EUNIVERSE INC, 10-Q, 2000-11-14

EUNIVERSE INC
10-Q, 2000-11-14
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<PAGE>

As filed with the Securities and Exchange Commission on November 14, 2000

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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the quarterly period ended SEPTEMBER 30, 2000

Commission file number: 0-26355
eUNIVERSE, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
NEVADA 06-1556248
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6300 WILSHIRE BOULEVARD, SUITE #1700
LOS ANGELES, CALIFORNIA 90048
(Address of principal executive offices) (Zip Code)
</TABLE>

323-658-9089
(Registrant's telephone number, including area code)

The registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 3 months and has
been subject to such filing requirements for the past 90 days.

As of September 30, 2000, there were 18,031,563 shares of eUniverse,
Inc. common stock outstanding.

<PAGE>

eUNIVERSE, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2000

INDEX

<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited) . . . . . . . . . . . . . . 3

Balance Sheets, September 30, 2000 and March 31, 2000 . . . . . 3

Consolidated Statements of Operations, for the three and six
months ended September 30, 2000 and September 30, 1999 . . . . 4

Statements of Cash Flows, for the six months ended
September 30, 2000 and September 30, 1999. . . . . . . . . . . . 5

Notes to Financial Statements. . . . . . . . . . . . . . . . . . 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION. . . . . . . . . . . . . .14

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . .23

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . .24

ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . .24

ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . .25

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . .25
</TABLE>

- 2 -

<PAGE>

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

eUNIVERSE, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
----------------- ---------------
Unaudited

<S> <C> <C>
ASSETS

CURRENT ASSETS

Cash and cash equivalents .......................................................... $ 1,046,030 $ 2,323,087
Accounts receivable, net of allowances for
doubtful accounts of 313,214 and $78,214, respectively .......................... 1,675,390 994,364
Inventory .......................................................................... -- 431,714
Assets held for disposal ........................................................... 1,000,000
Due from employees and Others ...................................................... 153,000 153,200
Prepaid expenses ................................................................... 2,272,891
Other current assets ............................................................... 2,857,317 2,350,559
------------ ------------
Total Current Assets ........................ 9,004,628 6,252,924

FURNITURE AND EQUIPMENT, less accumulated depreciation
of $173,093, and $270,188 respectively .......................................... 654,038 1,190,071

GOODWILL, net of amortization of
$2,446,729 and $2,287,420 respectively .......................................... 19,229,112 29,114,844
OTHER INTANGIBLES, net of amortization of
$110,839,185 and $153,319, respectively ......................................... 820,542 911,212

Other Assets ............................................................................ 100,020 309,393
------------ ------------
TOTAL ASSETS ............................. $ 29,808,340 $ 37,778,444
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

Accounts payable ................................................................... $ 2,737,978 $ 2,273,672
Accrued liabilities ................................................................ 4,750,133 2,104,688
Accrued advertising ................................................................ 1,855,994 2,653,412
Notes payable ...................................................................... 4,126,115 --
Short-term portion of lease obligations ............................................ 5,358 8,158
------------ ------------
Total Current Liabilities ............... 13,475,578 7,039,930
------------ ------------
LONG-TERM LIABILITIES

SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.10 par value; 40,000,000 shares
authorized; 1,561,784 and 1,795,024 shares
issued and outstanding, respectively .......................................... 156,178 179,502
Common stock, $.001 par value; 250,000,000 shares
authorized; 18,031,557 and 17,630,422 shares
issued and outstanding, respectively ............................................. 18,032 17,630
Additional paid-in capital ......................................................... 48,015,814 41,609,028
Retained deficit ................................................................... (31,857,262) (11,067,646)
------------ ------------
Total Shareholders' Equity 16,332,762 30,738,514
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $ 29,808,340 $ 37,778,444
============ ============
</TABLE>

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

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<PAGE>

eUNIVERSE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------------------------------
2000 1999 2000 1999
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUE:
Products.................................................. $ -- $ -- $ -- $ --
Services.................................................. 4,093,098 250,834 6,863,934 316,566
------------ ------------ ------------ ------------

TOTAL REVENUE ................................................ 4,093,098 250,834 6,863,934 316,566

COST OF GOODS SOLD
Products.................................................. -- -- -- --
Services.................................................. 637,582 17,080 1,212,082 26,726
------------ ------------ ------------ ------------

TOTAL COST OF GOODS SOLD ..................................... 637,582 17,080 1,212,082 26,726

GROSS PROFIT
Products.................................................. -- -- -- --
Services.................................................. 3,455,516 233,754 5,651,852 289,840
------------ ------------ ------------ ------------

TOTAL GROSS PROFIT ........................................... 3,455,516 233,754 5,651,852 289,840

OPERATING EXPENSES:
Marketing and sales (excludes stock-based
compensation of $100,000, $32,204,
$97,065 and $41,947, repectively)....................... 3,140,148 206,009 4,843,229 274,825
Product development (excludes stock-based
compensation of $0, $37,306,
$(19,656) and $39,438, repectively)..................... 1,098,485 224,869 1,755,085 221,708
General and administrative (excludes stock-based
compensation of $0 and $1,740,
$(164,598) and $1,740, repectively)..................... 1,374,398 708,966 2,310,731 1,192,596
Amortization of goodwill
and other intangibles.................................... 557,924 334,058 1,143,113 399,425
Stock-based compensation.................................. 100,000 71,250 (87,189) 83,125
------------ ------------ ------------ ------------

TOTAL OPERATING EXPENSES...................................... 6,270,955 1,545,152 9,964,969 2,171,679
------------ ------------ ------------ ------------

OPERATING LOSS (2,815,439) (1,311,398) (4,313,117) (1,881,839)

NONOPERATING INCOME (EXPENSE):
Interest and dividend .................................... 6,290 32,177 11,593 39,322
Interest and other financing expense...................... (2,867,152) (355) (2,881,942) (355)
Loss allocated to minority interest....................... -- 16,438 -- 16,438
------------ ------------ ------------ ------------

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (5,676,301) (1,263,138) (7,183,466) (1,826,434)

INCOME TAXES ................................................. -- -- -- --
------------ ------------ ------------ ------------

LOSS FROM CONTINUING OPERATIONS (5,676,301) (1,263,138) (7,183,466) (1,826,434)

DISCONTINUED OPERATIONS:
Loss from operations discontinued segment ................ --
(net of applicable income taxes of $0)................... (1,689,250) (799,282) (3,791,661) (1,478,592)
Loss from disposal of segment
(net of applicable income taxes of $0)................... (9,814,489) -- (9,814,489)
------------ ------------ ------------ ------------

NET LOSS $(17,180,040) $ (2,062,420) $(20,789,616) $ (3,305,026)
============ ============ ============ ============

Continuing operations loss per common share .................. $ (0.32) $ (0.08) $ (0.40) $ (0.13)
Discontinued operations loss per common share................. $ (0.64) $ (0.05) $ (0.76) $ (0.10)
------------ ------------ ------------ ------------
Basic loss per common share................................... $ (0.96) $ (0.13) $ (1.17) $ (0.23)
============ ============ ============ ============

Basic weighted average common
shares outstanding........................................... 17,933,414 15,317,723 17,839,498 14,592,274
============ ============ ============ ============
</TABLE>

See accompanying notes to the financial statements

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<PAGE>

eUNIVERSE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss...................................................................... $(20,789,616) $ (3,305,026)

Transactions not requiring cash:
Depreciation............................................................... 152,852 50,279
Amortization............................................................... 1,752,413 915,569
Loss from discontinued operations.......................................... 9,814,489
Bad debt reserve........................................................... 235,000 15,000
Common stock issued to employees .......................................... -- 83,125
Amortization of variable stock
option issued to employees ............................................ (207,011) --
Non-cash payments to outside consultants
and affiliates ........................................................ 227,338 10,000
Non-cash financing related costs .......................................... 2,825,120
Non-cash interest income .................................................. -- (3,060)
Loss allocated to minority interest ....................................... -- (16,438)
Changes in current assets..................................................... (1,069,851) (446,943)
Changes in current liabilities................................................ 2,537,191 (32,728)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES.... (4,522,075) (2,730,222)
------------ ------------

INVESTING ACTIVITIES
Acquisitions.................................................................. -- (1,915,000)
Proceeds through acquisitions................................................. -- 136,419
Proceeds through reverse acquisition.......................................... -- 858,477
Changes in other assets....................................................... (717,447) (60,685)
Purchases of fixed assets..................................................... (163,650) (184,572)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ... (881,097) (1,165,361)
------------ ------------

FINANCING ACTIVITIES
Proceeds from issuance of preferred stock...................................... -- 5,875,204
Proceeds from issuance of common stock........................................ -- 505,000
Payment to repurchase common stock............................................ -- (20,000)
Financing costs............................................................... -- (6,672)
Repayment of advances from officer............................................ -- (105,000)
Repayment of loan from affiliates............................................. -- (74,808)
Proceeds from Short term notes ............................................... 4,126,115 --
Receipt of advances to officer................................................ -- 157,769
Advances to Employees......................................................... -- (153,200)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ... 4,126,115 6,178,293
------------ ------------

CHANGE IN CASH AND CASH EQUIVALENTS............................................... (1,277,057) 2,282,710
Cash and cash equivalents,
beginning of period.............................................................. 2,323,087 11,335
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD.............................................................. $ 1,046,030 $ 2,294,045
============ ============

CASH PAID DURING THE YEAR FOR:
Interest Expense ............................................................. $ 38,185 $ --
============ ============
Income taxes ................................................................. $ -- $ --
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements

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<PAGE>

eUNIVERSE, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)

(1) ORGANIZATION AND LINE OF BUSINESS

eUniverse, Inc. (the "Company") is a Nevada Corporation engaged in
developing and operating a network of web sites providing entertainment-oriented
products and services. During the reporting period, the Company was engaged in
offering advertising on its network of web sites, sales of audio CDs, videotapes
(VHS), and digital videodisks ('DVDs') over the Internet, as well as providing
online games, and, to a limited extent, website development for third parties.
The Company conducts operations from facilities located in Wallingford, CT, San
Francisco and Los Angeles, CA and Mount Vernon, WA. The financial statements
being presented include the accounts of eUniverse, Inc. and its wholly owned
subsidiaries. All significant inter-company transactions and balances have been
eliminated in consolidation. In September 2000, the Company decided to
discontinue its eCommerce operations (see Note 3 - Discontinued operations).

(2) ACCOUNTING POLICIES

In the opinion of the management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting of normal recurring
adjustments and accruals) necessary for a fair presentation of the Company's
balance sheet, results of operations and cash flows for the periods presented.
The results of the operations for the six months ended September 30, 2000 may
not be indicative of the total results for the full year. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the rules and regulations of the SEC. These unaudited financial
statements should be read in conjunction with audited financial statements and
accompanying notes contained in the Company's Annual Report on Form 10-K for the
year ended March 31, 2000.

REVENUE RECOGNITION

The Company recognizes service revenue upon fulfillment and delivery of
customer's advertising campaign. Additionally, the Company derives revenue from
the sale of memberships and sponsorships, which are recognized as earned. Barter
transactions are recorded at the lower of the estimated fair value of
advertisements received or the estimated fair value of the advertisements given.
Barter revenue and the related advertising are recorded based on impressions
delivered and received with the difference recorded as an advance or prepaid.
During the six months ended September 30, 2000, the Company recorded $124,612 as
bartered advertising revenue. Product revenue is recognized upon shipment of the
products. Revenue includes shipping and handling charges. The Company also
maintains a partner program whereby partners provide links on their websites
that bring customers to the CD Universe website. Revenue generated from these
linked sites is recognized upon shipment of the products. The partner receives a
commission of 5% to 15% of sales of the Company's products that originate from
the site, recognized as a selling expense concurrent with the sale. Returns are
provided for based on reasonable estimates of future returns.

ADVERTISING COSTS

Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of
direct-response advertising, if any, are capitalized and amortized over the
period during which future benefits are expected to be received. During the six
month ended September 30, 2000 and 1999 advertising expense amounted to
$1,203,213 and $80,812, respectively.

- 6 -

<PAGE>

EARNINGS PER SHARE

The computation of basic earnings per share ('EPS') is computed by dividing
income available to common stockholders by the weighted average number of
outstanding common shares during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The computation
of diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an anti-dilutive effect.

Securities that could potentially dilute basis earnings per share in the
future that were not included in the computation of diluted earnings per share
because their effect would have been antidilutive are as follows:

<TABLE>
<CAPTION>
September 30
2000 1999
------ ------
<S> <C> <C>
Warrants............................. 2,752,469 671,865
Options ............................. 6,723,947 3,774,950
---------- ----------
Total ............................. 9,476,416 4,446,815
========== ==========
</TABLE>

(3) DISCONTINUED OPERATIONS

In September 2000, the Company's Board of Directors approved a plan to
discontinue its eCommerce operations through a sale of the assets of the
segment. This segment consisted of the sale of CD's, DVD's and videotapes, and
computer games. Consideration was given to two competing proposals and the sale
of the assets relating to this segment was consummated on October 10, 2000. The
assets were sold to CLBL, Inc. a Connecticut corporation owned by a significant
shareholder of the Company. The proceeds from the sale consist solely of a note
receivable from the purchaser in the amount of $1,000,000. The note, which bears
no stated interest rate, is secured by 825,000 shares of the Company currently
held by this shareholder and is payable in 6 semi-monthly installments of
$50,000 with the balance payable on September 30, 2001.

The revenues from the discontinued operations for the six months ended
September 30, 2000 and 1999 were $4,096,149 and $3,549,735, respectively. Major
assets disposed consist of the following approximate values (in $000's): Net
goodwill, $9,576, net customer list, $167, net domain names, $107, net fixed
assets, $547, merchandise inventory $350, and prepaid expenses of $57.

As a result of the Board's approval of the plan, the consolidated financial
statements of eUniverse, Inc. and the related Notes to the Consolidated
Financial Statements and supplemental data have been adjusted and restated to
reflect the results of operations and assets of the eCommerce segment of
business as a discontinued operation in accordance with generally accepted
accounting principles. The loss on disposal of eCommerce segment was
approximately, $9.8M. This accrual provided for reserves necessary to write
down assets disposed of to their net realizable values

(4) NON-CASH FINANCIAL ACTIVITIES
<TABLE>
<S> <C>
Stock issued in acquisition of Dustcloud.com (1) $ 150,000
Additional stock issued in acquisition of Gamers Alliance 103,513
Additional stock issued in acquisition of The Big Network (2) 552,230
Stock issued to employees, 16,653 shares 124,139
Additional warrants issued to preferred shareholders 4,168
Reversal of amortization of variable stock
options issued to employees (207,011)
Stock options issued in connection with services performed 45,531
Stock options issued in connection with Affiliate 122,209
Warrants issued in connection with services performed 78,011
Warrants issued in connection with financing activities
(see Notes Payable section) 5,482,950
</TABLE>

- 7 -

<PAGE>

1- On April 2, 2000, the Company acquired Dustcloud.com ("Dustcloud") for a
purchase price of up to $300,000. The Company issued 23,668 common shares
totaling $150,000 at closing. Additional consideration of up to $150,000 of
common stock may be paid over the next twelve months, based on the attainment of
certain performance goals. In consideration of their continued employment, the
Company also issued to each of Dustcloud's two employees options to purchase
50,000 shares of common stock. The options have an exercise price of $6.50 and
vest over three years. The entire operating results of Dustcloud for the quarter
ended June 30, 2000 are reflected in the financial statements being presented

2- On June 2, 2000, the Company completed its acquisition of the remaining 5
percent of capital stock of The Big Network, Inc. by issuing an additional
90,160 shares of its common stock valued at $6.125 (market price at the original
acquisition date).

(5) FIXED ASSETS

Fixed assets, at cost, consist of the following:

<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
----------------- --------------

<S> <C> <C>
Furniture and fixture................................. $ 25,575 $ 59,672
Computers and equipment............................... 624,725 1,098,907
Purchased software.................................... 177,641 253,137
Leasehold improvements................................ 48,543 48,543
-------- ----------
827,941 1,460,259
Less accumulated depreciation and amortization........ 173,903 270,188
-------- ----------
Fixed assets, Net................................ $654,038 $1,190,071
======== ==========
</TABLE>

Accumulated amortization of purchased software as of September 30, 2000 and 1999
was $53,793 and $26,543, respectively. Depreciation expense for the reporting
periods were as follows:

<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
------ ------

<S> <C> <C>
Depreciation expense............ .............. $79,976 $9,731
</TABLE>

(6) OTHER INTANGIBLES

Other Intangibles consist primarily of the purchase price of web sites
acquired:

<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
------------------ --------------
<S> <C> <C>
Domain names........................................ $831,381 $ 657,458
Customer lists...................................... 100,000 400,000
Other............................................... - 7,073
-------- ----------
931,381 1,064,531
Less accumulated amortization........................ 110,839 153,319
-------- ----------
Other Intangible, Net................................ $820,542 $ 911,212
======== ==========
</TABLE>

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<PAGE>

(7) SIGNIFICANT CONCENTRATIONS

The Company maintains internet advertising contracts with approximately 80
customers. However, revenue from two related customers has accounted for 39% of
advertising revenue for the six-month period ended September 30, 2000. On
November 3, 2000, the Company received a cancellation notice, effective November
13, from one the above-mentioned customers with an approximate 30% share of its
advertising revenue.

Traditionally, the Company has purchased approximately 80% of its merchandise
from one vendor. Recently, the Company has diversified its sources for product
procurement. As of September 30, 2000, five major vendors were owed a total of
$847,000, distributed almost evenly, which is being paid through November 2000.
Due to discontinuation of eCommerce operations, this concentration will not be a
significant factor in the future.

(8) NOTES PAYABLE

Notes payable consists of the following:

1- A secured promissory note to New Technology Holdings, Inc. ("NTH") in the
amount of $3,155,670 dated September 6,2000. This note bears an interest rate of
prime rate plus 2%, is payable on demand after the six-month anniversary, and
grants the lender first priority security interest in all the assets of the
Company. As of September 30, 2000, the Company has received $2,655.670 in
proceeds from this note. The full $3,155,670 has been funded as of the date of
this filing. As a related transaction, the Company entered into a subscriber
acquisition agreement to provide subscriber names to two of NTH's subsidiaries,
Indimi, Inc. ("Indimi") and Emazing, Inc. ("Emazing"). The fee payable to the
Company is $.80 per new subscriber name delivered. The term of this agreement
continues through August 25, 2005 but may be terminated by a 10 days prior
notice to the Company. In the quarter ended September 30, 2000, the Company has
recorded approximately $2.5M of advertising revenue in connection with this
agreement. The Company also issued warrants in connection with this note, which
is explained in the warrants section (see Note 10 - Warrants).

2- On April 26, 2000 the Company received $1,020,444 pursuant a promissory note
to SFX Entertainment, Inc. a Delaware corporation. This note is collateralized
by 4,841,000 shares of the Company belonging to Brad Greenspan, Chairman of
eUniverse. The note bears an interest rate of 12% and was payable in full on
August 25, 2000 but remains fully unpaid as of the date of this filing.

3- On July 7, 2000, the Company received $450,000 pursuant to a promissory note
to VideoGames Partners, LLC, a Delaware company. The interest rate on this loan
was 6% and the loan was payable on August 31, 2000. The interest rate on the
unpaid balance of this note after the maturity date increases to prime rate plus
6%. This loan remains fully unpaid as of September 30, 2000 (see Note 10 -
Warrants).

4- On May 31, 2000, pursuant to a promissory note to GrayBox, LLC, a Nevada
company, the Company received $250,000. The interest rate on this loan was 6%
and the maturity date was August 31, 2000. This note was fully paid off by the
maturity date (see Note 10 - Warrants).

(9) COMMITMENTS AND CONTINGENCIES

a) The Company has entered into several agreements to share revenues with
individuals independent of the company. These individuals have provided the
Company with computer games, which the Company has been operating on its web
sites. The individuals have granted the Company usage of the computer games for
up to a 25% royalty of advertising revenue generated from the usage of the game
on the Company's web sites. As of September 30, 2000, the Company has no
material liabilities or expenses due under these agreements.

b) The Company leases office space under non-cancelable operating lease
agreements that expire within the next three years. Future minimum lease
payments under these non-cancelable operating leases are as follows:

- 9 -

<PAGE>

March 31,
----------
<S> <C>
2001...................................................... $1,032,590
2002...................................................... 848,905
2003...................................................... 438,130
2004...................................................... 165,600
</TABLE>

Rent expense for the reporting periods were as follows:

<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
------ ------
<S> <C> <C>
Rent expense................................ $143,704 $63,850
</TABLE>

c) On December 9, 1999, The Isosceles Fund Limited, a Bahamian corporation
('Isosceles'), filed suit in the Superior Court of California against the
Company, Brad Greenspan (the Company's chairman), Gerard Klauer Mattison & Co.,
Inc. ('GKM') and ten unnamed individuals seeking damages based on (i) breach of
an alleged subscription agreement between Isosceles and the Company to purchase
common stock of eUniverse, (ii) breach of an implied covenant of good faith and
fair dealing in connection with the alleged subscription agreement, and (iii)
intentional interference with the alleged subscription agreement by GKM and ten
unnamed individuals. With respect to each count of the cause of action,
Isosceles has claimed damages of $1,750,000. Isosceles has also requested that
the court award exemplary and punitive damages, interest, costs of suit and such
other relief as the court may deem fair, just, equitable and proper. The Company
believes the allegations in the complaint are without merit and will defend the
suit vigorously.

(10)EQUITY COMPENSATION PLAN

Under the Company's 1999 Stock Award Plan, stock options may be granted to
officers, directors, employees and consultants. An aggregate of 9,000,000 shares
of common stock have been reserved for issuance under the Plan. For the six
months ended September 30, 20000 the plan's activities were as follows:

STOCK OPTIONS:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE AVERAGE
SHARES PRICE PRICE
------ ----- -----
<S> <C> <C> <C>
Outstanding at 3-31-2000.............................. 4,037,594 $3.00-13.00 $5.39
Granted............................................... 3,513,250 2.75-7.98 3.44
Cancelled............................................. (826,897) 6.00-13.00 5.41
Reissued.............................................. --
Exercised............................................. --
Forfeited............................................. --
---------- --------------- -----
Outstanding at 9-30-2000.............................. 6,723,947 $2.75-13.00 $4.26
---------- --------------- -----
Options exercisable at 9-30-2000 ..................... 1,745,527 $3.00-13.00 $4.48
========== =============== =====
</TABLE>

The Company uses the intrinsic value method (APB Opinion 25) to account
for its stock options granted to officers, directors, and employees. Under this
method, compensation expense is recorded over the vesting period based on the
difference between the exercise price and quoted market price on the date the
options are granted. Since the company has granted all its stock options at an
exercise price

- 10 -

<PAGE>

equal to or above the quoted market value on the measurement date, no
compensation expense related to issuance of stock option to employees has been
recorded.

Pursuant to FASB Interpretation No. 44, the Company accounts for its
repriced options as a variable plan. Compensation is measured as the difference
between the fair market value and the exercise price of the option at the
reporting period, recognized in the financial statements over the service
period.

On September 15, 1999, the Company cancelled 1,932,000 options, which had
been granted to employees on June 15, 1999 with a weighted average exercise
price of $9.67 and reissued 1,642,200 (85 percent) options with a weighted
average exercise price of $6.00 and a vesting period of three years to the same
employees. Compensation expense related to these option of $207,010 was recorded
in the March 31, 2000 and presented in the financial statements as stock-based
compensation.

During the reporting period, this entry was reversed to reflect the fact
that the fair market value as of the statement date remains below the exercise
price of these options. Moreover, $100,000 of stock-based compensation expense
has been recorded to reflect the value of additional shares to be issued related
to the performance of JustSayWow.com. The following table presents the amount of
stock-based compensation that would have been recorded under the following
income statement categories if the stock-based compensation had not been
separately stated in the financial statements.

<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Marketing and Sales...........................$ 97,065 $41,947
Product Development........................... (19,656) 39,438
General and Administrative....................(164,598) 1,740
-------- --------
Total stock based compensation.......... $(87,189) $ 83,125
======== ========
</TABLE>

WARRANTS:

<TABLE>
<CAPTION>
NUMBER
OF SHARES EXERCISE PRICE
--------- --------------

<S> <C> <C>
Outstanding at 3-31-2000.................................... 1,026,677 $ 2.74-10.00
Granted..................................................... 1,805,792 $ 1.00-12.00
Exercised................................................... (80,000) 6.00
Exercised................................................... --
Forfeited................................................... --
--------- --------------
Outstanding at 9-30-2000.................................... 2,752,469 $ 2.74-12.00
--------- --------------
Warrants exercisable at 9-30-2000........................... 2,752,469 $ 2.74-12.00
========= ==============
</TABLE>

1- In connection with a loan from New Technology Holdings, Inc. in the amount of
$3,155,670 (see Note 8-1), the Company has issued 1,101,260 warrants to the
lender. The first 701,260 of these warrants have an exercise price of $4.50 per
share, the next 200,000 warrants, exercisable after the original 701,260 have
been exercised, have an exercise price of $5.00 Per share. The last 200,000
warrants, exercisable after the purchase of 901,260 shares, have an exercise
price of $6.00 per share. These warrants have been valued at $3,323,984 on the
financial statements using the Black Scholes option pricing model with a risk
free interest rate of 6.25%, a volatility of 108%, no expected dividend yield,
and a life of 4 years.

2- In connection with the Company defaulting in one of the provisions of a loan
from Videogames Partners, LLC in the amount of $450,000 (see Note 8-3), and in
consideration for the payment of $25,000 by VideoGames Partners, the Company
issued

- 11 -

<PAGE>

warrants to purchase 500,000 shares of the Company's Common Stock at a purchase
price of $1.00 per share. These options have been valued at $1,812,702 on the
financial statements using the Black Scholes option pricing model with a risk
free interest rate of 6.25%, a volatility of 107% with no expected dividend
yield and a life of one year.

3- In Connection with a loan from GrayBox, LLC in the amount of $250,000 (see
Note 8-4), and in consideration for receiving $8,000, the Company issued
warrants for 80,000 shares of the Company's Common Stock to the lender at
exercise price of $6.00. In connection with this loan and as a replacement for
the warrants there in, the Company agreed to cause one of its shareholders to
sell 100,000 shares of the Company's Common Stock (the "Replacement Shares") to
GrayBox at a purchase price of $1.80 per share by June 30, 2000. Upon receipt by
GrayBox of the 100,000 Replacement Shares, GrayBox agreed to tender the warrants
back to the Company. On June 22, 2000 the transaction involving the sale of
Replacement Shares took place and the Company subsequently canceled the original
80,000 warrants. The Replacement Shares have been valued at $458,421 on the
financial statements using the Black-Scholes option pricing model with a
volatility of 104%, risk free interest rate of 6.25%, no expected dividend yield
and life of one month.

(11) SEGMENTED DISCLOSURES

The following table represents segmented reporting for the six months
period ending September 30, 2000 and 1999

<TABLE>
<CAPTION>
PRODUCT SERVICES CORPORATE TOTAL
(000'S) ------- -------- --------- -----

<S> <C> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30,
2000:
Revenue................................................. $ $ 6,864 $ -- $ 6,864

Operating loss.......................................... (2,081) (2,232) (4,313)
Net interest income and expense......................... (2,758) (2,758)
------- ------ ------- -------
Pre tax loss............................................ (2,081) (4,990) (7,071)
Net loss................................................ (2,081) (4,990) (7,071)
Assets.................................................. 1,000 18,834 9,974 29,808
Depreciation and amortization........................... 2,618 113 4,731
Fixed assets additions.................................. 65 79 144

SIX MONTHS ENDED SEPTEMBER 30,
1999:

Revenue................................................. 317 -- 317

Operating loss.......................................... (699) (1,183) (1,882)
Net interest income and expense......................... 39 39
Loss allocated to minority interest..................... 16 16
------- ------ ------ -------
Pre tax loss........................................... (699) (1,128) (1,827)
Net loss............................................... (699) (1,128) (1,827)
Assets.................................................. 9,896 17,156 2,623 29,675
Depreciation and amortization........................... 638 415 7 1,060
Fixed assets additions.................................. 470 177 11 658
</TABLE>

Significant reconciling items in the corporate columns are as follows:

SIX MONTHS ENDED SEPTEMBER 30, 2000:
Operating loss: Professional fees $818; Compensation $499; Consulting $265;
Investor and public relations $203, Bad debt allowance $235.

Assets: Prepaid Expense $2,201; Deferred charges $2,857; Cash $971;
Goodwill and other intangible $1,802.

SIX MONTHS ENDED SEPTEMBER 30, 1999:
Operating loss: Professional fees $387; Compensation $319; Consulting $129;
Investor and public relations $111.

Assets: Cash $1,105; Prepaids $172; Other intangible assets $112.

- 12 -

<PAGE>

(12) Going Concern Issue

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
sustained losses and negative cash flows from operations since its inception.
The Company currently does not have sufficient cash reserves and working capital
surplus to fund its operations and its ability to meet its obligations in the
ordinary course of business is dependent upon its ability to raise additional
financing through public or private equity financings, establish profitable
operations, enter into collaborative or other arrangements with corporate
sources, or secure other sources of financing to fund operations.

Management believes that divesting from its eCommerce operations will enable
the Company to become cash flow positive in the near future. Management also
intends to raise additional working capital through equity and/or debt
financings in the upcoming months. The matters discussed above raise substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The Company has a limited operating
history and its prospects are subject to the risks, expenses and uncertainties
frequently encountered by companies in the new and rapidly evolving markets for
Internet products and services. These risks include the rejection of the
Company's services by Internet consumers or advertisers, the inability of the
Company to maintain and increase the levels of traffic on its websites, as well
as other risks and uncertainties. In the event that the Company does not
successfully implement its business plan and obtain additional equity and/or
debt financing, certain assets may not be recoverable.

(13) SUBSEQUENT EVENTS

Subsequent to September 30, 2000 the Company:

The Company sold the assets of its eCommerce segment to CLBL, Inc, a
Connecticut Company. CLBL, Inc. is wholly-owned by Charles Beilman, a
significant (12.9%) shareholder of the Company. This sale was consummated
on October 10, 2000. The proceeds from the sale consist solely of a note
receivable from the purchaser in the amount of $1,000,000. The note, which
bears no stated interest rate, is payable in 6 semi-monthly installments of
$50,000 and matures on September 30, 2001. This purchase price was
determined through arms length negotiations between the parties.

Take-Two Interactive Software, Inc. has agreed to acquire 1.33 million
shares of the Company from Charles Beilman. This purchase will increases
the number of eUniverse shares owned by Take-Two to 2.1 million shares or
approximately 11%. Mr. Beilman has agreed to use a portion of the proceeds
form this sale ($800,000) to partially satisfy the note given to the
Company for the purchase of commerce segment and another portion ($400,000)
to prepay for advertising on the Company's network of websites.

On November 3, 2000, the Company was served with a ten-day notice by
"Emazing", Inc. of its intent to terminate its subscriber acquisition
agreement with the Company. This agreement was part of the Secured Note and
Warrant Purchase Agreement between the Company and New Technology Holdings,
Inc. dated September 6, 2000. Emazing, Inc has accounted for $1.9M of the
Company's advertising revenue for the quarter ended September 30, 2000.

- 13 -

<PAGE>

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

At the end of the quarter ended September 30, 2000, the Board of Directors
of eUniverse, Inc. (referred to as either "eUniverse" or the "Company") approved
a plan to dispose of the assets of the products segment of eUniverse's ecommerce
business. Management had concluded that the ecommerce business was in a highly
competitive industry sector and that it was unlikely to generate profits in the
foreseeable future. Furthermore, the business was no longer central to
eUniverse's strategy of developing content and community in the interactive
entertainment sector. Although the products segment represented a large part of
our operations and financial results historically, management has concluded that
the product segment should be classified as a discontinued operation because it
is not central to our strategy and we do not intend to engage in ecommerce in
the future. Therefore, the financial statements herein have been restated to
reflect that method consistently for the current periods and comparative
historical periods.

The following discussion should be read in conjunction with our financial
statements and the accompanying notes that appear elsewhere in this report. The
results for both the quarter and six months ended September 30, 2000 reflect the
consolidated operations of eUniverse, Case's Ladder, Gamer's Alliance and Big
Network. Results for the comparable periods in 1999 include only those of Case's
Ladder (since May 30, 1999), Gamer's Alliance and Big Network (since September
1, 1999). Effective October 10, 2000, the products segment of eUniverse was sold
to CLBL, Inc., and the results of that segment are treated as a discontinued
operation in the financial statements. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements.

RESULTS OF OPERATIONS -- QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 2000 VS.
1999

NET SALES

Net service sales include advertising, sponsorship and membership revenues.

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $4,093 $ 260 1475% $6,900 $ 330 1991%
</TABLE>

For the quarter ended September 30, 2000, net service sales increased
nearly 15 times or $3.8 million over the comparable period in 1999. This
increase was attributable to both the acquisitions that have occurred in

- 14 -

<PAGE>

the past year and through development of our advertising network through which
we provide advertising. The increased development of our advertising network,
traffic and impressions has caused net service sales for the current quarter
to grow more than 50% from the quarter ended June 30 of this year. For the
six-month period ended September 30, 2000, net service sales increased nearly 20
times over the comparable period in 1999 as a result of the same factors noted
above in the comparison of the current quarter to the same period last year. Net
service sales also include barter advertising where we exchange banner and other
ad impressions on our web sites for similar quantities on our barter partner's
web sites. No barter revenues were recorded for the current quarter, and barter
revenues represented less than 1% of revenues for the six months ended September
30, 2000. The Company had no barter transactions in the comparable quarter and
six-month periods in 1999. We expect that advertising revenues will continue to
grow as a result of our emphasis on developing our own sites and our network as
well as realizing larger benefits of acquisitions made during the prior year.

GROSS PROFIT

Gross profit is calculated as net sales less the cost of sales, which
consists of the cost related to our advertising network.

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross Profit.............$3,456 $234 1378% $5,652 $240 1850%
Percentage of sales...... 84.4% 93.2% 82.3% 91.6%

</TABLE>

For the quarter ended September 30, 2000, gross profit decreased as a
percentage of net sales from 93% to 84% but increased significantly in absolute
dollars from $234,000 to $3.5 million compared to the same period in 1999,
reflecting the substantial increase in sales to include advertising and
membership revenues as noted above. The gross margin percentage for the current
quarter decreased as compared to the same quarter in 1999 due to costs related
to the eUniverse advertising network developed early in this calendar year.
For the six-month period ended September 30, 2000, sales increased by a
factor of 18.5 times over the comparable period in 1999 as a result of our
acquisitions, although margins as a percent of sales decreased somewhat from 92%
to 82% for the same factor cited above in the comparison of the current quarter
to the same

- 15 -

<PAGE>

period last year. Gross margins attributable to new business areas may be lower
than those associated with the Company's existing business activities. However,
the Company over time will continue to focus on increasing advertising revenue,
particularly for the Gamer's community and funpage sites, and thus improve
margins.

MARKETING AND SALES

Marketing and sales expenses consist primarily of advertising, public
relations and promotional expenditures, and all related payroll and related
expenses for personnel engaged in marketing and selling activities.

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Marketing and Sales..........$3,140 $206 1424% $4,843 $275 1662%
Percentage of sales........... 76.7% 82.1% 70.6% 86.8%
</TABLE>

For the quarter ended September 30, 2000, marketing and sales expenses
increased by $2.9 million over the comparable period in 1999 due to factors
principally related to the rapid growth of the Company. This $2.9 million
increase for the current quarter was driven by both the rapid expansion of our
web sites and acquisitions that occurred throughout the prior year. Specific
increases for the current quarter over the same period last year include the
following: payroll of $327,000, consulting and other services of $219,000,
facilities expenses of $82,000, and commissions and incentive compensation
relating to our acquisitions of $2.1 million. For the six-month period
ended September 30, 2000, marketing and sales expenses increased $4.7 million
over the comparable period in 1999 for the same reasons cited above in the
comparison of the current quarter to the same period last year. Specific
increases for the six-month period ended September 30, 2000 over the same period
last year include the following: payroll of $692,000, advertising and promotion
of $991,000, consulting and other services of $396,000, facilities expenses
of $205,000, and commissions and incentive compensation relating to our
acquisitions of $2.1 million. The Company intends to continue its branding and
marketing campaigns. As a result, the Company continues to expect marketing and
sales expenses to increase significantly in absolute dollars. However, the
commissions and incentive compensation related to the funpage referrals are
expected to decrease after the initial contract periods beginning in the second
quarter of the next fiscal year.

- 16 -

<PAGE>

PRODUCT DEVELOPMENT

Product development expenses consist of payroll and related expenses for
developing and maintaining the Company's web sites and supporting technology.

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Product Development...........$1,098 $225 389% $1,755 $222 692%
Percentage of sales........... 26.8% 89.6% 25.6% 70.0%
</TABLE>

For the quarter ended September 30, 2000, product development costs
increased $873,000 over the comparable period in 1999 as a result of increased
payroll and related expenses due to inclusion of the results for Case's Ladder,
Gamer's Alliance and Big Network. The $873,000 increase for the current quarter
came from $350,000 in payroll related costs and $238,000 in outside services and
the remainder from increases in facilities and internet fees. For the six-month
period ended September 30, 2000, costs increased $1.5 million over the
comparable period in 1999 as a result of our expansions and acquisitions. The
$1.5 million increase for this six-month period came from $692,000 in payroll
related costs, $283,000 in consulting and outside development services and the
remaining $500,000 in facility and internet fees. We expect that costs will
continue to increase each quarter commensurate with our revenue increases and
anticipate increases in costs over the prior year due to acquisitions in the
past year.

GENERAL AND ADMINISTRATIVE

General and administrative ("G&A") expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses.

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
General and administrative...$1,374 $709 94% $2,311 $1,193 94%
Percentage of sales.......... 33.6% 282.6% 33.7% 376.7%
</TABLE>

- 17 -

<PAGE>

For the quarter ended September 30, 2000, G&A costs increased $665,000, or
94%, over the comparable period in 1999. The increase in G&A costs for the
current quarter is primarily attributable to increased infrastructure costs
associated with the Company's expansion efforts during the balance of the last
fiscal year. This increase includes payroll of $228,000, accounting and legal
expenses of $290,000, professional consulting services of $92,000, and office
and facility expenses of $54,000. For the six-month period ended September 30,
2000, G&A costs increased $1.1 million, or 94%, over the comparable period in
1999. The increase in G&A costs for this six-month period is attributable to the
same factors cited above in the comparison of the current quarter to the same
period last year. This increase includes payroll of $372,000, accounting and
legal expenses of $316,000, professional consulting services of $187,000 and
office, and depreciation and facility expenses of $247,000. The Company expects
G&A costs to continue to increase commensurate with its expansion plans.

AMORTIZATION OF INTANGIBLES

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Amortization of intangibles.......... $558 $ 334 $1,143 $ 399
</TABLE>

The current quarter and six-month period changes as compared to the same
periods in 1999 reflect the stock acquisitions of Case's Ladder, Gamer's
Alliance, Big Network and Pokemon Village and the asset acquisitions of Funone,
JustSayWow, Dustcloud and other minor acquisitions. It is likely that the
Company will continue to expand its business through acquisitions and
investments, which will cause amortization costs to increase.

STOCK-BASED COMPENSATION

Stock-based compensation is comprised of the portion of acquisition related
consideration conditioned on the continued tenure of key employees, which must
be classified as compensation expense under generally accepted accounting
principles. Additional stock-based compensation is recorded for stock price
fluctuations that affect compensation expense for options that were repriced in
September 1999.

- 18 -

<PAGE>

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Stock-based Compensation............. $100 $ 71 ($ 87) $ 83
</TABLE>

The expenses for the current quarter are attributable to performance
bonuses in connection with the acquisition of JustSayWow while expenses for
all of the other periods presented derive from variable stock compensation in
connection with repricing of options to employees in September 1999. Since the
Company's stock price at September 30, 2000 was below that at March 30, a
negative expense was recorded for the six-month period ended September 30, 2000.

NON-OPERATING INCOME AND (EXPENSE)

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income ........ $ 6 $ 32 $ 12 $ 39
Interest expense........ $(2,867) $ -- $(2,882) $ --
Minority interest ...... -- (16) -- ( 16)
</TABLE>

Interest and financing expense for the quarter for the short-term loans
were primarily from recognition of the costs related to the issuance of warrants
in connection with the short-term loans provided during the quarter. A total of
1,701,260 options and warrants were issued and have been valued at $5.6 million.
For the quarter and six-month period ended September 30, 2000, $2.8 million was
expensed and $2.8 million will be expensed in the coming quarter. In the prior
year we had no short-term loans.

INCOME TAXES

The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. Utilization of the Company's
net operating loss carryforwards, which begin to expire in 2011, may be subject
to certain limitations under Section 382 of the Internal Revenue Code of 1986,
as amended. Due to uncertainties regarding realizability of the deferred tax
assets, the Company has provided a valuation allowance on the deferred tax asset
in an amount necessary to reduce the net deferred tax asset to zero.

- 19 -

<PAGE>

LOSS FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net (Loss).............. $(5,564) $(1,263) $(7,071) $(1,826)
Percentage of sales..... (135.9%) (503.6%) (103.0%) (577.0%)
</TABLE>

Net (Loss) in the current quarter increased to $5.6 million from $1.3
million in the same quarter in 1999, and in the current six-month period
increased to $7.1 million from $1.8 million in the same period in 1999 due to an
increase in the size of the Company as a result of acquisitions made during the
prior year and the afore-mentioned financing expense.

NET LOSS FROM DISCONTINUED OPERATIONS

<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Loss from discontinued
operations........................ $(1,689) $(799) $(3,792) $(1,479)
Loss from disposal of segment
(net of taxes) ................... (9,814) -- (9,814) --
</TABLE>

In September 2000, our Board of Directors approved a plan to dispose of the
products (ecommerce) segment of the business and an agreement was signed on
October 3, 2000 to sell the assets of the product segment to CLBL, Inc., a
company owned by Charles Beilman, previously a director and officer of
eUniverse. The transaction was closed on October 10, 2000, and provided for CD
Universe to receive $1 million in exchange for the tangible and intangible
assets of the business. Additionally, eUniverse will receive $500,000 from CLBL
over the next six months in exchange for advertising by CLBL on eUniverse's
sites. eUniverse has elected to treat this as a discontinued operation, as such
presentation will more clearly show the trend in our current business.

For the quarter ended September 30, 2000, the discontinued operations
incurred losses of $1.7 million on revenues of $2.7 million. For the six-month
period ended September 30, 2000, the operations incurred losses of $3.8 million
on revenues of $5.7 million. A loss on the disposal of assets

- 20 -

<PAGE>

of $9.8 million was also incurred, principally consisting of a loss on disposal
of intangible assets. Accordingly, we do not expect to record any material
expense in the future relating to this segment.

LIQUIDITY AND CAPITAL RESOURCES

Since April 14, 1999, the Company has satisfied its cash requirements
primarily through private placements of equity securities (including the $6.3
million net proceeds raised in April 1999) and short-term loans and cash flow
from sales of products and advertising.

Net cash used in operating activities was $4.5 million and $2.7 million for
the six-month periods ended September 30, 2000 and 1999, respectively. Negative
net operating cash flows were primarily attributable to quarterly net losses,
along with increases in current assets, offset by increases in current
liabilities and by non-cash charges for depreciation and amortization and the
loss on discontinued operations.

Net cash used in investing activities was $881,000 and $1.165 million for
the six-month periods ended September 30, 2000 and 1999, respectively. In the
six-month period ended September 30, 2000, $164,000 was used for fixed asset
purchases and $717,000 for other assets and deposits. Investments for the same
period in 1999 consisted of $1.9 million for acquisitions less proceeds received
through acquisitions, and purchases of fixed assets in the amount of $185,000.

Net cash provided by financing activities of $4.1 million for the six-month
period ended September 30, 2000 resulted from proceeds from short-term loans
from new investors. Loans of approximately $1.5 million remain unpaid past their
maturity date and are effectively in default. The Company will incur additional
default interest on these loans of approximately $2,500 monthly. Additionally,
the lenders on these past-due loans could demand immediate payment and initiate
legal proceedings against the Company, which could result in court-ordered
judgments and liens against the Company. In the case of one note in the
principal amount of $1.02 million which is a portion of the $1.5 million in
past-due loans, the note has been secured by the 4.8 million shares of our stock
held by Mr. Greenspan. For the comparable period in 1999, cash flows from
financing activities were $6.2 million which resulted from net proceeds of $6.3
million from the sale of 1.8 million shares of preferred stock and 997,835
shares of common stock, plus repayments of advances to an officer and
affiliates, offset by in advances to employees made in conjunction with
acquisitions.

- 21 -

<PAGE>

As of September 30, 2000, the Company's principal commitments include
obligations under leases amounting to about $275,000, annually. Continued
acquisitions and investments may also require future capital expenditures.

The Company currently has minimal cash and working capital to fund its
operations, and its ability to meet its obligations in the ordinary course of
business is dependent upon its ability to raise additional financing through
public or private equity financings, establish profitable operations, enter into
collaborative or other arrangements with corporate sources, or secure other
sources of financing to fund operations. Cash has been used principally to
finance working capital requirements. Management will attempt to raise
additional working capital through additional equity and/or debt financings in
the upcoming year. There can be no assurance that such financing can be
successfully completed on terms acceptable to the Company.

The matters discussed above raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. The Company has a limited operating history and its prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. These risks include the failure to obtain and ship products sold to
consumers, the rejection of the Company's services by Internet consumers or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its web sites, as well as other risks and uncertainties. In the event
that the Company does not successfully implement its plan for additional
funding, certain assets may not be recoverable.

- 22 -

<PAGE>

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On September 18, 2000, the Company filed a lawsuit in California Superior
Court for the County of Alameda against the former shareholders of The Big
Network, Inc. ("BNI") who became shareholders of eUniverse in or about September
of 1999 when eUniverse acquired all of the outstanding shares of BNI pursuant to
an Agreement and Plan of Reorganization and numerous Stock Exchange Agreements
between eUniverse and the former BNI shareholders ("BNI Acquisition"). The
gravamen of the lawsuit is that representations made by BNI's former officers
and principal stockholders at and around the time of the BNI Acquisition were in
fact false and that eUniverse, in deciding to acquire BNI, relied on those
representations. In particular, the Company believes that BNI's former officers,
principally Stephen D. Sellers and John V. Hanke, misrepresented the state and
capabilities of BNI's feature technology, the community building, java-based
software known as LiveSuite. In pursuing this lawsuit, the Company seeks to
rescind, i.e. unwind, the BNI Acquisition or, in the alternative, to seek
compensatory damages for the harm suffered by the Company resulting from its
decision to enter into the BNI Acquisition. The Company has also asserted claims
against Messrs. Sellers and Hanke related to their activities as executive
employees, and in the case of Mr. Sellers, as a Board member, of eUniverse after
the BNI Acquisition. The Company has not yet effected service of the lawsuit on
any of the defendants as it continues to investigate and document the extent
of its claims.

On November 1, 2000, Ballsbridge Finance Ltd. ("Ballsbridge") filed a
lawsuit against the Company in the California Superior Court for the County
of Los Angeles for breach of contract and related claims based on the
Company's alleged refusal to authorize transfer of 55,000 restricted shares
of eUniverse common stock originally issued to Ballsbridge in or about
May of 1999. Ballsbridge is seeking damages in the amount of $350,000 as
well as an order requiring the Company to authorize transfer of the
Ballsbridge shares. This action is related to the previously disclosed
lawsuit filed against the Company in December 1999 by the Isosceles Fund
Ltd. Ballsbridge is an offshore entity affiliated with Peter Geddes of
Greystone Capital, an investment bank located in Beverly Hills, California.
Mr. Geddes was active in introducing investors, including Isosceles, to the
Company as potential subscribers to certain Company and/or related stock
offerings occurring in or about April 1999. The Ballsbridge shares at issue
were intended as payment in connection with an investment by Isosceles.
Isosceles ultimately did not participate as an investor and, in or about
January, 2000, the Company resolved to cancel the shares issued to Ballsbridge
due to failure of consideration. The Company believes the claims by Ballsbridge
are without merit and will vigorously defend the lawsuit.

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

As of September 14, 2000, eUniverse sold to Deborah House d/b/a
DebsFunPages.com 10,724 unregistered shares of eUniverse common
stock for an aggregate purchase price of $50,000.

ITEM 5. OTHER INFORMATION.

On October 30, 2000, eUniverse, Take-Two and Charles Beilman entered into a
letter agreement (the "Letter Agreement") pursuant to which Take-Two agreed to
purchase 1,333,333 shares of eUniverse common stock from Charles Beilman for an
aggregate purchase price of $2 million (the "Transaction"), to be distributed
as follows: forty percent (40%) to Charles Beilman and sixty percent (60%) to
eUniverse pursuant to the Stock Option Agreement described below, as amended.
The Letter Agreement also provides for the release by eUniverse of

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1,333,333 shares of eUniverse common stock owned by Charles Beilman from an
option in favor of eUniverse pursuant to a Stock Option Agreement dated January
26, 2000 (the "Stock Option Agreement") between eUniverse and Charles Beilman,
as amended by the First, Second, Third, Fourth and Fifth Amendments to Stock
Option Agreement dated March 31, May 31, June 16, July 31 and October 10, 2000,
respectively. This release of option is memorialized in a Sixth Amendment to
Stock Option Agreement between eUniverse and Charles Beilman, dated October 30,
2000. The closing of the Transaction was originally scheduled to occur on
November 6, 2000. Pursuant to a First Amendment to Letter Agreement entered into
by the parties on November 6, 2000, the closing was extended to November 13,
2000.

Pursuant to a Second Amendment to Letter Agreement entered into by the
parties on November 13, 2000, the closing was extended to November 22, 2000,
provided that twenty-five percent (25%) of the purchase price shall be received
by the escrow agent for Charles Beilman by November 14, 2000.

In connection with the Transaction, on October 30, 2000, eUniverse,
Take-Two and Brad D. Greenspan entered into a side letter agreement (the "Side
Letter Agreement") pursuant to which eUniverse granted to Take-Two certain
demand registration rights with respect to the 1,333,333 shares of eUniverse
common stock to be sold to Take-Two under the Letter Agreement and an additional
100,000 shares of eUniverse common stock to be sold by eUniverse to Take-Two
under the Side Letter Agreement. The Side Letter Agreement also provides that
eUniverse shall use its best efforts to cause an individual to be designated by
Take-Two to be elected and serve as a member of the Board of Directors of
eUniverse, and in connection therewith Brad D. Greenspan shall vote all shares
of capital stock of eUniverse owned by him for the election of the person to be
determined by Take-Two to the Board of Directors of eUniverse. The closing of
the Side Letter Agreement, which is contingent upon consummation of the closing
of the Letter Agreement, was extended to November 22, 2000 by a First Amendment
to Side Letter Agreement dated November 6, 2000 and a Second Amendment to Side
Letter Agreement dated November 13, 2000.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The following exhibits are filed as part of this report:

<TABLE>
<CAPTION>
Exhibit
-------
Number Exhibit Title/Description
------ -------------------------
Exhibit
---------
Number Exhibit Title/Description
---------- --------------------------
<S> <C>
3.01 -- Articles of Incorporation of eUniverse.(1)
3.02 -- Amendment to Articles of Incorporation of eUniverse regarding change of
name.(1)
3.03 -- Certificate of Amendment of Articles of Incorporation
regarding issuance of Preferred Stock.(1)
3.04 -- Bylaws of eUniverse.(1)
3.05 -- Amendment to Bylaws.(1)
</TABLE>

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<TABLE>
<S> <C>
3.06 -- Designation of Preferred Stock of Motorcycle Centers of
America, Inc. dated April 7, 1999, as filed with the Secretary of
the State of Nevada, which defines the rights and preferences of
the Preferred Stock of eUniverse.(1)
3.06.01 First Amendment to Designation of Stock of eUniverse, Inc.
f/k/a Motorcycle Centers of America, Inc. and First Amended and
Restated Certificate of Designation of Series A 6% Convertible
Preferred Stock of eUniverse, Inc., dated as of February 2, 2000.(6)
10.01 -- Stock Purchase Agreement by and between Palisades Capital,
Inc. and Charles Beilman, dated as of October 1, 1998 (the "Stock
Purchase Agreement").(1)
10.02 -- Amendment to Stock Purchase Agreement, dated December 29, 1998.(1)
10.03 -- Amendment No. 2 to Stock Purchase Agreement, dated February 11, 1999.(1)
10.04 -- Amendment No. 3 to Stock Purchase Agreement, dated as of March , 1999.(1)
10.05 -- Amendment Number 4 to Stock Purchase Agreement, dated as of June 9, 1999.(1)
10.06 -- Agreement and Plan of Reorganization by and among Motorcycle
Centers of America, Inc., Entertainment Universe, Inc. and the
principal officers of Entertainment Universe, Inc., dated April 9, 1999.(1)
10.07 -- Entertainment Universe, Inc. Regulation D Subscription Agreement, dated
as of April , 1999.(1)
10.08 -- Entertainment Universe, Inc. Registration Rights Agreement, dated as of April 1999.(1)
10.09 -- Assignment and Assumption Agreement by and between Entertainment Universe, Inc. and
Motorcycle Centers of America, Inc., dated as of April 14, 1999.(1)
10.10 -- Stock Purchase Agreement by and among Motorcycle Centers of America, Inc. and the
shareholders of Case's Ladder, Inc., dated as of April 21, 1999.(1)
10.11 -- Contract of Employment by and between Entertainment Universe, Inc. and William R. Wagner,
dated March 25, 1999.(1)
10.12 -- Employment Agreement by and between eUniverse, Inc. and Leland N. Silvas, dated as of
April 14, 1999.(1)
10.13 -- Letter agreement between Entertainment Universe, Inc. and E.P. Opportunity Fund, L.L.C.
regarding appointment of a director of Entertainment Universe, Inc., dated April 6, 1999.(1)
10.14 -- Modification and Restatement of Lease by and between Vincenzo Verna Trustee d/b/a Harvest Associates
and CD Universe, Inc. for eUniverse's office space in Wallingford, Connecticut, dated as of
February 1, 1999.(1)
10.15 -- Agreement and Plan of Reorganization by and among eUniverse, Inc., Gamer's Alliance, Inc.,
and Larry N. Pevnick and Robin T. Pevnick, Ten Ent., and Stan Goldenberg and
Andrea R. Goldenberg, Ten Ent., dated as of the 1st day of July, 1999.(6)
10.15.1 -- Second Amendment to Agreement and Plan of Reorganization by and among eUniverse, Inc.,
Gamer's Alliance, Inc., and Larry N. Pevnick and Robin T. Pevnick, Ten Ent., and
Stan Goldenberg and Andrea R. Goldenberg, Ten Ent., dated as of the 12th day of
November, 1999.(1)
10.16 -- Agreement and Plan of Reorganization by and among eUniverse, Inc., The Big Network, Inc.,
Stephen D. Sellers, John V. Hanke and Michael Sellers, dated July 30, 1999
(effective as of August 31, 1999).(6)
10.17 -- Letter Agreement by and among Brad D. Greenspan, Charles Beilman, Stephen D. Sellers
and John V. Hanke regarding appointment of a director of eUniverse, Inc., dated as of
August 31, 1999.**
10.18 -- Employment Agreement by and between eUniverse, Inc. and James Haiduck, dated as of June 17, 1999.(6)
10.19 -- Employment Agreement by and between eUniverse, Inc. and Stephen D. Sellers, dated as of August 31, 1999.(6)
10.21 -- eUniverse, Inc. Registration Rights Agreement dated July 30, 1999.(6)
10.22 -- Office Sublease by and between Golden Gate University and The Big Network, Inc., dated
July 9, 1999.(6)
10.23 -- Engagement Letter by and among Gerard Klauer Mattison & Co., Inc. by Entertainment Universe, Inc.
and Brad Greenspan, dated February 24, 1999.(6)
10.24 -- Indemnification Agreement by Entertainment Universe, Inc. and Brad Greenspan in favor of
Gerard Klauer Mattison & Co., Inc., dated February 24, 1999.(6)
10.25 -- eUniverse, Inc. 1999 Stock Awards Plan.(6)
10.26 -- Online Partner Agreement between CD Universe, Inc. and Accessio.com Inc., regarding
US-Style, dated November 5, 1998.(1)
10.27 -- Employment Agreement by and between eUniverse, Inc. and Martin Hamilton, dated as of October 25, 1999.
Mr. Martin terminated his employment on March 2, 2000 to pursue other business opportunities.(1)
10.28 -- Web Advertising Agreement by and between eUniverse, Inc. and Mpath Interactive, Inc., dated as of
August 13, 1999 and terminated as of February 1, 2000. Portions of Exhibit 10.28 have been omitted
pursuant to a request for confidential treatment, which was granted by the SEC.(2)
</TABLE>

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<TABLE>
<S> <C>
10.29 -- eUniverse, Inc. Common Stock Purchase Warrant to Gerard Klauer Mattison & Co., Inc., dated
April 14, 1999.(1)
10.30 -- Asset Purchase Agreement by and between eUniverse, Inc. and Scott Smith d/b/a Pokemonvillage.com
and Quake City Gaming Network, dated as of February 1, 2000.(3)
10.31 -- Letter agreement by and among eUniverse, Inc. Take-Two Interactive Software, Inc. and
Falcon Ventures Corporation, dated as of February 2, 2000.(3)
10.32 -- Employment Agreement by and between eUniverse, Inc. and William R. Wagner dated as of April 5, 1999.(3)
10.33 -- Letter Agreement by and between eUniverse, Inc. and Christian Walter d/b/a Justsaywow.com
dated February 20, 2000.(4)
10.34 -- Lease by and between Hamms Building Associates and Falcon Ventures Corp., dated as of July 27, 1999.(5)
10.35 -- eUniverse, Inc. Common Stock Purchase Warrant to Michael Zaroff, dated December 10, 1999.(5)
10.36 -- eUniverse, Inc. Common Stock Purchase Warrant to Bob Agriogianis, dated December 10, 1999.(5)
10.37 -- eUniverse, Inc. Common Stock Purchase Warrant to Mark Bergman, dated January 15, 2000.(5)
10.38 -- eUniverse, Inc. Common Stock Purchase Warrant to Mark Bergman, dated February 15, 2000.(5)
10.39 -- Stock Option Agreement by and between eUniverse, Inc. and Charles Beilman, dated as of January 26, 2000.(5)
10.39.01 First Amendment to Stock Option Agreement by and between eUniverse, Inc. and Charles Beilman,
dated as of March 31, 2000.(5)
10.39.02 Second Amendment to Stock Option Agreement by and between eUniverse, Inc. and Charles Beilman,
dated as of May 31, 2000.(6)
10.39.03 Third Amendment to Stock Option Agreement by and between eUniverse, Inc., Charles Beilman and Martin,
Gasparrini & Chioffi, LLP, dated as of June 16, 2000.(6)
10.39.04 Fourth Amendment to Stock Option Agreement by and between eUniverse, Inc. and Charles Beilman,
dated as of July 31, 2000.(8)
10.39.05 Fifth Amendment to Stock Option Agreement by and between eUniverse, Inc. and Charles Beilman,
dated as of October 10, 2000.(9)
10.39.06 Sixth Amendment to Stock Option Agreement by and between eUniverse, Inc. and Charles Beilman,
dated as of October 30, 2000.*
10.40 -- Letter agreement between eUniverse, Inc. and former shareholders of The Big Network, Inc.
which provides eUniverse, Inc. with the right to purchase a minimum of 500,000 shares of
eUniverse, Inc. common stock from former shareholders of The Big Network, Inc.
(the "Big Network Buyout Agreement"), the closing of which shall occur on or before
April 24, 2000.(5)
10.40.01 First Amendment providing for extension of closing date of the Big Network Buyout Agreement
to May 5, 2000.(7)
10.40.02 Second Amendment providing for extension of closing date of the Big Network Buyout Agreement
to May 19, 2000.(7)
10.40.03 Third Amendment providing for extension of closing date of the Big Network Buyout Agreement
to May 19, 2000.(7)
10.41 -- eUniverse, Inc. Common Stock Purchase Warrant to Salomon Grey Financial Corporation,
dated March 14, 2000 (terminated).(5)
10.42 -- eUniverse, Inc. Common Stock Purchase Warrant to Salomon Grey Financial Corporation,
dated March 14, 2000 (terminated). (5)
10.43 -- Agreement by and between eUniverse, Inc. and Take-Two Interactive Software, Inc., dated as
of March 16, 2000, providing for account marketing services.(5)
10.44 -- Agreement by and between eUniverse, Inc. and Take-Two Interactive Software, Inc., dated as
of March 16, 2000, providing for programming services.(5)
10.45 -- Letter agreement by and among eUniverse, Inc. and Erik MacKinnon and Dan Barnes d/b/a Dustcloud
Media, dated March 29, 2000.(6)
10.46 -- Form of Warrant issued to certain eUniverse preferred shareholders on February 2, 2000.(7)
10.47 -- Asset Purchase Agreement by and between CD Universe, Inc. and CLBL, Inc., dated as of
October 3, 2000.(9)
10.48 -- Letter agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc. and
Charles Beilman, dated October 30, 2000.*
10.48.01 First Amendment to letter agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc.
and Charles Beilman, dated November 6, 2000.*
10.48.02 Second Amendment to letter agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc.
and Charles Beilman, dated November 13, 2000.*
10.49 -- Side letter agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc. and
Brad D. Greenspan (with respect to Sections 2 and 4 only), dated October 30, 2000.*
10.49.01 First Amendment to Side Letter Agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc.
and Brad D. Greenspan, dated November 6, 2000.*
10.49.02 Second Amendment to Side Letter Agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc.
and Brad D. Greenspan, dated November 13, 2000.*
21.01 -- Subsidiaries of eUniverse, Inc.(5)
27.01 -- Financial Data Schedule*
</TABLE>

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---------
* Filed herewith.

(1) Incorporated by reference to eUniverse's Form 10 filed on June 15, 1999
(Registration File No. 0-26355).

(2) Incorporated by reference to eUniverse's Form 10-Q filed on November 15,
1999.

(3) Incorporated by reference to eUniverse's Form 10-Q filed on February 14,
2000.

(4) Incorporated by reference to eUniverse's Form 8-K filed on March 13, 2000.

(5) Incorporated by reference to eUniverse's Form S-1 filed on March 23, 2000
(Registration File No. 333-33084).

(6) Incorporated by reference to eUniverse's Form 8-K filed on June 28, 2000.

(7) Incorporated by reference to eUniverse's Form 10-K filed on July 14, 2000.

(8) Incorporated by reference to eUniverse's Form 10-Q filed on August 14, 2000.

(9) Incorporated by reference to eUniverse's Form 8-K filed on October 24, 2000.

(b) Reports on Form 8-K

A Current Report on Form 8-K was filed with the SEC by eUniverse on October
24, 2000 to report the sale of all of the assets of CD Universe, Inc., a
subsidiary of eUniverse, to CLBL, Inc. as of October 10, 2000.

SIGNATURES

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

eUNIVERSE, INC.
Registrant

Dated: November 14, 2000 /s/ WILLIAM R. WAGNER
--------------------------------------
William R. Wagner
Chief Financial Officer
(Principal Financial Officer)
and Registrant's Authorized Officer

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