives to ensure data integrity should
catastrophic events occur onsite.

There is much legal uncertainty regarding regulating the activities conducted
on the Internet

We are not currently subject to direct regulation by any governmental
agency, other than laws and regulations generally applicable to businesses,
although certain U.S. export controls and import controls of other countries,
including controls on the use of encryption technologies, may apply to our
products. Due to the

13
<PAGE>

increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted in the U.S. and abroad with particular
applicability to the Internet. It is possible that governments will enact
legislation that may be applicable to us in areas such as content, network
security, encryption and the use of key escrow, data and privacy protection,
electronic authentication or "digital" signatures, illegal and harmful content,
access charges and retransmission activities. Moreover, the applicability to
the Internet of existing laws governing issues such as property ownership,
content, taxation, defamation and personal privacy is uncertain. The majority
of such laws were adopted before the widespread use and commercialization of
the Internet and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. Any such export or import
restrictions, new legislation or regulation or governmental enforcement of
existing regulations may limit the growth of the Internet, increase our cost of
doing business or increase our legal exposure. Any of these factors could have
a material adverse effect on our business, financial condition and results of
operations.

We face potential liability for claims based on the nature and content of the
materials that we distribute over the Internet, including claims for
defamation, negligence or copyright, patent or trademark infringement, which
claims have been brought, and sometimes successfully litigated, against
Internet companies. Our general liability insurance may not cover claims of
this type or may not be adequate to indemnify us for any liability that may be
imposed. Any liability not covered by insurance or in excess of insurance
coverage could have a material adverse effect on our business, financial
condition and results of operations.

Legislation over content distributed over the Internet could damage the
growth of the Internet generally and decrease the demand for our products and
services. Although two recently enacted federal laws regulating the content
distributed over the Internet have either been partially struck down or
enjoined, similar laws may be proposed and adopted. Portions of the
Communications Decency Act of 1996, which proposed to impose criminal penalties
on anyone distributing "indecent" material to minors over the Internet, were
held to be unconstitutional by the U.S. Supreme Court. In addition, a federal
judge recently issued a preliminary injunction against the Child Online
Protection Act, a law attempting to protect children from pornography over the
Internet. While we do not distribute the types of materials that these acts
were designed to regulate, the nature of similar legislation and the manner in
which it may be interpreted and enforced cannot be fully determined and,
therefore, such similar legislation could subject us to potential liability,
which in turn could have an adverse effect on our business, financial condition
and results of operations. See "--We rely on our intellectual property and
proprietary rights, and seek to protect our intellectual property and
proprietary rights."

Due to the global nature of the Web, it is possible that, although
transmissions by us over the Internet originate primarily in the State of
California, the governments of other states and foreign countries might attempt
to regulate our transmissions or prosecute us for violations of their laws.
Violations of local laws may be alleged or charged by state or foreign
governments, we may unintentionally violate such laws and such laws may be
modified, or new laws enacted, in the future. Any of the foregoing developments
could have a material adverse effect on our business, results of operations and
financial condition.

We could face liability or regulation of the personal identifying information
obtained from people using
our Web site

The Federal Trade Commission is considering regulation regarding the
collection and use of personal identifying information obtained from
individuals, including children, when accessing Web sites. Such regulation may
include a requirement that companies establish certain procedures to, among
other things:

. give adequate notice to consumers regarding information collection and
disclosure practices;

. provide consumers with the ability to have personal identifying
information deleted from a company's database;

. clearly identify affiliations or a lack thereof with third parties which
may collect information or sponsor activities on a company's Web site;
and

14
<PAGE>

. obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.

While we have implemented or intend to implement programs designed to
enhance the protection of the privacy of our members, including children, we
cannot be certain that such programs will conform with any regulation adopted
by the Federal Trade Commission. Moreover, even in the absence of such
regulation, the Federal Trade Commission has begun investigations into the
privacy practices of companies that collect information on the Internet. One
such investigation has resulted in a consent decree pursuant to which the
Internet company has agreed to establish programs to implement the four
principles noted above. We may become subject to such an investigation, and
the Federal Trade Commission's regulatory and enforcement efforts may
adversely affect the ability to collect demographic and personal information
from members. These developments could have an adverse effect on our ability
to target product offerings and attract advertisers and would have a material
adverse effect on our business, results of operations and financial condition.

In addition, at the international level, the European Union has adopted a
directive that will impose restrictions on the collection and use of personal
data, effective October 1998. Such directive could, among other things, affect
U.S. companies that collect information over the Internet from individuals in
European Union member countries, and may impose restrictions that are more
stringent than current Internet privacy standards in the United States. We
cannot be certain that such directive will not adversely affect the activities
of entities such as us that engage in data collection from users in European
Union member countries.

We are subject to litigation

On September 20, 1996, Mpath, MPCAT Acquisition Corporation (a wholly-owned
subsidiary of Mpath), and Catapult Entertainment, Inc. executed an Agreement
and Plan of Reorganization. The agreement provided for the merger of MPCAT
into Catapult such that Catapult would be the surviving corporation and would
become a wholly-owned subsidiary of Mpath. In addition, Catapult agreed, as
part of the merger agreement, that it would file a voluntary bankruptcy
petition. On October 10, 1996, Catapult filed a voluntary bankruptcy petition
under Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the Northern District of California, San Jose Division.
On November 15, 1996, the Bankruptcy Court entered its order, which approved
the merger between MPCAT and Catapult. At the same time, the Bankruptcy Court
entered a separate order that authorized Catapult to assume two patent
licenses that it had obtained from Steve Perlman prior to filing the
bankruptcy petition. Mr. Perlman objected to the assumption of his licenses by
Catapult, so on November 18, 1996, Mr. Perlman filed an appeal with the United
States District Court for the Northern District of California, San Jose
Division. On August 7, 1997, the District Court affirmed the Bankruptcy Court
decision. On September 8, 1997, Mr. Perlman filed an appeal with the Ninth
Circuit Court of Appeals, and on January 28, 1999, the Ninth Circuit reversed
the Bankruptcy Court and the District Court. The Ninth Circuit held that
Catapult could not assume Mr. Perlman's licenses without Mr. Perlman's
consent. Catapult expects to file a petition for a writ of certiorari with the
United States Supreme Court prior to April 28, 1999.

Mpath has been informed that the current holder of the rights to these
patents is Microsoft. We believe that the technology used by Mpath in its
products and services do not infringe upon these patents. However, if a court
were to rule that our technology did infringe upon these patents we believe we
will be able to work around these patents. Even if we were unable to work
around these patents and were required to remove these portions of our
technology, we do not believe that this would have a material adverse effect
on our business, results of operations, or financial condition.

From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business, including
claims of alleged infringement of third-party trademarks and other
intellectual property rights by us and our licensees. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and could materially and adversely affect our business,
financial condition and results of operations.

15
<PAGE>

We may be vulnerable to unauthorized access, computer viruses and other
disruption problems

Despite the implementation of security measures, our networks may be
vulnerable to unauthorized and illegal access, computer viruses and other
disruptive problems. A party who is able to circumvent security measures could
misappropriate proprietary information or cause interruptions in our Internet
operations. Internet service providers and online service providers have in the
past experienced, and may in the future experience, interruptions in service as
a result of the accidental or intentional actions of Internet users, current
and former employees or others. We may be required to expend significant
capital or other resources to protect against the threat of security breaches
or to alleviate problems caused by such breaches.

Although we intend to continue to implement industry-standard security
measures, we cannot be certain that measures implemented by us will not be
circumvented in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
users accessing our Web sites, which could have a material adverse effect on
our business, results of operations and financial condition.

Our products are new and face rapid technological changes

The market for our products is characterized by:

. rapid technological advances;

. evolving standards in the Internet and software markets;

. changes in customer requirements; and

. frequent new product and service introductions and enhancements.

As a result, our future success depends upon our ability to enhance our
current products and services and to develop and introduce new products and
services that will achieve market acceptance. If we do not adequately respond
to the need to develop and introduce new products or services, then our
business, operating results and financial condition will be adversely affected.

We strive to incorporate new technology into the Mpath live communities and
our Mpath Foundation products for the benefit of our members, visitors,
licensees and advertising and commerce partners. Introducing new technology
into our systems involves numerous technical challenges, substantial amounts of
personnel resources and often times takes many months to complete. We cannot be
certain that we will be successful at integrating such technology into the
Mpath live communities and our Mpath Foundation products on a timely basis. In
addition, such integration may degrade the responsiveness and speed of the
Mpath live communities and our Mpath Foundation products and we cannot be
certain that, once integrated, such technology will function as expected.

Major product enhancements and new products and services often require long
development and testing periods to achieve market acceptance. In addition, our
software products are complex and, despite vigorous testing and quality control
procedures, may contain undetected errors or "bugs" when first introduced or
updated. Any inability to timely deliver quality products and services could
have a material adverse effect on our business, results of operations and
financial condition. See "--We may be sued for product liability claims and our
products may contain defects."

We will increasingly depend on distributors for our Mpath Foundation products
and services

We currently sell the vast majority of our Mpath Foundation products and
services through our internal sales staff. If demand for our products and
services increases, however, we will need to enter into reseller arrangements
with Web development firms, enterprise applications resellers and OEM partners
to distribute our products and technologies. Resellers and OEMs frequently have
exclusive sales territories pursuant to

16
<PAGE>

individually negotiated contracts, which may limit our ability to build and
expand our network of resellers and OEMs. In addition, some resellers and OEMs
may offer products of one or more of our competitors, and they may emphasize
our competitors' products at the expense of our products. If we do not
adequately develop and maintain a network of resellers and OEMs, our business,
results of operations and financial condition could be adversely impacted.

We may be sued for product liability claims and our products may contain
defects

By licensing and supporting our products, we run the risk of product
liability and related claims. Although our license agreements typically contain
provisions that are designed to limit our exposure to such claims, there can be
no assurance that these provisions will be enforceable in all jurisdictions
where we license and service our products. We currently have products liability
insurance coverage in the amount of $6,000,000, which covers claims resulting
from bodily injury or property damage. To the extent that any claims are not
covered by insurance, we may be adversely affected.

In addition, the computer software and hardware environment is characterized
by a wide variety of non-standard configurations that make pre-release testing
for programming or compatibility errors very difficult and time-consuming.
Despite testing by us and by our customers, there can be no assurance that
errors will not be found in new products or enhancements. The occurrence of any
errors in our products could result in adverse publicity, loss of or delay in
market acceptance, or claims by customers against us, any of which could have
an adverse effect upon our business, operating results and financial condition.
See "--Our products are new and face rapid technological changes."

We may require future capital to implement our business plan

We currently anticipate that the net proceeds of the offering, together with
our existing line of credit and available funds will be sufficient to meet our
anticipated needs for working capital and capital expenditures for at least the
next 12 months. We may need to raise additional funds in the future in order to
fund more aggressive brand promotions and more rapid expansion, to develop
newer or enhanced products or services, to fund acquisitions, to respond to
competitive pressures or to acquire complementary businesses, technologies or
services.

If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the rights of our common
stock. We cannot be certain that additional financing will be available on
terms favorable to us, or at all. If adequate funds are not available or not
available on acceptable terms, we may not be able to fund our expansion,
promote our brand names as we desire, take advantage of unanticipated
acquisition opportunities, develop or enhance services or respond to
competitive pressures. Any such inability could have a material adverse effect
on our business, results of operations and financial condition.

We face risks associated with trying to become Year 2000 compliant

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

We are not currently aware of any Year 2000 compliance problems relating to
our technology or our IT or non-IT systems that would have a material adverse
effect on our business, results of operations or financial condition, without
taking into account our efforts to avoid or fix such problems. We may discover
Year 2000 compliance problems in our technology that will require substantial
revisions. In addition, third-party software, hardware or services incorporated
into our material IT and non-IT systems may need to be revised or replaced,

17
<PAGE>

all of which could be time consuming and expensive. If we fail to fix our
technology or to fix or replace third-party software, hardware or services on
a timely basis, the result could be lost revenues, increased operating costs,
the loss of customers and other business interruptions, any of which could
have a material adverse effect on our business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
compliance issues in our technology, and our IT and non-IT systems could
result in claims of mismanagement, misrepresentation or breach of contract and
related litigation, which could be costly and time-consuming to defend. In
addition, there can no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering our products and services
to our customers, decrease the use of the Internet or prevent users from
accessing the Web sites of our strategic partners, which could have a material
adverse effect on our business, results of operations and financial condition.

Officers and directors and their affiliates will continue to have substantial
control over Mpath after the
offering

After completion of this offering, our executive officers and directors and
their affiliates beneficially own approximately % of the shares of common
stock ( % if the underwriters exercise the over-allotment option in full).
As a result, our officers, directors and their affiliates will have the
ability to influence the election of our Board of Directors and the outcome of
corporate actions requiring stockholder approval. Such concentration of
ownership may have the effect of delaying or preventing a change in our
corporate control. See "Principal Stockholders."

There has been no prior market for our common stock and we expect the price of
our common stock to
be volatile

Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering, and the market price might fall below the initial public
offering price. The initial public offering price may bear no relationship to
the price at which the common stock will trade upon completion of this
offering. The initial public offering price will be determined based on
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance. The market
price of the common stock may fluctuate significantly in response to a number
of factors, some which are beyond our control, including:

. quarterly variations in operating results;

. changes in financial estimates by securities analysts;

. changes in market valuation of software and Internet companies;

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

. loss of a major customer or failure to complete significant license
transactions;

. additions or departures of key personnel;

. any shortfall in revenue or net income or any increase in losses from
levels expected by securities analysts;

. future sales of common stock; and

. stock market price and volume fluctuations, which are particularly
common among highly volatile securities of Internet and software
companies.

18
<PAGE>

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business, operating results and financial condition.

We have broad discretion in how we use the proceeds from this offering

Our management can spend most of the proceeds from this offering in ways with
which the stockholders may not agree. See "How We Intend to Use the Proceeds
from this Offering."

We may have substantial sales of our common stock after the offering

Sales of a substantial number of shares of common stock after the offering
could adversely affect the market price of the common stock and could impair
our ability to raise capital through the sale of additional equity securities.
On completion of this offering, we will have shares of common stock
outstanding or subject to currently exercisable options ( shares if the
Underwriters over-allotment option is exercised in full). The shares sold
in this offering ( shares if the Underwriter's over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Federal securities laws unless purchased by "affiliates"
of Mpath as that term is defined in Rule 144. The remaining 17,831,239 shares
of common stock outstanding on completion of the offering will be "restricted
securities" as that term is defined in Rule 144.

Our stock and option holders are subject to lock-up agreements that limit
their ability to sell common stock. These securityholders cannot sell or
otherwise dispose of any shares of common stock for a period of at least 180
days after the date of this prospectus without the prior written approval of
BancBoston Robertson Stephens. When the lock-up agreements expire, these shares
and the shares underlying the options will become eligible for sale, in some
cases only pursuant to the volume, manner of sale and notice requirements of
Rule 144. See "Management 1995 Stock Option/Stock Issuance Plan."

Certain provisions of our charter documents may have anti-takeover effects

Certain provisions of our Amended and Restated Certificate of Incorporation
and bylaws could make it more difficult for a third party to acquire us, even
if a change of control would be beneficial to our stockholders. For more
information, see "Description of Capital Stock."

New investors will suffer immediate substantial dilution

The initial public offering price is expected to be substantially higher than
the book value per share of the outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution. In addition, we have issued options to acquire common
stock at prices significantly below the initial public offering price. To the
extent such outstanding options are ultimately exercised, there will be further
dilution to investors in this offering. See "Dilution."

19
<PAGE>

HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING

Our net proceeds from the sale of the shares of common stock we are
offering are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full) assuming an offering
price of $ per share and after deducting the underwriting discount and
commissions. We currently expect to use the net proceeds primarily for working
capital and general corporate purposes, funding product development and
expanding our sales and marketing organization. In addition, we may use a
portion of the net proceeds for further development of our product lines
through acquisitions of products, technologies and businesses. Accordingly,
although we have no present commitments or agreements with respect to any such
acquisitions, management will have significant discretion in applying the net
proceeds of this offering. Pending such uses, we will invest the net proceeds
in short-term, investment grade, interest-bearing securities.

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock or
preferred stock and anticipate that all future earnings, if any, will be
retained for development of its business. The payment of dividends will be at
the discretion of our Board of Directors and will depend upon, among other
things, future earnings, capital requirements, the financial condition of
Mpath, and general business conditions.

20
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of Mpath (1) at December
31, 1998; (2) on a pro forma basis to show the effect of the conversion into
common stock of all outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and
Series D Preferred Stock on the closing of the offering, the issuance of and
subsequent conversion of 3,035,306 shares of Series E Preferred Stock into
common stock and the issuance of 77,422 shares of common stock reflecting the
exercise and subsequent conversion of a Series E Preferred Stock warrant at an
exercise price of $6.60 per share on the closing of the offering; and (3) on a
pro forma as adjusted basis to show the effect of the sale by Mpath of
shares of common stock offered hereby at an assumed public offering price of
$ per share (after deducting the underwriting discount and estimated
expenses of the offering). See "How We Intend to Use the Proceeds from this
Offering" and notes to our consolidated financial statements. The information
set forth below is unaudited and should be read in conjunction with Mpath's
consolidated financial statements and notes thereto.

<TABLE>
<CAPTION>
December 31, 1998
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long term notes payable, less current portion.. $ 1,864 $ 1,864 326
Long term capital lease obligations, less
current portion............................... 326 326
Stockholders' equity (deficit):
Preferred stock, $0.00005 par value;
16,294,986 shares authorized actual,
10,416,615 shares issued and outstanding,
actual; 2,000,000 shares authorized, no
shares issued or outstanding pro forma and
pro forma as adjusted...................... 1 --
Common stock warrants........................ 2 2
Common stock, $0.00005 par value, 25,000,000
shares authorized actual, 50,000,000 shares
authorized pro forma and pro forma as
adjusted; 3,834,815 shares issued and
outstanding actual; 17,364,158 shares
issued and outstanding pro forma(1);
shares issued and outstanding pro forma as
adjusted (2)............................... -- 1
Additional paid in capital................... 49,655 70,199
Notes receivable from stockholders........... (1,020) (1,020)
Accumulated deficit.......................... (52,986) (52,986)
-------- -------- ---
Total stockholders' equity (deficit)....... (4,348) 16,196
-------- -------- ---
Total capitalization..................... $ (2,158) $ 18,386
======== ======== ===
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1998. Includes
the conversion of 10,416,615 shares of preferred stock outstanding at
December 31, 1998 and the conversion of 3,035,306 shares of preferred stock
we sold to certain investors in January 1999. Also includes the exercise of
warrants for 77,422 shares of Series E Preferred Stock issued in January
1999 and assumed to be exercised immediately before completion of this
offering. Excludes (a) shares issuable upon conversion of a promissory note
in the principal amount of $1,864,000 that is convertible upon a sale of us
or this offering, (b) 1,673,410 shares subject to outstanding options under
our 1995 Stock Option/Stock Issuance Plan, (c) 1,986,282 shares subject to
outstanding warrants, (d) 2,500,000 shares reserved for issuance under our
1999 Stock Incentive Plan, (e) 300,000 shares reserved for issuance under
our 1999 Directors' Stock Option Plan and (f) 750,000 shares reserved for
issuance under our 1999 Employee Stock Purchase Plan. See "Management--
Stock Plans" and the notes to our consolidated financial statements.
(2) Adjusted for the effect of the sale of shares of common stock hereby
offered at an assumed public offering price of $ per share after
deducting the underwriting discount and estimated expenses of the offering.

21
<PAGE>

DILUTION

Mpath's pro forma net tangible book value as of December 31, 1998 was
approximately $ or $ per share of common stock. "Net tangible book value"
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities and divided by the total number of shares of
common stock outstanding, as adjusted to show the effect of the conversion into
common stock of all outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and
Series D Preferred Stock on the closing of the offering, the issuance of and
subsequent conversion of 3,035,306 shares of Series E Preferred Stock into
common stock the repayment of $1,500,000 in notes payable upon the sale of the
Series E Preferred Stock, and the issuance of 77,422 shares of common stock
reflecting the exercise and subsequent conversion of a warrant to purchase
Series E Preferred Stock at an exercise price of $6.60 per share on the closing
of the offering. After giving effect to the sale of the shares of common
stock offered by us at an assumed initial public offering price of $ per
share, and the adjustments set forth above, our pro forma net tangible book
value as of December 31, 1998 would have been $ or $ per share of common
stock. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share before the
offering................................................... $(0.25)
Increase attributable to new investors.......................
------
Pro forma net tangible book value after the offering..........
--------
Dilution per share to new investors........................... $
========
</TABLE>

The following table summarizes on a pro forma basis, as of December 31, 1998,
the differences between the existing stockholders, as adjusted, and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid to us, and the average price per share paid.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 17,364,158 % $67,754,000 % $
New investors.............
---------- ----- ----------- -----
Totals.................. 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>

The information presented with respect to existing stockholders assumes no
exercise of warrants to purchase 1,986,282 shares that were outstanding on
February 11, 1999 and no exercise of outstanding options under the 1995 Stock
Option/Stock Issuance Plan. As of February 11, 1999, options to purchase
1,673,410 shares were outstanding under our 1995 Stock Option/Stock Issuance
Plan; 124,694 shares are reserved for issuance upon exercise of options that
may be granted subsequent to February 11, 1999 under the 1995 Stock
Option/Stock Issuance Plan; 2,500,000 shares are reserved for issuance under
our 1999 Stock Incentive Plan; 300,000 shares are reserved for issuance upon
exercise of options that may be granted under the 1999 Directors' Stock Option
Plan; and 750,000 shares are reserved for issuance under the 1999 Employee
Stock Purchase Plan. The issuance of common stock under these plans will result
in further dilution to new investors. These figures also include 3,035,306
shares of preferred stock (which will be converted into 3,035,306 shares of
common stock upon the closing of this offering) and the exercise and subsequent
conversion into common stock of a warrant to purchase 77,422 shares of
preferred stock issued after December 31, 1998 in a private placement to
certain investors. See "Management--Stock Plans," "Certain Relationships and
Related Transactions" and the notes to our consolidated financial statements.

22
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this prospectus. The
consolidated statements of operations data for the years ended December 31,
1996, 1997 and 1998, and the consolidated balance sheet data at December 31,
1997 and 1998, are derived from audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statement of operations
data for the period from inception to December 31, 1995 and the consolidated
balance sheet data as of December 31, 1995 and 1996 are derived from audited
financial statements not included in this prospectus.

<TABLE>
<CAPTION>
Period from
January 9,
1995
(inception) to Year Ended December 31,
December 31, ---------------------------------
1995 1996 1997 1998
-------------- -------- -------------- --------
Statement of operations Data (in thousands, except for per share data)
<S> <C> <C> <C> <C>
Net revenues:
Live Communities................ $ -- $ 12 $ 686 $ 3,022
Foundation...................... -- 112 2,041 5,005
------- -------- -------- --------
Total revenue.................. -- 124 2,727 8,027
Cost of net revenues:
Live Communities................ -- 35 1,808 2,221
Foundation...................... -- 90 620 790
------- -------- -------- --------
Total cost of revenues......... -- 125 2,428 3,011
------- -------- -------- --------
Gross profit (loss).......... -- (1) 299 5,016
Operating expenses:
Research and development........ 1,502 5,261 2,436 3,132
Sales and marketing............. 171 3,937 6,906 7,847
General and administrative...... 746 2,877 2,841 3,274
Stock based compensation........ 34 377 1,669 2,595
Write-off of acquired
intangibles.................... -- 12,876 -- --
------- -------- -------- --------
Total operating expenses....... 2,453 25,328 13,852 16,848
------- -------- -------- --------
Loss from operations............. (2,453) (25,329) (13,553) (11,832)
Interest and other income
(expense), net................. 99 291 (93) (111)
------- -------- -------- --------
Loss before provision for income
taxes........................... (2,354) (25,038) (13,646) (11,943)
Provision for income taxes...... (1) (1) (2) (2)
------- -------- -------- --------
Net loss......................... $(2,355) $(25,039) $(13,648) $(11,945)
======= ======== ======== ========
Basic and diluted net loss per
share........................... $ (2.53) $ (11.40) $ (5.34) $ (3.99)
Weighted average shares
outstanding used in basic and
diluted net loss per-share
calculation..................... 932 2,196 2,556 2,992
<CAPTION>
December 31,
------------------------------------------------
1995 1996 1997 1998
-------------- -------- -------------- --------
<S> <C> <C> <C> <C>
Balance Sheet Data: (in thousands)
Cash and cash equivalents........ 3,548 $ 5,511 $ 9,132 $ 1,114
Working capital (deficit)........ 3,169 4,006 7,580 (2,067)
Total assets..................... 4,333 8,142 12,356 6,177
Long term notes payable.......... -- 2,756 1,864 1,864
Stockholders' equity (deficit)... 3,548 2,364 5,138 (4,348)
<CAPTION>
December 31,
---------------------------------
1996 1997 1998
-------- -------------- --------
Selected Non-Financial Data: (in thousands)
<S> <C> <C> <C> <C>
Total registered users........................ -- 317 2,340
Total user minutes per month.................. -- 45,917 181,341
</TABLE>

23
<PAGE>

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

Except for the historical information contained herein, the discussion in
this prospectus contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, that involve risks and
uncertainties. Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed below, as well as those discussed elsewhere
in this prospectus. The following discussion should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this prospectus.

Overview

Mpath develops, licenses and operates technologies that enable Internet sites
to create and manage live communities characterized by real-time interaction
among multiple simultaneous users. We were incorporated and commenced
operations in January 1995. From inception through September 1996, our
activities primarily consisted of recruiting employees and raising capital,
performing product and technology development, engaging in marketing activities
and negotiating strategic relationships. In November 1995, we entered into an
agreement with PSINet, Inc. for the deployment of a low-latency network, which
provided a platform for launching and operating the Mplayer.com service.
Testing of the Mplayer.com service began in February 1996 and the service was
launched commercially in October 1996. In April 1996, we licensed our live
community software and network services to SegaSoft Networks, Inc., which
occurred concurrently with an equity investment by affiliates of SegaSoft's
parent, CSK Corporation. In November 1996, we acquired Catapult Entertainment,
Inc., in order to acquire its enabling network technology. In January 1999, we
launched HearMe.com, our second live community service. During the period from
January 1995 to December 31, 1998, we raised gross proceeds of approximately
$34.9 million from the sale of equity securities to venture capital investors
and strategic partners. In January 1999, we raised an additional $20.0 million
from the sale of equity securities to venture capital investors and strategic
partners. The proceeds from these financings have primarily been used to
finance our research and development and the sales and marketing of our
products and services. In addition, we also issued 868,254 shares of Series C
Preferred Stock in our acquisition of Catapult.

We generate our revenues from two business units, Live Communities and Mpath
Foundation. With respect to Live Communities, we derive the substantial
majority of revenues from advertising fees. While the Mplayer.com and the
HearMe.com services are free to all registered members, users may also pay
subscription fees to us in exchange for access to premium services such as
special events, rankings and ratings, contests, magazine subscriptions, special
features and exclusive games. We also have a subscription plan that allows the
members to purchase a year's subscription up front at a discounted rate.
Additionally, we have begun to derive revenues from e-commerce activities,
including fees from special event promotions and merchandise sales. Advertising
revenue is recognized ratably over the term of each particular advertising
agreement. E-commerce revenue is recognized when notification of shipment has
taken place and the revenue has been earned. With respect to Mpath Foundation,
we derive revenues from licensing fees for our technology and related services.
We also derive incremental Mpath Foundation revenues from service, maintenance
and upgrade fees, which represent a significant source of recurring revenues
each year. Monthly service revenues are recognized over the period in which
services are provided. Development revenue is recognized at the time services
are completed or as development milestones are achieved. License revenue is
recognized in the period earned. Deferred revenue consists primarily of monthly
service revenue billed and paid in advance.

Since we launched our first Live Community service in October 1996 and began
negotiating certain license agreements through the Mpath Foundation business
unit, we have generated $10.9 million in revenues through December 31, 1998.
For the period from inception to December 31, 1998 we have incurred a
cumulative net loss of $53.0 million, of which $14.5 million came from a one-
time write-off of goodwill and in-process research and development expenses
associated with our acquisition of Catapult.

24
<PAGE>

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

Mpath's operating expenses consist of sales and marketing expenses, research
and development expenses and general and administrative expenses. Sales and
marketing expenses consist principally of salaries paid to employees in sales
and marketing activities, advertising and promotional materials, public
relations costs and travel. Research and development expenses consist
principally of salaries and compensation paid to employees and consultants
engaged in research and development activities and product testing. General and
administrative expenses consist principally of salaries and compensation paid
to employees and consultants engaged in activities other than sales and
marketing and research and development, facilities and related depreciation,
in-house and outside legal and accounting fees and related costs, and travel.
All operating costs are expensed as incurred.

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

Results of Operations

The following table presents Mpath's statement of operations data for the
periods indicated as a percentage of total revenues.

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net revenues:
Live Communities................................ 9.7 % 25.2 % 37.6 %
Foundation...................................... 90.3 74.8 62.4
------- ------- -------
Total revenues................................ 100.0 100.0 100.0
Cost of net revenues:
Live Communities................................ 28.2 66.3 27.7
Foundation...................................... 72.6 22.7 9.8
------- ------- -------
Total cost of revenues........................ 100.8 89.0 37.5
------- ------- -------
Gross profit (loss).......................... (0.8) 11.0 62.5

Operating expenses:
Research and development........................ 42.4 89.3 39.0
Sales and marketing............................. 31.7 253.2 97.8
General and administrative...................... 23.2 104.2 40.8
Stock compensation.............................. .3 61.2 32.3
Write-off of acquired intangibles............... 103.7 -- --
------- ------- -------
Total operating expenses...................... 201.3 507.9 209.9
------- ------- -------
Loss from operations.............................. (201.3) (496.9) (147.4)
Interest and other income(expense), net......... 2.3 (3.4) (1.4)
------- ------- -------
Loss before provision for income tax.............. (199.0)% (500.3) (148.8)
Provision for income taxes...................... -- -- --
------- ------- -------
Net loss.......................................... (199.0)% (500.3)% (148.8)%
======= ======= =======
</TABLE>

25
<PAGE>

Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997

Revenues. Net revenues increased 194.3% from approximately $2.7 million for
the year ended December 31, 1997 to approximately $8.0 million for the year
ended December 31, 1998. Net revenues from Live Communities increased from
$686,000 to $3.0 million. This increase was primarily driven by growth in
advertising revenues associated with an expanding number of advertisers and the
growth of traffic and usage time in our live communities. Net revenues from
Mpath Foundation increased from $2.0 million for the year ended December 31,
1997 to approximately $5.0 million for the year ended December 31, 1998. This
increase was primarily attributable to the successful development and release
of our POP.X technology, an increase in the number of Mpath Foundation
customers and the related increase in license revenues.

Cost of revenues. Cost of revenues increased 24.0% from approximately $2.4
million, or 89.0% of net revenues, for the year ended December 31, 1997 to
approximately $3.0 million, or 37.5% of net revenues, for the year ended
December 31, 1998. Cost of revenues declined as a percentage of net revenues
primarily due to the substantial increase in net revenues between 1997 and
1998. Cost of revenues for Live Communities increased from approximately
$1.8 million for the year ended December 31, 1997 to approximately $2.2 million
for the year ended December 31, 1998. This increase was primarily due to server
and network costs associated with the growth of the Live Communities business
unit and royalties paid to third-party content providers. Cost of revenues for
Mpath Foundation increased from approximately $620,000 for the year ended
December 31, 1997 to approximately $790,000 for the year ended December 31,
1998. The increase was attributable to connectivity and server costs associated
with services provided to Mpath Foundation customers.

Research and development. Research and development expenses increased 28.6%
from approximately $2.4 million, or 89.3% of net revenues, for the year ended
December 31, 1997 to approximately $3.1 million, or 39.0% or net revenues, for
the year ended December 31, 1998. Research and development expenses declined as
a percentage of net revenues primarily because of the substantial increase in
net revenues between 1997 and 1998. The increase in research and development
expenses was primarily due to an increase of salary expense in 1998 as
additional engineers were hired to support the Mpath Foundation development of
the POP.X technology and to additional equipment and software expenditures
associated with the increased headcount.

Sales and marketing. Sales and marketing expenses increased 13.6% from
approximately $6.9 million, or 253.2% of net revenues, for the year ended
December 31, 1997, to approximately $7.8 million, or 97.8% of net revenues, for
the year ended December 31, 1998. Sales and marketing expenses decreased as a
percentage of net revenues primarily because of the substantial increase in net
revenues between 1997 and 1998. The increase in sales and marketing expenses
was primarily due to an increase in additional salary expense related to
expanding our sales force in order to grow advertising revenues in our Live
Communities business unit, offset by decreases in other costs associated with
marketing and public relations expenses as well as decreased depreciation of
the assets acquired from Catapult.

General and administrative. General and administrative costs increased 15.2%
from approximately $2.8 million, or 104.2% of net revenues, for the year ended
December 31, 1997 to approximately $3.3 million, or 40.8% of net revenues, for
the year ended December 31, 1998. General and administrative costs decreased as
a percentage of net revenues primarily because of the substantial increase in
net revenues between 1997 and 1998. These increases were primarily due to
salary increases in the operations support area, patent filings and legal
expenses associated with general corporate matters.

Stock based compensation. Stock based compensation costs increased from
approximately $1.7 million in the year ended December 31, 1997 to approximately
$2.6 million or 32.3% of net revenues in the year ended December 31, 1998. The
increase relates to an increase in employees as well as the fair market value
of the Company's common stock.

Interest and other income (expense), net. Interest and other income
(expense), net includes interest expense primarily related to lease and debt
obligations and interest income earned on short-term investment of cash.

Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996

Revenues. Net revenues increased from approximately $124,000 in the year
ended December 31, 1996 to approximately $2.7 million in the year ended
December 31, 1997. Net revenues from Live Communities

26
<PAGE>

increased from approximately $12,000 for the year ended December 31, 1996 to
approximately $686,000 for the year ended December 31, 1997. This increase was
primarily attributable to an increase in advertising revenues associated with
the launch of the Mplayer.com service in October 1996. Net revenues from Mpath
Foundation increased from approximately $112,000 for the year ended December
31, 1996 to approximately $2.0 million for the year ended December 31, 1997.
This increase was primarily attributable to license revenues generated by
relationships with key Mpath Foundation customers.

Cost of revenues. Cost of revenues increased from approximately $125,000 in
the year ended December 31, 1996 to approximately $2.4 million, or 89.0% of net
revenues, in the year ended December 31, 1997. Cost of revenues for Live
Communities increased from approximately $35,000 for the year ended December
31, 1996 to approximately $1.8 million for the year ended December 31, 1997.
This increase was primarily due to server and network costs associated with the
Live Communities services, royalties to third-party content providers and
Internet service provider access charges. Cost of revenues for Mpath Foundation
increased from approximately $90,000 for the year ended December 31, 1996 to
approximately $620,000 for the year ended December 31, 1997. This increase was
primarily due to an increase in server and network costs necessary to support
Mpath Foundation customers.

Research and development. Research and development expenses decreased from
approximately $5.3 million in the year ended December 31, 1996 to approximately
$2.4 million, or 89.3% of net revenues, in the year ended December 31, 1997.
This decrease was primarily due to $1.6 million in-process research and
development expense associated with the acquisition of Catapult in November
1996. The remaining decrease was primarily associated with reduced cost in
consulting fees and software support fees, which were required during the
development of Mplayer.com client and server software in 1996. These decreases
were offset by an increase of salary expense in 1997 as additional engineers
were hired to support the Mpath Foundation contracts.

Sales and marketing. Sales and marketing costs increased from approximately
$3.9 million in the year ended December 31, 1996 to approximately $6.9 million,
or 253.2% of net revenues, in the year ended December 31, 1997. This increase
was primarily due to additional salary expense, depreciation for Catapult
assets and outside consulting. This increase was partially offset by decreases
in the costs associated with member acquisition, branding, product development
and public relations. We were able to make these expense reductions in 1997, as
Mplayer.com went from a primarily subscription-based model to an advertising-
based model.

General and administrative. General and administrative costs decreased from
approximately $2.9 million in the year ended December 31, 1996 to approximately
$2.8 million, or 104.2% of net revenues, in the year ended December 31, 1997.
Expenditures are primarily for salary, patent filings and legal expenses
associated with general corporate matters.

Write-off of acquired intangibles. The write-off of acquired intangibles is
associated with the November 1996 acquisition of Catapult. We acquired all of
the assets and assumed the liabilities of Catapult as part of a Chapter 11 Plan
of Reorganization under the United States Bankruptcy Code. The acquisition was
accounted for as a purchase. The purchase price, including liabilities assumed,
in excess of the fair value of assets acquired was allocated to in-process
research and development of $1.6 million, which was immediately expensed as
research and development expenses, and goodwill of $12.9 million. The goodwill
was originally assigned a two-year life but was written off in December 1996
due to a change in our business strategy relating to the use of the technology
and business acquired from Catapult. As a result of this change in strategy,
the Company determined that it had no use for and that there would be no future
cash flows from the Catapult assets.

Interest and other income (expenses), net. Interest and other income
(expenses), net includes interest expense primarily related to lease and debt
obligations and interest income earned on short-term investment of cash.

Stock compensation. Stock compensation costs increased from approximately
$377,000 in the year ended December 31, 1996 to approximately $1.7 million or
61.2% of net revenues in the year ended December 31, 1997. The increase relates
to an increase in employees as well as the fair market value of the Company's
common stock.

27
<PAGE>

Quarterly Results of Operations

The following tables set forth certain unaudited consolidated statements of
operations data for the eight quarters ended December 31, 1998, as well as the
percentage of our revenues represented by each item. This data has been derived
from unaudited interim consolidated financial statements prepared on the same
basis as our audited consolidated financial statements contained in this
prospectus and, in our opinion, include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair
presentation of such information when read in conjunction with our consolidated
financial statements and the notes thereto appearing elsewhere in this
prospectus. Our operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of our control. See
"Risk Factors--The unpredictability of our quarterly results may adversely
affect the trading price of our common stock," for a list of factors affecting
our quarterly operating results. In addition, our quarterly results may be
adversely impacted by the long sales cycle for our Mpath Foundation products
and services. See "Risk Factors--The sales cycle for our Mpath Foundation
products and services is long."

<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands, except as a percentage of net revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of operations:
Net revenues:
Live Communities....... $ 120 $ 176 $ 145 $ 245 $ 317 $ 393 $ 931 $ 1,381
Foundation............. 171 344 449 1,077 1,134 1,103 1,287 1,481
-------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 291 520 594 1,322 1,451 1,496 2,218 2,862
Cost of net revenues:
Live Communities....... 235 475 508 590 584 567 463 607
Foundation............. 203 121 153 143 192 190 210 198
-------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues............. 438 596 661 733 776 757 673 805
-------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).... (147) (76) (67) 589 675 739 1,545 2,057
Operating expenses:
Research and
development........... 665 597 551 623 779 767 779 807
Sales and marketing.... 2,155 1,468 1,630 1,653 1,852 1,896 2,058 2,041
General and
administrative........ 789 616 766 670 767 820 785 902
Stock based
eompensation.......... 417 417 417 418 649 649 649 648
-------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 4,026 3,098 3,364 3,364 4,047 4,132 4,271 4,398
-------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (4,173) (3,174) (3,431) (2,775) (3,372) (3,393) (2,726) (2,341)
Interest and other
income (expense), net.. (41) (82) 19 11 (15) 146 (87) (155)
-------- ------- ------- ------- ------- ------- ------- -------
Loss before provision
for income taxes....... (4,214) (3,256) (3,412) (2,764) (3,387) (3,247) (2,813) (2,496)
Provision for income
taxes.................. -- -- -- (2) -- -- -- (2)
-------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $ (4,214) $(3,256) $(3,412) $(2,766) $(3,387) $(3,247) $(2,813) $(2,498)
======== ======= ======= ======= ======= ======= ======= =======
As a percentage of net
revenues:
Net revenues........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....... 150.8 111.3 109.8 53.2 53.5 50.6 30.4 28.1
-------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)... (50.8) (11.3) (9.8) 46.8 46.5 49.4 69.6 71.9
Operating expenses:
Research and
development........... 228.9 114.6 92.7 47.2 53.7 51.3 35.1 28.2
Sales and marketing.... 741.6 284.9 275.8 127.3 127.6 126.7 92.8 71.3
General and
administrative........ 271.6 118.3 129.0 50.6 52.9 54.8 35.4 31.5
Stock based
compensation.......... 143.5 80.2 70.2 31.6 44.7 43.4 29.3 22.6
-------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 1.385.6 598.0 567.7 256.8 278.9 276.2 192.6 153.6
-------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,436.4) (609.3) (577.5) (210.0) (232.4) (226.8) (123.0) (81.7)
Interest and other
income (expense), net.. (14.1) (15.7) 57.5 .7 (1.0) 9.7 (3.9) (2.3)
-------- ------- ------- ------- ------- ------- ------- -------
Loss before provision
for income taxes....... (1,422.3) (593.6) (520.0) (210.6) (231.4) (236.5) (119.1) (84.0)
Provision for income
taxes.................. -- -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- -------
Net loss................ (1,422.3)% (593.6)% (520.0)% (210.6)% (231.4)% (236.5)% (119.1)% (84.0)%
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>

28
<PAGE>

As a strategic response to changes in the competitive environment, we may
from time to time make certain pricing, service or marketing decisions or
business combinations that could have a material adverse effect on our
business, results of operations and financial condition. In order to accelerate
the promotion of the Mplayer.com and HearMe.com brands, we intend to
significantly increase their marketing budgets. A substantial increase in
marketing expenditures will have a negative impact on our results of operations
for a number of quarterly periods.

As a result of our limited operating history, we have limited meaningful
historical financial data upon which to base planned operating expenses.
Accordingly, our expense levels are based in part on our expectations as to
future revenues from advertising, software licensing, commerce revenue-sharing
arrangements, premium membership service fees and our anticipated growth in
membership. There can be no assurance that we will be able to accurately
predict our revenues, particularly in light of the intense competition for the
sale of Web-based advertisements, revenue-sharing opportunities and new
members, our limited operating history and the uncertainty as to the broad
acceptance of the Web as an advertising and commerce medium. Any failure by us
to accurately predict revenues in relation to fixed-expense levels could have a
material adverse effect on our business, results of operations and financial
condition.

Liquidity and Capital Resources

We have generated limited revenues from operations to date. Since our
inception, we have financed our operations primarily through the private sale
of equity securities and, to a lesser extent, capitalized leases and bank
borrowings. As of December 31, 1998, we had raised approximately $34.9 million
from the issuance of preferred stock which does not include an additional $20.0
million we raised from the issuance of preferred stock in January 1999. We had
also drawn down approximately $2.5 million from a $4.0 million financing
agreement. As of December 31, 1998, we had approximately $1.1 million of cash
and cash equivalents, which does not include an additional $20.0 million we
raised from the issuance of preferred stock in January 1999.

Net cash used in operating activities was $9.4 million, $11.1 million and
$9.3 million in fiscal 1996, 1997 and 1998, respectively. For such periods, net
cash used by operating activities was primarily a result of funding ongoing
operations.

Net cash used in investing activities was $3.8 million, $1.0 million and
$719,000 in fiscal 1996, 1997 and 1998, respectively. Cash used in investing
activities in each period was primarily related to purchases of property and
equipment, except for fiscal 1996, when $2.4 million was used as payment for
the Catapult acquisition.

Net cash provided by financing activities of $15.1 million, $15.7 million and
$2.0 million in fiscal 1996, 1997 and 1998, respectively, was primarily
attributable in each period to net proceeds from the issuance of preferred
stock and notes payable. We have funded our operations primarily by capital
contributed by investors in five rounds of private financing. The first round,
completed in January 1995, raised approximately $1.4 million through the sale
of Series A Preferred Stock. The second round, completed between August 1995
and January 1996, raised approximately $4.5 million through the sale of Series
B Preferred Stock. The third round, completed between April 1996 and January
1997, raised approximately $15.4 million through the sale of Series C Preferred
Stock. The fourth round completed between July 1997 and August 1997, raised a
total of approximately $16.8 million, through the sale of Series D Preferred
Stock. Of the $16.8 million raised with Series D Preferred Stock, approximately
$14.9 million was cash and $1.8 million was through conversion of a promissory
note and Series C Preferred Stock. In January 1999, we completed a fifth round
in which we raised a total of approximately $20.0 million through the sale of
Series E Preferred Stock.

In 1995, we entered into a capital lease agreement with Lighthouse Capital
and have drawn down all available funds of approximately $1.5 million. We
entered into a $4.0 million financing agreement in July 1998. The agreement
consisted of a term loan for $1.5 million, an accounts receivable revolving
line of credit for $1.5 million and a capital equipment loan of $1.0 million.
Amounts borrowed under these agreements

29
<PAGE>

are collateralized by substantially all our assets. As of December 31, 1998 we
had drawn down $1.5 million against the term loan agreement and approximately
$1.0 million against the capital equipment agreement. We fully repaid the term
loan with a portion of the net proceeds from the sale of our Series E Preferred
Stock in January 1999.

In November 1996, we acquired all of the assets and assumed the liabilities
of Catapult as part of a Chapter 11 Plan of Reorganization under the United
States Bankruptcy Code. The total acquisition cost was approximately $11.8
million, which consisted of (1) cash payments of approximately $2.4 million,
including approximately $549,000 paid to fund Catapult's unsecured creditor
payments; (2) shares of Series C Preferred Stock, and (3) legal and accounting
costs of approximately $367,000. Net liabilities in excess of assets assumed by
Mpath amounted to approximately $2.6 million.

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

Year 2000 Compliance

State of Readiness. We have made a preliminary assessment of the Year 2000
readiness of our information technology ("IT") systems, including the hardware
and software that enable us to provide and deliver our products and services.
Our assessment plan consists of:

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

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

. contacting vendors of material non-IT systems;

. assessment of repair or replacement requirements;

. repair or replacement;

. implementation; and

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

We plan to perform a Year 2000 simulation on our technology during the third
quarter of 1999 to test system readiness. Based on the results of our Year 2000
simulation test, we intend to revise the code of our technology as necessary to
improve its Year 2000 compliance. We have been informed by many of our hardware
and software component vendors that the products we use are currently Year 2000
compliant. We will require our other material hardware and software component
vendors to provide assurance of their Year 2000 compliance. We will complete
this process during 1999. We are currently assessing our non-IT systems and
will seek assurance of Year 2000 compliance from providers of material non-IT
systems. Until such testing is complete and such vendors and providers are
contacted, we will not be able to completely evaluate whether our IT systems or
non-IT systems will need to be revised or replaced.

30
<PAGE>

Costs. To date, we have incurred approximately $10,000 in connection with
identifying or evaluating Year 2000 compliance issues. Our expenses have
related to the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. We anticipate
our costs will continue to include employee expenses and will increase for
purchases of Year 2000 compliant upgrades to our existing hardware and software
platforms. We estimate that these costs will total between $150,000 and
$200,000; however, if these costs are substantially higher than anticipated, it
could have a material adverse effect on our business, results of operations and
financial condition.

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

Contingency Plan. As discussed above, we are engaged in an ongoing Year 2000
assessment and the development of contingency plans. The results of our Year
2000 simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans.

Recently Issued Accounting Principles

On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. Costs
incurred prior to the initial application of SOP 98-1 should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Accordingly, the Company will
adopt SOP 98-1 in its financial statements for the year ending December 31,
1999. The impact on the financial statements of the adoption of this standard
has not yet been determined, but is not expected to be significant.

Interest Rate Risk

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

31
<PAGE>

BUSINESS

The discussion in this prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Overview

Through our Mpath Foundation business unit, we are a leading provider of
enabling technology and services to a growing customer base of online companies
seeking to create and operate live communities on the Internet. Mpath
Foundation is dedicated to delivering proven online technologies and services
that enable the creation of full-featured, live communities on the Internet.
With our innovative POP.X technology system, Mpath Foundation offers our
customers broad technological expertise in networks, operations, information
systems, integration technologies, and the customer support capabilities
necessary to deploy live community applications rapidly and manage large
Internet communities. In addition, we provide fully-functional online game
services through our first generation product and we provide log-in, account
management, billing and database management services to companies operating
online content through our Customer Management System service. Customers of
Mpath Foundation consist of a growing base of leading online entertainment
companies such as CSK Sega, Eidos Interactive, Electronic Arts, Fujitsu, GTECH,
LG Internet, Macromedia and Sony.

Through our Live Communities business unit we have developed and operate two
services, Mplayer.com and HearMe.com. In October 1996 we launched Mplayer.com,
a premier live entertainment service on the Internet. The Mplayer.com service
now consists of three active communities that are built around common interests
and offers over 100 of the most popular online multi-participant games. Total
usage time on Mplayer.com exceeds 200 million user minutes per month, as of
January 1999, compared to 67 million user minutes per month as of January 1998.
After less than two years of operations, Mplayer.com has become the number
eleven Internet site in terms of total usage time per month according to our
usage data. In January 1999, we launched HearMe.com, our second live community
service. HearMe.com is currently comprised of seven live communities, making
live audio interaction available to people whose interests extend beyond
entertainment. We intend to build the HearMe.com services through relationships
with Web sites that want to offer live audio communities to their members. We
intend to continue to expand this business unit by creating additional services
and live communities.

Industry Opportunity

The Internet and the World Wide Web

32
<PAGE>

fastest growing form of media in history. According to a recent study, the
Internet achieved a reach of 50 million households in only 5 years, whereas
cable television, broadcast television and radio each attained a similar level
of adoption only after at least 10 years. The dramatic growth in Internet usage
has been fueled by a number of key factors, including:

. technological, functional and infrastructure advances in computing and
communications;

. relatively lower costs associated with publishing content on the
Internet as compared to traditional media;

. increased quantity and improved quality of information and services
offered on the Web; and

. increased affordability of, access to and resulting proliferation of
multimedia PCs.

As Internet accessibility, usage and functionality grow, the Internet is
increasingly being used as a medium for direct communication as well as a
rapidly growing sales and marketing channel. Jupiter Communications estimates
that total online advertising revenue in the U.S. in 1997 was $940 million and
expects this amount to grow to $4.4 billion by 2000. We anticipate that the
growth in Web advertising will be largely driven by the unique interactive
character of the Internet. Specifically, the Internet allows advertisers to
target their messages to distinct, self-qualified audiences, measure the
effectiveness of their advertisements and modify campaigns on a real-time
basis.

The Demand for Live Communities on the Internet

During the Internet's brief history, we believe three stages of
commercialization have emerged, with each successive stage building upon the
experience and momentum of the previous stage. The first stage has enabled
users to search and view Web sites containing professionally created content on
topics of general interest such as current events, sports, weather and finance.
During this stage, Internet search and information destination sites (e.g.,
CNET, Disney, ESPN SportsZone, Excite, Infoseek, Yahoo!, etc.) have gained
widespread prominence as they provided a valuable function for users seeking
Web content. The second stage has been characterized by the emergence of
commerce-centric sites (e.g., Amazon, eBay, E*Trade, priceline.com, etc.). Such
sites typically offer visitors a wide variety of compelling commerce
opportunities allowing the Internet to serve as a substitute for direct retail,
telephone or catalog sales, thereby generating substantial levels of user
traffic.

Although sites representative of the first two stages of commercialization
provide valuable services, they did not initially enable Web users to interact
or communicate with other individuals. As a result, people-to-communities such
as GeoCities, theglobe.com and XOOM.com have emerged as the third stage of
Internet commercialization to address the demand by users to interact and
communicate with each other. Using existing technologies, these people-to-
people communities aggregate large numbers of people and leverage member-
generated content by offering user-created personal web sites, free e-mail,
user-defined bulletin boards, text chat and shared-interest categories.
However, the attractiveness of the interactive experience within these people-
to-people communities depends on several factors, including the nature of the
communication, the richness of the media and the quality of member-created
content. We believe an opportunity exists to create, operate and enable higher
quality people-to-people communities characterized by real-time simultaneous
interaction among multiple users, which we call live communities.

We believe that live communities are differentiated from existing people-to-
people communities because they offer a more complete interactive experience.
Within live communities, thousands of people can communicate in real-time,
while using rich media tools such as audio, graphics, text chat and instant
messaging. The combination of these tools and capabilities provides users with
the ability to engage with others in activities such as live concerts, live
auctions, group conferencing, help desk applications, distance learning, multi-
player games and more. While live communities enhance the quality of the
interactive experience for users, we believe they also provide advertisers and
e-businesses with an attractive means of promoting and selling their products
and services over the Web. These communities allow advertisers and e-businesses
to reach highly targeted audiences within a more personalized context, thereby
improving the impact of sales and

33
<PAGE>

marketing efforts. The real-time interactive nature of live communities
typically results in long usage times and repeat visits, providing further
value for advertisers and e-businesses. In addition, the use of advanced
interactive technologies enables advertisers to create rich and effective
advertisements that go beyond existing banner advertisements.

Creating successful live communities presents numerous technological
challenges, requiring high standards of scalability, performance,
accessibility, ease-of-use, security and content management. Given the
attractiveness live communities offer users, advertisers and e-businesses, and
given the time and effort required to build such communities, we believe there
is a tremendous opportunity to deliver proven online technologies and services
that enable the rapid creation and management of full-featured live communities
on the Internet.

The Mpath Solution

We are well-positioned to capitalize on the demand and future growth
prospects for live communities through licensing of our proprietary
technologies and the operation of our premier live communities. We are a
leading provider of enabling technology and services to a growing customer base
of online companies seeking to create and operate live communities on the
Internet. In addition, as a recognized leader in the creation of live
communities, we have developed and operate Mplayer.com, a premier live
entertainment service comprised of multi-participant entertainment communities,
and HearMe.com, a service comprised of live audio communities.

Through our Mpath Foundation business unit, we offer our customers
proprietary software technologies necessary to rapidly deploy live community
applications. Additionally, we provide broad technological expertise in
networks, operations, information systems, integration technologies and
services necessary to manage large Internet communities. We have developed
POP.X, the first commercially available, platform-independent end-to-end system
for rapid deployment of mass-consumer, live community applications on the
Internet. POP.X delivers proven technology that allows companies to build
Internet community features without being concerned about scaling issues, back-
end customer management systems, browser compatibility, large downloads or
consumer difficulties regarding ease-of-use.

Through our Live Communities business unit, we have developed and operate our
own live communities serving over 2.5 million registered users with over 50,000
unique daily visitors generating over 100 minutes of average daily usage per
visitor, as of February 1999. Launched in October 1996, Mplayer.com is a
premier live multi-participant entertainment service on the Internet. In
January 1999, we launched HearMe.com, our second live community service.
HearMe.com is currently comprised of seven live audio communities, making live
audio interaction available to people whose interests extend beyond
entertainment. We believe Mplayer.com and HearMe.com offer one of the widest
range of opportunities to advertisers and e-businesses available on the
Internet today. Advertisers may choose among several options to achieve both
branding and direct marketing objectives. Our live communities offer
advertisers rich 3D and audio advertisements, targeting based on consumer data
and the ability to obtain direct customer feedback and research on the impact
of particular advertising campaigns. In addition, e-businesses can offer their
products directly to targeted consumers in a variety of vertical markets.

Mpath Strategy

In order to maintain our leadership position in providing enabling
technologies for companies seeking to build live communities on the Internet
and in operating our own premier live communities, we have adopted the
following strategies:

Expand Our Sales and Marketing Efforts. Through our direct sales efforts, we
have developed a base of large, high profile customers who provide an
attractive stream of both initial and follow-on revenues, validate our
reputation as a technology leader and help to demonstrate the capabilities of
our technology and services. While we will continue to pursue these customers
through direct sales efforts, we also intend to package diverse product
offerings and distribute them through reseller arrangements with Web
development firms,

34
<PAGE>

enterprise applications resellers and OEM partnerships with developers of
customer service, e-commerce or other applications. In addition, we plan to
develop an entry-level product with features and a price point more suited for
smaller Web sites and target customers who can use the capabilities of the
Mpath Foundation technology and services outside of the entertainment and media
market segments.

Promote Membership Growth and Usage. We plan to increase membership and usage
levels on Mplayer.com, HearMe.com and future services by continuing to provide
compelling content and services. In particular, we encourage member-created
content because it is often the most original, engaging and frequently updated
content available on the Internet. We seek to drive membership growth by
expanding distribution of the Mplayer.com and HearMe.com services through
partnering relationships with major sites, such as portal sites, destination
content and commerce sites, community sites and entertainment content
companies. In addition, we intend to expand our membership base and increase
usage by (1) adding new third-party content to our sites; (2) entering into
arrangements with content providers to co-market our live community sites;
(3) providing an entertaining community for current users, thereby motivating
current users to recruit new members; and (4) streamlining the registration and
installation process. In addition, we intend to increase membership and usage
by continuing to improve the community features offered by Mplayer.com and
HearMe.com, such as live audio chat, paging, tournaments and hosting of member
fan sites.

Maintain and Extend Technology Leadership and Expertise. We have developed
proprietary technology for, and accumulated extensive expertise in, delivering
a broad range of live community applications on the Internet. This technology
and expertise extends to several areas, including client software, network
infrastructure, Internet protocols, security, large systems development and
scaling. We will continue to expand our features, capabilities and customer
solutions with our POP.X technology. In particular, we intend to add support
for third party content authoring tools and add to our suite of POP.X
applications. This will make it easier for developers to create POP.X content
and further speed the launch of their custom Web applications on POP.X. We will
also add new features and capabilities to POP.X that will enable us to
significantly improve the customer experiences on our live community services,
such as simplifying and expediting the process of acquiring new customers and
immediately engaging them in an entertaining experience.

Maximize Value for Advertisers and E-businesses. We seek to maximize the
value our live communities offer to advertisers by providing an attractive,
growing and targeted audience, as well as by delivering innovative advertising
products and campaign management techniques. The Mplayer.com and HearMe.com
services consist of multiple desirable and demographically distinct
communities, with strong membership growth and long average usage times, which,
combined with our technology, allow advertisers to present TV-style full-screen
advertisements and other rich media advertising products. The Mplayer.com and
HearMe.com services allow advertisers to deliver different messages to
different users within the same community experience. Advertisers may also
conduct integrated campaigns such as event sponsorships coupled with regular
branded advertising and banner ads. Finally, advertisers may use the chat room
technology to conduct online focus groups prior to, during and following an
advertising campaign to help plan and measure the effectiveness of a particular
campaign. The combination of our live community context, highly specific and
desirable user demographics, and long usage times provides a favorable platform
for targeted and cost-effective online advertising and e-commerce.

Pursue Multiple Revenue Streams. Our proprietary technology and leading live
communities enable us to maximize revenue from multiple sources. Mpath
Foundation derives the majority of its revenues through licenses of its
technology solutions, including POP.X, to customers interested in creating live
communities on the Internet. The Live Community services, Mplayer.com and
HearMe.com, derive a majority of their revenues through advertising and we
intend to maximize advertising revenues by continuing to provide a compelling
value proposition for advertisers. We will also seek to increase premium
subscription revenues by improving the special benefits and features that are
available beyond the free services offered by these communities. These benefits
and features include access to special events, rankings and ratings, contests,
magazine subscriptions, special features and exclusive games. In addition, we
intend to derive revenues from e-commerce activities, including fees from
special event promotions and merchandise sales.

35
<PAGE>

Products and Services

We derive revenues from two business units, Live Communities and Mpath
Foundation. Through our Live Communities business unit we have developed and
operate two services, Mplayer.com and HearMe.com, with over 2.6 million
registered users as of January 1999. Through our Mpath Foundation business
unit, we are a leading provider of enabling technology and services to a
growing customer base of online companies seeking to create and operate live
communities on the Internet.

Live Communities

Through our Live Communities business unit we have developed and operate two
services, Mplayer.com and HearMe.com. The Mplayer.com service consists of three
interactive communities built around common interests. The HearMe.com service
is also characterized by multiple communities which have been created by
members with similar interests. We intend to build the HearMe.com service
through relationships with Web sites that want to offer live audio communities
to their members. Our early efforts to recruit partners for HearMe.com will
focus on sites with targeted demographics attractive to key advertisers.

Title: "Mpath Live Communities"

Flow chart with "Live Communities" at the top with arrows pointing to two boxes
below it. The box below and to the left of "Live Communities" contains the
Mplayer.com logo and text reading "Entertainment." This box has arrows pointing
to three boxes below it, which contain text reading, from left to right: (Box 1)
"Classics and Casino Community," (Box 2) "Sports Community," and (Box 3) "Gamers
Community." The box below and to the right of "Live Communities" contains the
HearMe.com logo and text reading "Live Audio." This box has arrows pointing to
two boxes below it, which contain text reading, from left to right: (Box 1)
"HearMe.com communities, Family & Friends, On Stage, Romance, Teen Chat, Sports,
College, General Chat," and (Box 2) "Partner Communities, Developed by
Partners."

Our live community services are free to registered members. To join, users
log on to the Mplayer.com and HearMe.com Web sites, complete a short
registration form and download the client software for Mplayer.com and
HearMe.com either from the Web site or a retail CD-ROM. In addition,
Mplayer.com members may also choose to become Mplayer Plus members for a fee of
$39.95 for a one-year membership, $49.90 for a two-year membership or $3.95 for
a one-month membership. In exchange, they receive access to special events,
rankings and ratings, contests, magazine subscriptions, special features and
exclusive games.

Mplayer.com offers over 100 games for online play, more than any other
Internet game and entertainment service. These games cover a wide range of
interests including action, strategy, simulation and sports with top

36
<PAGE>

retail titles such as Army Men, Commandos, Links LS, Panzer General I & II,
Quake I & II, Rainbow 6, Total Annihilation and Unreal. The retail games are
licensed from leading game publishers such as ABC Multimedia, Acclaim
Entertainment, Broderbund Software, Eidos Interactive, Electronic Arts, Hasbro
Interactive, Id Software, MGM Interactive, Mindscape, THQ and The 3DO Company.
For certain titles, users must purchase the CD-ROM from the publisher to play
on Mplayer.com, while for other games a free shareware version of the game can
be downloaded from Mplayer.com. Unlike most other online game services, the
Mplayer.com technology offers multi-player games with low latency which,
combined with Mplayer.com's easy-to-use software, has enabled Mplayer.com to be
one of the leading live entertainment services on the Internet. In addition to
its retail games, Mplayer.com offers over a dozen classic board and card games,
such as checkers, backgammon, hearts and spades, most of which can be
downloaded for free. These games in the aggregate generate approximately the
same amount of usage as retail games. Many of these games offer in-game text
and live audio chat, allowing players to speak with one another using their
microphones during game play.

Our live communities also offer a rich set of community features including
text and live audio chat, buddy lists, paging, member profiles, ranking,
tournaments, member submitted editorial, a bulletin board service and hosting
of member game fan sites. Mplayer.com and HearMe.com live audio chat allows
members to speak with one another in real-time and requires only a microphone
to be connected to their PC. HearMe.com enables many popular community
activities including live concerts, live auctions, group conferencing, help
desk applications, distance learning, multi-player games and more.

We believe our live communities offer a wide range of Internet advertising
opportunities to marketers, allowing them to achieve both branding and direct
marketing objectives. In general, on Mplayer.com and HearMe.com, advertisers
can use a variety of formats, including rich media, to communicate their
messages to targeted audiences based on demographics and content. At the end of
an advertising campaign, Mplayer.com and HearMe.com facilitate market research
on the impact of the campaign. This research shows that effective campaigns
take advantage of a range of advertising products, thereby delivering an
advertiser's message within multiple contexts, which leads to increased
consumer brand awareness and purchase intent. Mplayer.com and HearMe.com's
advertising products include:

. TV-style full-screen ads, which, according to an industry analysis, are
the best branding vehicle on the Internet.

. the Pop-Up Box, an effective direct response vehicle that is shown to
all registered members when they log-on. It drives high request rates
for advertisers on our live communities.

. the WebViewer within live audio chat and entertainment rooms, which
provides direct traffic to the advertiser's Web site and allows our
registered members to surf within it without having to leave Mplayer.com
or HearMe.com.

. sponsorship of lobbies, channels, pagers and events, which provide
advertisers with persistent visibility and branding.

. member portraits, which provide users with the ability to use
advertisers' logos and brand icons as part of their online identities.

. e-mail newsletters, which provide a great direct response vehicle
through hyperlinks to the advertiser's Web site.

. banner ads and buttons, a well-established Internet branding and direct
response vehicle.

Mpath Foundation

Mpath Foundation is a leading provider of enabling technology and services to
a growing customer base of online companies seeking to create and operate live
communities on the Internet. Leveraging our technological expertise in creating
live communities, we recently introduced POP.X (short for POPulation
eXplosion), our second generation technology system built on the experiences
and knowledge obtained from

37
<PAGE>

the original architecture developed for Mplayer.com. In addition, we have
created another derivative service, the Customer Management System, which
provides log-in, account management, billing, database management and reporting
services to companies operating online content. POP.X is marketed and sold as a
licensable technology product, while the Customer Management System is offered
as an Mpath-hosted service option.

POP.X is the first commercially available, platform-independent, end-to-end
system providing for the rapid deployment of mass-consumer, live community
applications on the Internet. As the diagram below illustrates, the POP.X
technology permits users to quickly access live interactive experiences,
without the need for user installation, thereby increasing customer acquisition
and retention. When a user first visits a Web site that uses POP.X, the user's
browser downloads a lightweight Webtop from the Web site's server. This
lightweight Webtop receives user input, displays graphics and plays sounds
associated with live community applications. The POP.X application, which
resides on the Web site's server, processes the bulk of the information
required to enable the live community application. In particular, the Web
site's server guides media assets to an individual user's PC when needed and
communicates data between multiple users' Webtops in real-time.

Title: "POP.X Technology Solution"
Flow chart with interconnected boxes and numbered blocks of text. The numbered
blocks of text read as follows:
"1. Consumers visit Web site that uses POP.X for live people-to-people
application. Browser requests Web page with embedded POP.X application."
"2. If the first visit, POP.X Webtop is fetched from the Web server by the
browser to the consumer's PC."
"3. POP.X application server launches the applications associated with the
Webtop."
"4. Media assets are sent as needed to the Webtop."
"5. The Webtop displays graphics, plays sounds and animations and receives user
input under the direction of the POP.X application executing on the application
server."
"6. Application instances on application server communicate data to implement
people-to-people interaction."

In the center of the flow chart is a black circle with text reading "The
Internet." At the top of the flow chart there are three boxes with text
reading, from left to right: (Box 1) "Web Page," (Box 2) "Web Browser," and (Box
3) "POP.X Webtop." Leading from Box 2 is an arrow that points down and to the
left to a box that is subdivided into two boxes that contain text reading, from
top to bottom: "Customer-Created HTML For Web site" and "Industry Standard Web
Server." This subdivided box has an arrow pointing down to a cylinder with text
reading "Web Logs." Leading from Box 3 is an arrow that points down to a
subdivided box that contains text reading, from top to bottom: "Customer-Created
Applications, Mpath-Supplied Community Applications," "POP.X Application
Server," "Asset Manager," and "Data Analysis Tools." Below "Asset Manager" is
an arrow pointing down to a cylinder with text reading "Media Assets." Below
"Data Analysis Tools" is an arrow pointing down to a cylinder with text reading
"Service Data Base." Below both of these cylinders is text reading "Web site
administrators extract reports and update media assets." To the right of "Data
Analysis Tools" is an arrow pointing to a box with text reading "Service Data &
Reports."

Using the POP.X technology, developers can create and deploy live community
applications in a significantly shorter time frame, and can instead focus on
creating such applications without being concerned about the inherent operating
restrictions of the Internet. POP.X enables communities to scale rapidly
without large technology or staffing expenditures, permits content to be easily
and rapidly changed and refreshed, and provides for key data analysis
capabilities (e.g., system operation diagnostics, service improvement analysis,

38
<PAGE>

data mining features, etc.). The architecture allows a complete online service
to be easily constructed out of multiple small, component applications, without
the developer having to become an expert in the details of scaleable, reliable
real-time system design. For example, a typical online service would consist of
three core applications: a chat application which implements a single chat
room, a lobby manager which allows a user to browse through a list of rooms,
and pager application which allows users to reach each other to determine where
they are. The developer's focus would be on the creation of three distinct user
experiences, without the concerns about how they would work and inter-operate.
In addition, given that many Web publishers have significant existing online
sites and services, POP.X's open architecture supports existing industry
standards for application development and legacy system integration, with well-
defined and documented interfaces and APIs.

The Customer Management System is a service offered to online publishers to
enable session and user-based tracking and billing. The Customer Management
System allows developers to extract value from their online application by
tracking usage, analyzing user behavior and billing for online services. The
Customer Management System is a well proven, reliable system that can be easily
integrated with any online application, allowing the publisher to reduce
development time and instead focus on their areas of expertise. Provided as an
Mpath-hosted service, the Customer Management System consists of a real-time
customer engine and a warehouse for data analysis. The real-time engine
provides secure value-based transactions and implements many billing models,
including subscription, pay-per-play and micro-transactions. The data warehouse
allows for trend analysis, thereby maximizing the application value. The
Customer Management System service provides connection to the Customer
Management System customer content site through secure links over the Internet
or dedicated frame relay connections.

Technology for Live Communities

We have developed technology solutions for creating a broad range of live
community applications on the Internet. Since 1995, we have invested heavily in
developing valuable proprietary software and related technologies, incurring
over $12.3 million of research and development expenses in the aggregate. In
particular, we have developed expertise and technology in four major areas:
client software and user experience, network infrastructure for real-time live
community applications, Internet protocols and security, and large systems
development and scaling.

The key to successfully delivering any mass-consumer real-time experience on
the Internet is a strong command of client PC software technology and user
experience design. Our proprietary software remedies difficult problems in this
area including streaming real-time media to client PCs, implementing rich
applications as software components for flexible Web-based delivery,
integrating applications with browsers and robust Webtop technology that hide
PC software configuration issues from applications. We have also built software
and developed flexible and powerful technology for automatically updating our
software that resides on users' PCs, while taking into account varying software
versions and configurations.

39
<PAGE>

As the diagram below illustrates, the level of technology required to enable
people-to-people communities is driven by the type of community application
offered within a particular Web site. Conventional communities, which offer
users Web page hosting, bulletin board and email services, require relatively
simple technology such as Web servers, Java and email servers. Live
communities, however, require highly sophisticated software and technology
including multicast protocols, latency matching software and distributed
infrastructures. Primary examples of real-time live community applications are
live auctions, help desk applications, distance learning, live audio chat, live
music performance and multi-player fast-action games. We operate two branded
services, Mplayer.com and HearMe.com, which enable these applications. We have
also developed and marketed POP.X, which is the first commercially available,
platform-independent, end-to-end system providing for the rapid deployment of
live community experiences on the Internet.

Title: "Technology for People-to-People Communications"

Flow chart with interconnected blocks of text. At the top of the chart there
are two column headings: "Conventional Communities" and "Live Communities." On
the left-hand side of the chart there are three row headings: "Examples,"
"Enabling Technology" and "Applications." At the bottom of the chart, there is
an arrow pointing from left to right with the text "Asynchronous Communication"
appearing on the left side of the arrow and the text "Real-time Communication"
appearing on the right side of the arrow. There are eight boxes within the
chart located in the three rows described above. Each box within a row has an
arrow pointing to the box to its right. The first box, located on the left side
of the "Examples" row, contains the text "Geocities, theglobe.com, XOOM.com."
The second box, located to the right of the first box, contains the text
"Mplayer.com, HearMe.com." In addition, the bottom of the second box contains
an arrow pointing from left to right with the text "POP.X" written across it.
The third box, located on the left side of the "Enabling Technology" row,
contains the text "Web servers, Java, Mail servers." The fourth box, located to
the right of the third box, contains the text "Mpath: POP.X and community
applications, Others: Custom built point solutions." The fifth box, located to
the right of the fourth box, contains the text "Mpath: POP.X Multicast
protocols, Latency matching, Distributed Infrastructure." The sixth box,
located on the left side of the "Applications" row, contains the text "Web page
hosting, Bulletin boards, Email." The seventh box, located to the right of the
sixth box, contains the text "Live auctions, Help desk applications, Distance
learning, Games, Text Chat." The eighth box, located to the right of the
seventh box, contains the text "Live audio chat, Live music performance, Fast
Actions Games."

We have significant experience designing, deploying and managing high
performance network infrastructures necessary to deliver real-time live
community applications. Mplayer.com and HearMe.com leverage the same
distributed Internet infrastructure, thereby delivering reliable and
predictable low latency experiences. We have developed extensive technology in
network transport protocols for different types of data streams and security
for delivering a broad range of live-community applications. In particular, our
protocols enable very low delay (latency) for data transport between client
PCs, multicast services to manage data rates, and scaling for large numbers of
simultaneous users. Our technology provides a robust and secure environment for
operating live communities on the Internet.

Large mass-consumer real-time communities also require significant back-end
systems for operating the applications. We have developed significant software
technology and expertise in large back end systems for operating commercial
live communities. Our software technology is designed to automatically deal
with scaling and load balancing, and we also provide interfaces for commercial
software packages, such as databases, billing systems and advertising tracking
and rotation systems.

40
<PAGE>

We believe that we have created a significant barrier to potential
competitors in the area of live Internet communities. This barrier is comprised
of multiple pieces. The broad range of skills and technologies needed to enable
live communities is difficult to assemble in a single company. We have
accumulated multiple years of development experience. We aggressively protect
our intellectual property and continue to heavily invest in new technology
development. Our research and development expenses for the prior three years
were as follows:

<TABLE>
<CAPTION>
Year Amount
---- ------------
<S> <C>
1998............................ $3.1 million
1997............................ $2.4 million
1996............................ $5.3 million
</TABLE>

Strategic Relationships

Mpath has entered into strategic relationships with some of the most
prominent media and technology companies in order to increase membership and
usage, maximize revenues, build brand recognition, accelerate product
development and acquire content. Certain of these relationships are described
below.

Infoseek. Infoseek and Mpath have agreed to distribute a customized co-
branded version of the Mplayer.com client software and create, on Infoseek's Go
Network, co-branded pages that include Mplayer.com client software downloads,
certain online and interactive entertainment. Infoseek and Mpath also plan to
engage in significant cross-promotional activities and investigate certain e-
commerce opportunities. This relationship may enhance our opportunities for e-
commerce, broaden distribution of the client software and boost Mplayer.com
brand recognition.

XOOM.com. XOOM.com and Mpath have agreed to distribute a co-branded version
of the Mplayer.com client software and to create and maintain a co-branded
version of the Mplayer.com site for the use of XOOM.com members and site
visitors. The co-branded version of Mplayer.com will be promoted on the
XOOM.com site as "XOOM.com Games powered by Mplayer.com". Further, XOOM.com
will pay us a portion of revenue received from end users referred to XOOM.com
from the co-branded pages. This relationship brings us greater Internet reach,
broadens distribution of client software and creates additional e-commerce
revenue opportunities.

Intel. Intel has sponsored the Intel MMX channel on Mplayer.com to promote
and create awareness of Intel's MMX technology. We have also been selected by
Intel to develop certain products compatible with future Intel product
releases. Intel is a repeat advertiser in Mplayer.com, taking advantage of the
brand advertising opportunities presented by Mplayer.com's advertising
products. Intel has requested the use of various Mpath screen shots and other
Mpath promotional materials to demonstrate examples of innovative Internet
technologies available on the Intel platform. Intel is also an investor in our
company.

Yahoo!. We have signed a letter of understanding with Yahoo!, which outlines
an arrangement to license to Yahoo! our audio chat technology to real-time
"one-to-one" and "one-to-many" streaming audio chat for use on Yahoo!'s Audio
Chat Service for an initial six-month period. As part of the letter, we have
issued Yahoo! a warrant to purchase 192,000 shares of our common stock, which
Yahoo! can only exercise upon reaching certain performance goals, including
renewal of the license. We believe that our relationship with Yahoo! will
further validate our technology, promote HearMe.com as a growing Web site on
the Internet, and increase the membership and reach of our live communities.

Excite. Excite and Mpath have created a co-branded area on www.excite.com
that creates a portal to the Mplayer.com service and provides additional
distribution of the Mplayer.com client software. Excite and Mpath have also
undertaken activities to promote each other's services on the Internet. Our
agreement with Excite expands the distribution of the Mplayer.com client
software, promotes Mplayer.com on one of the Internet's largest Web sites and
helps to increase Mplayer.com's Internet reach.

41
<PAGE>

Macromedia. Macromedia and Mpath have agreed to collaborate on the
development of certain products, license certain technologies to each other,
and co-market their products and services. The companies anticipate working
together to develop tools and products used to create highly interactive and
large-scale Internet services and communities. Macromedia has agreed to license
POP.X from us. We have licensed Macromedia's Flash Player and will participate
in Macromedia's Traffic Affiliate Program. This relationship helps accelerate
acceptance of POP.X by leveraging Macromedia's standard for multi-participant
media development. The agreements between the companies also help to further
validate our technologies, create additional Internet reach for us and provide
us with revenue opportunities.

GTECH. GTECH was an early adopter of Mpath's POP.X technology. GTECH has
licensed POP.X from us for use with GTECH's entertainment and government-
sanctioned online lottery systems. This presents an exciting new application
and market for POP.X. Our relationship with GTECH has accelerated product
development, provided revenue, and added another important reference account to
validate our technology.

Sega. SegaSoft Networks was the first licensee of Mplayer.com technology and
uses the technology to operate its online service, www.heat.net. We have rights
to certain SegaSoft Networks content and payments from SegaSoft Networks.
SegaSoft Networks' parent company, CSK Corporation, is an investor in our
company, and we also have a business relationship with Sega of America,
Incorporated, another CSK subsidiary.

Cox. Cox Interactive Media has contracted with Mpath for distribution of the
Mplayer.com client software and the creation of a game channel for Cox. The
agreement with Cox Interactive Media features co-branding of various web pages
on the Cox Web sites and authorizes Cox to distribute the Mplayer.com client
software to end users. Cox Technology Investments, Inc., a Cox affiliate, is an
investor in our company. The Cox relationship provides distribution of the
Mplayer.com client software, added promotion for Mplayer.com and extension of
our Internet reach.

Marketing and Sales

Live Communities

The marketing strategy for Mplayer.com and HearMe.com emphasizes two key
objectives. The first is to provide consumers with online communities in which
they can socialize, create their own experiences, engage in activities and
events, and play multi-player games. The second is to provide online
advertisers with opportunities to reach this attractive, targeted audience with
innovative advertising products. We also market additional value-added services
and products to Mplayer.com users.

We market advertising opportunities on our live communities to the
advertising industry through Web advertisements, trade shows, direct mail,
advertising in the trade press and general public relations. We intend to
expand our sales force in 1999 and to open new sales offices in locations that
can target attractive market segments.

We market Mplayer.com to consumers through Web advertising and publicity in
consumer publications and Web sites. The Web ads are primarily placed on
entertainment and community Web sites, which attract a similar psychographic
and demographic audience as Mplayer.com. Our survey data indicates that over
90% of the participants in our sports and gamers communities are male, and the
people within those communities are typically between the ages of 13 and 50;
however, approximately 40% of the participants in our classics and casino
community are women, and the people within that community are typically between
the ages of 25 and 50. The public relations activity is focused on consumer
publications such as Internet magazines, game magazines, news magazines,
entertainment magazines, and newspapers. We are following a similar strategy
for HearMe.com. Currently, over 40% of the participants on our HearMe.com
service are women, and the people within the service are typically between the
ages of 13 and 55. In addition, the significant majority of retail games
offered on Mplayer.com contain a "button" on the CD-ROM version of the game
linking to Mplayer.com.

Our marketing and sales organization is also responsible for acquiring and
developing original content for our live communities. We establish and maintain
relationships with the world's leading computer game

42
<PAGE>

developers, enlisting their content for distribution on the Mplayer.com service
while creating our own content for distribution within our live communities. In
addition, we attract and retain our members on both the Mplayer.com and
HearMe.com services by encouraging member-created content, hosting contests and
events, and building information-oriented Web pages.

Once a consumer becomes a registered member of our live communities, we begin
to market value-added services and products to the consumer, including premium
services, pay-per-play games and online purchasing of software and hardware
products. These products are marketed to the consumer directly through Web and
e-mail newsletter advertising and are sold online.

Mpath Foundation

To reach as many customer segments as possible and broaden the customer
penetration of POP.X, Mpath Foundation markets its products and services
through both direct and indirect distribution channels, domestically and
internationally. In addition to addressing the needs of Web publishers seeking
a complete system for developing and deploying live communities applications,
Mpath Foundation has implemented a strategy to meet the needs of customers with
specific application requirements. As such, Mpath Foundation plans to implement
developer marketing programs targeted at creating a variety of highly
customizable POP.X applications. These applications include live audio chat,
pagers, classic games, event auditoriums and data analysis tools that are
designed to complement a Web publisher's existing content.

Mpath Foundation's direct sales force sells and markets products primarily to
the top 200 Web content publishers worldwide. The initial target customers for
POP.X include media companies, large portal sites, games publishers,
wagering/gaming providers, as well as major entertainment companies. The direct
sales force consists of regional account managers and technical sales
engineers, supported by in-house technical marketing and customer support
organizations. Customers such as Macromedia, GTECH and Sony enhance our ability
to further penetrate this market with POP.X technology and applications.

Mpath Foundation's reseller channel was established to create broader
customer penetration and drive POP.X application development. We have
established relationships with three classes of resellers including
(1) Developer Partners focused on developing and selling POP.X applications;
(2) Enterprise Partners delivering a full service solution to Web content
publishers including creative development, infrastructure and operations; and
(3) OEM Partners creating online products that incorporate POP.X components.
Mpath Foundation reseller programs are targeted at penetration of the top 2,000
Web site publishers and services.

Mpath Foundation participates in trade shows, conferences, and seminars,
provides product information through our Web sites, places online advertising
pieces through electronic media, participates in public relations activities,
drives reach programs through targeted direct mail, and sponsors special
reseller and developer programs, including its own conference. These programs
are primarily targeted at driving awareness of POP.X in the Web publishing
industry, creating brand recognition, and stimulating reseller and developer
engagement with Mpath Foundation's products and services.

Operations and Infrastructure

The network for our live communities is managed from our headquarters in
Mountain View, California. The central services are co-located with Exodus
Communications, a provider of Internet system and network management solutions.
Our central services utilize four Sun enterprise-class servers consisting of a
Master Control Program machine, a member database machine, a data warehouse
machine and a member services billing machine. In addition, the central
services utilize Sun servers for functions such as matchmakers, webservers and
information logging and an X86 architecture machine for matchmaking.

We also deploy numerous live communities servers across multiple locations at
Exodus, PSINet and @Home co-location sites. The live communities servers are
located as close as feasible to network interchange points to facilitate
improved connectivity and lower latency. In general, the network topology for
Mplayer.com and HearMe.com is designed to provide easy scalability and reduce
network downtime. Our distributed

43
<PAGE>

architecture for our live communities servers enables Mplayer.com and
HearMe.com to continue operations even in cases of severe Internet outages as
long as some connectivity to our central service facility remains functional.
The architecture also ensures optimal performance for users during game play.
We intend to expand our infrastructure as necessary to meet the demand for our
products and services.

The Operations department is comprised of three groups: the Central Services
Administration Group, the Network Operations Center Group and the Customer
Support Group. The Central Services Administration Group is responsible for web
services, network infrastructure, live communities administration and Mpath
Foundation administration. The Network Operations Center group is responsible
for real-time response and intervention into issues with its live communities
and Mpath Foundation production services, and is staffed twenty-four hours per
day, seven days a week. The Customer Support group is responsible for both
customer billing and account issues for Electronic Arts' Ultima Online, Mpath
Live Communities and other customers.

Competition

Mpath Live Communities

. critical mass and functionality;

. brand recognition;

. member affinity and loyalty;

. broad demographic focus; and

. open access for visitors.

In addition, our future competition could include traditional media
companies, a number of which, including CBS, Disney and NBC, have recently
invested in and acquired Internet companies. Our competitors and potential
competitors may develop superior communities or communities that achieve
greater market acceptance than our community. We also compete for visitors with
many Internet content providers and Internet service providers, including Web
directories, search engines, shareware archives, content sites, commercial
online services and sites maintained by Internet service providers, as well as
thousands of Internet sites operated by individuals and government and
educational institutions. These competitors include free information, search
and content sites or services, such as America Online, CNET, CNN/Time Warner,
Excite, Infoseek, Lycos, Microsoft, Netscape and Yahoo!. We also compete with
the foregoing companies, as well as traditional forms of media such as
newspapers, magazines, radio and television, for advertisers and advertising
revenues. We believe that the principal competitive factors in attracting
advertisers include the amount of traffic on our Web site, brand recognition,
customer service, the demographics of our members and viewers, our ability to
offer targeted audiences and the overall cost-effectiveness of the advertising
medium we offer. We believe that the number of Internet companies relying on
Web-based advertising revenue will increase substantially in the future.
Accordingly, we will likely face increased competition, resulting in increased
pricing pressures on our advertising rates which could in turn have a material
adverse effect on our business, results of operations and financial condition.

44
<PAGE>

Mpath Foundation

The market for software and services for the Internet is relatively new,
constantly evolving and intensely competitive and we expect that competition
will only intensify in the future. As part of our business, we sell and license
products and services for community applications. Our principal competitors in
this market include Acuity Software and in-house developers of such
applications. Competitive factors in this market include the following:

. quality and reliability of software;

. features for creating, editing and adapting content;

. ease of use and interactive user features;

. scaleability and cost per user; and

. compatibility with the user's existing network components and software
systems.

Proprietary Rights

Mpath's success depends in part on our ability to protect our proprietary
software and other intellectual property. To protect our proprietary rights, we
rely generally on patent, copyright, trademark and trade secret laws,
confidentiality agreements with employees and third parties, and license
agreements with consultants, vendors and customers, although we have not signed
such agreements in every case. Despite such protections, a third party could,
without authorization, copy or otherwise obtain and use our products or
technology, or develop similar technology. We cannot assure that our agreements
with employees, consultants and others who participate in product development
activities will not be breached, that we will have adequate remedies for any
breach, or that our trade secrets will not otherwise become known or
independently developed by competitors. In the U.S., we currently have six
issued patents in the U.S. with expiration dates ranging from 2014 to 2016,

45
<PAGE>

two allowed patents and 16 patents pending (one of which is a provisional
patent). There can be no assurance that any pending or future patent
applications will be granted, that any existing or future patent will not be
challenged, invalidated or circumvented, or that the rights granted under any
patent that has issued or may issue will provide competitive advantages to us.
Many of our current and potential competitors dedicate substantially greater
resources to protection and enforcement of intellectual property rights,
especially patents. If a blocking patent has issued or issues in the future, we
would need to either obtain a license or design around the patent. There can be
no assurance that we will be able to obtain such a license on acceptable terms,
if at all, or to design around the patent. We pursue the registration of
certain of its trademarks and service marks in the U.S. and in certain other
countries, although it has not secured registration of all its marks. As of
February 11, 1999, we had four registered U.S. and four foreign trademarks or
service marks, and had applications pending for an additional five U.S. and six
foreign trademarks or service marks, and one intent to use trademark
application in the U.S. See "Risk Factors--We rely on our intellectual property
and proprietary rights and may be unable to protect these rights."

Employees

As of December 31, 1998, we have 111 full-time employees, including 29 in
research and development, 51 in sales and marketing and 25 in general and
administrative functions. From time to time, we also employ independent
contractors to support our engineering, market, sales and support and
administrative organizations. See "Risk Factors--We depend on certain key
personnel."

Facilities

We are headquartered in Mountain View, California, where we lease
approximately 28,800 square feet of office space under a lease expiring in
January 2002. We also maintain a sales office in New York City. We believe that
our existing facilities are adequate to meet our current and foreseeable
requirements or that suitable additional or substitute space will be available
as needed.

Legal Proceedings

On September 20, 1996, Mpath, MPCAT Acquisition Corporation (a wholly-owned
subsidiary of Mpath), and Catapult Entertainment, Inc. executed an Agreement
and Plan of Reorganization. The agreement provided for the merger of MPCAT into
Catapult such that Catapult would be the surviving corporation and would become
a wholly-owned subsidiary of Mpath. In addition, Catapult agreed, as part of
the merger agreement, that it would file a voluntary bankruptcy petition. On
October 10, 1996, Catapult filed a voluntary bankruptcy petition under Chapter
11 of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Northern District of California, San Jose Division. On November 15,
1996, the Bankruptcy Court entered its order, which approved the merger between
MPCAT and Catapult. At the same time, the Bankruptcy Court entered a separate
order that authorized Catapult to assume two patent licenses that it had
obtained from Steve Perlman prior to filing the bankruptcy petition. Mr.
Perlman objected to the assumption of his licenses by Catapult, and on November
18, 1996, Mr. Perlman filed an appeal with the United States District Court for
the Northern District of California, San Jose Division. On August 7, 1997, the
District Court affirmed the Bankruptcy Court decision. On September 8, 1997,
Mr. Perlman filed an appeal with the Ninth Circuit Court of Appeals, and on
January 28, 1999, the Ninth Circuit reversed the Bankruptcy Court and the
District Court. The Ninth Circuit held that Catapult could not assume Mr.
Perlman's licenses without Mr. Perlman's consent. Catapult expects to file a
petition for a writ of certiorari with the United States Supreme Court prior to
April 28, 1999.

We have been informed that the current holder of the rights to these patents
is Microsoft. We believe that the technology used in our products and services
does not infringe upon these patents. However, if a court were to rule that our
technology did infringe upon these patents we believe we will be able to work
around these patents. Even if we were unable to work around these patents and
were required to remove these portions of our technology, we do not believe
that this would have a material adverse effect on our business, results of
operations, or financial condition.

46
<PAGE>

From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights by us and our licensees. Such claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources and could materially and adversely affect our business, financial
condition and results of operations.

47
<PAGE>

MANAGEMENT

The names and ages of Mpath's executive officers and directors as of February
10, 1999, are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Paul Matteucci................... 43 President, Chief Executive Officer,
Acting General
Manager, Live Communities and Director
Lynn Heublein.................... 36 Chief Operating Officer
Linda Palmor..................... 43 Chief Financial Officer
Brian Apgar...................... 44 Chief Entrepreneur, Founder and
Director
Steven Roskowski................. 33 Chief Technical Officer
Robert Csongor................... 36 General Manager, Mpath Foundation
James Schmidt.................... 46 Vice President, Engineering
James W. Breyer (1).............. 37 Director
David A. Brown (2)............... 53 Director
Douglas G. Carlston (1).......... 51 Director
William McCall................... 38 Director
Gregory O'Brien.................. 51 Director
Ruthann Quindlen (2)............. 44 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.

Paul Matteucci, President and Chief Executive Officer, joined Mpath and
became a Director in May 1995. From December 1994 to May 1995, Mr. Matteucci
was a Resident Entrepreneur at Institutional Venture Partners. From July 1986
to December 1994, Mr. Matteucci held various positions at Adaptec, Inc.,
including Vice President and General Manager. Prior to joining Adaptec, Inc.,
Mr. Matteucci held positions with Texas Instruments. Mr. Matteucci received an
M.B.A. from Stanford University and an M.A. from Johns Hopkins School of
Advanced International Studies. Mr. Matteucci received his undergraduate degree
from the University of Pacific in Stockton, California.

Lynn Heublein, Chief Operating Officer, joined Mpath in November 1996 upon
Mpath's acquisition of Catapult Entertainment, Inc., which is now a wholly-
owned subsidiary of Mpath. Catapult filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Northern District of California, San Jose Division, on October 10,
1996, and MPCAT Acquisition Corporation, a wholly-owned subsidiary of Mpath,
merged with and into Catapult upon the conclusion of the bankruptcy
proceedings. Ms. Heublein was a co-founder of Catapult, and from April 1994 to
November 1996, she was Executive Vice President, Business Development at
Catapult. From October 1993 to April 1994, she served as Vice President of
Marketing for THQ, Inc. Ms. Heublein has also served Mpath in the capacity of
Acting Chief Financial Officer and General Manager, Mpath Foundation. Ms.
Heublein holds a B.S. in Engineering from the University of Washington and an
M.B.A. from Stanford University.

Linda R. Palmor, Chief Financial Officer, joined Mpath in February 1999. From
February 1996 to February 1999, Ms. Palmor worked for Terayon Communication
Systems, a developer and marketer of cable modem systems, where she served in a
number of positions, including Vice President, Finance and Corporate
Controller. From 1995 to 1996, Ms. Palmor served as the Corporate Controller of
Electronic Arts, Inc., a multimedia software company. From 1991 to 1995, Ms.
Palmor held a number of financial positions with The Walt Disney Company, a
media conglomerate. Ms. Palmor is a certified public accountant, and she
received a B.Sc. degree in biochemistry from Manchester University in the
United Kingdom.

Brian Apgar, Chief Entrepreneur, Founder and Director, co-founded Mpath in
January 1995, where he has also served as President, Vice President,
Development, General Manager, and Chief Operating Officer. From October 1993 to
January 1995, Mr. Apgar served as a Resident Entrepreneur and in other
consulting capacities

48
<PAGE>

for several venture capital firms, including Merrill Pickard Anderson & Eyre,
Sigma Partners and Institutional Venture Partners. Mr. Apgar holds a B.A. in
Physics from Princeton University.

Steve Roskowski, Chief Technical Officer, joined Mpath in November 1996 upon
Mpath's acquisition of Catapult Entertainment, Inc., which is now a wholly-
owned subsidiary of Mpath. Catapult filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Northern District of California, San Jose Division, on October 10,
1996, and MPCAT Acquisition Corporation, a wholly-owned subsidiary of Mpath,
merged with and into Catapult upon the conclusion of the bankruptcy
proceedings. From March 1994 to December 1996, Mr. Roskowski was Vice
President, Engineering and a co-founder of Catapult. Mr. Roskowski has also
served Mpath as Vice President, Operations and Vice President, Technology,
Mpath Foundation. From October 1992 to March 1994, Mr. Roskowski was a manager
of hardware for General Magic. Prior to that, he was a Project Manager at Apple
Computer. Mr. Roskowski holds a B.S. in Engineering from the California
Institute of Technology.

Robert Csongor, General Manager, Mpath Foundation, joined Mpath in August
1996 where he initially served as Director of Product Marketing and also as
Vice President, Business Development and Marketing. From January 1995 to August
1996, he served as Director of Marketing at NVIDIA Corporation. From August
1986 to January 1995, Mr. Csongor served in various capacities at Adaptec,
Inc., including as Director of Marketing. Mr. Csongor holds a B.S. in
Electrical Engineering from Villanova University.

James Schmidt, Vice President, Engineering, joined Mpath in December 1998.
From December 1986 to December 1998, Mr. Schmidt worked for Adaptec Inc., where
he served in a number of positions, including Vice President and Chief
Information Officer, Vice President, Process Development and Infrastructure,
and Vice President, Engineering. Mr. Schmidt received both a B.S. degree in
Electrical Engineering and an M.S. degree in Electrical Engineering from
Wichita State University.

James W. Breyer has served as a Director of Mpath since January 1995. Mr.
Breyer has been a general partner of Accel Partners, a venture capital firm,
since 1990, and the Managing Partner since 1997. Prior to joining Accel, Mr.
Breyer worked as a management consultant at McKinsey and Company, and he held
product management and marketing positions at Apple Computer and Hewlett
Packard. Mr. Breyer currently serves as a director of Actuate, RealNetworks,
Inc. and several privately held companies. Mr. Breyer holds a B.S. in Computer
Science and Economics from Stanford University and an M.B.A. from Harvard
University, where he was named a Baker Scholar.

David A. Brown has served as a Director of Mpath since June 1995. Mr. Brown
currently sits on the Board of Directors of Quantum Corporation, a mass storage
company he helped found in February 1980. Mr. Brown has also been a management
consultant and board member for various technology companies since February
1992. Mr. Brown received a B.S. in Engineering from San Jose State University
and an M.S. in Engineering from the University of Santa Clara.

Douglas G. Carlston has served as a Director of Mpath since February 1996.
Mr. Carlston was a founder of Broderbund Software Inc., and he served as
Chairman of the Board of Broderbund from November 1989 through August 1998. Mr.
Carlston also served as Chief Executive Officer of Broderbund from November
1989 until October 1996 and as President of Broderbund from September 1981
until November 1989. Mr. Carlston holds a B.A. and J.D. from Harvard
University.

William McCall has served as a Director of Mpath since November 1998. Mr.
McCall is the Director, New Media Development of Cox Enterprises, a media
company, a position he has held since March 1997. From November 1994 to March
1997, Mr. McCall was a director of TCI Interactive, the interactive division of
TCI, a cable company. From March 1994 to November 1994, Mr. McCall was employed
by Classic Sports. From February 1991 to March 1994, he was employed by Court
TV. Mr. McCall holds a B.A. in History from Connecticut College.

49
<PAGE>

Gregory O'Brien has served as a Director of Mpath since January 1999. Mr.
O'Brien has been Chief Administrative Officer at CSK Global Business Offices
since May 1998, and has held various other positions at CSK or its affiliates
since September 1990. CSK is a computer software and services company. Mr.
O'Brien has a B.BA. and an M.B.A. from Pace University.

Ruthann Quindlen has served as a Director of Mpath since January 1995. Ms.
Quindlen has been a partner at Institutional Venture Partners since 1994, where
she has focused on investments in Internet and software companies. Prior to
joining Institutional Venture Partners, Ms. Quindlen was a Managing Director at
Alex Brown & Sons. Ms. Quindlen serves on the boards of many other private
Internet companies including Digital Impact, Diffusion, FaceTime, Portera
Systems, and TimeHub. Ms. Quindlen has a B.S. in Economics from Georgetown
University and an M.B.A. from The Wharton School at the University of
Pennsylvania.

Board Composition

Directors are elected annually at Mpath's annual meeting of stockholders, and
serve for the term for which they are elected and until their successors are
duly elected and qualified. Mpath's Bylaws currently provide for a Board of
Directors comprised of eight directors.

Board Compensation

Mpath's directors do not receive cash compensation for their services as
directors, although certain directors are reimbursed for reasonable expenses
incurred in attending Board or committee meetings. In August 1995, Mr. Brown
purchased 60,000 shares of common stock at a price per share of $0.05. In
February 1996, Mr. Carlston purchased 60,000 shares of common stock at a price
per share of $0.21. The stock purchased by Messrs. Brown and Carlston is
subject to a right of repurchase by Mpath that lapses over a four-year period.
Officers of Mpath are appointed by the Board of Directors and serve at the
Board's discretion. Directors who are employees of Mpath are also eligible to
participate in Mpath's 1995 Stock Option/Stock Issuance Plan, and beginning in
1999, they will also be eligible to participate in Mpath's 1999 Employee Stock
Purchase Plan. Beginning in 1999, directors who are not employees of Mpath will
be eligible to participate in Mpath's 1999 Directors' Stock Option Plan. See
"Stock Plans."

Mpath has entered into indemnification agreements with each member of the
Board of Directors and certain of its officers providing for the
indemnification of such person to the fullest extent authorized, permitted or
allowed by law.

Board Committees

The Board of Directors has a Compensation Committee that reviews and
recommends to the Board the compensation arrangements provided to the
management of Mpath and administers the various stock option plans. The members
of the Compensation Committee are Ms. Quindlen and Mr. Brown.

The Board of Directors has an Audit Committee that reviews Mpath's annual
audit and meets with Mpath's independent auditors to review Mpath's internal
controls and financial management practices. The Board's Audit Committee
currently consists of Mr. Breyer and Mr. Carlston.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Board of Directors consists of Mr. Brown
and Ms. Quindlen. No interlocking relationship exists between any member of our
Board of Directors or our Compensation Committee and any member of the board of
directors or compensation committee of any other company, and no such
interlocking relationship has existed in the past.

50
<PAGE>

Executive Compensation

The following table sets forth summary information concerning the
compensation received for services rendered to Mpath during the year ended
December 31, 1998 by the Chief Executive Officer and each of the other four
most highly compensated executive officers, each of whose aggregate
compensation during our last fiscal year exceeded, or would exceed on an
annualized basis, $100,000 (the "Named Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------- ------------
Securities
Name and Principal Salary Other Annual Underlying All Other
Position ($) Bonus ($) Compensation ($)(1) Options (#) Compensation ($)
- ------------------ ------ --------- ------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Paul Matteucci.......... $206,853 -- $9,566 300,000 --
President and Chief
Executive Officer
Lynn Heublein........... 178,786 -- 2,764 160,000 --
Chief Operating Officer
Brian Apgar............. 187,378 -- 5,870 15,000 --
Chief Entrepreneur and
Founder
Steven Roskowski........ 155,500 -- 2,357 40,000 --
Chief Technical Officer
Robert Csongor.......... 152,375 -- 5,759 25,000 --
General Manager, Mpath
Foundation
</TABLE>
- --------
(1) Other Annual Compensation consists of health insurance premiums paid for by
Mpath on behalf of the Named Officer, and in some cases, the spouse and
dependents of the Named Officer.

Option Grants

The following table provides certain summary information regarding stock
options granted to the Named Officers during the fiscal year ended December 31,
1998.

<TABLE>
<CAPTION>
Potential
Realizable Value
Individual Grants (1) At Assumed Annual
---------------------------------------------- Rates of Stock
Number Of Percent Of Price
Securities Total Options Appreciation For
Underlying Granted To Exercise Option Term (2)
Options Employees In Price Expiration -----------------
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
- ---- ----------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paul Matteucci.......... 300,000 18.9% $1.03 6/8/08 $194,328 $492,466
Lynn Heublein........... 160,000 10.1 1.03 10/8/08 103,642 262,649
Brian Apgar............. 15,000 0.9 1.03 10/8/08 9,716 24,623
Steven Roskowski........ 40,000 2.5 1.03 10/8/08 25,910 65,662
Robert Csongor(3)....... 25,000 1.6 1.03 10/8/08 16,194 41,039
</TABLE>
Option Grants in Last Fiscal Year
- --------
(1) Consists of options granted pursuant to Mpath's 1995 Stock Option/Stock
Issuance Plan. See "Stock Plans--1995 Stock Option/Stock Issuance Plan."
(2) Stock price appreciation of 5% and 10% is assumed pursuant to rules
promulgated by the Securities and Exchange Commission and does not
represent Mpath's predictions of its stock performance. There can be no
assurance that the actual stock price appreciation over the ten-year option
term will be at the assumed 5% and 10% levels or at any other defined
level.
(3) In January 1999, Mr. Csongor received an option to purchase 20,000 shares
of common stock at an exercise price of $4.62.

51
<PAGE>

Option Exercises and Holdings

The following table provides summary information concerning the shares of
common stock acquired in 1998, the value realized upon exercise of stock
options in 1998, and the year end number and value of unexercised options with
respect to each of the Named Officers as of December 31, 1998.

Fiscal Year-End Option Values

<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired on Options at In-the-Money Options at
Exercise Value December 31, 1998 (#) December 31, 1998 ($)
Name (#) Realized ($)(1) (Exercisable/Unexercisable) (Exercisable/Unexercisable)(1)
- ---- ----------- --------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
Paul Matteucci.......... 0 0 420,000/0 $617,400/$0
Lynn Heublein........... 174,584 $46,413 151,347/0 $216,702/$0
Brian Apgar............. 0 0 30,000/0 $ 44,100/$0
Steven Roskowski........ 139,829 $64,737 23,931/0 $ 29,400/$0
Robert Csongor.......... 120,000 $56,400 0/0 $ 0/$0
</TABLE>
- --------
(1) Value calculated by determining the difference between the fair market
value of underlying securities at exercise date (for value realized) or
year-end (for value at year-end), and the exercise price. The estimated
fair market value of Mpath's common stock on December 31, 1998 was $2.50
per share.

Stock Plans

1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was adopted by the
Board of Directors in February 1999 and we will be submitting it for approval
by our stockholders prior to the closing of this offering. A total of 2,500,000
shares of common stock has been reserved for issuance under the 1999 Stock
Incentive Plan. The number of shares reserved for issuance under the 1999 Stock
Incentive Plan will be subject to an annual increase on the first day of each
of our fiscal years in 2000, 2001, 2002, 2003, and 2004 equal to the lesser of
(1) 750,000 shares, (2) 3% of our outstanding common stock on the last day of
the immediately preceding fiscal year, or (3) such lesser number of shares as
the Board of Directors determines. No options to purchase shares of common
stock have been issued under the 1999 Stock Incentive Plan.

The 1999 Stock Incentive Plan provides for the grant of incentive stock
options to employees within the meaning of Section 422 of the IRS Code, and
nonstatutory stock options and restricted stock to employees, directors and
consultants. The 1999 Stock Incentive Plan is currently administered by the
Compensation Committee, which has been designated by the Board of Directors to
administer the 1999 Stock Incentive Plan with respect to different groups of
service providers. The number, vesting schedule, and exercise price for
options, or conditions for restricted stock, granted under the 1999 Stock
Incentive Plan will be as determined by the relevant administrator; provided,
however, that in no event may an individual employee receive option grants for
more than 2,500,000 shares in any fiscal year, and the exercise price of
incentive stock options must be at least equal to the fair market value of our
common stock on the date of grant.

In the event of a sale of all or substantially all of our assets of Mpath, or
the merger or consolidation of Mpath with or into another corporation in which
the ownership of more than 50% of the total combined voting power of Mpath's
outstanding securities changes hands, then restrictions on restricted stock
shall lapse, and outstanding options granted under the 1999 Stock Plan may be
assumed or an equivalent option substituted by the successor corporation, and
if not assumed or substituted by a successor corporation will accelerate and
become fully vested effective upon the consummation of such transaction.

The Board of Directors may amend, modify or terminate the 1999 Stock Plan at
any time as long as such amendment, modification or termination does not impair
vesting rights of plan participants and provided that

52
<PAGE>

stockholder approval shall be required for an amendment to the extent required
by applicable law, regulations or rules. The 1999 Stock Plan will terminate on
February 9, 2009, unless terminated earlier by the Board of Directors.

1995 Stock Option/Stock Issuance Plan. Our 1995 Stock Option/Stock Issuance
Plan (the "1995 Stock Plan") was adopted by the Board of Directors and approved
by our stockholders in April 1995. As of December 31, 1998, an aggregate of
3,453,000 shares of common stock had been reserved for issuance under the 1995
Stock Plan. The 1995 Stock Plan provides for the granting of incentive stock
options (within the meaning of Section 422 of the Code) to employees and
nonstatutory stock options and stock purchase rights to employees, non-employee
directors and consultants. As of February 11, 1999, 1,673,410 shares of common
stock were issuable upon exercise of outstanding options granted under the 1995
Stock Plan, 1,656,396 shares of common stock have been issued upon exercise of
options or pursuant to stock purchase rights. Options and stock purchase rights
granted under the 1995 Stock Plan will remain outstanding in accordance with
their terms, but the Board of Directors has determined that no further options
or other awards will be granted under the 1995 Stock Plan.

The 1995 Stock Plan may be administered by the Board of Directors or a
committee of the Board (the "Administrator") with the authority to grant option
and stock purchase rights and to determine the terms of such awards. Stock
options granted under the 1995 Stock Plan may not have a term of more than ten
years and generally remain exercisable for a period of three months following
termination of the optionee's relationship with Mpath (with longer periods
applying in the event such termination occurs as a result of death or
disability). The exercise price of all incentive stock options must be at least
equal to the fair market value of the common stock at the time of grant, and
the exercise price of nonstatutory stock options and the purchase price for
stock purchase grants must be at least 85% of the fair market value of the
common stock at the time of grant, however, the exercise price of stock options
and the purchase price of stock purchase rights granted to employees owning
stock that represents more than 10% of the total combined voting power of all
classes of outstanding capital stock of Mpath must in all cases be at least
110% of the fair market value of the common stock at the time of grant. The
Administrator has authority to grant stock options which are exercisable prior
to vesting, in which case the unvested portion of the exercised shares are
subject to a right of repurchase in favor of Mpath at the optionee's original
cost. Outstanding options vest, and repurchase rights as to exercise unvested
options and stock purchase rights lapse, generally at a rate of 25% upon
completion of one year of service after the grant and the balance in successive
equal monthly installments over the next three years of service. In the event
of a shareholder approved merger or consolidation of Mpath in which the
ownership of more than 50% of the total combined voting power of Mpath's
outstanding securities changes hands, or the sale of all or substantially all
of Mpath's assets in a complete liquidation or dissolution of Mpath,
outstanding options granted under the 1995 Stock Plan will terminate unless
assumed by a successor in interest to Mpath's business, and all Company stock
repurchase rights will terminate unless such repurchase rights are assigned to
the successor corporation.

1999 Directors' Stock Option Plan. Our 1999 Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board of Directors in February 1999 and
we will be submitting it for approval by our stockholders prior to the closing
of this offering. A total of 300,000 shares of common stock has been reserved
for issuance under the Directors' Plan.

The Directors' Plan provides for an automatic initial grant of an option to
purchase 30,000 shares of common stock to each person who first becomes a
nonemployee director after the effective date of the plan upon appointment or
election. Initial grants to nonemployee directors shall become exercisable in
installments as to 25% of the total number of shares subject to the option on
the first, second, third and fourth anniversaries of the date of grant. The
Directors' Plan also provides for annual grants, on the date of each annual
meeting of Mpath's shareholders, to each nonemployee director who has served on
Mpath's Board of Directors for at least

53
<PAGE>

six months. The annual grant to such nonemployee directors is an option to
purchase 7,500 shares of common stock, which option shall become exercisable in
full on the fourth anniversary of the date of grant. The exercise price of all
stock options granted under the Directors' Plan shall be equal to the fair
market value of a share of Mpath's common stock on the date of grant of the
option. Options granted under the Directors' Plan have a term of ten years,
however, the option will terminate earlier to the extent not vested when the
optionee ceases to serve as a Director or to the extent vested if it is not
exercised within 12 months after the Director's death or disability or within
90 days after the Director ceases to serve as a Director for any other reason.

In the event of a sale of all or substantially all of the assets of Mpath or
the merger or consolidation of Mpath with or into another corporation in which
the ownership of more than 50% of the total combined voting power of Mpath's
outstanding securities changes hands, all outstanding options will accelerate
and become fully vested effective upon the consummation of such transaction.

The Directors' Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
Board of Directors without participation by a director with respect to matters
in which such director has a personal interest. The Board of Directors may
amend or terminate the Directors' Plan; provided, however, that no such action
may adversely affect any outstanding option. If not terminated earlier, the
Directors' Plan will have a term of ten years.

1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors in February 1999 and we
will be submitting it for approval by our stockholders prior to the closing of
this offering. A total of 750,000 shares of common stock has been reserved for
issuance under the Purchase Plan, none of which have been issued as of the date
of this offering. The number of shares reserved for issuance under the Purchase
Plan will be subject to an annual increase on the first day of each of Mpath's
fiscal years in 2000, 2001, 2002, 2003, and 2004 equal to the lesser of (1)
100,000 shares, (2) 1% of Mpath's outstanding common stock on the last day of
the immediately preceding fiscal year, or (3) such lesser number of shares as
the Board of Directors determines. The Purchase Plan becomes effective on the
date of this prospectus. Unless terminated earlier by the Board of Directors,
the Purchase Plan shall terminate in February 2019.

The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 24
months' duration, with new offering periods (other than the first offering
period) commencing on May 1 and November 1 of each year. Each offering period
will consist of four consecutive purchase periods of six months' duration, at
the end of which six month period (a "purchase date") an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on April 30, 2001; the initial
purchase period is expected to begin on the date of this offering and end on
October 31, 1999. The Purchase Plan will be administered by the Board of
Directors or by a committee appointed by the Board. Employees (including
officers and employee directors) of Mpath, or of any majority-owned subsidiary
designated by the Board, are eligible to participate in the Purchase Plan if
they are employed by Mpath or any such subsidiary for at least 20 hours per
week and more than five months per year. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, which in any
event may not exceed 20% of an employee's compensation, at a price equal to the
lower of 85% of the fair market value of the common stock at the beginning of
each offering period or at the end of each purchase period. Employees may end
their participation in the Purchase Plan at any time during an offering period,
and participation ends automatically on termination of employment. The Board
may also implement provisions of the Purchase Plan that permit stock purchases
through cash or stock contributions.

No employee shall be granted an option under the Purchase Plan if immediately
after the grant such employee would own stock and/or hold outstanding options
to purchase stock equaling 5% or more of the total voting power or value of all
classes of stock of Mpath or its subsidiaries, or if such option would permit
an employee to purchase stock under all employee stock purchase plans of Mpath
and its subsidiaries to accrue at a rate that exceeds $25,000 of fair market
value of such stock for each calendar year in which the option is

54
<PAGE>

outstanding at any time. In addition, no employee may purchase more than 2,000
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan shall automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new twenty-four month
offering period beginning on the first business day following the purchase
date.

The Purchase Plan provides that in the event of a merger or consolidation of
Mpath with or into another corporation or a sale of all or substantially all of
Mpath's assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens any ongoing offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to the
transaction. The Board of Directors has the power to amend or terminate the
Purchase Plan and to change or terminate offering periods as long as such
action does not adversely affect any outstanding rights to purchase stock
thereunder, provided however that the Board may amend or terminate the Plan or
an offering period even if it would adversely affect outstanding options in
order to avoid Mpath's incurring adverse accounting charges.

Limitation of Liability and Indemnification Matters

As permitted by the Delaware General Corporation Law (the "Delaware Law"),
Mpath has included in its Restated Certificate of Incorporation a provision to
eliminate the personal liability of its officers and directors for monetary
damages for breach or alleged breach of their fiduciary duties as officers or
directors, respectively, subject to certain exceptions. In addition, Mpath's
Bylaws provide that Mpath is required to indemnify its officers and directors
under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and Mpath is required to
advance expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. Mpath has entered
into indemnification agreements with its officers and directors containing
provisions that are in some respects broader than the specific indemnification
provisions contained in the Delaware Law. The indemnification agreements
require Mpath, among other things, to indemnify such officers and directors
against certain liabilities that may arise by reason of their status or service
as officers and directors (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance if available on reasonable
terms. Mpath has also obtained directors' and officers' liability insurance.

At present, Mpath is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of Mpath in which
indemnification would be required or permitted. Mpath is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. Mpath believes that its charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.

55
<PAGE>

CERTAIN TRANSACTIONS

Private Placements of Securities

In January 1995, we issued and sold a total of 100,000 shares of our common
stock at a price of $0.05 per share and 2,800,000 shares of our Series A
Preferred Stock at a price of $0.50 per share to IVP and its affiliates and
Accel Partners and its affiliates.

In August 1995 and January 1996, we issued and sold a total 2,190,842 shares
of our Series B Preferred Stock at a price of $2.07 per share to IVP, Accel
Partners, Sutter Hill Ventures and its affiliates and certain other private
investors.

In April 1996, we issued and sold a total of 1,154,580 shares of our Series C
Preferred Stock at a price of $10.28 per share to CSK Corporation and its
affiliates, IVP, Accel Partners, Sutter Hill and certain other private
investors. In November 1996, we issued and sold a total of 291,829 shares of
our Series C Preferred Stock at a price per share of $10.28 to CSK Corporation.
In March 1997, we issued and sold a total of 48,638 shares of our Series C
Preferred Stock at a price of $10.28 per share to Electronic Arts.

In November 1996, we acquired all of the outstanding capital stock of
Catapult Entertainment, Inc., a California corporation, in connection with
Catapult's reorganization. Pursuant to an Agreement and Plan of Reorganization
and an Agreement and Plan of Merger, Catapult merged with and into a wholly-
owned subsidiary of ours. In connection with the merger, we issued 868,254
shares of our Series C Preferred Stock and options to purchase 121,078 shares
of our common stock, valued at $10.28 per share, to the stockholders of
Catapult. In addition, we issued and sold a warrant to purchase up to 52,250
shares of our common stock at a price of $60.00 per share to Intel. This
warrant expires on December 31, 2000. We also issued two convertible promissory
notes to Intel for $1,150,000 and $150,000 respectively, and issued a
convertible senior subordinated promissory note to Viacom for $1,864,000. In
July 1997, the notes to Intel were canceled in exchange for shares of our
Series D Preferred Stock and warrants to purchase our common stock, based on a
purchase price of $5.40 per share. The Viacom Note is convertible into common
stock upon a sale of all or substantially all of Mpath, through a merger,
acquisition, or other transaction or upon an initial public offering of Mpath's
common stock pursuant to a registration statement. The Viacom Note is due and
payable on November 18, 2001.

In July and August 1997, we issued and sold a total of 3,111,110 shares of
our Series D Preferred Stock to Intel, Technology Crossover Ventures,
Electronic Arts, IVP, Accel Partners, Sutter Hill, Cox Technology Investments
and certain other private investors at a price of $5.40 per share. In addition,
in July and August 1997, we issued warrants to purchase 1,555,555 shares of
common stock at an exercise price of $5.40 per share to the purchasers of the
Series D Preferred Stock. These warrants to purchase common stock are
exercisable in stages. One-half of the shares subject to these common stock
warrants are exercisable upon the earlier to occur of (1) a sale of Mpath in
which the consideration per share received by us (on a fully-diluted basis) is
less than $10.80 per share and (2) two years from the date of their issuance.
The second half of the shares subject to these common stock warrants are
exercisable upon the earlier to occur of (1) a sale of Mpath in which the
consideration per share received by us (on a fully-diluted basis) is less than
$10.80 per share and (2) 30 months from the date of their issuance. The first
half of these warrants expire upon the earliest of (1) the issuance and sale of
shares of our common stock in an initial underwritten registered public
offering in which the price per share at least $10.80 and where we receive
total net proceeds of at least $15,000,000, (2) a sale of Mpath in which the
consideration per share received by us (on a fully-diluted basis) is at least
$10.80, (3) the closing of a private financing of Mpath in which the price per
share (on a fully-diluted basis) is at least $10.80 and where we receive total
net proceeds of at least $10,000,000 and (4) two years from the date of their
issuance. The second half of these warrants expire upon the same events as the
first half of these warrants, except that they may be exercisable for up to 30
months after their issuance, not just two years. In any event, these common
stock warrants expire five years from the date they become exercisable, if that
ever occurs.

56
<PAGE>

In July 1998, we entered into a Loan and Security Agreement with Greyrock
Business Credit, a Division of NationsCredit Commercial Corporation under which
Greyrock Business Credit made a $1,500,000 term loan to us and agreed to
provide additional loans for the purchase of equipment and for general working
capital purposes. In connection with the loan agreement with Greyrock Business
Credit, we issued and sold Greyrock Business Credit a warrant to purchase
23,000 shares of our Series D Preferred Stock at an exercise price of $5.40 per
share. This warrant is exercisable at any time and expires on July 30, 2003.

In January 1999, we issued and sold a total of 3,035,306 shares of our Series
E Preferred Stock to Intel, Technology Crossover Ventures, IVP, Accel Partners,
Sutter Hill, Wheatley Partners, HLM ICB Fund, Winfield Capital Corp., Spinnaker
Founders Fund and its affiliates and certain other private investors at a price
of $6.60 per share. In connection with this sale of our Series E Preferred
Stock, we issued a warrant to purchase 77,422 shares of our Series E Preferred
Stock at an exercise price of $6.60 per share to NationsBanc Montgomery
Securities LLC, the placement agent in the Series E financing. This warrant
expires on the closing of this offering.

Since inception, we from time to time have issued and sold shares of our
common stock and granted options to purchase common stock to our employees,
directors and consultants.

Transactions with Directors and Officers

Affiliate Relationships. The following members of the Board of Directors are
affiliated with certain private investors that participated in the foregoing
transactions: James W. Breyer (Accel Partners), William McCall (Cox Technology
Investments), Ruthann Quindlen (IVP) and Gregory O'Brien (CSK Corporation). In
addition, David Brown directly holds shares of our Preferred Stock.

Change of Control. On February 5, 1999, Linda Palmor, Chief Financial
Officer, received a non-qualified option to purchase 150,000 shares of our
common stock at an exercise price of $5.50 per share, which price represented
85% of our common stock's fair market value on the date of grant. The stock
issuable upon exercise of Ms. Palmor's option is subject to vesting over a
four-year period. Upon certain change of control events 40% of Ms. Palmor's
unvested stock shall immediately vest.

Promissory Notes. The executive officers listed on the table below have
executed full-recourse promissory notes in favor of Mpath in excess of $60,000.
All of the notes listed below were executed in connection with the purchase of
shares of our common stock.

<TABLE>
<CAPTION>
Name Date of Note Amount Interest Rate Term
---- ------------ ----------- ------------- ----
<S> <C> <C> <C> <C>
Lynn Heublein, 10/05/98 $ 78,105.23 5.12% (1)
Chief Operating Officer 11/22/98 $101,707.56 4.51% (1)
Linda Palmor, 02/05/99 $885,600.75 4.71% (2)
Chief Financial Officer
Steven Roskowski, 11/22/98 $144,999.78 4.51% (1)
Chief Technical Officer
Robert Csongor, 11/22/98 $123,594.00 4.51% (1)
General Manager, Mpath
Foundation
</TABLE>
- --------
(1) These notes will become due and payable upon the earlier of (a) 9 months
after our initial public offering, (b) 5 years from the date of issue or
(c) the termination of the executive officer's employment with us.
(2) This note will become due and payable upon the earlier of (a) 2 years after
our initial public offering, (b) 5 years from the date of issue or (c) the
termination of the executive officer's employment with us.

57
<PAGE>

SegaSoft Agreement

In April 1996, we entered into a Technology License Agreement with SegaSoft.
Under the agreement with SegaSoft, we granted SegaSoft a non-exclusive license
to use certain proprietary information and technology to support multi-
participant interactive applications. In addition, we must provide technical
assistance to SegaSoft. and SegaSoft must develop at least two games in each 12
month period beginning December 1, 1997. At any time after April 1998, SegaSoft
may terminate the agreement upon 12 months written notice.

58
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the shares of Mpath's common stock on a fully-diluted
basis as of February 11, 1999, and as adjusted to reflect the sale of the
common stock offered by Mpath pursuant to this prospectus (1) by each person
who is known by Mpath to own beneficially more than 5% of Mpath's common stock
on a fully-diluted basis; (2) by each director, the Chief Executive Officer and
the Named Officers; and (3) by all directors and executive officers of Mpath as
a group. In addition, common stock issuable upon conversion of all outstanding
preferred stock are considered outstanding. Except as otherwise noted, the
persons named in the table have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable.

<TABLE>
<CAPTION>
Percent of
Class(2)
Shares -----------------
Beneficially Before After
Name Owed(1) Offering Offering
---- ------------ -------- --------
<S> <C> <C> <C>
Accel Partners (3)............................. 2,849,151 16.0%
IVP (4)........................................ 2,849,153 16.0%
CSK Corporation and affiliates (5)............. 1,338,528 7.8%
Sutter Hill Ventures (6)....................... 1,334,119 7.5%
Intel Corporation.............................. 1,087,239 6.1%
Cox Technology Investments, Inc.(7)............ 925,925 5.2%
Paul Matteucci (8)............................. 1,000,000 5.5%
Brian Apgar (9)................................ 639,000 3.6%
Lynn Heublein (10)............................. 424,728 2.4%
Steve Roskowski(11)............................ 242,402 1.4%
Robert Csongor(12)............................. 140,000 *
James W. Breyer (3)............................ 2,849,151 16.0%
David A. Brown................................. 195,757 1.1%
Douglas G. Carlston............................ 60,000 *
William McCall (7)............................. 925,925 5.2%
Gregory O'Brien (5)............................ 1,388,528 7.8%
Ruthann Quindlen (4)........................... 2,849,153 16.0%
All executive officers and directors as a group
(13 persons) (13)............................. 11,014,195 59.1%
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of February 11,
1999 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage of ownership of
each other person. The persons named in this table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.
(2) Percent of beneficial ownership is based on 17,831,239 shares of common
stock outstanding as of February 11, 1999, and shares of
common stock outstanding after this offering.
(3) Consists of 2,609,824 shares held by Accel IV L.P., 105,417 shares held by
Accel Investors 94 L.P., 54,134 shares held by Accel Keiretsu L.P., 62,680
shares held by Ellmore C. Patterson Partners, and 17,096 shares held by
Prosper Partners. Mr. Breyer is an affiliate of each of the entities
listed in the previous sentence and disclaims his beneficial ownership of
such shares except to the extent of his pecuniary interest therein.The
address of Accel is 428 University Avenue, Palo Alto, California 94301.
(4) Consists of 2,733,993 shares held by Institutional Venture Partners VI,
56,075 shares held by Institutional Venture Management VI, 13,630 shares
held by IVP Founders Fund I, L.P. and 45,455 shares held by IVP Broadband
Fund, L.P. Ms. Quindlen is General Partner of each of the entities listed
in the previous sentence and disclaims beneficial ownership of such shares
except to the extent of her pecuniary interest therein. The address of IVP
is 3000 Sand Hill Road, Building 2, Suite 290, Menlo Park, California
94025.
(5) Consists of 694,263 shares held by CSK Corporation, 462,844 shares held by
CSK Venture Capital Co. Ltd., 115,711 shares held by CSK Venture Capital
Co. Ltd. as Investment Manager for CSK-2 Investment Fund, 57,855 shares
held by CSK Venture Capital Co. Ltd. as Investment Manager for CSK-1(A)
Investment Fund, and 57,855 shares held by CSK Venture Capital Co. Ltd. as
Investment Manager for CSK-1(B) Investment Fund. Mr. O'Brien is an officer
of a company affiliated with CSK Corporation and disclaims beneficial
ownership of such shares. The address of CSK Corporation is 25th Floor,
Shinjuku-Sumitomo Building, 2-6-1 Mishi-Shinjuku, Shinjuku-ku, Tokyo 163-
0227, Japan.

59
<PAGE>

(6) Consists of 998,852 shares held by Sutter Hill Ventures, and 335,267
shares held by 14 individuals or entities associated with Sutter Hill
Ventures. The address of Sutter Hill Ventures is 755 Page Mill Road, Suite
A200, Palo Alto, California 94304.
(7) Mr. McCall is Director, New Media Development of a company affiliated with
Cox Technology Investments, Inc. and disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein. The
address of Cox Technology Investments, Inc. is 1400 Lake Hearn Drive,
Atlanta, Georgia 30319.
(8) Includes 420,000 shares exercisable under outstanding stock options within
60 days of February 11, 1999. The address of Mr. Matteucci is c/o Mpath
Interactive, Inc., 665 Clyde Avenue, Mountain View, California 94043.
(9) Includes 30,000 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(10) Includes 151,390 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(11) Includes 23,931 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(12) Includes 20,000 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(13) Includes 795,321 shares exercisable under outstanding stock options within
60 days of February 11, 1999.

60
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, the authorized capital stock of Mpath
will consist of 50,000,000 shares of common stock, $.00005 par value, and
2,000,000 shares of undesignated preferred stock, $.00005 par value, after
giving effect to the amendment of Mpath's Certificate of Incorporation to
delete references to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, which will occur upon conversion of such preferred stock into common
stock upon the closing of this offering.

Common Stock

As of February 11, 1999, there were 17,831,239 shares of common stock
outstanding held of record by 199 stockholders, and options to purchase an
aggregate of 1,673,410 shares of common stock were also outstanding. There will
be shares of common stock outstanding (assuming no exercise of the
Underwriter's overallotment option, exercise of outstanding options under the
Stock Plans after February 11, 1999 or exercise of warrants outstanding after
the closing of this offering) after giving effect to the sale of the shares of
common stock to the public offered hereby.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.

Preferred Stock

Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 13,451,921 shares of common stock and automatically
retired. Thereafter, the Board of Directors is authorized to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders.

The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Mpath without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of common stock, including
voting rights, of the holders of common stock. In certain circumstances, such
issuance could have the effect of decreasing the market price of the common
stock. As of the closing of the offering, no shares of preferred stock will be
outstanding and Mpath currently has no plans to issue any shares of preferred
stock.

Registration Rights

The holders of 17,363,200 shares of common stock, including shares issuable
upon exercise of outstanding warrants, (the "Registrable Securities"), or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the terms
of an agreement between Mpath and the holders of the Registrable Securities.
Pursuant to such Agreement, on the written demand of holders of more than 50%
of the then outstanding Registrable Securities, Mpath shall use its best
efforts to register such shares and those of any other stockholders who, by
prompt notice, request registration, subject to certain cutbacks in
participation made by the managing underwriter. Mpath is not required to effect
more than two such demand registrations on Form S-1 at any time and more than
two such demand registrations on Form S-3 in any twelve-month period. Such
holders are also entitled to unlimited

61
<PAGE>

piggyback registration rights, subject to certain cutbacks in participation
made by the managing underwriter. All offering expenses in connection with such
registration will be borne by Mpath, excluding underwriting discounts and
commissions.

Delaware Law and the Effect of Certain Certificate of Incorporation and Bylaw
Provisions

Mpath is subject to the provisions of Section 203 of the Delaware General
Corporation Law, and anti-takeover law. In general, the statute prohibits a
publicly-held Delaware corporation from engaging in a business combination with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. For purposes of Section 203, an
"interested stockholder is defined to include any person that is:

. the owner of 15% or more of the outstanding voting stock of the
corporation;

. an affiliate or associate of the corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation, at any time
within three years immediately prior to the relevant date; and

. an affiliate or associate of the persons described in the foregoing
bullet points.

Stockholders may, by adopting an amendment to the corporation's certificate
of incorporation or bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither Mpath's Certificate of
Incorporation nor the Bylaws exempt Mpath from the restrictions imposed under
Section 203 of the Delaware General Corporation Law. It is anticipated that the
provisions of Section 203 of the Delaware General Corporation Law may encourage
companies interested in acquiring Mpath to negotiate in advance with the Board
of Directors of Mpath because the stockholder approval requirement would be
avoided if a majority of the directors then in office approve either the
business combination or the transaction that results in the stockholder
becoming an interested stockholder.

In February, 1999, our Board of Directors and stockholders approved certain
amendments to our Certificate of Incorporation and Bylaws to provide, among
other things, that directors of Mpath will be elected without the application
of cumulative voting. Such provision shall become effective at the first
meeting of stockholders following the annual meeting of stockholders when Mpath
shall have had at least 800 stockholders. Such amendments also provide that,
after the closing of the offering contemplated hereby, any action required or
permitted to be taken by the stockholders of Mpath may be taken only at a duly
called annual or special meeting of the stockholders. The Bylaws also establish
procedures, including advance notice procedures with regard to the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors. See "Description of Capital Stock--Common Stock."

The foregoing provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors.
In addition, these provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, a majority of the outstanding voting stock of Mpath.

Transfer Agent and Registrar

The Transfer Agent and Registrar for the common stock is BankBoston, N.A. The
Transfer Agent's address and telephone number is 150 Royall Street, Campton,
Massachusetts, 02021, (781) 575-2000.

62
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering because
of certain contractual and legal restrictions on resale, sales of substantial
amounts of our common stock in the public market after such restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital.

Upon completion of the offering, we will have outstanding shares of
common stock. Of these shares, the shares sold in the offering, plus
any shares issued upon exercise of the underwriters' over-allotment option,
will be freely tradable without restriction under the Securities Act, unless
purchased by "affiliates" of Mpath as that term is defined in Rule 144 of the
Securities Act.

The remaining 17,831,239 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144. Restricted shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rule 144, Rule 144(k), or Rule 701 of the Securities Act,
all of which are summarized below. Sales of the restricted shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of our common stock.

Our stockholders have entered into lock-up agreements in which they have
agreed that they will not, without the prior written consent of BancBoston
Roberston Stephens, offer, sell, contract to sell, or grant any option to
purchase or otherwise dispose of their shares of our common stock for a period
of 180 days following the effective date of the registration statement filed
pursuant to this offering. These lock-up agreements also apply to any
securities owned by our stockholders that are exercisable for or convertible
into our common stock. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be
saleable until such lock-up agreements expire or are waived by BancBoston
Robertson Stephens. Taking into account the lock-up agreements, and assuming
BancBoston Robertson Stephens does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:

. beginning on the effective date, only the shares sold in the offering
will be immediately available for sale in the public market;

. beginning 180 days after the effective date, approximately 14,718,511
shares will be eligible for sale pursuant to Rules 144, 144(k) and 701;
and

. an additional 3,112,728 shares will be eligible for sale pursuant to
Rule 144 after January 2000.

Shares eligible to be sold by affiliates pursuant to Rule 144 are subject to
volume restrictions. In general, under Rule 144, and beginning after the
expiration of the lock-up agreements, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of: (1) one percent of the number of shares of
common stock then outstanding, which will equal approximately shares
immediately after the offering; or (2) the average weekly trading volume of the
common stock during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Mpath at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

Pursuant to the lock-up agreements, all of our employees holding common stock
or stock options may not sell shares acquired upon exercise of their options
until 180 days after the effective date. Beginning 180 days

63
<PAGE>

after the effective date, any of our employees, officers, directors, or
consultants who purchased his or her shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell such shares in reliance on Rule
144 without having to comply with the holding period, public information,
volume limitation or notice provisions of Rule 144. In addition, Mpath intends
to file one or more registration statements under the Securities Act as
promptly as possible after the effective date to register shares to be issued
pursuant to the our employee benefit plans. As a result, any options exercised
under our stock option plans or any other benefit plan after the effectiveness
of such registration statement will also be freely tradable in the public
market, except that shares held by affiliates will still be subject to the
volume limitation, manner of sale, notice and public information requirements
of Rule 144 unless the shares are otherwise resaleable under Rule 701. As of
February 11, 1999, there were outstanding options for the purchase of 1,673,410
shares, all of which were exercisable. No shares have been issued to date under
our Employee Stock Purchase Plan or our Directors' Stock Option Plan. As of
February 11, 1999, there were outstanding warrants for the purchase of
1,986,282 shares that will survive the completion of this offering. See "Risk
Factors--New investors will suffer immediate substantial dilution,"
"Management--Stock Plans" and "Description of Capital Stock--Registration
Rights."

64
<PAGE>

UNDERWRITING

The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC, Warburg Dillon
Read LLC, a subsidiary of UBS AG, and Wit Capital Corporation acting as e-
Manager, have severally agreed with us, subject to the terms and conditions of
the underwriting agreement, to purchase from us the number of shares of common
stock set forth opposite their names below. The underwriters are committed to
purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- -------
<S> <C>
BancBoston Robertson Stephens Inc. ....................................
Thomas Weisel Partners LLC.............................................
Warburg Dillon Read LLC, a subsidiary of UBS AG........................
Wit Capital Corporation................................................
-------
TOTAL................................................................
=======
</TABLE>

The representatives of the underwriters have advised us that the underwriters
propose to offer the shares of common stock to the public at the public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $ per share, of
which $ may be reallowed to other dealers. After this offering, the
public offering price, concession, and reallowance to dealers may be reduced by
the representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or
in part.

The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to visitors and
users of our services or our Web sites who express an interest in purchasing
such shares. The sale of such shares will be made by Wit Capital acting as e-
Manager in the offering. Purchases of the reserved shares are to be made
through an account at Wit Capital in accordance with Wit Capital's procedures
for opening an account and transacting in securities. Any reserved shares not
purchased by visitors and users to our services or Web sites will be offered by
the underwriters on the same basis as other shares offered hereby.

A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, pursuant to an e-Dealer Agreement,
all dealers purchasing shares from Wit Capital in the offering similarly have
agreed to make a prospectus in electronic format available on Web sites
maintained by each of the e-Dealers.

The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price
per share as we will receive for the shares that the underwriters
have agreed to purchase. To the extent that the underwriters exercise such
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of common stock to be purchased by it shown in the above table
represents as a percentage of the shares offered hereby. If
purchased, such additional shares will be sold by the underwriters on the same
terms as those on which the shares are being sold. We will be
obligated, pursuant to the

65
<PAGE>

option, to sell shares to the extent the option is exercised. The underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of the shares of common stock offered hereby. If such option is
exercised in full, the total price to public, underwriting discounts and
commissions and proceeds to company will be $ million, $ million
and $ million, respectively.

Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

Lock-Up Agreements. Each of our officers and directors and certain other
holders of shares of our common stock have agreed, during the period ending 180
days after the date of this prospectus (the "Lock-Up Period"), subject to
certain exceptions, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
common stock or any options or warrants to purchase any shares of common stock,
or any securities convertible into or exchangeable for shares of common stock
owned as of the date of this prospectus or thereafter acquired directly by such
holders or with respect to which they have the power of disposition, without
the prior written consent of BancBoston Robertson Stephens Inc. However,
BancBoston Robertson Stephens Inc. may, in it sole discretion and at any time
without notice, release all or any portion of securities subject to the lock-up
agreements. There are no existing agreements between the representatives of the
underwriters and any of our stockholders providing consent to the sale of
shares prior to the expiration of the lock-up period.

Future Sales. In addition, we have agreed that during the lock-up period, we
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., subject to certain exceptions, (1) consent to the disposition of any
shares held by stockholders subject to lock-up agreements prior to the
expiration of the lock-up period or (2) issue, sell, contract to sell, or
otherwise dispose of, any shares of common stock, any options to purchase any
shares of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, the issuance of common stock upon the exercise of outstanding
options, and the issuance of options under existing stock option and incentive
plans, provided such options do not vest prior to the expiration of the lock-up
period. See "Shares Eligible for Future Sale."

Listing. Application has been made to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "MPTH."

No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the public offering price for the
common stock offered by this prospectus will be determined through negotiations
among Mpath and the representatives of the underwriters. Among the factors to
be considered in such negotiations are prevailing market conditions, certain
financial information of Mpath, market valuations of other companies that Mpath
and the representatives believe to be comparable to Mpath, estimates of the
business potential of Mpath, the present state of Mpath's development and other
factors deemed relevant.

Stabilization. The representatives of the underwriters have advised us that,
pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price
of the common stock at a level above that which might otherwise prevail in the
open market. A "stabilizing bid" is a bid for or the purchase of common stock
on behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock. A "syndicate covering transaction" is the bid for or
the purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.

66
<PAGE>

LEGAL MATTERS

The validity of our common stock offered hereby will be passed upon for Mpath
by Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo
Park, California. Joshua L. Green and Jeffrey Y. Suto, Directors of Venture Law
Group, are the Secretary and Assistant Secretary, respectively, of Mpath.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Brobeck, Phleger & Harrison LLP, Spear Street Tower, One
Market, San Francisco, California. As of the date of this prospectus, two
Directors of Venture Law Group beneficially own an aggregate of 9,600 shares of
Mpath's common stock.

EXPERTS

The consolidated financial statements as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998, which are included in the
prospectus, are included in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given to us on the authority of such firm as
experts in accounting and in auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement, which includes any amendments thereto, on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement. Certain
items are contained in exhibits to the registration statement as permitted by
the rules and regulations of the Securities and Exchange Commission. For
further information with respect to Mpath and our common stock offered hereby,
reference is made to the registration statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Securities and Exchange Commission as an exhibit to the
registration statement, reference is made to the exhibit for a more complete
description of the matter involved. The registration statement, including
exhibits thereto and the financial statements and notes filed as a part
thereof, as well as such reports and other information filed with the
Securities and Exchange Commission, may be inspected without charge at the
public reference facilities maintained by the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Securities and Exchange Commission located at Seven
World Trade Center, 13th Floor, New York, New York, 10048, and the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any part thereof may be obtained from the Securities and Exchange
Commission upon payment of certain fees prescribed by the Securities and
Exchange Commission. Such reports and other information may also be inspected
without charge at a Web site maintained by the Securities and Exchange
Commission. The address of such site is http://www.sec.gov.

67
<PAGE>

MPATH INTERACTIVE, INC.

CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2

Consolidated Balance Sheets................................................ F-3

Consolidated Statements of Operations...................................... F-4

Consolidated Statements of Stockholders' Equity (Deficit).................. F-5

Consolidated Statements of Cash Flows...................................... F-6

Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Mpath Interactive, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Mpath Interactive, Inc. (the Company) at December 31, 1997 and 1998, and the
results of their operations and their cash flows for 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
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.

PricewaterhouseCoopers LLP
San Jose, CA

January 29, 1999, except as to Note 15, which is as of February 12, 1999

F-2
<PAGE>

MPATH INTERACTIVE, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1998 1998
-------- -------- -----------
(Pro Forma)
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 9,132 $ 1,114
Accounts receivable, net of allowance for
doubtful accounts of $8 and $20
respectively............................... 651 2,226
Prepaid expenses and other current assets.... 364 710
-------- --------
Total current assets....................... 10,147 4,050
Restricted cash................................ 165 170
Property and equipment, net.................... 1,974 1,878
Other assets................................... 70 79
-------- --------
Total assets............................... $ 12,356 $ 6,177
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 429 $ 1,119
Accrued payroll and related expenses......... 787 1,029
Accrued expenses............................. 652 719
Current portion of capital lease
obligations................................ 399 458
Deferred revenue............................. 278 332
Notes payable................................ -- 2,426
Deferred rent................................ 22 34
-------- --------
Total current liabilities.................. 2,567 6,117
Convertible note payable....................... 1,864 1,864
Capital lease obligations, net of current
portion...................................... 784 326
Accrued stock compensation expense............. 2,003 2,218
-------- --------
Total liabilities.......................... 7,218 10,525
-------- --------
Commitments and contingencies (Note 5)

Stockholders' equity:
Convertible preferred stock:
Par value: $0.00005
Authorized: 16,294,986 shares
Issued and outstanding: 10,425,921 and
10,416,615, respectively, and 0 pro forma
with liquidation preference of
$46,529,773............................... 1 1 $ --
Common stock warrants........................ 2 2 2
Common stock:
Par value: $0.00005
Authorized: 25,000,000 shares
Issued and outstanding: 2,584,150 and
3,834,815, respectively, and 14,251,430
pro forma................................. -- -- 1
Additional paid-in capital................... 46,259 49,655 49,655
Notes receivable from stockholders........... (83) (1,020) (1,020)
Accumulated deficit.......................... (41,041) (52,986) (52,986)
-------- -------- --------
Total stockholders' equity (deficit)....... 5,138 (4,348) $ (4,348)
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................ $ 12,356 $ 6,177
======== ========
</TABLE>

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

F-3
<PAGE>

MPATH INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net revenues:
Live Communities.................................. $ 12 $ 686 $ 3,022
Foundation........................................ 112 2,041 5,005
------- ------- -------
Total revenues.................................. 124 2,727 8,027
Cost of net revenues:
Live Communities.................................. 35 1,808 2,221
Foundation........................................ 90 620 790
------- ------- -------
Total cost of revenues.......................... 125 2,428 3,011
------- ------- -------
Gross profit (loss)........................... (1) 299 5,016
------- ------- -------
Operating expenses:
Research and development.......................... 5,261 2,436 3,132
Sales and marketing............................... 3,937 6,906 7,847
General and administrative........................ 2,877 2,841 3,274
Stock based compensation.......................... 377 1,669 2,595
Write-off of acquired intangibles................. 12,876 -- --
------- ------- -------
Total operating expenses...................... 25,328 13,852 16,848
------- ------- -------
Loss from operations........................ 25,329 13,553 11,832
------- ------- -------
Interest and other income........................... 353 283 390
Interest and other expense.......................... (62) (376) (501)
------- ------- -------
Interest and other income (expense), net.......... 291 (93) (111)
------- ------- -------
Loss before provision for income taxes........ 25,038 13,646 11,943
Provision for income taxes.......................... (1) (2) (2)
------- ------- -------
Net loss.................................... $25,039 $13,648 $11,945
======= ======= =======
Net loss per common share:
Basic............................................. $(11.40) $ (5.34) $ (3.99)
======= ======= =======
Diluted........................................... $(11.40) $ (5.34) $ (3.99)
======= ======= =======
Weighted average shares outstanding:
Basic............................................. 2,196 2,556 2,992
======= ======= =======
Diluted........................................... 2,196 2,556 2,992
======= ======= =======
</TABLE>

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

F-4
<PAGE>

MPATH INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)

<TABLE>
<CAPTION>
Convertible
Preferred Notes Total
Stock Common Stock Additional Receivable Stockholders'
------------- -------------- Paid-In From Accumulated Equity
Shares Amount Warrants Shares Amount Capital Stockholders Deficit (Deficit)
------ ------ -------- ------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... 4,989 $ 1 $-- 2,277 $-- $ 5,939 $ (37) $ (2,354) $ 3,549
Conversion of prior year
stock par value......... -- -- -- -- -- -- -- -- --
Issuance of Series B
convertible preferred
stock net of offering
costs of $9............. 2 -- -- -- -- 5 -- -- 5
Issuance of common stock
for notes receivable.... -- -- -- 220 -- 46 (46) -- --
Exercise of stock
options................. -- -- -- 34 -- 2 -- -- 2
Issuance of Series C
convertible preferred
stock, net of offering
costs of $54............ 1,446 -- -- -- -- 14,816 -- -- 14,816
Issuance of Series C
convertible preferred
stock in consideration
of Catapult
acquisition............. 878 -- -- -- -- 9,021 -- -- 9,021
Stock based
compensation............ -- -- -- -- -- 12 -- -- 12
Net loss................ -- -- -- -- -- -- -- (25,039) (25,039)
------ --- ---- ----- ---- ------- ------- -------- -------
Balance at December 31,
1996.................... 7,315 1 -- 2,531 -- 29,841 (83) (27,393) 2,366
Issuance of Series C
convertible preferred... 49 -- -- -- -- 500 -- -- 500
Exchange of Series C
convertible preferred
stock for Series D
convertible preferred
stock................... 44 -- -- -- -- -- -- -- --
Issuance of Series D
convertible preferred
stock, net of offering
cost of $98 and
converted unamortized
debt discount of $360... 3,018 -- -- -- -- 15,841 -- -- 15,841
Issuance of common stock
warrants in conjunction
with Series D
convertible preferred
stock................... -- -- 2 -- -- -- -- -- 2
Exercise of stock
options................. -- -- -- 53 -- 14 -- -- 14
Stock based
compensation............ -- -- -- -- -- 63 -- -- 63
Net loss................ -- -- -- -- -- -- -- (13,648) (13,648)
------ --- ---- ----- ---- ------- ------- -------- -------
Balance at December 31,
1997.................... 10,426 1 2 2,584 -- 46,259 (83) (41,041) 5,138
Adjustment to Series C
relating to Catapult
escrow closing.......... (9) -- -- -- -- (96) -- -- (96)
Warrants issued to
purchase of Series D
preferred stock for
services rendered....... -- -- -- -- -- 64 -- -- 64
Exercise of common stock
options for notes
receivable and cash..... -- -- -- 852 -- 937 (937) -- --
Repurchase of stock
options................. -- -- -- (2) -- (2) -- -- (2)
Exercise of stock
options................. -- -- -- 400 -- 113 -- -- 113
Stock based
compensation............ -- -- -- -- -- 2,380 -- -- 2,380
Net loss................ -- -- -- -- -- -- -- (11,945) (11,945)
------ --- ---- ----- ---- ------- ------- -------- -------
Balances at December 31,
1998.................... 10,417 $ 1 2 3,834 $-- $49,655 $(1,020) $(52,986) $(4,348)
====== === ==== ===== ==== ======= ======= ======== =======
</TABLE>

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

F-5
<PAGE>

MPATH INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(25,039) $(13,648) $(11,945)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 395 852 976
Stock based employee compensation............. 377 1,669 2,595
Non cash interest on debt..................... -- 30 32
Write-off of purchased in-process research
and development costs from Catapult.......... 1,600 -- --
Write-off of intangible assets acquired in
connection with the Catapult acquisition,
net of legal and accounting costs of $367.... 12,509 -- --
Loss (Gain) on sale of investment............. -- -- (166)
Amortization of notes payable discount........ 7 48 --
Changes in assets and liabilities:
Accounts receivable......................... (2) (588) (1,575)
Prepaid expenses and other current assets... (179) 74 (314)
Officer note receivable..................... 70 -- --
Other assets................................ 23 (1) (9)
Accounts payable............................ 161 (41) 690
Accrued payroll and related expenses........ 212 227 242
Accrued expenses............................ 505 3 67
Deferred revenue............................ (8) 268 54
Deferred rent............................... -- 23 12
-------- -------- --------
Net cash used in operating activities..... (9,369) (11,084) (9,341)
-------- -------- --------
Cash flows from investing activities:
Purchase of investment......................... -- -- (625)
Proceeds from sale of investment............... -- -- 791
Proceeds from disposal of fixed assets......... -- 57 0
Acquisition of property and equipment.......... (1,220) (1,092) (880)
Purchase of certificate of deposit (restricted
cash)......................................... (165) -- (5)
Payments for Catapult acquisition, net of cash
acquired of $30............................... (2,414) -- --
-------- -------- --------
Net cash used in investing activities..... (3,799) (1,035) (719)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable.................... -- -- 2,500
Payments of notes payable...................... (74)
Proceeds from capital lease transactions....... 431 678 --
Proceeds from refunds of capital lease
deposits...................................... -- 20 --
Payments under capital lease obligations....... (123) (360) (399)
Proceeds from exercise of common stock options,
net of repurchase............................. 2 14 111
Proceeds from issuance of Series B preferred
stock......................................... 5 -- --
Proceeds from issuance of Series C preferred
stock, net.................................... 14,816 500 (96)
Proceeds from issuance of Series D preferred
stock, net.................................... -- 13,287 --
Proceeds from issuance of bridge loans......... -- 1,600 --
Proceeds from common stock warrants issued with
Series D preferred stock...................... -- 1 --
-------- -------- --------
Net cash provided by financing
activities............................... 15,131 15,740 2,042
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 1,963 3,621 (8,018)
-------- -------- --------
Cash and cash equivalents, beginning of period... $ 3,548 $ 5,511 $ 9,132
======== ======== ========
Cash and cash equivalents, end of period......... $ 5,511 $ 9,132 $ 1,114
======== ======== ========
</TABLE>

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

F-6
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 1996, 1997 and 1998

1. FORMATION AND BUSINESS OF THE COMPANY:

Mpath Interactive, Inc. (the Company), was incorporated in Delaware and
commenced operations in January 1995. Mpath designs, develops, operates and
markets a people-to-people entertainment and game community on the Internet and
provides technology and services to third parties seeking to create online
communities.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents:

The Company considers all highly liquid investments with original maturities
of three months or less, to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market.

Restricted Cash:

At December 31, 1997 and 1998, cash balances of approximately $165,000 and
$170,000, respectively, were restricted from withdrawal and held by a bank in
the form of certificates of deposit. These certificates of deposit serve as
collateral to a letter of credit issued to the Company's landlord as a security
deposit, and as a deposit against the Company's credit card.

Concentration of Credit Risk:

Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company deposits its cash and cash equivalents with two major
banks. The Company has not experienced any losses on its deposits of cash and
cash equivalents. Management believes that these banks are financially sound
and, accordingly, minimal credit risk exists.

With respect to accounts receivable, the Company's customer base is
dispersed across many different geographic areas and range from individual
consumers to a variety of commercial entities. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company periodically reviews the need for reserves for potential credit
losses and such losses have been within management's expectations.

No customer accounted for more than 10% of total revenues during the year
ended December 31, 1996. During the year ended December 31, 1997, sales to two
customers accounted for approximately 35% and 11% of total revenues. During the
year ended December 31, 1998 three customers accounted for 10%, 12% and 23% of
total revenues. One customer accounted for 43% of total accounts receivable at
December 31, 1997. As of December 31, 1998, two customers accounted for
approximately 19% and 27% of total accounts receivable.

Fair Value of Financial Instruments:

The carrying amount of notes payable and capital lease obligations
approximate fair value.

Consolidation:

The consolidated financial statements include those of the Company and its
subsidiary. Inter-company balances and transactions have been eliminated in
consolidation.

F-7
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property and Equipment:

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three to five years. When property and
equipment are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain
or loss is included in income.

Long-Lived Assets:

The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
the Company to review for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets, whenever events or changes
in circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual
disposition. If the undiscounted expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized.

Revenue Recognition:

Live Communities

Advertising revenues are recognized ratably over the period in which the
advertisement is displayed provided that no significant obligations remain and
collection of the resulting receivable is probable. Advertising rates are
dependent on the services provided and the placement of the advertisements. To
date, the duration of the Company's advertising commitments has generally
averaged from two to three months.

Revenues derived from monthly subscription services and on line only games
are recognized over the period in which the services are provided.

Foundation

The Company has adopted the provisions of Statement of Position 97-2, or
SOP 97-2, "Software Revenue Recognition," as amended by Statement of Position
98-9, "Software Revenue Recognition With Respect to Certain Transactions." The
Company recognizes product revenue upon shipment if a signed contract exists,
the fee is fixed and determinable, collection of resulting receivables is
probable and product returns are reasonably estimable. For contracts with
multiple obligations (e.g., maintenance, unspecified upgrades), the Company
allocates revenue to each component of the contract based on objective evidence
of its fair value, which is specific to the Company, or for products not being
sold separately, the price established by management. The Company recognizes
revenue allocated to maintenance fees for ongoing customer support and
unspecified upgrades ratably over the period of the maintenance contract or
upgrade period.

Revenues derived from software development activities are recognized using
the percentage of completion methodology. The Company evaluates these long term
contracts periodically for potential loss situations; any such loss would be
recorded when identified.

Research and Development Costs:

Research and development expenditures are charged to operations as incurred.

F-8
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Advertising Costs:

Costs related to advertising and promotion of products is charged to sales
and marketing expense as incurred. Advertising cost charged to expenses for the
years ended December 31, 1996, 1997, and 1998 were approximately $921,000,
$572,000, $1,201,000, respectively.

Earnings per Share

Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share", establishes standards for computing and presenting
earnings per share. Basic earnings per share is calculated using the average
shares of common stock outstanding while diluted earnings per share reflects
the potential dilution that could occur because of preferred stock and if stock
options and warrants were exercised. Preferred stock, stock options and
warrants are excluded from the calculation if their effect would be
antidilutive.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation", defines a fair value based method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the fair value method or measuring compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion No. 25. The
Company has chosen to continue to use the measurement prescribed by APB Opinion
No. 25 for employee stock options and to make supplemental disclosures to show
the effects of using the fair value-based measurement criteria. The Company
accounts for options granted to non-employees under SFAS No. 123.

Income Taxes:

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.

Certain Risks and Uncertainties:

The Company is subject to all of the risks inherent in an early stage
business in the technology and entertainment industries. The risks include but
are not limited to limited operating history, limited management resources,
reliance on advertising for revenues where acceptance of advertising on the
Internet is uncertain, reliance on relationships with content providers,
dependence on the Internet and related security risks and the changing nature
of the Internet industry.

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,
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.

Comprehensive Income:

The Company has adopted the accounting treatment prescribed by Financial
Accounting Statement No. 130, "Comprehensive Income." The adoption of this
statement had no impact on the Company's financial statements for the periods
presented.

F-9
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Segment Information:

In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 supersedes FAS 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS No. 131 did not affect results
of operations or financial position but did affect the disclosure of segment
information (see Note 13).

Recent Accounting Pronouncements:

Pro Forma Balance Sheet (unaudited):

The accompanying unaudited pro forma balance sheet at December 31, 1998
reflects the assumed conversion of the Series A, Series B, Series C, Series C-1
and Series D preferred stock into common stock as of December 31, 1998.

Reclassifications:

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

3. CATAPULT ACQUISITION:

In November 1996, the Company acquired all of the assets and assumed the
liabilities of Catapult Entertainment, Inc. ("Catapult") as part of a Chapter
11 Plan of Reorganization under the United States Bankruptcy Code. The total
acquisition cost was approximately $11,831,000 and consisted of (i) cash
payments of $2,444,000, including $549,000 paid to Catapult's unsecured
creditors; (ii) 877,560 shares of Series C preferred stock valued at $10.28 per
share (see Note 7); and (iii) legal and accounting costs of $367,000. Net
liabilities in excess of assets assumed by the Company amounted to $2,644,000.
Approximately 105,000 shares of Series C Preferred Stock were placed in escrow
in the event that the Company was required to pay allowable unsecured claims in
excess of $549,000. As of May 1998, the final payment of $121,000 had been
requested by Catapult creditors for which the Company was entitled to receive
reimbursement from Series C preferred stock in escrow. The Series C preferred
stock held in escrow was reduced by 9,306 shares and the remaining 95,665
shares were released to the stockholders of Catapult.

The acquisition was accounted for as a purchase. Accordingly, the results of
operations of Catapult have been included in the consolidated statements of
operations from the date of acquisition.

F-10
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The purchase price, including liabilities assumed, in excess of the fair
value of assets acquired was allocated to in-process research and development
($1,600,000), which was immediately expensed, and goodwill ($12,876,000).

The goodwill was originally assigned a two-year life but in December 1996
the Company decided to changed their business strategy relating to the use of
the technology and business acquired from Catapult. As a result of this change
in strategy, the Company determined that it had no use for and that there would
be no future cash flows from the Catapult assets. Accordingly, the Company
wrote off the goodwill as soon as the impairment was identified.

In June 1998, the Company exercised warrants, received in connection with
the Catapult Acquisition, and immediately sold the acquired shares, realizing a
gain of approximately $167,000. The gain was included in other income during
the year ended December 31, 1998.

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
December 31,
----------------
Useful
1997 1998 Life
------- ------- -------
<S> <C> <C> <C>
Software.................. $ 212 $ 212 3 years
Computer equipment........ 1,198 2,078 3 years
Furniture and fixtures.... 86 86 5 years
Leasehold improvements.... 109 109 5 years
Equipment under capital
lease:
Software................ 56 56
Computer equipment...... 1,546 1,546
------- -------
3,207 4,087
Less accumulated
depreciation and
amortization............. (1,233) (2,209)
------- -------
$ 1,974 $ 1,878
======= =======
</TABLE>

The accumulated amortization on assets under capital lease was approximately
$455,000 and $900,000 at December 31, 1997 and 1998, respectively.

5. COMMITMENTS AND CONTINGENCIES:

Contingencies:

The Company has received notice of certain claims for potential patent
infringement. The Company believes that these claims are without merit, intends
to defend them vigorously. However, litigation is subject to inherent
uncertainties and thus, there can be no assurance that these claims will be
resolved favorably to the Company or that they will not have a material adverse
affect on the Company's financial statements.

F-11
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Lease Obligations:

Future minimum lease payments under capital and operating leases at
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ----------
<S> <C> <C>
1999................................................ $ 523,000 $ 419,000
2000................................................ 334,000 422,000
2001................................................ 10,000 435,000
2002................................................ -- 36,000
--------- ----------
Total minimum lease payments...................... 867,000 $1,312,000
==========
Less amount representing interest................... (83,000)
---------
784,000
Less current portion................................ (458,000)
---------
$ 326,000
=========
</TABLE>

Rent expense for the years ended December 31, 1996, 1997 and 1998, was
approximately $458,000, $500,000, and $498,000, respectively.

6. NOTES PAYABLE:

In conjunction with its acquisition of Catapult (Note 3), the Company
assumed certain indebtedness of Catapult. Included in the indebtedness assumed
were convertible, non-interest bearing promissory notes payable totaling
$1,300,000 which were due in full in November 2001. Associated with these
notes was unamortized debt discount, which was calculated using an interest
rate of 8.25%. Warrants to purchase the Company's common stock were issued in
conjunction with the convertible promissory notes at the time of the Catapult
acquisition. In July 1997, these notes were converted into 981,481 shares of
Series D preferred Stock and warrants to purchase 490,741 shares of the
Company's common stock. These warrants have an exercise price of $5.40 per
share and have exercisability and expiration terms defined in Note 7--Common
Stock Warrants. The unamortized debt discount was recorded as a reduction to
additional paid-in capital in connection with the conversion of the notes into
the Series D preferred stock.

The Company also assumed a convertible note payable from Catapult bearing
interest at prime (7.75% at December 31, 1998) which is due with interest in
November 2001. At December 31, 1997 and 1998, the Company had $1,864,000
outstanding under this note payable. The entire amount of unpaid principal and
accrued interest may be converted, at the option of the note holder, into
shares of the Company's common stock, upon (i) a sale of all or substantially
all of the Company, through a merger, acquisition or other transaction, or
(ii) upon an initial public offering of the Company's common stock.

In May 1997, the Company received convertible bridge loans totaling
$1,600,000 from certain of its stockholders. The bridge loans carried interest
at 6.23 % per annum. In July 1997, the bridge loans and accrued interest of
approximately $14,000 were converted into 647,405 shares of Series D preferred
stock and warrants to purchase 323,702 shares of the Company's common stock.
These warrants have an exercise price of $5.40 per share and have
exercisability and expiration terms defined in Note 7--Warrants.

In July 1998, the Company entered into a revolving line of credit agreement
for up to $1,500,000 or 80% of the Company's accounts receivable, a capital
equipment purchase line agreement for up to $1,000,000 and a term loan
agreement up to $1,500,000, all bearing interest rates of prime plus 2.0%
(9.75% at December 31,

F-12
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1998). Amounts borrowed under these agreements are collateralized by
substantially all assets of the Company. In conjunction with this agreement,
the Company issued a warrant to purchase 23,000 shares of the Company's Series
D preferred stock at an exercise price of $5.40 per share, which expires July
31, 2003. As the fair value of these warrants was determined to be immaterial
at the date of issuance, no additional debt issuance costs were recorded.

As of December 31, 1998, the Company has borrowed $1,500,000 and $1,000,000
against the term loan agreement and the capital equipment purchase line
agreement, respectively. Amounts drawn against the revolving line of credit,
term loan and capital equipment purchase line are due no later than June 30,
1999. The term loan was repaid in January 1999 (see Note 14). The Company is
required to make monthly payments on the capital equipment purchase line equal
to 1/48th of the balance until June 30, 1999. As of December 31, 1998, the
Company has not drawn down any of the available funds on the revolving line of
credit.

7. STOCKHOLDERS' EQUITY (DEFICIT):

Convertible Preferred Stock:

The Company has authorized a total of 13,182,258 shares of convertible
preferred stock. The following is outstanding:

<TABLE>
<CAPTION>
Issued and
Outstanding December
31,
---------------------
Designated 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Series A................................. 2,800,000 2,800,000 2,800,000
Series B................................. 2,234,320 2,190,842 2,190,842
Series C................................. 2,323,969 2,323,969 2,314,663
Series C-1............................... 2,323,969 --
Series D................................. 3,500,000 3,111,110 3,111,110
---------- ----------
Total convertible preferred stock........ 10,425,921 10,416,615
========== ==========
</TABLE>

The rights, preferences and privileges of the preferred stockholders are as
follows:

Dividends:

The holders of Series A, Series B, Series C, Series C-1 and Series D
preferred stock are entitled to receive dividends, out of any assets legally
available prior and in preference to any declaration or payment of any dividend
on the common stock at the rate of $.05, $.205, $1.03, $1.03 and $0.54 per
share per annum, respectively, when and if declared by the Board of Directors.
Such dividends are not cumulative. After payment of the dividend preference,
outstanding shares of Series A, Series B, Series C, Series C-1 and Series D
preferred stock shall participate with shares of common stock as to any
additional declaration or payment of any dividend. As of December 31, 1998, no
dividends have been declared or paid.

Liquidation:

In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series D preferred stock shall
be entitled to receive, prior and in preference to any distribution of any of
the assets of the Company to the holders of Series A, Series B, Series C and
Series C-1 preferred stock and common stock, an amount per share equal to the
sum of (i) $5.40 for each outstanding share of Series D preferred stock and
(ii) an amount equal to declared but unpaid dividends on such shares. If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of Series D preferred stock

F-13
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

shall be insufficient to permit the payment of preferential amounts, then the
entire assets and funds to the Company legally available for distribution shall
be distributed ratably among the holders of Series D preferred stock in
proportion to the aggregate liquidation preference for the shares owned by each
such holder.

After completion of distribution to the preferred Series D stockholders, the
holders of Series A, Series B, Series C and Series C-1 preferred stock shall be
entitled to receive, prior and in preference to any distribution of any assets
of the Company to the holders of common stock, an amount per share equal to the
sum of (i) $.50 for each outstanding share of Series A preferred stock, $2.07
for each outstanding share of Series B preferred stock, $10.28 for each
outstanding share of Series C and Series C-1 preferred stock, and (ii) an
amount equal to declared but unpaid dividends on such shares. If upon the
occurrence of such an event, the assets and funds distributed among the holders
of Series A, Series B, Series C and Series C-1 preferred stock shall be
insufficient to permit the payment of preferential amounts, then the entire
assets and funds of the Company legally available for distribution shall be
distributed ratably among the holders of the Series A, Series B, Series C and
Series C-1 preferred stock in proportion to the aggregate liquidation
preference for the share of such stock owned by each holder.

After completion of distribution to the preferred stockholders, the
remaining assets of the Company will be distributed to the holders of Series A
preferred stock and common stock pro rata based upon the number of shares of
common stock held by each (assuming conversion into common stock of all such
Series A preferred stock) until the holders of Series A preferred stock shall
have received an aggregate of $2.50 per share of Series A preferred stock held,
including amounts paid from above. Any remaining assets are to be distributed
ratably among the holders of the Company's common stock.

Conversion:

Each share of Series A, Series B, Series C, Series C-1 and Series D
preferred stock is convertible, at the option of the holder, into such number
of fully paid and nonassessable shares of common stock as determined by
dividing the applicable original issue price by the conversion price applicable
to such share in effect at the date of conversion. The original issue price
shall be adjusted for any stock splits. Each share of preferred stock shall
automatically be converted into shares of common stock immediately upon the
earlier of (i) the closing of a firm commitment underwritten public offering
results in not less than $10.28 per share and aggregate net proceeds to the
Company of more than $15,000,000 or (ii) written consent or agreement of the
holders of 66 2/3% of the then outstanding preferred stock. At December 31,
1998, each share of Series A, Series B, Series C, Series C-1 and Series D
preferred stock can be converted to one share of common stock, subject to
adjustments under specific circumstances. The Company has reserved a total of
14,642,477 shares of common stock in the event of preferred stock conversion.

Redemption:

The preferred stock is not redeemable.

Voting Rights:

The holder of each share of Series A, Series B, Series C, Series C-1 and
Series D preferred stock is entitled to one vote for each share of common stock
into which such share of the preferred stock is convertible.

Common Stock:

Previously the Company had issued 2,397,000 shares of its common stock to
the founders and key employees of the Company under restricted stock purchase
agreements in exchange for notes receivable bearing interest at 5.2% to 6.8%
per annum.

F-14
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In the period ending December 31, 1998, the Company issued 852,378 options
for shares of its common stock to seven key employees of the Company. All of
the options were exercised immediately in exchange for cash and notes
receivable bearing interest rates ranging from 5.93% to 6.02% per annum.

Under the terms of the agreements, the Company has the option to repurchase
all or any portion of the purchased shares in which the founders and key
employees have not acquired a vested interest, should the individuals cease to
be employed, at the holder's original purchase price. The Company's right to
repurchase such shares generally lapses 25% on the first anniversary date of
the purchase of the common stock and thereafter ratably over three years. At
December 31, 1998, 195,354 shares of the founders common stock and 589,599
shares of the options exercised were subject to the Company's right of
repurchase.

Warrants:

In conjunction with a capital lease agreement, the Company granted warrants
to purchase up to 43,477 shares of its Series B preferred stock at an exercise
price of $2.07 per share and expire September 30, 1999. The warrants are
exercisable based on the amount of the lease line used. As the fair value of
these warrants was determined to be immaterial at the date of issuance, no
charge to rent expense was recorded. At December 31, 1998 warrants to purchase
43,477 shares of Series B preferred stock were fully exercisable. The Company
has reserved 43,477 shares of Series B preferred stock for the exercise of
these warrants.

In conjunction with the issuance of the Series D preferred stock, issued
during July and August 1997, the Company issued warrants to the Series D
investors to purchase 1,555,555 shares of common stock at a price of $5.40 per
share (subject to adjustments under certain circumstances). This grant of
1,555,555 includes the 490,741 convertible promissory note grant and the
323,702 bridge loan conversion grant (see Note 6). No charge was recorded for
the fair value of these warrants at the date of grant (of $529,000) as the
warrants were costs of financing recorded against additional paid-in capital.
One-half of the warrants shall become exercisable upon the earlier of the sale
of the Company for a price which is less than $10.80 per share or July 18, 1999
and the remaining warrants shall become exercisable upon the earlier of the
sale of the Company for a price which is less than $10.80 per share or January
19, 2001.

One-half of the warrants expire upon (i) the closing of an initial public
offering with a price per share greater than $10.80 per share (subject to
adjustments under certain conditions) and having aggregate net proceeds to the
Company greater than $15,000,000, (ii) the sale of the Company for a price per
share greater than $10.80 per share (subject to adjustment) or (iii) a private
financing with a price per share greater than $10.80 per share (subject to
adjustment); provided that the event occurs before 24 months from the date of
purchase. The remaining warrants expire under the same circumstances provided,
however, that the event occurs before 30 months from the date of purchase and
the offering has an aggregate net proceeds to the Company greater than
$10,000,000.

The Company has entered into an agreement with a national Internet Service
Provider (service provider) to provide the equipment necessary for the
Company's services. In connection with this agreement, the Company has granted
warrants to the service provider to purchase up to 120,000 shares of common
stock. The terms of such agreement are to be governed by a mutually agreed-upon
warrants and equipment leasing agreement between the parties. As of December
31, 1998, such agreement has not been finalized. On February 12, 1999, the
Company finalized the agreement which involved the issuance of warrants to
purchase 12,000 shares of common stock at $0.21 per share and 108,000 shares at
$1.03 per share. These warrants are immediately exercisable and expire in
February 2004. The Company will evaluate the fair value of these warrants and
recognize the related expense as cost of revenues over the remaining term of
the agreement.

F-15
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company issued a warrant to purchase up to 52,250 shares of common stock
at a price of $60 per share (subject to adjustments under certain
circumstances) in connection with the issuance of notes payable by Catapult
prior to its acquisition by the Company (See Note 6). The warrant is
exercisable, in whole or in part, at any time on or after November 18, 1996,
based on certain conditions as defined, and expires on December 31, 2000. The
Company has reserved 52,250 shares of common stock for the exercise of this
warrant. As the fair value of these warrants was determined to be immaterial at
the date of issuance, no charge was recorded.

The following table summarizes the outstanding warrants at December 31,
1998:

<TABLE>
<CAPTION>
Number
Date of of Exercise
Grant Issued to Type Warrants Price Expires
------- ---------------------------- ------------------ --------- -------- --------------
<S> <C> <C> <C> <C> <C>
September 1995 Capital lessor Series B Preferred 43,477 $2.07 September 1999
November 1996 Promissory noteholder Common 52,250 $60.00 November 2000
July 1997 Series D Preferred investors Common 1,555,555 $5.40 *
July 1998 Note financer Series D Preferred 23,000 $5.40 July 2003
* Internet service provider Common 120,000 * *
</TABLE>

*- See further information in Note 7--Warrants and Note 6.

1995 Stock Option/Stock Issuance Plan:

During 1995, the Company adopted the 1995 Stock Option/Stock Issuance Plan
(the Plan). The Plan is divided into an Option Grant Program under which
employees may be granted options to purchase common stock and a Stock Issuance
Program under which employees may be issued shares of common stock directly,
either through the immediate purchase of such shares or for services rendered
to the Company. Options are granted at an exercise price determined by the
board of directors and are fully exercisable on date of grant, subject to
repurchase (at the original price) by the Company. The repurchase right lapses
for 25% of the shares upon completion of one year of service and the balance in
successive equal monthly installments over three years. Options expire ten
years after issuance. As of December 31, 1998 shares authorized under the plan
were 3,453,000.

As part of the Catapult acquisition, the Company exchanged options to
purchase 122,403 shares of stock under the Plan for Catapult options
outstanding prior to the acquisition. These options, which were fully vested
upon consummation of the acquisition, are exercisable following termination of
employment for a period up to four years after the Company's acquisition of
Catapult or nine months after an initial public offering of the Company,
(unless the lock-up period following the initial public offering imposed upon a
particular by the underwriters is longer than six months, in which case such
option's shall not terminate until three months after expiration of such lock-
up period). Shares issuable upon exercise of 15,453 of the options were held as
part of the escrow described under Note 3. The Catapult options held in escrow
were reduced by 1,325 options and the remaining 14,128 options were released
from escrow in 1998. The exercise price of the options was based on the
exchange ratio in the acquisition and range from $1.01 to $6.29 per share.

F-16
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Activity under the Plan, including options granted in connection with the
above Catapult acquisition, is as follows:

<TABLE>
<CAPTION>
Weighted
Options Average
Available Number of Exercise Aggregate Exercise
for Grant Options Price Price Price
---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 728,000 595,000 $0.05-$0.21 $ 62,000 $ 0.10
Options additionally
reserved............. 380,000
Options granted....... (457,903) 457,903 $0.21-$6.29 777,000 $ 1.70
Options canceled...... 55,500 (55,500) $0.21-$1.03 (16,000) $ 0.29
Options exercised..... (33,750) $0.05-$0.21 (2,000) $ 0.07
---------- ---------- -----------
Balances, December 31,
1996................... 705,597 963,653 $0.05-$6.29 821,000 $ 0.85
Options additionally
reserved............. 600,000
Options granted....... (837,750) 837,750 $ 1.03 863,000 $ 1.03
Options canceled...... 144,525 (144,525) $0.21-$1.03 (93,000) $ 0.65
Options exercised..... (53,400) $0.05-$1.03 (15,000) $ 0.28
---------- ---------- -----------
Balances, December 31,
1997................... 612,372 1,603,478 $0.05-$6.29 1,576,000 $ 0.98
Options additionally
reserved............. 1,150,000
Options granted....... (1,586,750) 1,586,750 $1.03-$2.50 1,992,000 $ 1.26
Options repurchased... 1,500 $ 1.03 $ 1.03
Options canceled...... 152,166 (152,166) $0.05-$6.29 (134,000) $(0.88)
Options exercised..... (1,252,165) $0.05-$1.13 (1,050,000) $(0.84)
---------- ---------- -----------
Balances, December 31,
1998................... 329,288 1,785,897 $0.05-$6.29 $ 2,384,000 $ 1.33
========== ========== ===========
</TABLE>

At December 31, 1996, 1997 and 1998, options for 1,455,088, 12,501 and
589,599 shares remain subject to the Company's right of repurchase.

The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
--------------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
----------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05 106,334 6.3 years $0.05 106,334 $0.05
$0.21 38,187 5.2 years $0.21 38,187 $0.21
$1.01-$1.13 1,308,736 9.2 years $1.03 1,308,736 $1.03
$1.50 46,500 9.9 years $1.50 46,500 $1.50
$2.01 30,712 2.1 years $2.01 30,712 $2.01
$2.50 189,000 10 years $2.50 189,000 $2.50
$6.29 66,428 1.9 years $6.29 66,428 $6.29
--------- ---------
$0.05-$6.29 1,785,897 8.6 years $1.34 1,785,897 $1.33
========= =========
</TABLE>

F-17
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For financial reporting purposes, the Company has determined that the
deemed fair market value on the date of grant of employee stock options granted
since 1995 was in excess of the exercise price of the options. The difference
is considered stock compensation expense and is charged against income over the
vesting period of the options. Future compensation expense from options granted
through December 31, 1998 is estimated to be $3,577,000, $3,287,000,
$2,099,000, and $1,084,000 for the years ending December 31, 1999, 2000, 2001,
and 2002, respectively.

Pro Forma Stock-Based Compensation:

The Company accounts for employee stock options under APB Opinion No. 25.
Had the Company determined compensation expense under SFAS No. 123, the effect
on the Company's net earnings would have been insignificant. These pro forma
results are not necessarily indicative of results which may be expected in the
future as additional grants are made each year and options vest over several
years. The weighted average fair value of the options and warrants granted or
modified for the years ended December 31, 1996, 1997 and 1998 was $0.17, $0.40
and $0.22 respectively.

The following weighted average assumptions were used in the above
calculations:

<TABLE>
<CAPTION>
1996 1997 1998
--------- ------- -------
<S> <C> <C> <C>
Risk free interest rate....................... 6.11% 6.05% 5.13%
Expected life................................. 5.5 years 4 years 4 years
Volatility.................................... -- -- --
Dividend yield................................ -- -- --
</TABLE>

8. NET LOSS PER SHARE:

In accordance with the requirements of SFAS No. 128, a reconciliation of the
numerator and denominator of basic and diluted loss per share is provided as
follows:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Numerator--Basic and Diluted:
Net loss........................... $(25,039,000) $(13,648,000) $(11,945,000)
Denominator--Basic and Diluted:
Weighted average common shares
outstanding....................... 2,195,922 2,556,202 2,992,077
Basic and Diluted loss per share..... $ (11.40) $ (5.34) $ (3.99)
</TABLE>

Options and warrants to purchase common and preferred shares and preferred
securities are not included in the diluted loss per share calculations as their
effect is antidilutive for all periods presented. These dilutive securities at
December 31, 1998 included weighted average common stock equivalents relating
to preferred stock and options and warrants to purchase common and preferred
shares (as calculated using the treasury method), as follows:

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Preferred stock............................. 5,332,682 8,662,706 10,416,615
Options..................................... 630,168 1,106,273 1,403,983
Warrants.................................... -- 216,088 543,436
</TABLE>

F-18
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. EMPLOYEE BENEFIT PLAN:

The Company created a 401(k) Plan (the Plan) to provide tax deferred salary
deductions for all eligible employees. Participants may make voluntary
contributions to the Plan up to 20% of their compensation, not to exceed the
annual 402(g) limitation for any plan year. The Company's matching contribution
is discretionary as determined by the Board of Directors. During 1996, 1997 and
1998, the Company did not contribute to the Plan.

10. INCOME TAXES:

For the years ended December 31, 1996, 1997 and 1998 the provision for
income taxes comprised minimum state tax expense.

The components of the net deferred tax assets comprised (in thousands):

<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 14,552 $ 17,588
Tax credit carryforwards.................................. 988 988
Accruals, depreciation and amortization................... 389 528
Intangible assets......................................... 6,957 5,097
-------- --------
22,886 24,201
Less valuation allowance.................................. (22,886) (24,201)
-------- --------
Net deferred tax asset.................................... $ -- $ --
======== ========
</TABLE>

Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets.

The difference between the statutory rate of approximately 40% (34% federal
and 6% state, net of federal tax benefits) and the tax benefit of zero recorded
by the Company is primarily due to the Company not recording the benefit
received from the accumulation of their net deferred tax assets.

At December 31, 1997 and 1998, the Company had federal and state net
operating loss carryforwards of approximately $32,816,000 and $45,232,000,
respectively, available to offset future regular and alternative minimum
taxable income. Of the total net operating loss carryforwards, $16,231,000 was
attributed to Catapult's carryforwards (see Note 3). The Company's net
operating loss carryforwards expire on various dates after the year 1999, if
not utilized.

Due to changes in the Company's ownership, future utilization of these net
operating losses and credit carryforwards will be subject to certain annual
limitations as defined by the Tax Reform Act of 1986. Due to separate return
limitations, future utilization of the net operating losses and credits of
Catapult will be subject to additional limitations.

Due to changes in the Company's ownership, future utilization of these net
operating loss carryforwards may be subject to certain limitations on annual
utilization as deferred by the Tax Reform Act of 1986.

F-19
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. RELATED PARTY TRANSACTIONS:

One of the Company's major customers is also an investor and has a seat on
the Board of Directors. The Company had revenue transactions in the normal
course of business with this customer totaling $515,000 and $1,901,000 in the
years ending December 31, 1997 and 1998, respectively. During the year ending
December 31, 1996, the Company did not have revenue transactions with this
customer. As of December 31, 1998, the Company has an accounts receivable
balance of $376,000 outstanding from this customer.

12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Cash paid for interest......................... $ 40,000 $ 115,000 $ 222,000
Exercise of common stock options for notes
receivable.................................... 46,000 -- 937,000
Issuance of Series C preferred stock in
consideration of Catapult acquisition in
November 1996................................. 9,021,000 -- --
Assumption of notes payable in connection with
the Catapult acquisition, net of original
discount of $415,000.......................... 2,756,000 -- --
Conversion of Series C preferred stock to
Series D preferred stock...................... -- 500,000 --
Exchange of notes payable for Series D
preferred stock............................... -- 1,300,000 --
Conversion of bridge loans and accumulated
interest into Series D preferred stock........ -- 1,614,000 --
Non cash payment for common stock warrants..... -- 1,000 --
Buyout of Catapult leases with deposit funds... -- 74,000 --
Non cash financing cost in conjunction with
financing arrangement for warrant of 23,000
shares of Series D preferred stock............ -- -- 64,000
Compensation accrued for options granted....... 365,000 1,606,000 215,000
Compensation recorded for options exercised.... 12,000 63,000 2,380,000
</TABLE>

13. SEGMENTS:

As discussed in Note 2, the Company has two reportable segments: Live
Communities and Foundation. Live Communities provides a live entertainment and
game community on the Internet. Foundation leverages the technology expertise
developed in creating Live Communities by providing licensed technology,
developmental and supporting services to companies seeking to create online
communities.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income tax and
including nonrecurring gains and losses.

F-20
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business has different strategies. The following table provides financial
information by segment (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
----------------- ----------------- ----------------
Percent Percent Percent
of of of
Dollar Total Dollar Total Dollar Total
Value Revenue Value Revenue Value Revenue
-------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Live Communities........ $ 12 10% $ 686 25 % $ 3,022 38%
Foundation.............. 112 90% 2,041 75 % 5,005 62%
-------- --- -------- --- ------- ---
Total................. $ 124 100% $ 2,727 100 % $ 8,027 100%
======== === ======== === ======= ===
Cost of net revenues:
Live Communities........ $ 35 28% $ 1,808 66 % $ 2,221 28%
Foundation.............. 90 72% 620 23 % 790 10%
-------- -------- -------
Total................. $ 125 $ 2,428 $ 3,011
======== ======== =======
Gross profit (loss):
Live Communities........ $ (23) -18% $ (1,122) (41)% $ 801 10%
Foundation.............. 22 18% 1,421 52 % 4,215 52%
-------- -------- -------
Total................. $ (1) $ 299 $ 5,016
======== ======== =======
Operating expenses:
Live Communities........ $ 11,648 $ 8,106 $ 9,740
Foundation.............. 427 4,077 4,513
-------- -------- -------
Total................. $ 12,075 $ 12,183 $14,253
======== ======== =======
Operating loss:
Live Communities........ $(11,671) $ (9,228) $(8,939)
Foundation.............. (405) (2,656) (298)
-------- -------- -------
Total................. $(12,076) $(11,884) $(9,237)
======== ======== =======
</TABLE>

In 1996, operating expenses and operating loss do not agree to the amounts on
the statement of operations as the write-off of acquired intangibles was not
considered to be a part of either operating segment. In 1996, 1997 and 1998,
the operating expenses and operating loss do not agree to the amounts on the
statements of operations as the stock compensation was not classified within
either operating segment.

14. SUBSEQUENT EVENTS:

In January of 1999 the Company increased the authorized number of shares of
preferred stock to 16,294,986 and issued 3,035,306 shares of Series E
convertible preferred stock, with a par value of $.00005 per share, at a price
of $6.60 per share. An additional 77,422 shares of Series E preferred stock are
reserved for issuance upon exercise of warrants granted to the investment
bankers at an exercise price of $6.60 per share. The warrants expire upon the
earlier of January 15, 2004, the sale or merger of substantially all of the
Company's assets or an underwritten public offering of securities. The fair
value of these warrants of $104,000 will be recorded as a reduction of
additional paid-in capital.

Each share of Series E preferred stock is convertible at the option of the
holder into one share of common stock. All preferred shares will automatically
convert into common stock upon the earlier of the closing of an

F-21
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

underwritten public offering of common stock for not less than $10.80 per
share, with aggregate net proceeds of more than $15,000,000, or the date
specified by written consent or agreement of the holders of at least sixty-six
and two thirds percent (66.67%) of the then outstanding shares of preferred
stock.

The holders of Series E preferred stock are entitled to receive, on an equal
basis, non- cumulative dividends in preference to holders of common stock at
the rate of $0.66 per share, when and if declared by the Board of Directors.

Upon liquidation, dissolution, or winding up of the Company, the holders of
preferred stock are entitled to receive on an equal basis in conjunction with
holders of preferred Series D and in preference to holders of common and
holders of Series A,B,C and C-1 an amount equal to $6.60 for each share of
Series E and $5.40 for each share of Series D then held plus any declared but
unpaid dividends. Holders of Series A,B,C and C-1 preferred stock shall then
receive distributions based on their liquidation rates.

After completion of the distribution to the preferred stockholders the
remaining assets will be distributed to the holders of Series A Preferred Stock
and common stock on a common equivalent of $2.50 per share. Thereafter, the
holders of common stock will be entitled to receive all remaining assets.

The holders of each share of Series E preferred stock shall have the right
to that number of votes equal to the number of shares of common held on as
converted basis.

Immediately subsequent to the issuance of Series E preferred stock the term
loan for $1,500,000 (see Note 6) became due and payable. The Company has fully
repaid this obligation.

15. ADDITIONAL SUBSEQUENT EVENTS:

In February 1999, the Company's Board of Directors approved the 1999 Stock
Incentive Plan, which is still subject to stockholder approval. A total of
2,500,000 shares of common stock has been reserved for issuance under this
plan, which is subject to annual increases. This plan provides for the grant of
incentive stock options to employees and nonstatutory stock options and
restricted stock to employees, directors and consultants. The terms of the
option and restricted stock grants will be determined by the Board of Directors
on the date of issuance.

In February 1999, the Company's Board of Directors approved the 1999
Directors' Stock Option Plan (the "Directors' Plan"), which is still subject to
stockholder approval. A total of 300,000 shares of common stock has been
reserved for issuance under the Directors' Plan. The Directors' Plan provides
for an initial grant of an option to purchase 30,000 shares of common stock to
each person who becomes a non-employee director after the effective date of the
Directors' Plan. These options vest and become exercisable 25% annually upon
the first, second, third and fourth anniversaries of the date of grant. The
Directors' Plan also calls for annual grants upon each annual meeting of
options to purchase 7,500 common shares, which option becomes exercisable and
vested in full upon the fourth anniversary of the date of grant. Options must
be granted at the fair market value on the date of grant and have a term of the
lesser ten years or the term of the optionees' service as a director.

In February 1999, the Company's Board of Directors approved the 1999
Employee Stock Purchase Plan (the "Purchase Plan"), which is still subject to
stockholder approval. A total of 750,000 shares of common stock has been
reserved for issuance under the Purchase Plan, which is subject to annual
increases. The Purchase Plan allows for eligible employees to purchase a
limited number of shares of the Company's Common Stock at 85% of the fair
market value during certain plan-defined dates.

F-22
<PAGE>

MPATH INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

On February 11, 1999, the Company entered into a Letter of Understanding
with Yahoo! Inc., which outlines an arrangement to license to Yahoo! certain
technology. As part of this arrangement, the Company issued Yahoo! a warrant to
purchase 192,000 shares of common stock at an exercise price of $10.29 per
share, which Yahoo! can exercise upon certain milestones. The Company will
evaluate the fair market value of these warrants at the date the warrants are
earned to determine if an adjustment to sales and marketing expense is
required.

F-23
<PAGE>

[INSIDE BACK COVER]

Title: "Advertising Products." Text: "The Mpath technologies offer Internet
advertisers an opportunity to reach targeted audiences who are participating
in activities that keep them absorbed in our Live Communities. Our Live
Communities serve over 2.5 million registered users with over 50,000 unique
daily visitors generating over 100 minutes of average daily usage per visitor.
Mpath's Live Communities advertising leverages rich media to provide enhanced
opportunities for building brand awareness and loyalty and increasing
customers' purchase intent. Live Communities can also target ads to distinct
demographic and psychographic groups. Live Communities offer standard banner
advertising and also go beyond-the banner to offer TV-style interstitials, Web
viewers, buttons, sponsorships, contests, promotions and special offers."

Center of page:
Seven overlapping images of Web pages, banner ads, and buttons, which display
the various types of advertising mediums available. Each image has text
associated with it, and the text for such images is as follows:

1. "Email Newsletters. Deliver messages directly to the live communities
membership and hyperlink to the advertiser's Web site."
2. "Banner Ads and Buttons. Target by content, demographics, geography,
browser and domain."
3. "Intersitials. Offer innovative, full-screen, TV style ads--using
animation, audio or static graphics."
4. "Web Viewers. Target by content, demographics and geography with guaranteed
visibility so members can navigate the advertiser's site from directly within
our live communities."
5. "Sponsorships. Display high visibility ad or logo by lobby, community or
pager sponsorship and link ad or logo to the advertiser's Web site."
6. "Member Portraits. Customize a member portrait with the advertiser's
corporate logo or icon."

Bottom of page:
Text: "Strategic Relationships. Mpath has entered into strategic relationships
with some of the most prominent media technology companies in order to
increase membership and usage, maximize revenues, build brand recognition,
accelerate product development and acquire content." Small corporate logos for
the following entities:

1. Infoseek Corporation
2. XOOM, Inc.
3. Intel Corporation
4. Excite, Inc.
5. Macromedia, Inc.
6. GTECH Corporation
7. SegaSoft Networks, Inc. (Heat logo)
8. Cox Interactive Media, Inc.
<PAGE>

[MPATH LOGO]

[OUTSIDE BACK COVER PAGE]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Mpath in connection with the
sale of common stock being registered. All amounts are estimates except the
Securities and Exchange Commission registration fee and the NASD filing fee and
the Nasdaq National Market listing fee.

<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
Securities and Exchange Commission registration fee................. $ 12,788
NASD filing fee..................................................... 5,100
Nasdaq National Market listing fee.................................. 60,000
Printing and engraving expenses..................................... 225,000
Legal fees and expenses............................................. 300,000
Accounting fees and expenses........................................ 207,000
Blue Sky qualification fees and expenses............................ 3,000
Transfer Agent and Registrar fees................................... 10,000
Miscellaneous fees and expenses..................................... 100,000
--------
Total.............................................................
========
</TABLE>
* to be filed by amendment

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article X of Mpath's Certificate of
Incorporation (Exhibit 3.1 hereto) and Article VII, Section 6 of Mpath's Bylaws
(Exhibit 3.3 hereto) provide for indemnification of Mpath's directors,
officers, employees and other agents to the maximum extent permitted by
Delaware Law. In addition, Mpath has entered into Indemnification Agreements
(Exhibit 10.1 hereto) with its officers and directors. The Underwriting
Agreement (Exhibit 1.1) also provides for cross-indemnification among Mpath and
the Underwriters with respect to certain matters, including matters arising
under the Securities Act.

Item 15. Recent Sales of Unregistered Securities

Since January, 1995, Mpath has sold and issued the following securities:

1. In January and March 1995, Mpath issued and sold for cash a total of
100,000 shares of its Common Stock at a price of $0.05 per share to two
investors and 2,800,000 shares of its Series A Preferred Stock at a price of
$0.50 per share to seven investors.

2. In August 1995 and January 1996, Mpath issued and sold for cash a
total of 2,190,842 shares of its Series B Preferred Stock at a price of $2.07
per share to 29 private investors.

3. In April, May and July 1996, Mpath issued and sold for cash a total of
1,154,580 shares of its Series C Preferred Stock at a price of $10.28 per share
to 35 private investors. In November 1996, Mpath issued and sold a total of
291,829 shares of its Series C Preferred Stock at a price per share of $10.28.
In March 1997, Mpath issued and sold 48,638 shares of its Series C Preferred
Stock at a price of $10.28 per share to one private investor.

II-1
<PAGE>

4. In November 1996, Mpath acquired one hundred percent of the
outstanding stock of Catapult Entertainment, Inc., a California corporation
("Catapult"), in connection with Catapult's reorganization. Pursuant to an
Agreement and Plan of Reorganization and an Agreement and Plan of Merger,
Catapult merged with and into a wholly-owned subsidiary of Mpath and Mpath
issued 868,254 shares of Series C Preferred Stock and options to purchase
121,078 shares of Common Stock, valued at $10.28 per share, to 26
securityholders of Catapult. In addition, Mpath issued and sold a warrant to
purchase up to 52,250 shares of Common Stock at a price of $60.00 per share
(the "Intel Warrant") to Intel. Mpath also issued two Convertible Promissory
Notes to Intel for $1,150,000 and $150,000 respectively (the "Intel Notes") and
issued a Convertible Senior Subordinated Promissory Note to Viacom
International, Inc. for $1,864,000 (the "Viacom Note").

5. In July and August 1997, Mpath issued and sold a total of 3,111,110
shares of Series D Preferred Stock to 28 private investors for cash and the
cancellation of debt at a price of $5.40 per share. In addition, in July and
August 1997, Mpath issued warrants to purchase 1,555,555 shares of Common Stock
at an exercise price of $5.40 per share to the purchasers of the Series D
Preferred Stock (the "Series D Warrants").

6. In July 1998, Mpath entered into a Loan and Security Agreement
pursuant to which Mpath received a $1,500,000 term loan. In connection with the
Loan and Security Agreement, Mpath issued and a warrant to purchase 23,000
shares of Series D Preferred Stock at an exercise price of $5.40 per share.

7. In January 1999, Mpath issued and sold for cash a total of 3,035,306
shares of Series E Preferred Stock to 69 private investors at a price of $6.60
per share. In addition, Mpath issued a warrant to purchase 77,422 shares of its
Series E Preferred Stock at an exercise price of $6.60 per share and paid a
commission of $1,201,980 to NationsBanc Montgomery Securities, LLC, the
placement agent in the Series E financing.

8. Since inception, Mpath has issued an aggregate of 3,329,806 options to
purchase its Common Stock (net of lapsed options) to 184 of its employees,
directors and consultants with exercise prices ranging from $0.05 to $5.50, and
has issued and sold an aggregate of 4,201,896 shares of its Common Stock (net
of repurchases) to 101 of its employees, directors and consultants at prices
ranging from $0.005 to $5.50.

II-2
<PAGE>

The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 8 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with Mpath, to information about Mpath.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement (subject to negotiation).*
3.1 Amended and Restated Certificate of Incorporation of Mpath.*
3.2 Amended and Restated Certificate of Incorporation of Mpath (as
proposed).*
3.3 Amended and Restated Bylaws of Mpath.*
3.4 Amended and Restated Bylaws of MPath (as proposed).*
4.1 Specimen Stock Certificate.*
4.2 Fourth Amended and Restated Investors' Rights Agreement dated January
15, 1999.*
4.3 Form of Common Stock Purchase Warrant.*
4.4 Warrant to Purchase Shares of Capital Stock dated November 18, 1996,
issued by Registrant in favor of Intel Corporation.*
4.5 Common Stock Purchase Warrant dated February 12, 1999, issued by
Registrant in favor of PSINet, Inc.*
4.6 Common Stock Purchase Warrant dated February 12, 1999, issued by
Registrant in favor of PSINet, Inc.*
4.7 Common Stock Purchase Warrant dated February 11, 1999, issued by
Registrant in favor of Yahoo! Inc.*+
4.8 Preferred Stock Purchase Warrant dated September 25, 1995, issued by
Registrant in favor of Lighthouse Capital Partners, LP.*
4.9 Warrant to Purchase Stock dated July 29, 1998, issued by Registrant in
favor of Greyrock Business Credit.*
4.10 Series E Preferred Stock Purchase Warrant dated January 15, 1999,
issued by Registrant in favor of NationsBanc Montgomery Securities
LLC.*
4.11 Convertible Senior Subordinated Promissory Note dated November 18,
1996, issued by Registrant to Viacom International, Inc.*
5.1 Opinion of Venture Law Group regarding the legality of the common stock
being registered.*
10.1 Form of Indemnification Agreement between Mpath and each of its
officers and directors.*
10.2 1995 Stock Option/Stock Issuance Plan.*
10.3 1999 Stock Incentive Plan.*
10.4 1999 Employee Stock Purchase Plan.*
10.5 1999 Directors' Stock Option Plan.*
10.6 Distribution Agreement dated April 22, 1998 between Mpath and Cox
Interactive Media, Inc.*+
10.7 Content License and Co-branded Area Agreement dated April 15, 1998
between Mpath and Excite, Inc.*+
10.8 POP.X(TM) License Agreement dated June 26, 1998 between Mpath and GTECH
Corporation.*+
10.9 Application Development Agreement dated November 9, 1998 between Mpath
and Intel Corporation.*+
10.10 Technology License Agreement dated April 15, 1996 between Mpath and
SegaSoft Networks, Inc.*+
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.11 Amendment #1 to Technology License Agreement dated November 27, 1996
between Mpath and SegaSoft Networks, Inc.*+
10.12 Amendment #2 to Technology License Agreement dated March 28, 1998
between Mpath and SegaSoft Networks, Inc.*+
10.13 Amendment #3 to Technology License Agreement dated October 27, 1998
between Mpath and SegaSoft Networks, Inc.*+
10.14 Content Provider Agreement dated December 23, 1998 between Mpath and
Infoseek Corporation.*+
23.1 Consent of Independent Accountants.
23.2 Consent of Attorney (See Exhibit 5.1).*
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Confidential treatment requested as to certain portions of this Exhibit.

(b) Financial Statement Schedules

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant 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. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Mountain
View, State of California on February 16, 1999.

MPATH INTERACTIVE, INC.

By: /s/ Paul Matteucci
----------------------------------
Paul Matteucci
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Paul
Matteucci and Lynn Heublein, and each of them, as his or her attorney-in-fact,
with full power of substitution, for him or her in any and all capacities, to
sign any and all amendments to this Registration Statement (including post-
effective amendments), and any and all Registration Statements filed pursuant
to Rule 462 under the Securities Act of 1933, as amended, in connection with or
related to the offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our
said attorney to any and all amendments to said Registration Statement.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Paul Matteucci President, Chief Executive February 16, 1999
____________________________________ Officer and Director
Paul Matteucci (Principal Executive
Officer)

/s/ Lynn Heublein Chief Operating Officer February 16, 1999
____________________________________ (Principal Financial and
Lynn Heublein Accounting Officer)

/s/ Brian Apgar Director February 16, 1999
____________________________________
Brian Apgar

/s/ James W. Breyer Director February 16, 1999
____________________________________
James W. Breyer

/s/ David A. Brown Director February 16, 1999
____________________________________
David A. Brown

/s/ Douglas G. Carlston Director February 16, 1999
____________________________________
Douglas G. Carlston

/s/ William McCall Director February 16, 1999
____________________________________
William McCall

/s/ Gregory O'Brien Director February 16, 1999
____________________________________
Gregory O'Brien

/s/ Ruthann Quindlen Director February 16, 1999
____________________________________
Ruthann Quindlen
</TABLE>

II-5

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 29, 1999, except
as to Note 15, which is as of February 12, 1999, relating to the financial
statements of Mpath Interactive, Inc., which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

San Jose, CA
February 15, 1999

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> (9,132) (1,114)
<SECURITIES> 0 0
<RECEIVABLES> (651) (2,226)
<ALLOWANCES> (8) (20)
<INVENTORY> 0 0
<CURRENT-ASSETS> (10,147) (4,050)
<PP&E> (1,974) (1,878)
<DEPRECIATION> (852) (976)
<TOTAL-ASSETS> (12,356) (6,177)
<CURRENT-LIABILITIES> (2,567) (6,117)
<BONDS> 0 0
0 0
(1) (1)
<COMMON> 0 0
<OTHER-SE> (5,135) (4,351)
<TOTAL-LIABILITY-AND-EQUITY> (12,356) (4,348)
<SALES> 0 0
<TOTAL-REVENUES> (2,727) (8,027)
<CGS> (2,428) (3,011)
<TOTAL-COSTS> (2,428) (3,011)
<OTHER-EXPENSES> (13,852) (16,848)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (376) (501)
<INCOME-PRETAX> (13,646) (11,943)
<INCOME-TAX> (2) (2)
<INCOME-CONTINUING> (13,648) (11,945)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,648) (11,945)
<EPS-PRIMARY> (5.34) (3.99)
<EPS-DILUTED> (5.34) (3.99)

</TABLE>