BLAXXUN INTERACTIVE INC, S-1/A, 2000-05-26

BLAXXUN INTERACTIVE INC
S-1/A, 2000-05-26
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 2000

REGISTRATION NO. 333-34316

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1

TO FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BLAXXUN INTERACTIVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7372 04-3284474
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

1550 BRYANT STREET, SUITE 770
SAN FRANCISCO, CA 94103
415-437-6160
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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FRANZ BUCHENBERGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BLAXXUN INTERACTIVE, INC.
1550 BRYANT STREET, SUITE 770
SAN FRANCISCO, CA 94103
(415) 437-6160
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C> <C>
DR. ANDREAS RODIN STEVEN M. PECK, ESQUIRE TOBIAS MULLER-DEKU
POLLATH & PARTNER HUTCHINS, WHEELER & DITTMAR BRUCKHAUS WESTRICK HELLER LOBER
FRIEDRICHSTRASSE 200 A PROFESSIONAL CORPORATION TAUNUSANLAGE 11
10117 BERLIN-MITTE 101 FEDERAL STREET 60329 FRANKFURT AM MAIN
GERMANY BOSTON, MASSACHUSETTS 02110 GERMANY
011-49-30-223-322-15 617-951-6600 011-49-69-273-08-0
</TABLE>

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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, check the following box and
list the Securities Act registration statement number of 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 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 earlier
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,
check the following box. [ ]

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

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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one
prospectus will be used in connection with the registration of the offering with
the United States Securities and Exchange Commission and the other prospectus
will be used in connection with the offering in Germany. The German prospectus
will be produced in English and in German. The U.S. prospectus and the German
prospectus are identical in all respects except for the front cover page and the
back cover page of the German prospectus, which are different. The German
versions of the front cover page and the back cover page are attached to this
prospectus as pages A-1, A-2, A-3 and A-4 and are labeled "Alternate Pages for
the German Prospectus." Final forms of each prospectus will be filed with the
U.S. Securities and Exchange Commission under Rule 424(b).

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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION. DATED MAY 26, 2000.

[ ] Shares of
Common Stock

blaxxun interactive, Inc.
[LOGO OF BLAXXUN]

This is an initial public offering of shares of common stock of blaxxun
interactive, Inc. A total of 7,000,000 shares of common stock are being offered
by blaxxun. The shares of common stock will be offered to the public in the
Federal Republic of Germany. Additionally, shares of common stock will be
offered to a limited number of our directors, officers, employees or other
persons who have business relationships with us, and to persons or entities
related to them, who are not located in the United States.

It is currently estimated that the initial public offering price will be
between $8.00 and $13.00 per share (between E 8.40 and E 13.65 per share at an
assumed exchange rate of $.95 per euro). For factors considered in determining
the initial public offering price, see "Underwriting."

We intend to apply to list our common stock on the Neuer Markt of the
Frankfurt Stock Exchange. We expect that this listing will become effective and
that trading of the shares of common stock will begin promptly after the initial
public offering price is determined through negotiations between blaxxun and the
underwriters. Our trading symbol on the Neuer Markt will be BXX.

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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 TO READ ABOUT FACTORS THAT YOU SHOULD CONSIDER BEFORE BUYING
SHARES OF OUR COMMON STOCK.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS BLAXXUN
<S> <C> <C> <C>
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Per Share......................... E[ ] E[ ] E[ ]
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Total............................. E[ ] E[ ] E[ ]
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</TABLE>

Selling stockholders listed on page 58 of this prospectus have granted to
the Underwriters a 45-day option to purchase 1,100,000 additional shares of
Common Stock, solely to cover over-allotments, if any. In addition, certain
existing shareholders have agreed to lend the underwriters up to 1,100,000
shares of common stock for 45 days following this offering. To the extent that
the option is exercised, the Underwriters will offer the additional shares to
the public at the Price to the Public shown above. The Company will not receive
any proceeds from the sale of Common Stock by the selling stockholders. If the
option is exercised in full, the total Price to Public, Underwriting Discounts
and Commissions, proceeds to Company and proceeds to selling stockholders will
be $85,050,000, $3,837,750, $73,500,000, and $11,550,000, respectively based on
an estimated $10.50 per share. See "Principal and Selling Stockholders" and
"Underwriting."

NEITHER THE SECURITIES EXCHANGE COMMISSION, THE NEUER MARKT OF THE
FRANKFURT STOCK EXCHANGE, NOR ANY OTHER REGULATORY BODY HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The underwriters expect to deliver the shares of common stock to investors
on , 2000 in Frankfurt am Main, Germany.
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG

Prospectus dated

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[LOGO]

THE VIRTUAL WORLDS COMPANY

[PICTURE OF SIMULATED REAL-WORLD; PEOPLE STANDING IN LOBBY OF AN OFFICE
BUILDING]

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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 our 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.
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TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.......................................... 1
The Offering................................................ 3
Summary Consolidated Financial Data......................... 4
Risk Factors................................................ 6
Special Note Regarding Forward Looking Statements........... 16
How We Intend to Use the Proceeds from this Offering........ 17
Dividend Policy............................................. 17
Exchange Rate Information................................... 17
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 38
Statutory Information....................................... 49
Management.................................................. 51
Principal and Selling Stockholders.......................... 57
Relationships with blaxxun and Related Transactions......... 60
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 65
The German Equity Market.................................... 66
German Tax Matters.......................................... 69
Underwriting................................................ 72
Legal Matters............................................... 74
Experts..................................................... 74
Where You Can Find Additional Information................... 74
Index to Consolidated Financial Statements.................. F-1
</TABLE>

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Through and including , 2000 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in these securities in the
United States, whether or not participating in this offering, may be required to
deliver a Prospectus. This is in addition to a dealer's obligation to deliver a
Prospectus when acting as an underwriter and with respect to an unsold allotment
or subscription.

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PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding blaxxun and the financial statements and notes appearing
elsewhere in this prospectus. This summary may not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully. Unless otherwise noted, information
in this prospectus assumes that the underwriters will not exercise their
over-allotment option. Also, unless otherwise noted, information in this
prospectus takes into account a 2:1 stock split which will occur simultaneously
with the closing of this offering. Information in this prospectus, unless
otherwise noted, assumes the conversion of all outstanding shares of preferred
stock into shares of common stock simultaneously with the closing of this offer.
Our fiscal year ends July 31 and references to a particular fiscal year are
references to the fiscal year ending July 31 of the relevant year.

The Company: blaxxun is a provider of innovative software and
services that allow organizations to develop and operate
Virtual Worlds for commerce, community and collaboration
over the Internet. Virtual Worlds are feature rich
online environments where people can come together and,
by navigating through the website:

- engage in commerce by going shopping and accessing
customer service;

- engage in community by interacting with others,
attending events and being entertained; and

- engage in collaboration by participating in
cooperation scenarios.

To address the needs of advanced Virtual Worlds
applications, we have developed a set of products and
technologies that we license to our customers directly
and through third party resellers. We believe that our
focus on innovative technology, open technology
standards, scalability and extensibility (ability to
easily add features and accommodate additional volume),
support of multiple hardware and software platforms and
business relationships has established us as a leader in
the technology behind the Internet Virtual Worlds
market.

During fiscal 1999, our revenues were approximately
$1,846,000 and our net loss was approximately
$6,831,000. Our accumulated deficit as of July 31, 1999
was approximately $18,475,000. As of July 31, 1999,
goodwill and other intangible assets amounted to
approximately $7,455,000, or 62%, of our total assets.
Expected amortization expense of this goodwill and other
intangible assets of the fiscal years 2000, 2001 and
2003 is approximately $3,660,000, $3,658,000 and
$173,000, respectively.

Our business consists of selling Virtual Worlds
technology products, like the blaxxun Community
Platform, providing professional services based on our
Virtual Worlds technology, as well as operating selected
Internet communities, like Cybertown.com, learnetix.de
and soccercity.de, that use our technology to create
leading Virtual Worlds. The blaxxun Community Platform
is our most feature rich product intended for use by
organizations which require the most sophisticated
Virtual Worlds technology. Our other products have been
derived from the technology behind the blaxxun Community
Platform and are designed for users, including
businesses, other organizations and individuals, who do
not require the full range of features or volume
capacity available with the blaxxun Community Platform.

A number of global companies already use our technology
for a variety of applications. Our strategy is to
aggressively expand this customer base and to deepen and
extend relationships with existing customers, third
party resellers and technology collaborators. We also
intend to leverage our technology

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leadership position by targeting smaller business
customers and individuals with new products
incorporating our technology, such as blaxxun3D, the
blaxxun Avatar Studio and the blaxxun Instant Community.

Other Information: blaxxun was incorporated under the laws of the State of
Delaware in July of 1995. Our principal executive office
and the offices of our wholly owned subsidiary,
Cybertown, Inc., are located at 1550 Bryant Street,
Suite 770, San Francisco, California 94103. U.S.A. The
principal executive office of our wholly owned
subsidiary blaxxun interactive AG is located at
Elsenheimerstrasse 61, Munich, Germany. Our web site is
located at http://www.blaxxun.com. Information contained
on our web site does not constitute part of this
prospectus.

blaxxun(TM), Cybertown(TM), blaxxun Instant
Community(TM), blaxxun3D(TM), blaxxunContact(TM), the
blaxxun logo and The Virtual Worlds Company(TM) are
registered and unregistered trademarks, service marks
and trade names of blaxxun. This prospectus also
contains brand names, trademarks or service marks of
companies other than blaxxun interactive, Inc., and
these brand names, trademarks and service marks are the
property of their respective holders.

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THE OFFERING

References to "we," "us" or "blaxxun" refer to blaxxun interactive, Inc.,
together with its wholly owned subsidiaries, blaxxun interactive AG and
Cybertown, Inc. In addition, references to "$" or "dollars" are to United States
dollars and "E" is to euros.

COMMON STOCK OFFERED

Shares of our company offered pursuant to this prospectus include:

- 7,000,000 shares of our common stock which will be newly issued from our
authorized capital stock pursuant to a resolution expected to be passed
by our board of directors on June 2, 2000 for the purposes of this
offering; and

- up to an additional 1,100,000 shares of our common stock, which will be
available for sale by the selling stockholders pursuant to a 30-day
over-allotment option granted to the underwriters to the extent that
option is exercised. For further details, see "Underwriting."

FRIENDS & FAMILY PROGRAM

We have also reserved up to 350,000 shares of the shares of common stock
offered, excluding the shares of common stock included in the over-allotment
option, for sale at the initial public offering price to our employees, and
persons or entities who have business relationships with us, and persons or
entities related to them. The number of shares available for sale to other
investors will be reduced to the extent these persons or entities purchase the
reserved shares. None of the reserved shares will be sold to persons located in
the United States. For further details, see "Underwriting."

UNDERWRITERS

The shares to be offered pursuant to this prospectus will initially be
purchased by DG BANK Deutsche Genossenschaftsbank AG and the members of the
underwriting consortium. For further details, see "Underwriting."

STOCK EXCHANGE LISTING

In connection with this offering, we will apply for the admission of the
entirety of our issued and outstanding shares of common stock to the regulated
market with trading on the Neuer Markt of the Frankfurt Stock Exchange. We
currently expect that the admission will take place on [ ], 2000. The
first day on which the offered shares will be quoted on Neuer Markt is currently
anticipated to be [ ], 2000.

TRADING SYMBOL FOR THE NEUER MARKT

The trading symbol for our shares on the Neuer Markt is expected to be BXX.

DESIGNATED SPONSORS FOR NEUER MARKT

We have retained DG BANK Deutsche Genossenschaftsbank AG and Merck Finck &
Co. to act as designated sponsors for the shares on Neuer Markt. For additional
information concerning the Neuer Markt and the delivery and payment for and
clearing transferability of the shares, see "The German Securities Market."

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Neither we, the selling stockholders nor the underwriters have taken, or
will take any action in any jurisdiction that would not permit a public offering
of the shares or in which possession or distribution of a prospectus is
prohibited. No person has been authorized to give any information or to make any
representation other than those contained in this prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized.

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SUMMARY CONSOLIDATED FINANCIAL DATA

The consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of blaxxun
included elsewhere in this prospectus. The statement of operations data set
forth below for the fiscal years ended July 31, 1997, 1998, and 1999 have been
derived from the audited consolidated financial statements of blaxxun included
elsewhere in this prospectus, which have been audited by KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftspruefungsgesellschaft,
independent auditors. The consolidated statement of operations data for the
six-month periods ended January 31, 1999 and 2000, and the consolidated balance
sheet data as of January 31, 2000, are derived from unaudited consolidated
financial statements. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
contained in this prospectus and include all adjustments, consisting only of
normal and recurring adjustments, that we consider necessary for a fair
presentation of such information. The historical results are not necessarily
indicative of results to be expected for any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

We commenced operations in August 1995 and therefore fiscal 1996 was the
first year we had consolidated financial statements.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
----------------------------------------- --------------------
1996(4) 1997 1998 1999(5) 1999 2000
------- -------- ------- ---------- ------- ----------
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues...................... $ -- $ 595 $ 1,193 $ 1,846 $ 860 $ 2,040
Amortization of goodwill and
other intangible assets..... -- -- -- (3,521) (1,825) (1,707)
Operating loss................ (3,243) (5,525) (1,699) (6,752) (2,982) (4,501)
Net loss...................... (3,216) (5,352) (3,076) (6,831) (3,376) (4,951)
Basic and diluted net loss per
share(1)(3)................. $(669.04) (25.75) (23.96) (17.65) (13.04)
Basic and diluted weighted
average common shares
outstanding(1)(3)........... 8,000 119,473 285,093 191,299 379,803
Pro forma basic and diluted
net loss per share(2)(3).... $ (0.43) (0.29)
Pro forma basic and diluted
weighted average common
shares outstanding(2)(3).... 15,863,328 16,988,980
</TABLE>

<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
--------------------------------------- -----------
1996 1997 1998 1999(5) 2000
------ ------- ------- ------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $3,097 $ 28 $ 3,111 $ 3,215 $ 2,271
Working capital.......................... 2,454 (927) 2,115 2,414 489
Goodwill and other intangible assets..... -- -- -- 7,455 5,229
Total assets............................. 3,614 367 3,592 12,085 10,325
Long-term obligations, less current
portion................................ -- 2,041 3,892 3,776 3,466
Stockholders' equity (deficit)........... $2,783 $(2,706) $(1,605) $ 6,352 $ 3,690
</TABLE>

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(1) Historic per share and share information does not reflect the 2:1 stock
split which will occur simultaneously with the closing of this offering.

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average number of basic and diluted shares outstanding as if the preferred
stock had been converted on August 1, 1998 or on their date of issuance, if
later. The pro forma share and per share amounts also reflect the impact of
the 2:1 stock split which will occur simultaneously with the closing of the
offering.

(3) The historic and the pro forma share and per share amounts exclude (a) the
issuance of 300,000 shares, on a pre-split basis, of Series B convertible
preferred stock in consideration for the conversion of the unsecured
convertible note payable which was entered into as of March 29, 2000, and
(b) the issuance of 524,000 shares, on a pre-split basis, of Series F
convertible preferred stock during the period February 1, 2000 through
February 29, 2000.

(4) As of and for the year ended July 31, 1996, the Company had no common shares
outstanding.

(5) During 1999, the Company acquired the remaining interest in blaxxun
interactive AG through the issuance of 1,976,000 shares, on a pre-split
basis, of Series D convertible preferred stock.

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RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the following before you decide to buy our common stock. You should also refer
to the other information set forth in this prospectus, including the discussions
in "Special Note Regarding Forward-Looking Statements," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
as well as our consolidated financial statements and the related notes.

RISKS RELATED TO OUR BUSINESS

WE HAVE NEVER ACHIEVED PROFITABILITY AND WE EXPECT TO INCUR NET LOSSES FOR THE
FORESEEABLE FUTURE.

We have a history of losses since we commenced operations in 1995. Our net
loss for fiscal 1999 was approximately $6,831,000 and our accumulated deficit
was approximately $18,475,000 as of July 31, 1999. We have not achieved
profitability and we expect to incur net losses for the foreseeable future. We
cannot assure you that our revenues will grow or that we will achieve or
maintain profitability in the future. Based on our projections of future revenue
growth, we estimate that our software development and maintenance costs will
increase from approximately $1.8 million in fiscal 1999 to approximately $28.2
million in fiscal 2002. We estimate that our sales and marketing costs will
increase from approximately $2.0 million in fiscal 1999 to approximately $30.7
million in fiscal 2002. We estimate that our general and administrative costs
will increase from approximately $1.2 million in fiscal 1999 to approximately
$11.3 million in fiscal 2002. Accordingly, we will need to significantly
increase revenues to achieve and maintain profitability. Our ability to increase
revenues and achieve profitability will be affected by the other risks and
uncertainties described in this section and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

OUR LIMITED OPERATING HISTORY AND ONGOING DEVELOPMENT OF SUBSTANTIAL PRODUCTS
MAKES FORECASTING DIFFICULT.

Forecasting our revenues is difficult due to our limited operating history
and newly developed product offerings. If we do not achieve our expected
revenues, our operating results will be below our expectations and the
expectations of our investors and market analysts, which could cause the price
of our common stock to decline. We anticipate that a substantial portion of our
future revenue growth will come from products recently released or still under
development. During the second quarter of fiscal 2000, we released blaxxun3D and
blaxxun Avatar Studio. Those products generated $109,000 in revenue as of
January 31, 2000. During March 2000, we released another product, Instant
Community. The timing and extent of revenues to be achieved from sales of these
new and developing products are not subject to accurate projection due to our
lack of sales history, unknown market acceptance and the uncertainty of
development completion. As a result, we have limited meaningful historical
financial data upon which to plan revenues and operating expenses. Our ability
to forecast accurately our quarterly revenues is further limited because our
Community Platform products have relatively long sales cycles that make it
difficult to predict the quarters in which sales will occur. We plan our
expenses in part based on our future revenue projections. Most of our expenses
are fixed, making it difficult to quickly reduce spending if revenues are lower
than projected. We currently expect that our expenses will increase
significantly for the foreseeable future. See "Business -- Products."

OUR VIRTUAL WORLDS PRODUCTS MAY NOT BE ACCEPTED.

The Virtual Worlds market is in an early stage of development and our
products, which are Virtual Worlds products, may therefore not achieve market
acceptance. Other multimedia technologies, such as streaming video technology,
have to date obtained more market acceptance than the Virtual Worlds technology
upon which our products are based. See "Business -- Competition." Our blaxxun
Community Platform products are complex and generally involve capital
expenditures by our customers in excess of $100,000. In addition, many of our
prospective customers have made significant investments in internally-developed
or custom systems and would incur significant costs in switching to third-party
products such as our blaxxun Community Platform. These factors may cause our
Virtual Worlds technology not to be accepted by the market or to be accepted at
a slower rate than other technologies. If Virtual Worlds do not receive market

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acceptance or achieve market acceptance at a slower rate than we anticipate, our
expected revenues could decrease significantly and cause substantial harm to our
business.

Our products are based on the so-called "open" ISO standards VRML, HTML,
HTTP and XML. Open standards are publicly known interface and technology
standards which allow the compatibility of products from different manufacturers
and developers. VRML standard is a relatively new open standard, and no
assurance can be given that other forms of technology will not supersede the
VRML or other standards upon which our products are based. Failure of our
products to conform to the dominant technology standards could have a material
adverse effect on the market's acceptance of our products.

EXPANSION OF OUR OPERATIONS MAY STRAIN OUR RESOURCES AND WE MAY NOT BE ABLE TO
ADEQUATELY MANAGE OUR GROWTH.

We might not be able to adequately manage our growth. Our recent growth has
placed, and will continue to place, a significant strain on our managerial,
operational and financial resources. We must implement and improve our
operational and financial systems and expand, train and manage our employee base
to manage this future growth effectively. In particular, we need to further
develop the organizational structure of our United States sales force, in order
to manage rapid growth effectively. We believe that in order to effectively
manage growth we will have to create or modify our organizational structures
present in our sales force and in our accounting group, product development
group and customer service group. We cannot assure you that we will be able to
effectively implement or reorganize these aspects of our business in a manner
that will enable us to adequately manage our growth. If we do fail to implement
or reorganize these aspects of our business, we may incur significantly
increased losses.

IF WE LOSE OUR KEY MANAGEMENT MEMBERS WE MAY BE UNABLE TO REPLACE THEM.

Competition for qualified senior personnel in the software industry and in
the Internet Virtual Worlds area, as well as other markets in which we recruit,
is extremely intense and characterized by rapidly increasing salaries, which may
increase our operating expenses or hinder our ability to recruit qualified
candidates. We rely on the services of our founders and other key management,
sales and technical personnel, whose knowledge of our business and technical
expertise would be extremely difficult to replace. Our officers and key
employees are generally free to terminate their employment with us at any time
with little or no notice. None of our employees have executed non-compete
agreements and thus, there is nothing to prohibit them from competing with us
following the termination of their employment. The loss of services of any of
our key employees for any reason could harm our business. In the past five
years, we have lost only one key member of our management who is deceased. Given
our stage of development, we are dependent on our ability to attract, retain and
motivate high caliber senior personnel, and we may not be able to recruit and
retain additional qualified senior personnel. The loss of one or more of our key
employees could materially harm our business.

WE MAY NOT BE ABLE TO RETAIN OR RECRUIT QUALIFIED PERSONNEL.

If we are unable to adequately train and educate our new technical
personnel, our product development and customer service functions may be
adversely affected. If we are unable to service our customers as we grow,
customers may become dissatisfied with our products and services and we may lose
customers. It is possible that we will not be able to retain or recruit
sufficient numbers of qualified technical personnel, which could disrupt our
operations, inhibit growth and harm our business. In addition to our dependence
on our senior personnel, our ability to grow will be dependent on our ability to
attract, retain and motivate high caliber personnel at other levels,
particularly technical personnel, who we may not be able to adequately recruit,
retain or motivate. Attracting and maintaining the personnel to meet our
technical needs requires training and education. Competition for these types of
employees in the software industry and the Internet Virtual Worlds area, as well
as other markets in which we recruit, is extremely intense and characterized by
rapidly increasing salaries, which may increase our operating expenses or hinder
our ability to recruit qualified candidates.

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IF WE FAIL TO EXPAND OUR SALES OPERATIONS, WE MAY NOT BE ABLE TO INCREASE
REVENUES FROM THE SALES OF OUR PRODUCTS.

If we are unable to maintain our current sales force and expand our direct
sales operations, we may not be able to increase sales of our products and our
revenues may not grow adequately. We depend on an effective direct sales force
to market our products. As of January 31, 2000, our direct sales force is 12
people. We need to expand our direct sales operations in order to increase
market awareness of our products and services in order to increase revenues. The
demand for sales personnel is very competitive in our industry due to the
limited number of people with the requisite technical skills and understanding
of our software products and the Internet.

IF WE FAIL TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH INDIRECT RESELLERS OF
OUR PRODUCTS, OUR DISTRIBUTION CAPABILITIES WILL BE HARMED.

In the future we expect to rely upon our indirect sales channels, which
consist of resellers who incorporate our software into their products and
"resell" the resulting products. For fiscal 1998, fiscal 1999 and the six months
ended January 31, 2000, 16%, 1% and 7% of our revenues, respectively, were
generated through these indirect sales channels, with approximately 9%, 1% and
3% of revenues, respectively, being generated through a single third party
reseller of our technology. Superscape Ltd, UK accounted for 9% of our revenues
for the fiscal year ended July 31, 1998. In order to successfully market our
products, we need to increase relationships with our indirect sales channels and
establish similar relationships with other third parties. We expect these
indirect sales channels to be particularly important to the sales and marketing
of our new products. Our failure to maintain existing relationships or to
establish a sufficient number of new relationships with indirect sales partners
would limit our distribution capabilities and, in turn, adversely affect our
business.

WE DEPEND UPON A SMALL NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR
REVENUES SO THE LOSS OF ANY OF OUR LARGE CUSTOMERS COULD HAVE MATERIAL ADVERSE
EFFECT ON US.

Historically, we have received a significant portion of our revenues from a
limited number of customers. Our largest three customers for fiscal 1998,
largest four customers for fiscal 1999, and largest customer for the six months
ended January 31, 2000, represented 47%, 63% and 13% respectively, of our
revenues. Similarly, our accounts receivable are concentrated. As of July 31,
1998, July 31, 1999 and January 31, 2000, 99%, 85% and 36%, respectively of our
accounts receivable were also owed by the top six, four and three customers. We
believe that a customer's decision to license its technology is relatively
discretionary and, for large-scale users, generally involves a significant
commitment of capital resources. Therefore, any downturn in the economy or in
the business of our current or potential customers could have a material adverse
effect on our revenues. Additionally, we can not assure you that our large
customers will continue to enter into or renew existing support, maintenance and
upgrade contracts or that revenues from those contracts will continue to be
significant. The loss of a material portion of such revenues would likely have a
material adverse effect on our business, financial condition and results of
operations. For a further discussion of customer concentration, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 25.

IF WE ARE UNABLE TO MEET THE RAPID CHANGES IN SOFTWARE TECHNOLOGY, OUR EXISTING
PRODUCTS COULD BECOME OBSOLETE OR UNMARKETABLE.

Our failure to develop new software products and product enhancements in a
timely fashion would decrease our market acceptance and sales of our software
products, which would harm our business. The market for Virtual Worlds products
is characterized by rapid technological change, frequent new product
introductions and technology enhancements, uncertain product life cycles, rapid
changes in customer demands and evolving industry standards. Our success depends
in part on our ability to innovate and develop new versions of our software in a
timely manner, keep pace with technological developments and provide new
products and services that achieve rapid and broad market acceptance. Our
product and software development efforts inherently are difficult to manage and
keep on schedule. We on occasion have experienced development delays and related
cost overruns, and there can be no assurance that we will not encounter such
problems in the future. In addition, there can be no assurance that we can
identify new software products and service

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opportunities successfully and develop and bring to market new software products
and services in a timely manner or that any such product innovations will
achieve the market penetration or price stability necessary for profitability.
New products based on new technologies or new industry standards can render our
existing software products obsolete.

THE PORTION OF OUR BUSINESS BASED ON OUR COMMUNITIES MAY NOT BE PROFITABLE.

The success of our Communities depends upon our ability to leverage our
existing and future Web traffic and consumer audience to grow revenues and in
the future generate multiple revenue streams. The potential profitability of
this business model is unproven, and to be successful, we must, among other
things, develop and market content that achieves broad market acceptance by our
Community users, Internet advertisers and commerce vendors. We may fail to
develop and promote our Communities effectively, which may prevent us from
retaining or attracting new visitors and advertisers to our Communities. There
can be no assurance that we will be able to effectively develop or maintain our
Communities, and even if the development and maintenance is successful, there
can be no assurance that our Communities will be able to sustain revenue growth
or generate significant revenues or profits, if any.

WE FACE INTENSE COMPETITION THAT COULD KEEP US FROM GROWING OR EVEN MAINTAINING
OUR MARKET SHARE.

The Virtual Worlds technology market is competitive, subject to rapid
change and significantly affected by new product introductions and other
activities of industry participants. We compete with various providers of
multimedia communication solutions and expect additional competition from other
established and emerging companies. Furthermore, our competitors may combine
with each other, and other companies may enter our markets by acquiring or
entering into strategic relationships with our competitors. Many of our current
and potential competitors have longer operating histories, significantly greater
financial, technical, product development and marketing resources, greater name
recognition and larger customer bases than we do. Our present or future
competitors may be able to develop products comparable or superior to those we
offer, adapt more quickly than we do to new technologies, evolving industry
trends or customer requirements, or devote greater resources to the development,
promotion and sale of their products than we do. We may not be able to compete
effectively in our markets, competition may intensify and our inability to
compete successfully against our current and future competitors may cause us to
experience price reductions, reduced gross margins and loss of market share, any
one of which could materially and adversely affect our business. For further
description of our principal competitors, see Business -- Competition."

THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE TRADING
OF OUR COMMON STOCK.

Our operating results are subject to fluctuations, and if we fail to meet
the expectations of securities analysts or investors, our stock price could
decline significantly. The primary factors that may cause fluctuations of our
operating results include the following:

- the size, timing and contractual terms of sales of our products and
services due to the long and unpredictable sales cycle for our products;

- technical difficulties in our software that could delay product shipments
or increase the costs of introducing new products;

- the timing of recognizing revenue and deferred revenue under U.S. GAAP;

- changes in our pricing policies or pricing policies of competitors;

- increases in sales, marketing, product development or administrative
expenses;

- changes in our mix of revenues generated from product sales and services;

- changes in our mix of sales channels through which our products and
services are sold;

- our ability to maintain quality levels for our products and implement
quality Internet Virtual Worlds solutions for our customers;

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<PAGE> 15

- the fixed nature of our operating expenses, such as base compensation for
our employees and rent; and

- costs related to acquisitions of technology or businesses.

Because of these factors, we believe that quarter-to-quarter comparisons of our
results of operations as an indication of our future performance will not
necessarily be meaningful. Our future quarterly operating results may fluctuate
and may not meet the expectations of securities analysts or investors. If this
occurs, the price of our common stock would likely decline.

THE SUCCESS OF OUR INTERNATIONAL OPERATIONS IS DEPENDENT UPON MANY FACTORS WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS INTERNATIONALLY.

We market and sell our products in the United States and internationally.
In fiscal 1998, 1999 and in the six month period ended January 31, 2000, we
generated 98%, 79% and 78%, respectively, of our total revenues to customers
located outside of the United States with 23%, 53%, and 47% respectively,
generated from customers in Germany. We intend to substantially expand our
international operations and enter new international markets, through extended
sales and marketing operations, joint ventures and strategic alliances, which
will require significant management attention and financial resources. See
"Business -- Our Strategy -- Global Expansion." Our international operations
are, and will be, subject to a variety of risks associated with conducting
business internationally, many of which are beyond our control. The following
factors may adversely affect our ability to achieve and maintain profitability
and our ability to sell our products internationally:

- expenses associated with customizing products for foreign countries;

- political and economic instabilities;

- potentially adverse tax consequences and regulatory requirements;

- legal uncertainties regarding liability, export and import restrictions,
tariffs and other trade barriers;

- uncertainty of product acceptance by different cultures;

- dependence on local partners who may not be able to meet the needs of a
growing international market;

- greater difficulty in accounts receivable collection and longer
collection periods;

- difficulties and costs of staffing and managing foreign operations;

- unexpected changes in regulatory requirements related to the Internet;
and

- limited or unfavorable intellectual property protection.

Our international sales growth will be limited if we are unable to
establish additional foreign operations, expand international sales channel
management and support organizations, hire additional personnel, customize
products for local markets and establish relationships with additional
distributors and third-party integrators.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE
ABLE TO USE OUR TECHNOLOGY OR TRADEMARKS, WHICH COULD WEAKEN OUR COMPETITIVE
POSITION.

Our competitive position may be weakened if we do not effectively protect
our intellectual property rights. We rely on a combination of copyright,
trademark and trade secret laws and restrictions on disclosure to protect our
intellectual property rights. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States or
Germany.

Additionally, we may be a party to litigation in the future to protect our
intellectual property or as a result of alleged infringement of others'
intellectual property. These claims and any resulting lawsuits could subject

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<PAGE> 16

us to significant liability for damages and invalidation of our proprietary
rights. Any such claims, with or without merit, could be time-consuming to
defend, result in costly litigation, divert management's attention and resources
and cause product shipment delays. Any potential intellectual property
litigation also could force us to do one or more of the following:

- stop selling, incorporating or using our products or services that use
the challenged intellectual property;

- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or

- redesign those products or services that use such technology.

If we are forced to take any of the foregoing actions, we may be unable to
develop and sell our products, or provide services based thereon, which would
reduce or eliminate our revenues. To date, we have not been notified that our
products infringe the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement with respect to our
current or future products. We expect that developers of database, content
management and e-commerce software products will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and as the functionality of products increasingly overlaps.

OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS ASSOCIATED WITH CURRENCY
FLUCTUATIONS, WHICH MAKES OUR FUTURE RESULTS OF OPERATIONS DIFFICULT TO PREDICT.

Currency fluctuations make our future results of operations difficult to
predict. To date, a majority of our international revenues and costs have been
denominated in foreign currencies, primarily in Deutsche Mark and, since the
Deutsche Mark conversion to the euro in January 1999, in euros. In fiscal 1998,
1999 and the six month period ended January 31, 2000, 80%, 82% and 66%,
respectively, of our revenues were denominated in Deutsche Mark and euro. We
booked foreign currency transaction losses of approximately $94,000 in fiscal
1998 and foreign currency exchange gains of approximately $33,000 and $34,000 in
fiscal 1999 and the six months ended January 31, 2000, respectively. We believe
that a significant portion of our international revenues and costs will be
denominated in foreign currencies in the future. We cannot predict the potential
consequences to our business as a result of the adoption of the euro as a common
currency in parts of Europe. To date, we have not engaged in any foreign
exchange hedging transactions, and we are, therefore, subject to foreign
currency risk, particularly in connection with the U.S. dollar and euro exchange
rates.

A majority of the expenses of our subsidiary blaxxun interactive AG are
denominated in Deutsche Mark. However, the value of Deutsche Mark is tied to the
value of the euro. As a result, fluctuation in the value of the euro relative to
the U.S. dollar could adversely affect our results of operations. Even when
foreign currency expenses are substantially offset by foreign currency revenues
in the same currency, profits may be diminished when reported in dollars.
Fluctuations in the U.S. dollar relative to the euro will affect comparisons of
our reported results of operations and financial condition. Due to the
constantly changing currency exposures and the volatility of currency exchange
rates, we could experience currency losses in the future, and we cannot predict
the effect of the exchange rate fluctuations upon our future results of
operations. For more information regarding currency fluctuations, see "Exchange
Rate Information."

WE HAVE IN THE PAST AND EXPECT TO CONTINUE TO ACQUIRE COMPLEMENTARY BUSINESSES,
WHICH MAY CAUSE DISRUPTIONS IN OUR ONGOING BUSINESS ACTIVITIES.

We have acquired and intend to continue to acquire complementary web sites,
companies, technologies, services and products as appropriate opportunities
arise. These acquisitions might disrupt our ongoing business activities. If we
identify an appropriate acquisition opportunity, we might not be able to
negotiate the terms of that acquisition successfully, obtain financing, or
integrate the acquired company's personnel and operations. We may also have
difficulty continuing to acquire web sites and other Internet media properties
at the prices historically paid due to the escalation of Internet media
valuations. If we make acquisitions outside of our core business, assimilating
the acquired technology, services or products into our operations could be
difficult. This

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may cause a disruption in our ongoing business, distract management and make it
difficult to maintain standards, controls and procedures. In addition, we might
be required to incur debt or issue equity securities to pay for any future
acquisitions. If the market price for acquisition targets increases
substantially, our business, results of operations and financial condition could
suffer.

OUR SOFTWARE PRODUCTS MAY HAVE UNKNOWN DEFECTS, WHICH COULD HARM OUR REPUTATION
OR IMPEDE MARKET ACCEPTANCE OF OUR PRODUCTS.

Despite our testing of our software products, defects have occurred in the
past and may occur in the future. Complex software like ours may be difficult to
integrate with customers' existing systems and may contain errors or defects
when first introduced or when new versions or enhancements are released.
Although we conduct extensive testing, we may not discover software defects that
affect our current or new products until after they are sold, and we are not
currently insured against product defects. In addition, any defect in other
software or hardware with which our software interacts could be mistakenly
attributed to our software by our customers or their end-users. These defects or
perceptions of defects could cause our customers and their end-users to
experience service interruptions. Service interruptions could damage our
reputation or increase our product development costs, divert our product
development resources, cause us to lose revenue, or delay market acceptance of
our products, anyone of which could harm our business, financial condition and
results of operations.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US.

We may be subject to product liability claims for defects in our products.
A successful product liability claim brought against us in excess of our
relevant insurance coverage could be costly. Any of these claims, even if not
meritorious, could result in costly litigation or divert management's attention
and resources.

RISKS RELATED TO THE INTERNET

OUR FUTURE RESULTS DEPEND ON CONTINUED GROWTH IN THE USE OF THE INTERNET.

Our future results depend on continued growth in the use of the Internet
for information, publication, distribution and commerce. Our business could
suffer if Internet usage does not continue to grow and evolve. Internet usage
and usage of our technology in particular, may be inhibited for a number of
reasons, including:

- inadequate network infrastructure;

- security concerns;

- inconsistent quality of service;

- lack of availability of cost-effective and high-speed Internet access;
and

- changes in government regulation of the Internet.

In addition, changes in network infrastructure, transmission and content
delivery methods and underlying software platforms, and the emergence of new
Internet access devices, such as television set-top boxes, could dramatically
change the structure and competitive dynamic of the market for Virtual Worlds,
including Internet realtime 3D products. These changes might limit the
functionality of Virtual Worlds and also allow for expansion of competing
technologies. In addition, future outages and other interruptions occurring
throughout the Internet could lead to decreased use of Virtual Worlds and would
therefore harm our Virtual Worlds business. Because electronic commerce over the
Internet is relatively new and evolving, it is difficult to predict whether the
Internet will be a viable commercial marketplace or whether the Internet or
intranets will be viable mediums of communication. Sales of our products will
continue to depend in large part on the emergence of the Internet as a viable
commercial marketplace with a strong and reliable infrastructure. The Internet
has experienced substantial growth in the number of users and amount of traffic,
and there can be no assurance that its technological infrastructure will be able
to support the demands placed on it by continued growth. There can be no
assurance that the infrastructure or complementary services necessary to make
the

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Internet a viable commercial medium will be developed or, if developed, that the
Internet will become a viable commercial medium for products and services such
as those offered by us.

WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF AND
LEGAL UNCERTAINTIES WITH RESPECT TO THE INTERNET.

New Internet legislation or regulation, or the application of existing laws
and regulations to the Internet and e-commerce could add additional costs and
risks to doing business on the Internet. We are subject to regulations
applicable to businesses generally and laws or regulations directly applicable
to communications over the Internet and access to e-commerce. Although there are
currently few laws and regulations directly applicable to e-commerce, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing, content,
copyrights, distribution, antitrust, taxation and characteristics and quality of
products and services. For example, the United States Congress recently enacted
Internet laws regarding children's privacy, copyrights and the transmission of
sexually explicit material and is currently considering federal tax legislation
concerning e-commerce. In addition, the European Union recently enacted its own
Internet privacy regulations. The burden of compliance with any additional laws
or regulations regarding the Internet may decrease the growth of the Internet or
e-commerce, which could, in turn, decrease the demand for our products and
services and increase our costs of doing business. Additionally, due to the
global nature of the Internet, it is possible that the governments of foreign
jurisdictions may attempt to regulate our transmissions or to prosecute us for
violations of their laws. We may unintentionally violate these laws and these
laws may be modified, or new laws enacted, in the future.

THE REGULATION OF DOMAIN NAMES MAY CHANGE, WHICH MAY MAKE IT DIFFICULT FOR US TO
BUILD BRAND RECOGNITION.

In addition, regulation could reduce the value of our domain names which
would harm our brand recognition. We own the Internet domain names
www.blaxxun.com, www.cybertown.com, as well as numerous other domain names both
in the United States and internationally. Our domain names are important because
they allow visitors to locate our web sites and build brand recognition.
Internet regulatory bodies currently regulate domain names. The regulation of
domain names in the United States and internationally is subject to change. In
the United States, .com, .net and .org are top-level domains, or domains that
are very highly sought after. Regulatory bodies could establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we might not acquire and
maintain the "www.blaxxun.com" or comparable domain names in all the countries
in which we conduct business, which could harm our business. Also, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear and still evolving. We
might be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our trademarks and other proprietary
rights. If this occurs, our business, results of operations and financial
condition would suffer.

LEGISLATION REGARDING PRIVACY OF PERSONAL INFORMATION ABOUT USERS MAY AFFECT OUR
COMMUNITIES.

We are subject to and must comply with data protection legislation which
restricts our ability to collect and exploit users' personal data. Our business
is particularly dependent on the existing and future data protection laws in
Europe, the United States and in each specific country where we operate.
European data protection legislation is drafted in very broad terms, and there
are few sources of guidance as to its interpretation. Therefore, it is difficult
to foresee the extent to which its enforcement by relevant authorities will
restrict our operations. We believe that a rigid interpretation of data
protection legislation could hinder our ability to conduct our business as
planned. Our failure to comply with applicable law could subject us to severe
legal sanctions which could have a material adverse effect on our business and
results of operations.

We maintain a privacy policy which is not to disclose individually
identifiable information about any user of our products or services to a third
party without the user's consent. Despite this policy, however, if third persons
were able to penetrate our network security or otherwise misappropriate users'
personal information, we could be subject to liability claims. These claims
could include claims for unauthorized purchases, impersonation or other similar
fraud claims, as well as claims for other misuses of personal information, for
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example for unauthorized marketing purposes. We could incur additional expenses
if new regulations regarding the use of personal information were introduced, if
our privacy practices are investigated or if our privacy policies are viewed
unfavorably by users or potential users.

IF THE USE OF COOKIES BECOMES IMPERMISSIBLE, OUR COMMUNITIES' EXPECTED
ADVERTISING REVENUES MAY DECLINE.

Our Communities currently use "cookies," with the consent of the user, to
collect usage information about the user to facilitate and improve the user's
experience in viewing our Communities and to target relevant advertising,
content and e-commerce offerings to users. Cookies are small files of
information placed on a user's hard drive that convey user information to the
website through the user's browser software. Some Internet commentators and
European data protection commissioners have suggested that, depending on the
mode of application, the use of cookies is impermissible. Should this view
prevail, the effectiveness of our Communities and their ability to derive
advertising revenue could be limited.

OUR COMMUNITIES MAY EXPERIENCE DISRUPTIONS WHICH MAY LEAD TO DECREASED TRAFFIC
AND SALES.

Our systems may fail or experience a slowdown and our users depend on
others for access to our Communities. Our network must accommodate a high volume
of traffic and deliver frequently updated information. Our Communities have in
the past, and may in the future, experience slower response times or decreased
traffic for a variety of reasons. Slower response times can result from general
Internet problems, routing and equipment problems by third-party Internet access
providers, problems with third-party advertising servers and increased traffic
to our servers. Our network could experience interruptions in service due to the
failure or delay in the transmission or receipt of this information. In
addition, our community of Internet users depends on Internet service providers,
online service providers and other web sites' operators for access to our
Communities. Those providers have experienced outages in the past, and may
experience outages or delays in the future. Moreover, our Internet
infrastructure might not be able to support continued growth of our Communities.
If we experience any of these problems, our reputation and brand name could
suffer, users might perceive our Communities as not functioning properly and our
business, results of operations and financial condition could suffer.

WE MAY BE SUED AS A RESULT OF INFORMATION PUBLISHED OR POSTED ON OR ACCESSIBLE
FROM THE COMMUNITIES WE OPERATE.

We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or other claims relating to the information published in
the Communities we operate. These types of claims have been brought, sometimes
successfully, against online services in the past, and can be costly to defend.
We may also be subjected to claims based on content that is accessible from our
Communities through links to other web sites or through content and materials
that visitors to our Communities may post.

RISKS RELATED TO THIS OFFERING

THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK PRIOR TO THIS OFFERING AND
A PUBLIC MARKET MAY NOT DEVELOP OR BE SUSTAINED.

Prior to this offering, there has been no public market for our common
stock. The price of the common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. An active public market
for our common stock may not develop or be sustained after this offering. If you
purchase shares of common stock in this offering, you will pay a price that was
not established in a competitive market. Rather, you will pay the price that we
negotiated with the representatives of the underwriters. Many factors could
cause the market price of our common stock to rise and fall. Some of these
factors are:

- variations in our quarterly results;

- announcements of technological innovations by us or by our competitors;

- introductions of new products or new pricing policies by us or by our
competitors;
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- acquisitions or strategic alliances by us or by our competitors;

- recruitment or departure of key personnel;

- the gain or loss of significant orders;

- changes in the estimates of our operating performance or changes in
recommendations by securities analysts; and

- market conditions in the industry and the economy as a whole.

OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY.

The market for stocks of technology and Internet-related companies,
particularly those traded on the Neuer Markt, has experienced extreme price and
volume fluctuations that often have been unrelated to these companies' operating
performance. These fluctuations could lower the market price of our common stock
regardless of our actual operating performance.

In the past, securities class action litigation has often been brought
against a company following a period 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 harm our business.

INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER OUR COMPANY AFTER THE
OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.

Immediately following this offering, our officers, directors and affiliated
entities will beneficially own 45.6% of our voting stock and could significantly
influence the outcome of actions requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may delay, deter or prevent transactions that would
result in a change of control, which in turn could reduce the market price of
our common stock. For information regarding stockholdings by our officers,
directors and 5% stockholders, see "Principal and Selling Stockholders."

PROVISIONS OF OUR CHARTER DOCUMENTS, DELAWARE LAW AND THE GERMAN TAKE-OVER CODE
MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD PREVENT A CHANGE IN OUR CONTROL AND
COULD DEPRESS THE PRICE OF OUR COMMON STOCK.

Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of our
company or our management, even if doing so would be beneficial to our
stockholders. These provisions could also discourage proxy contests and make it
more difficult for you and other stockholders to elect directors and take other
corporate actions. As a result, these provisions could limit the price that
investors are willing to pay in the future for shares of our common stock. These
provisions include:

- authorizing the board of directors to issue additional preferred stock;

- prohibiting cumulative voting in the election of directors;

- limiting the persons who may call special meetings of stockholders;

- prohibiting stockholder action by written consent; and

- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholders' meetings.

We are also subject to provisions of Delaware law that could delay, deter
or prevent us from entering into a transaction, including Section 203 of the
Delaware General Corporation Law, which prohibits a Delaware corporation from
engaging in a business combination with an interested stockholder unless
specific conditions are met. See "Description of Capital Stock -- Preferred
Stock" and "Delaware Anti-Takeover Law and our Charter and Bylaw Provisions."

In addition, in connection with our listing on the Neuer Markt of the
Frankfurt Stock Exchange, we are required to comply with the German Take-Over
Code. The Stock Exchange Expert Commission at the

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German Federal Ministry of Finance (Borsensachverstandigenkommission beim
Bundesministerium der Finanzen) has issued the German Take-Over Code
(Ubernahmekodex) as a voluntary regulatory framework governing public take-over
bids for domestic stock corporations that are quoted on domestic stock
exchanges. If we were to be acquired by a third party, that third party will
have to:

- notify German regulatory authorities and the public of the offer;

- provide disclosures to the target company's stockholders;

- treat stockholders equally in an offer; and

- comply with other regulatory requirements.

Compliance with Delaware law and the German Take-Over Code could delay, defer or
prevent us from entering into a transaction. This could limit the price that
investors are willing to pay for our common stock.

THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING THAT COULD CAUSE THE PRICE OF OUR COMMON STOCK TO FALL.

A total of 15,880,926, or 83%, of our total outstanding shares are
restricted from immediate resale but may be sold into the market in the near
future, following the expiration of the Neuer Markt and underwriter lock-up
periods. This could cause the market price of our common stock to drop
significantly, even if our business is doing well. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional stock. For information regarding the availability of shares for
future sale, see "Shares Eligible for Future Sale."

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION BY INVESTING IN OUR
COMMON STOCK.

The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock immediately after
the offering. Purchasers of our common stock in this offering will suffer
immediate and substantial dilution. This dilution will reduce the net tangible
book value of their shares because these investments will be at a substantially
higher per share price than they were for our existing stockholders. The
dilution will be $7.63 per share from the assumed initial public offering price
of E[ ] per share ($10.50 per share at an exchange rate reported by The Wall
Street Journal on [ ] of [$ ] per E[ ]). If outstanding options or
warrants to purchase shares of common stock are exercised, you will incur
further dilution. For information regarding the dilutive effect of this offering
on your investment, see "Dilution."

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance, and involve known
or unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "predicts," "estimates" or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined in "Risk
Factors."

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
do not intend to update any of the forward-looking statements after the date of
this prospectus to conform these statements to actual results, except as
required by applicable law.

16
<PAGE> 22

HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING

We estimate the net proceeds from the sale of the 7,000,000 shares of
common stock offered by us will be approximately E[ , or $68,008,750]. This
estimate is based on an assumed public offering price of E[ ], or $10.50 per
share, after deducting the estimated underwriting discounts and commissions and
the estimated offering expenses payable by us in the amount of E[ ],
or $4,491,250, and E , or $1,000,000, respectively and an exchange rate of
$[ ] per euro. We will not receive any of the proceeds from the sale of
common stock by the selling stockholders.

The principal purposes of this offering are to fund anticipated operating
losses, software development efforts, increase our working capital, create a
public market for our common stock, facilitate our future access to the public
capital markets, and increase our visibility in our markets. We expect to use
55% of the proceeds of this offering to expand our national and international
sales and marketing activities. We expect to use another 25% of the proceeds of
this offering to expand our software development efforts and to use the
remainder for strategic investments and general working capital. Additionally,
we may decide to repay two long-term notes payable to Technologie
Beteiligungs-Gesellschaft der Deutschen Augleichsbank with a principle value of
approximately $2,357,000 at January 31, 2000. The stated interest rates on these
notes range from six to seven percent and are subject to substantial prepayment
premiums ranging from 30% to 35% of the face amount of the respective note. We
may also use a portion of the net proceeds to acquire additional businesses,
products and technologies or to establish joint ventures that we believe will
complement our current or future business. The amounts actually expended for
such working capital purposes may vary significantly and will depend on a number
of factors, including the amount of our future revenues and the other factors
described under "Risk Factors." Accordingly, our management will retain broad
discretion in the allocation of the net proceeds of this offering.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We
currently anticipate that we will retain any future earnings to fund the
development and growth of our business. Therefore, we do not anticipate paying
any cash dividends in the foreseeable future.

EXCHANGE RATE INFORMATION

We report our consolidated financial statements in U.S. dollars. However, a
significant portion of our revenues and expenses have historically been
recognized in Deutsche Mark. We expect that a significant portion of our
revenues and expenses will be recognized in Deutsche Mark or, after June 30,
2002, in euros. In addition, portions of our financial information in this
prospectus have been presented in Deutsche Mark and euros. The exchange rate
information provided below is for informational purposes only. No representation
is made that the U.S. dollar amounts referred to herein could be or could have
been converted into Deutsche Mark or euros, as the case may be, at any
particular rate or at all.

The treaty establishing the European Community, as amended by the Treaty on
European Union, or the Maastricht Treaty, to which the Federal Republic of
Germany is a signatory, provided that on January 1, 1999, the euro became the
common currency of those Member States of the European Monetary Union, or EMU,
that satisfied the convergence criteria set forth in the Maastricht Treaty,
including Germany. The conversion rate between the Deutsche Mark, which
continues to have legal tender status through a transition period ending June
30, 2002, at the latest, and the euro was fixed by the Council of the European
Union at DM 1.95583. Prices quoted for the shares on the Neuer Markt will be
quoted in euros.

We do not currently anticipate paying any dividends to stockholders.
However, any dividends we do declare would be in U.S. dollars, and exchange rate
fluctuations would affect the euro equivalent of any cash dividend received by
holders of common shares. For more information, see "Dividend Policy."

The table below sets forth, for the periods and dates indicated,
information concerning the Noon Buying Rate in the city of New York for cable
transfers in foreign currencies certified by the Federal Reserve Bank of New
York for customs purposes, expressed in Deutsche Mark per $1.00 or euros per
$1.00 as the case may be.

17
<PAGE> 23

The columns titled "Average" refer to the average of the Noon Buying Rates on
the last business day of each full calendar month during the relevant period.

DEUTSCHE MARK EXCHANGE RATE INFORMATION
DM/$1.00

<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW AVERAGE JULY 31 DECEMBER 31
------------- ------- ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C>
1997....................................... 1.8810 1.5413 1.7347 1.8325 1.7991
1998....................................... 1.8542 1.6060 1.7597 1.7795 1.6670
1999....................................... 1.9506 1.6571 1.8332 1.8289 1.9504
</TABLE>

The table below sets forth, for the period and dates indicated, information
concerning the Noon Buying Rate expressed in euros per $1.00. No representation
is made that the euro or U.S. dollar amounts referred to herein could be or
could have been converted into U.S. dollars or euros, as the case may be, at any
particular rate or at all.

EURO EXCHANGE RATE INFORMATION
EURO/$1.00

<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW AVERAGE JULY 31 DECEMBER 31
------------- ------- ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C>
1999....................................... 1.1803 1.0027 1.0669 1.0694 1.0028
</TABLE>

Accordingly, fluctuations in the price of the Deutsche Mark will also
reflect fluctuations in the value of the euro.

18
<PAGE> 24

CAPITALIZATION

The following table sets forth our capitalization as of January 31, 2000.
Our capitalization is presented:

- on an actual basis;

- on a pro forma basis to give effect to (a) the issuance of 524,000 shares
of Series F convertible preferred stock during the period February 1,
2000 to February 29, 2000 at $11.80 per share; (b) the issuance of
300,000 shares of Series B convertible preferred stock in conversion of
the $1,108,493 convertible note on March 29, 2000; and (c) the conversion
of all outstanding shares of convertible preferred stock into 8,324,910
shares of common stock and the two-for-one stock split effected in
connection with the offering.

- on a pro forma as adjusted basis, after giving effect to the sale of
7,000,000 shares of common stock by us at an assumed initial public
offering price of E[ ], or $10.50 per share (the midpoint of the
range set forth on the cover page of this prospectus) at an exchange rate
reported by The Wall Street Journal for [ , 2000] of $[ ]
per E1.00), less the estimated underwriting discount and estimated
expenses we expect to pay in connection with this offering and the
application of the net proceeds as described in "How We Intend to Use the
Proceeds From This Offering."

You should read this table in conjunction with our Consolidated Financial
Statements included elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF JANUARY 31, 2000
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable...................................... $ 3,465,917 $ 2,357,424 $ 2,357,424
Stockholders' equity:
Convertible preferred stock...................... 42,674 -- --
Common stock..................................... 3,806 190,589 260,589
Additional paid-in-capital....................... 28,153,774 35,301,357 104,240,107
Deferred compensation............................ (441,728) (441,728) (441,728)
Accumulated deficit.............................. (23,426,107) (23,426,107) (23,426,107)
Cumulative translation adjustment................ (642,376) (642,376) (642,376)
------------ ----------- -----------
Total stockholders' equity....................... 3,690,043 10,981,735 79,990,485
------------ ----------- -----------
Total capitalization............................... $ 7,155,960 $13,339,159 $81,347,909
============ =========== ===========
</TABLE>

Common stock outstanding after this offering excludes 2,530,776 shares
issuable upon exercise of stock options as of January 31, 2000.

See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this prospectus.

19
<PAGE> 25

DILUTION

If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock. We have included amounts in this table in both euros and U.S. dollars
based on exchange rates of $[ ] per E1.00, the exchange rate in effect on
[ , 2000], as reported by The Wall Street Journal.

Our pro forma net tangible book value at January 31, 2000, after giving
effect to the conversion of all outstanding shares of our preferred stock into
19,058,926 shares of common stock upon the closing of this offering was E[ ]
($5,752,733), or E[ ] ($0.30) per share of common stock.

After giving effect to the sale of the 7,000,000 shares of common stock by
us at an assumed initial public offering price of E[ ] ($10.50) per share
(less the underwriting discounts and estimated expenses we expect to pay in
connection with this offering), our pro forma net tangible book value at January
31, 2000 would be approximately E[ ] ($74,761,483), or E[ ] ($2.83) per
share. This represents an immediate increase in the pro forma net tangible book
value of E[ ] ($2.53) per share to existing stockholders and an immediate
dilution of E[ ] ($7.67) per share to new investors, or approximately
[ ]% of the assumed offering price of E[ ] ($10.50) per share.

The following table illustrates this per share dilution:

<TABLE>
<CAPTION>
E $
-------- ------
<S> <C> <C>
Assumed public offering price per share..................... 10.50
Pro forma net tangible book value per share at January 31,
2000...................................................... 0.30
Increase per share attributable to new investors............ 2.53
Pro forma net tangible book value per share after the
offering.................................................. 2.83
Dilution per share to new investors......................... 7.67
</TABLE>

The following table shows on a pro forma basis at January 31, 2000, after
giving effect to the automatic conversion of all outstanding shares of our
preferred stock into a total of 19,058,926 shares of common stock upon the
closing of this offering, the number of shares of common stock offered by us,
the total consideration paid to us and the average price paid per share by
existing stockholders and by new investors purchasing common stock in this
offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 19,058,926 73% 34,110,370 32% $ 1.79
New investors........ 7,000,000 27% 73,500,000 68% $ 10.50
---------- --- ------------ --- --------
Total................ 26,058,926 100% 107,610,870 100% $ 4.12
========== === ============ === ========
</TABLE>

If the underwriters exercise their option to purchase additional shares in
full, the percentage of shares held by existing stockholders after this offering
will be reduced to 70%, and the number of shares held by new investors will be
increased to 8,100,000 shares or 30% of the number of shares to be outstanding
after this offering. See "Principal and Selling Stockholders."

In addition to the shares of common stock outstanding after the offering,
we may issue additional shares of common stock under the following plans and
arrangements:

- 2,530,776 shares of common stock issuable upon exercise of outstanding
options (of which options to purchase 591,254 shares of common stock were
exercisable at January 31, 2000) under our stock compensation plans at a
weighted average exercise price of $1.08 per share; and

- 828,116 shares are available for future issuance under our stock
compensation plans.

Please read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Consolidated Financial Statements included elsewhere in this
prospectus.

20
<PAGE> 26

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of blaxxun
included elsewhere in this prospectus. The statement of operations data set
forth below for the fiscal years ended July 31, 1997, 1998, and 1999 have been
derived from the audited consolidated financial statements of blaxxun included
elsewhere in this prospectus, which have been audited by KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftspruefungsgesellschaft,
independent auditors. The consolidated statement of operations data for the
six-month periods ended January 31, 1999 and 2000, and the consolidated balance
sheet data as of January 31, 2000, are derived from unaudited condensed
consolidated financial statements. The unaudited condensed consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements contained in this prospectus and include all
adjustments, consisting only of normal and recurring adjustments, that we
consider necessary for a fair presentation of such information. The historical
results are not necessarily indicative of results to be expected for any future
period. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

We commenced operations in August 1995 and therefore fiscal 1996 was the
first year we had consolidated financial statements.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31 JANUARY 31
----------------------------------------- --------------------
1996(4) 1997 1998 1999(5) 1999 2000
------- -------- ------- ---------- ------- ----------
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:....................... $ -- 595 1,193 1,846 860 2,040
Operating expenses:
Software development and
maintenance.................... 1,565 2,085 1,491 1,848 856 1,767
Sales and marketing............... 919 2,472 695 2,027 662 2,131
General and administrative........ 759 1,564 706 1,203 500 935
Amortization of goodwill and other
intangible assets.............. -- -- -- 3,521 1,825 1,707
------- -------- ------- ---------- ------- ----------

Total operating
expenses................ 3,243 6,121 2,892 8,599 3,842 6,541
------- -------- ------- ---------- ------- ----------

Operating loss............ (3,243) (5,525) (1,699) (6,752) (2,982) (4,501)

Other, net.......................... 27 173 (1,377) (78) (394) (449)
------- -------- ------- ---------- ------- ----------

Net loss............................ $(3,216) (5,352) (3,076) (6,831) (3,376) (4,951)
======= ======== ======= ========== ======= ==========

Basic and diluted net loss per
share(1)(3)....................... $(669.04) (25.75) (23.96) (17.65) (13.04)
======== ======= ========== ======= ==========
Weighted average number of basic and
diluted shares
outstanding(1)(3)................. 8,000 119,473 285,093 191,299 379,803
-------- ------- ---------- ------- ----------
Pro forma basic and diluted net loss
per share(2)(3)................... $ (0.43) (0.29)
Pro forma weighted average number of
basic and diluted shares
outstanding(2)(3)................. 15,863,328 16,988,980
</TABLE>

Totals may not add due to rounding differences.

21
<PAGE> 27

<TABLE>
<CAPTION>
JULY 31 JANUARY 31
----------------------------------------- ----------
1996 1997 1998 1999(5) 2000
------ ------- ------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $3,097 $ 28 $ 3,111 $ 3,215 $2,271
Working capital........................ 2,454 (927) 2,115 2,414 489
Goodwill and other intangibles......... -- -- -- 7,455 5,229
Total assets........................... 3,614 367 3,592 12,085 10,325
Long-term obligations, less current
portion.............................. -- 2,041 3,892 3,776 3,466
Stockholders' equity (deficit)......... $2,783 $(2,706) $(1,605) $ 6,352 $3,690
</TABLE>

- ---------------
Notes:

(1) Historic per share and share information does not reflect the 2:1 stock
split which will occur simultaneously with the closing of this offering.

(2) Because of the significance of the conversion of all outstanding shares of
the Company's convertible preferred stock upon the completion of a qualified
public offering of the Company's common stock, the Company has presented pro
forma basic and diluted net loss per share and the pro forma weighted
average number of basic and diluted shares outstanding as if the preferred
stock had been converted on August 1, 1998 or on their date of issuance, if
later. The pro forma share and per share amounts also reflect the impact of
the 2:1 stock split which will occur simultaneously with the closing of the
offering.

(4) As of and for the year ended July 31, 1996, the Company had no common shares
outstanding.

(5) During 1999, the Company acquired the remaining interest in blaxxun
interactive AG through the issuance of 1,976,000 shares, on a pre-split
basis, of Series D convertible preferred stock.

22
<PAGE> 28

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

This discussion includes forward-looking statements based on assumptions
about our future business. Our actual results could differ materially from those
contained in the forward-looking statements.

All information included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations refers to blaxxun interactive,
Inc. and our subsidiaries blaxxun interactive AG and Cybertown, Inc. on a
consolidated basis. The following discussion and analysis of our financial
condition and results of operations should be read in conjunction with the
audited consolidated financial statements and the unaudited interim condensed
consolidated financial statements and related notes included elsewhere in this
prospectus. Our financial statements and related notes have been prepared in
accordance with U.S. generally accepted accounting principles. See page 18
"Special Note Regarding Forward Looking Statements".

OVERVIEW

We are a provider of innovative software infrastructure and solutions that
allow organizations to develop and operate Virtual Worlds for commerce,
community and collaboration over the Internet. Virtual Worlds are online
visually striking environments where people can come together and, by navigating
through a website, go shopping, interact with others, access customer service,
attend events, be entertained and participate in cooperation scenarios. Virtual
Worlds is a market driven by improvements in software and hardware
infrastructure, increasing and broadening use of the Internet by end users and
convergence of media platforms such as Internet PCs, TV and other devices. Our
Virtual Worlds technologies utilize open standards and enable a variety of new
applications that were not feasible until recently.

From commencement of our operations in August 1995 through July 1999, our
operating activities related primarily to increasing our software and
development capabilities, designing and developing the software products we are
currently selling and staffing our administrative, sales and marketing
organizations. Since our inception, we have incurred significant losses, and as
of July 31, 1999, we had an accumulated deficit of approximately $18,475,000. As
of January 31, 2000, we had an accumulated deficit of approximately $23,426,000,
and our net loss for the six months ended January 31, 2000, was approximately
$4,951,000. We have not achieved profitability on a quarterly or annual basis
and anticipate that we will incur net losses for the foreseeable future. We
expect to continue to incur significant selling and marketing, product
development, professional services and administrative expenses, and as a result,
we will need to generate significantly higher revenues to achieve and then
maintain profitability.

Customer concentration. Over the past several years, we have been
dependent on a few key customers. In 1997, approximately 56% of our net revenues
were derived from two customers Planet Direct, Inc.(a CMGI related entity) and
Triad Projektgesellschaft mbH. In 1998, approximately 47% of our revenues were
derived from three customers, European Commission, Vanilla Online Ltd. and IBM
Canada Ltd. In 1999, approximately 63% of our revenues came from four customers,
European Commission (17%), Intel Corporation (17%), Global Information Systems
Technology, Inc. (15%) and Advopolis AG (14%). For the six months ended January
31, 2000, 13% of revenues were derived from 1 customer, Advopolis AG. Although
we are seeking to further diversify our customer base and expand our net
revenues through our product offerings, we anticipate that our operating results
will continue to depend on volume sales to a relatively small number of
customers.

Business Segments. We currently operate in three business segments:

- The Product segment includes license revenue; product support and
maintenance agreements; and, collaborative research and co-development
agreements with public entities, primarily the European

23
<PAGE> 29

Commission. In fiscal 1998, 1999 and in the six month period ended January 31,
2000, 64%, 63% and 53%, respectively, of total revenue was derived from the
Product segment.

- The Professional Services segment includes custom application
development. In fiscal 1998, 1999 and in the six months period ended
January 31, 2000, 36%, 39% and 35%, respectively, of total revenue was
derived from the Professional Services segment.

- The Communities segment includes the operation of Internet communities.
In fiscal 1998, 1999 and in the six months period ended January 31, 2000,
0%, 0% and 12%, respectively, of total revenue was derived from the
Communities Services segment.

Product Segment. License revenue is currently substantially derived from
the sales of our blaxxun Community Platform product line, and to a lesser
extent, from our recently released other products. License revenue generated
from our blaxxun Community Platform product line was approximately $450,000,
$649,000 and $659,000 for fiscal 1998 and 1999, and for the six months ended
January 31, 2000, respectively. Revenue generated from our other products was
approximately $109,000 for the six months ended January 31, 2000. There were no
other revenues generated from sales of our other products in any other period.

As part of our Product segment, we supplement our product offerings with
technical product support and maintenance. These services include several levels
of support including software updates, telephone and email technical support.
Substantially all of our Community Platform customers enter into product support
and maintenance agreements upon the commercial release of the customers'
application that includes licensed blaxxun products. Product support and
maintenance arrangements are typically one year of length and provide technical
support and the right to unspecified upgrades on an if-and-when-available basis.
78%, or seven out of nine, of the product support and maintenance agreements
signed during fiscal 1999 that were renewable by March 31, 2000 have been
renewed. Renewing parties generally do not receive any discounts to renew their
contracts.

Our collaborative research and co-development agreements with public
entities relate to research and co-development projects that are generally
between one and three years in duration. These agreements have accounted for
21.4%, 19.4% and 13.9% of total net revenues for fiscal 1998 and 1999, and for
the six months ended January 31, 2000, respectively. As part of these
agreements, the public entity generally acquires the right to internally use and
purchase, on favorable terms, the products that are developed as a result of
these activities. The collaborators retain the rights to market the products
developed. Since inception, we have entered into eight contracts with total
revenues of approximately $3,197,000. Other participants in these projects
include British Broadcasting Corporation plc, BMW AG, British Telecommunications
plc, Canal Plus Multimedia S.A., Deutsche Telekom AG, France Telecom S.A.,
Intershop Communications GmbH, Italtel SPA, Pixelpark MMK AG, Siemens AG,
Swisscom AG, Telecom Italia s.r.l., and Telenor AS.

Professional Services Segment. Our Professional Services Group supports
customers in the business planning stage and helps them to effectively design
the application, determine cost and resource requirements and optimize their
business model. This group also provides fee-based consulting services designed
to allow the seamless integration of our products into the software systems of
our customers, as well as custom application development.

Communities Segment. Revenues from our Internet communities are currently
composed of advertising/sponsoring revenues which was approximately $249,000 for
the six months ended January 31, 2000. There was no other revenue generated from
Internet communites in any other period. Although we have entered into barter
transactions, no revenue was recognized from barter transactions during any of
the three years ended July 31, 1999 or the six months period ending January 31,
2000.

Revenue Recognition Policies. Our revenue recognition policy is in
accordance with AICPA Statement of Position (SOP) 97-2, "Software Revenue
Recognition", as amended.

License revenue is generally recognized when the following criteria have
been met: persuasive evidence of an arrangement exists, delivery has occurred,
the fee is fixed or determinable and collectibility is probable. Revenues from
multiple-element software arrangements are allocated to each element of the
arrangement

24
<PAGE> 30

based on the relative fair values of the elements. For electronic delivery, the
software is considered to have been delivered when we have provided the customer
with the access codes that allow for immediate possession of the software.

Revenues from product support and maintenance arrangements is recognized on
a straight-line basis over the life of the related agreement, which is typically
one year.

Revenues under collaborative research and co-development agreements with
public entities, like the European Commission, typically consist of
non-refundable ongoing research and co-development milestone payments earned
upon the attainment of specified milestones as defined in each contract. Such
payments approximate one-half of the research and development costs incurred
with respect to the agreements. The revenue is recognized in the period the
milestone was successfully achieved, which is determined when the public entity
agrees that the required results stipulated in the agreement have been met.

Revenue from custom development projects is recognized when earned based
upon the performance requirements of the respective agreements or on a
percentage of completion basis. These agreements are generally less than one
year in length. Revenues from consulting and training services are recognized as
the services are performed.

Communities segment revenues from advertising/sponsoring are recognized
over the period the advertising or sponsoring is performed.

If support and maintenance, consulting, development services, or training
are included in an arrangement that includes a license agreement, amounts
related to product support and maintenance, consulting, development services, or
training and the licenses are allocated based on vendor-specific evidence.
Vendor-specific objective evidence for support, consulting and development
services, training and license agreements is based on the price when such
elements are sold separately, or, when not sold separately, the price is
established by management having the relevant authority. Where discounts are
offered on multiple element arrangements, a proportionate amount of that
discount is applied to each element included in the arrangement based on each
element's fair value.

We record cash receipts from customers in excess of recognized revenue as
deferred revenue. The timing and amount of cash receipts from customers can vary
significantly depending on specific contract terms and can therefore have a
significant impact on the amount of deferred revenue in any given period. At
January 31, 2000, total deferred revenues was approximately $393,000.

Expense Overview. Software development and maintenance costs include
research and development costs, costs of custom development projects, costs of
product support and maintenance, costs of community operations and cost of
license revenues. Costs of community operations consists primarily of technical
operation expenses of our Internet communities, as well as costs associated with
revenues generated by the communities, mainly commissions for third party
agencies. Software development and maintenance costs are mainly composed of
salaries and related expenses, costs of third party subcontractors and an
allocation of our occupancy, communications and depreciation expenses. Software
development and maintenance costs include software research and development
costs of approximately $1,911,000, $658,000, and $740,000 for fiscal 1997, 1998
and 1999, respectively. Additionally, we incurred costs associated with
co-development agreements with public entities of $0, $515,000, and $704,000 for
fiscal 1997, 1998 and 1999, respectively, for which we retain the rights to
market any products resulting from these collaborative activities. Research and
development costs related mainly to the development of the blaxxun Community
Platform. The first version was released in the third quarter of fiscal 1996,
version 2.0 in fiscal 1997, version 3.0 during fiscal 1998 and the latest
version in fiscal 1999. During fiscal 1999 and fiscal 2000, we developed the
first versions of blaxxun Avatar Studio and blaxxun3D, which were released in
November 1999 and January 2000 and blaxxun Instant Community, which was released
in March 2000. Development costs incurred in the research and development of new
software products are expensed as incurred until technological feasibility in
the form of a working model has been established. Costs incurred between
technological feasibility and the first shipment of the product would be
capitalized. Since inception, all costs incurred between technological
feasibility and the first shipment of the product were insignificant, and,
accordingly, no costs have been capitalized. Currently we deliver our products

25
<PAGE> 31

generally by download from the Internet. In the future, we expect to incur other
costs, including the cost of manuals and product documentation, media used to
deliver our products, shipping and fulfillment costs as we bring packaged
products to market.

Sales and marketing expenses mainly include personnel and marketing
expenses, including trade shows, public relations, marketing collaterals and an
allocation of our occupancy, communications and depreciation expenses.

General and administrative expenses mainly include salaries and related
expenses for executive, financial, accounting and office management personnel,
legal and professional fees and an allocation of our facilities, communications
and depreciation expenses. It also includes amortization of deferred stock
compensation. We account for stock-based compensation using the intrinsic value
method prescribed by APB 25, "Accounting for Stock Issued to Employees" under
which no compensation cost for stock options is recognized for stock option
awards granted at or above fair market value. We have recorded deferred
compensation for fiscal 1998 and 1999, and for the six months ended January 31,
2000 of approximately $115,000, $79,000, and $367,000, respectively, for the
difference between the grant price and the estimated fair value of our stock on
the date of grant. This amount is being amortized over the vesting period,
generally ranging up to 48 months, of the individual option grants on a
straight-line basis. Deferred compensation expense amortized during fiscal 1998
and 1999, and the six months ended January 31, 2000 was approximately $35,000,
$41,000, and $63,000, respectively.

Amortization of goodwill and other intangible assets related mainly to the
purchase of the remaining interest in our German subsidiary, blaxxun interactive
AG, during fiscal 1999. We accounted for the acquisition of the minority
interests using the purchase method of accounting. During fiscal 1999, we
incurred a charge immediately following the acquisition for purchased research
and development costs. The charge of $195,000, included in amortization of
goodwill and other intangible assets, represents the fair value of the
technologies acquired for use in our own development efforts. We determined the
amounts of the purchase price to be allocated to in-process research and
development based upon an independent third party valuation. The technological
feasibility of the products being developed had not been established as of the
date of the acquisition and, if unsuccessful, had no alternative future use in
research and development activities or otherwise. The purchase price was also
allocated to identifiable assets such as assembled work force and licensing
agreements and goodwill. These intangible assets are being amortized over
periods ranging from seven to thirty-six months. Amortization expense for
goodwill and other intangible assets amounted to approximately $3,521,000 for
fiscal 1999 and approximately $1,707,000 for the six months period ended January
31, 2000.

Other, net consists of interest income earned on cash deposited in money
market accounts, interest expenses incurred on notes payable and convertible
notes payable, foreign currency transaction gains and losses, gains and losses
on the disposal of assets, equity in losses of joint venture and franchise
taxes.

26
<PAGE> 32

RESULTS OF OPERATIONS

The following table sets forth the financial data derived from our
statements of operations since our inception for the periods indicated (In
thousands, except share and per share data):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31 JANUARY 31
------------------------------------------ -------------------
1996(4) 1997 1998 1999(5) 1999 2000
------- -------- ------- ----------- ------ ----------
UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
Net revenues:....................... $ -- 595 1,193 1,846 860 2,040
Operating expenses:
Software development and
maintenance.................... 1,565 2,085 1,491 1,848 856 1,767
Sales and marketing............... 919 2,472 695 2,027 662 2,131
General and administrative........ 759 1,564 706 1,203 500 935
Amortization of goodwill and other
intangible assets.............. -- -- -- 3,521 1,825 1,707
------- -------- ------- ----------- ------ ----------

Total operating
expenses................ 3,243 6,121 2,892 8,599 3,842 6,541
------- -------- ------- ----------- ------ ----------

Operating loss............ (3,243) (5,525) (1,699) (6,752) (2,982) (4,501)
------- -------- ------- ----------- ------ ----------

Other, net.......................... 27 173 (1,778) (78) (394) (449)
------- -------- ------- ----------- ------ ----------

Net loss............................ $(3,216) (5,352) (3,076) 6,831 (3,376) (4,951)
======= ======== ======= =========== ====== ==========

Basic and diluted net loss per
share(1)(3)....................... $(669.04) (25.75) (23.96) (17.65) (13.04)
Weighted average number of basic and
diluted shares
outstanding(1)(3)................. 8,000 119,473 285,093 191,299 379,803
Pro forma basic and diluted net loss
per share(2)(3)................... $ (0.43) (0.29)
Pro forma weighted average number of
basic and diluted shares
outstanding(2)(3)................. 15,863,328 16,988,980
</TABLE>

- ---------------
Totals may not add due to rounding differences.

Notes:

(1) Historic per share and share information does not reflect the 2:1 stock
split which will occur simultaneously with the closing of this offering.

(3) The historic and the pro forma share and per share amounts exclude (a) the
issuance of 300,000, on a pre-split basis, shares of Series B convertible
preferred stock in consideration for the conversion of the unsecured
convertible note payable which was entered into as of March 29, 2000, and
(b) the issuance of 524,000 shares, on a pre-split basis, of Series F
convertible preferred stock during the period February 1, 2000 through
February 29, 2000.

(4) As of and for the year ended July 31, 1996, the Company had no common shares
outstanding.

(5) During 1999, the Company acquired the remaining interest in blaxxun
interactive AG through the issuance of 1,976,000 shares, on a pre-split
basis, of Series D convertible preferred stock.

27
<PAGE> 33

Six Months ended January 31, 1999 and 2000

Net Revenues. Net revenues increased from approximately $860,000 in the
six months ended January 31, 1999, to approximately $2,040,000 in the six months
ended January 31, 2000. This increase would have been approximately $107,000
higher on a constant dollar basis, especially relating to the stronger U.S.
dollar compared to the Deutsche Mark or euro. Revenues from related parties in
the six months ended January 31, 2000 were approximately $183,000. We did not
have any related party revenues in the six month period ended January 31, 1999.

These figures reflect higher revenues for all of our segments, particularly
the Product segment. The net revenues of our segments during the first half of
fiscal 1999 and 2000 were as follows:

- Net revenues of the Product segment increased from $515,000 to
approximately $1,086,000.

This increase is primarily due to license revenues which increased from
approximately $278,000 to $768,000 mainly based on an increase in the
number of licenses sold as well as an increase in the average package size,
based on the number of concurrent users, of the blaxxun Community Platform.
We have also introduced new products, blaxxun3D and blaxxun Avatar Studio,
both released during the second quarter of fiscal 2000, which started to
contribute to the results of this segment by approximately $109,000.

Revenues from collaborative co-development agreements with public entities
increased to approximately $284,000 from approximately $209,000 primarily
due to four new projects that started between July 1999 and January 2000,
offset by two projects that were completed by July 1999.

- Net revenues of the Professional Services segment increased to
approximately $705,000 from approximately $345,000. The increase is
primarily based on increased average project size sold to new customers.

- Net revenues of the Communities segment was approximately $249,000. There
were no revenues in this segment in the six month period ending January
31, 1999. Revenues are composed of advertising and sponsoring
transactions.

Our fixed order backlog as of January 31, 1999 and 2000 was approximately
$394,000 and $4,055,000, respectively, of which approximately $324,000 and
$3,575,000 relates to the Product segment, $70,000 and $305,000 relates to the
Professional Services segment and $0 and $174,500 relates to the Communities
segment. The Product segment order backlog as of January 31, 1999 relates to
purchases of software licenses of $167,000 and $1,162,000, respectively, and
collaborative co-development agreements with public entities of $157,000 and
$2,414,000, respectively. We expect to recognize approximately $1,730,000 during
fiscal 2000 and the remaining $2,325,000 over the next three fiscal years.

Software Development and Maintenance Costs. Software development and
maintenance costs increased from approximately $856,000 in the first half of
fiscal year 1999 to approximately $1,767,000 in the first half of fiscal year
2000. The average number of software development employees increased from 15
during the six months ended January 31, 1999 to 30 during the six months ended
January 31, 2000. We anticipate that software development costs will continue to
increase in absolute terms as we plan to significantly expand our software
development team to maintain our technological lead in the field of Virtual
Worlds. We expect to increase our average number of software development staff
to over 200 by fiscal 2004. Software development and maintenance costs of our
different segments were as follows:

- Software development and maintenance cost in our Product segment
increased from approximately $569,000 to approximately $943,000 primarily
due to higher personnel costs based on new hires associated with the
development of new products, enhancement and support of existing
products, and quality assurance, testing, and documentation. Based on the
higher number of employees, allocated costs for occupancy, depreciation
and communication cost also increased.

- Software development and maintenance costs in the Professional Services
segment increased from approximately $193,000 to approximately $412,000

28
<PAGE> 34

- Software development and maintenance costs in the Communities segment
increased from approximately $94,000 to approximately $412,000 primarily
because the Communities segment initiated operations of Cybertown during
November 1998. These costs mainly relate to further expansion of the
community offering of Cybertown, in particular to adding more places and
virtual worlds to the community to account for the increased number of
visitors and members.

Sales and Marketing Expenses. Sales and marketing expenses increased from
approximately $662,000 in the first half of fiscal 1999 to approximately
$2,131,000 in the first half of fiscal year 2000. The increase was primarily
attributable to an increase in the average number of direct sales, pre-sales
support and marketing employees from 9 for the six months ended January 31, 1999
to 23 for the six months ended January 31, 2000, as well as an increase in
marketing programs, including collateral, trade shows and public relations
related to product launch activities for the blaxxun3D, blaxxun Avatar Studio
and blaxxun Instant Community. Sales and marketing expenses may continue to
increase in absolute numbers as we continue to expand our marketing programs and
sales force to support product launches, international expansion as well as
expansion of our community operations. We expect to increase our average number
of sales and marketing staff to over 200 by fiscal 2004.

Sales and marketing expenses increased in the Product segment from
approximately $11,000 to approximately $1,115,000 and in the Professional
Services segment from approximately $151,000 to approximately $330,000. Sales
and marketing increases in the Product and Professional Services segments mainly
related to personnel costs based on increased level of staff. Sales and
marketing expenses in the Communities segment were approximately $686,000. The
Communities segment expenses relate mainly to personnel costs, with an average
of five people employed who work primarily on social interaction and
communication with community members, organizing events and other marketing
activities. These expenses mainly resulted from the growth of Cybertown, whose
registered member base increased by more than 500% from January 1999 to January
2000 to more than 250,000 members. There were no sales and marketing costs in
the period ending January 31, 1999, since the Communities segment was still in
the process of being developed.

General and Administrative Expenses. General and administrative expenses
increased from approximately $500,000 for the six-month period ended January 31,
1999 to approximately $935,000 for the comparable period in 2000. The increase
was primarily due to personnel costs associated with newly hired personnel and
related costs required to manage our growth as well as professional and legal
fees. The average number of general and administrative employees increased from
6 during the six months period ended January 31, 1999 to 10 during the six month
period ending January 31, 2000. We expect that general and administrative
expenses will increase in absolute cost as we continue to add additional
staffing to support expanded operations and incur expenses relating to its our
responsibilities as a public company. We expect to increase our average number
of general and administrative staff to over 100 by fiscal 2004.

General and administrative expenses increased in the Product segment from
approximately $382,000 to approximately $672,000 and in the Professional
Services segment from approximately $113,000 to approximately $199,000. The
Communities segment increased from approximately $4,000 to approximately
$65,000.

Amortization of goodwill and other intangible assets. Amortization expense
for goodwill and other intangible assets decreased from approximately $1,825,000
for the six months period ended January 31, 1999 to approximately $1,707,000 for
the period end in January 31, 2000 as a result of the in-process research and
development of $195,000 immediately expensed in 1999. Amortization of goodwill
and other intangible assets relate mainly to the purchase of the remaining
interest in blaxxun interactive AG as well as to the acquisition of Cybertown,
Inc. during fiscal 1999.

Other expense, net increased from approximately $393,000 to approximately
$449,000. Net interest expense decreased from approximately $184,000 to
approximately $167,000. Foreign exchange losses, net was approximately $202,000
in 1999 compared to a gain of approximately $34,000, primarily due to
transaction gains incurred on Deutsche Mark or euro based account balances.

During September 1999, we entered into a 50% joint venture with Cornelsen
Verlag GmbH & Co. ("Cornelsen"), a German schoolbook publisher, to create and
operate learnetix, an Internet learning

29
<PAGE> 35

community. Our equity in losses was approximately $316,000 primarily due to
planned start-up expenses to develop the Internet community. Major cost drivers
include costs to design the websites, integrate and customize the software to
operate the community as well as marketing costs to promote the community
services to the target markets. Learnetix was launched during November 1999,
however did not generate revenue during the six month period ended January 31,
2000.

Net loss

As a result of the factors identified above, our net loss for the six
months ended January 31, 1999 was approximately $3,376,000 as compared to
approximately $4,951,000 for the comparable period ended January 31, 2000.

Fiscal Years Ended July 31, 1998 and 1999

During the end of fiscal 1997, we significantly reduced our U.S.
operations. During late fiscal 1998 we began to rebuild, especially our U.S.
sales and marketing and administrative teams, to better serve our customers in
the U.S., and to sell our new Community Platform 4.0 to the important U.S.
market. As a result of these actions, expenses in all categories increased,
primarily due to additional staffing.

Net Revenues. Net revenues increased from approximately $1,193,000 in the
fiscal 1998, to approximately $1,846,000 in fiscal 1999. The increase would have
been approximately $1,000 higher on a constant dollar basis, relating to the
stronger $ compared to the Deutsche Mark or euro. There were no revenues from
related parties in fiscal 1998 or 1999. Net revenues of our segments during
fiscal 1998 and 1999 were as follows:

- Net revenues of the Product segment increased from approximately $761,000
to approximately $1,156,000.

The increase is primarily due to license revenues which grew from
approximately $450,000 to approximately $685,000 based on both an
increase in the number of licenses sold and the average package size,
based on the number of concurrent users, of the blaxxun Community
Platform.

Revenues from collaborative agreements with public entities increased
from approximately $255,000 to approximately $358,000 primarily due to
two new projects started during fiscal 1999.

Revenues from support and maintenance agreements increased from
approximately $53,000 to approximately $118,000 primarily due to the
increase in the platform sales as well as first renewals of existing
customers.

- Net revenues of the Professional Services segment grew from approximately
$432,000 to approximately $727,000. The increase is primarily based on
both an increase in average project size and in the number of customers.

Software Development and Maintenance Costs. Software development and
maintenance costs increased from approximately $1,491,000 in fiscal 1998 to
approximately $1,848,000 in fiscal 1999. The average number of software
development employees increased from 13 during fiscal 1998 to 20 during fiscal
1999. Software development and maintenance costs of our segments during fiscal
1998 and 1999 were as follows:

- Software development and maintenance costs in the Product segment
declined by approximately $56,000 to $1,144,000 primarily due to
reallocations of staff to the Communities segment that initiated
operations during fiscal 1999. Software development costs relate
primarily to personnel costs and include an allocation of depreciation,
occupancy and communication costs.

- Software development and maintenance costs in the Professional Services
segment also declined by approximately $15,000 to $275,000 primarily due
to reallocation of staff to the Communities segment that initiated
operations during fiscal 1999. Software development costs relate
primarily to personnel cost as well as to depreciation, occupancy and
communication costs.

- Software development and maintenance costs in the Communities segment
were approximately $429,000 in the year ended July 31, 1999. Our
Communities segment initiated operations during November 1998 with
acquisition of Cybertown. We incurred costs mainly related to improving
the software and graphic capabilities of Cybertown as well as initial
technical operating costs.

30
<PAGE> 36

Sales and Marketing Expenses. Sales and marketing expenses increased from
approximately $695,000 in fiscal year ended July 31, 1998 to approximately
$2,027,000 in fiscal year ended July 31, 1999. The increase was primarily
attributable to an increase in the average number of direct sales, pre-sales
support and marketing employees from 5 in fiscal 1998 to 13 in fiscal 1999, as
well as an increase in marketing programs, including collateral, trade shows and
public relations related to product launch activities of the blaxxun Community
Platform version 4.0.

Sales and marketing expenses increased especially in the Product and
Communities segment. The Product segment increased from approximately $540,000
to approximately $1,378,000 and the Professional Services segment increased from
approximately $155,000 to approximately $330,000. The Communities segment was
approximately $319,000 as a result of starting operations in fiscal 1999.

General and Administrative Expenses. General and administrative expenses
increased from approximately $706,000 in fiscal 1998 to approximately $1,203,000
in fiscal year ended July 31, 1999. The increase was primarily due to personnel
cost, occupancy costs and legal and professional fees and reflects our efforts
in the U.S.

General and administrative expenses increased in the Product segment from
approximately $548,000 to approximately $906,000, and in the Professional
Services segment from approximately $158,000 to approximately $217,000. The
Communities segment was approximately $79,000 during its first year of
operation.

Amortization of goodwill and other intangible assets. Amortization expense
for goodwill and other intangible assets was approximately $3,521,000 for the
year ended July 31, 1999. Amortization of goodwill and other intangible assets
relate to our purchase of the remaining interest in blaxxun interactive AG as
well as to the acquisition of Cybertown, Inc. during fiscal 1999. Goodwill and
other intangibles are amortized on a straight-line basis over the expected
period to be benefited, from seven to 36 months. Fiscal 1999 also includes a
charge of $195,000 related to in-process research and development attributable
to our acquisition of the remaining interest in blaxxun interactive AG.

Other expense, net decreased from approximately $1,377,000 to approximately
$77,000. Net interest expense decreased from approximately $1,283,000 to
approximately $103,000. This change was primarily due to additional interest
expense associated with our issuance of a note convertible into Series B
convertible preferred stock in November 1997. This note was issued with a
beneficial conversion feature and repayment premium aggregating approximately
$900,000, which was recognized as interest expense from the date of issuance to
the date the note was first convertible. This was partially offset by higher
interest income on higher average money market account balances. Foreign
exchange gain, net increased approximately $126,000 to approximately $33,000,
primarily due to transaction gains incurred on Deutsche Mark or euro based
account balances.

Fiscal Years Ended July 31, 1997 and 1998

During the second half of fiscal year 1997, we decided to significantly
reduce our U.S. operations which had significant impact on the fluctuations
between fiscal years ended July 31, 1998 and 1997.

Net Revenues. Net revenues increased from approximately $595,000 during
fiscal 1997 to approximately $1,193,000 in fiscal 1998. Net revenues increased
even though our U.S. sales and marketing operations were significantly reduced
during the latter half of fiscal 1997 and accounted for more than 50% of fiscal
1997 revenues. On a constant dollar basis the increase would have been
approximately $37,000 higher due to the stronger $ compared to the Deutsche
Mark. Revenues to related parties, CMGI related companies, in fiscal 1997 were
$243,000. These figures reflect higher revenues for both Products and
Professional Services as follows:

- Net revenues of the Product segment increased from approximately $315,000
to approximately $761,000.

This increase is primarily due to revenues from two collaborative
agreements with the European Commission which were awarded during fiscal
1998. License revenue increased from approximately $294,000 to
approximately $450,000 based on an increase in both the number of
licenses sold and the average package size, based on the number of
concurrent users, of the blaxxun Community Platform.

31
<PAGE> 37

Revenues from support and maintenance agreements increased approximately
$33,000 to $53,000 primarily due to the increase in the platform sales.

- Net revenues of the Professional Services segment increased from
approximately $281,000 to approximately $432,000. This increase reflects
both an increase in average project size and number of customer projects.

Software Development and Maintenance Costs. Software development and
maintenance costs decreased from approximately $2,085,000 in fiscal 1997 to
approximately $1,491,000 in fiscal, 1998. The average number of software
development employees decreased to 13 during fiscal 1998 from 17 during fiscal
1997. The decrease is primarily due to the decision to significantly reduce the
U.S. operations by the end of fiscal year 1997. The software development cost of
our different segments during fiscal years ended July 31, 1998 and 1997 were as
follows:

- Software development and maintenance costs in the Product segment
decreased from approximately $1,939,000 to approximately $1,200,000
primarily due to the reduction of our U.S. software development team and
the in house graphics team based on a decision to outsource these
functions. In addition, we allocated some of our product engineers to the
Professional Services segment to transfer our technical product
leadership into customer reference projects to promote technical
leadership into market leadership.

- Software development and maintenance costs in the Professional Services
segment increased from approximately $146,000 to approximately $290,000.
The increase is primarily due to allocation of product engineers to the
Professional Services segment as described above.

Sales and Marketing Expenses. Sales and marketing expenses decreased from
approximately $2,472,000 in fiscal 1997 to approximately $695,000 in fiscal
1998. The decrease was primarily attributable to a reduction in the average
number of direct sales, pre-sales support and marketing employees from 14 in
fiscal year 1997 to five in fiscal year 1998, as well as a decrease in marketing
programs, including collateral, trade shows and public relations related to
product launch activities. The decrease was primarily due to the significant
reduction of our U.S. sales and marketing team during the end of fiscal 1997.

Sales and marketing expenses decreased especially in the Product segment
from approximately $2,315,000 to approximately $540,000 while the Professional
Services segment remained almost unchanged.

General and Administrative Expenses. General and administrative expenses
decreased from approximately $1,564,000 in fiscal 1997 to approximately $706,000
in fiscal 1998. The decrease was primarily due to a reduction in the average
number of personnel and related costs as well as professional and legal fees due
to the significant reduction of U.S. operations. The average number of general
and administrative employees decreased from 7 during fiscal 1997 to 5 during
fiscal 1998. By July 31, 1997, we accrued for contractual obligations in
connection with the closing of a portion of our U.S. office of approximately
$142,000 primarily for the future lease costs of vacated office space. During
fiscal 1998, the decision was made to vacate additional offices which resulted
in further charge in fiscal 1998 of approximately $92,000.

Our general and administrative expenses decreased primarily in the Product
segment from approximately $1,465,000 to approximately $548,000 while the
Professional Services segment increased by approximately $59,000.

Other income, net decreased from income of approximately $174,000 to
expense of approximately $1,377,000 primary due to higher interest costs coupled
with net losses on foreign currency transactions.

Net interest expense increased by approximately $1,130,000 to approximately
$1,283,000. This increase was primarily due to our issuance of a convertible
note in November 1997 which contained a beneficial conversion feature and
repayment premium aggregating approximately $900,000. The amortization of these
items was recognized as interest expense from the date of issuance to the date
the note was first convertible.

Foreign exchange gain, net decreased from a gain of approximately $385,000
to a loss of approximately $94,000, primarily due to unrealized transaction
gains incurred on Deutsche Mark based short-term intercompany balances.

32
<PAGE> 38

QUARTERLY RESULTS OF OPERATIONS

The following table represents our unaudited quarterly operating results
for each quarter of the fiscal years ended July 31, 1999 and 1998 and the first
two quarters of fiscal year ended July 31, 2000. This information has been
derived from our unaudited interim information that, in the opinion of
management, have been prepared on a basis consistent with the financial
statements contained elsewhere in this prospectus and include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair statement
of such information when read in conjunction with our consolidated financial
statements and notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
OCT. 31 JAN. 31 APR. 30 JUL. 31 OCT. 31 JAN. 31 APR. 30 JUL. 31 OCT. 31 JAN. 31
1997 1998 1998 1998 1998 1999 1999 1999 1999 2000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:................. $ 221 287 300 385 402 458 473 513 789 1,251
Operating expenses:
Software development and
maintenance costs......... 342 348 383 418 359 497 498 494 741 1,026
Sales and marketing......... 136 142 178 239 290 372 582 783 889 1,242
General and
administrative............ 140 158 162 246 253 247 278 425 456 479
Amortization of goodwill and
other intangible assets... -- -- -- -- 1,010 815 873 823 862 845
----- ---- ---- ---- ------ ------ ------ ------ ------ ------
Total operating
expenses........... 618 648 723 903 1,912 1,931 2,231 2,525 2,948 3,593
----- ---- ---- ---- ------ ------ ------ ------ ------ ------
Operating loss....... (397) (361) (423) (518) (1,510) (1,472) (1,758) (2,012) (2,159) (2,342)

Other, net.................... (286) (213) (472) (406) (476) 83 57 259 (74) (375)
----- ---- ---- ---- ------ ------ ------ ------ ------ ------

Net loss...................... $(683) (574) (895) (924) (1,986) (1,390) (1,701) (1,754) (2,235) (2,716)
===== ==== ==== ==== ====== ====== ====== ====== ====== ======
</TABLE>

Totals may not add due to rounding differences.

Our revenues generally increased or remained stable over the 10 quarters
ending January 31, 2000 with the first two quarters in fiscal 2000 showing
significant increases compared to both prior year quarters and previous
quarters.

Software development and maintenance costs steadily increased over the 10
quarters primarily due to the increase of personnel and related expenses.

Sales and marketing expenses steadily increased over the 10 quarters
primarily due to the increase of personnel and related expenses as well as
marketing expenses to promote our products and services.

General and administrative expenses steadily increased over the 10 quarters
primarily due to the increase of personnel and related expenses as well as an
increase of legal and professional fees especially in the last three quarters.

Amortization of goodwill and other intangible assets started in the quarter
ended October 31, 1998 with the acquisition of a significant portion of the
minority interests in blaxxun interactive AG. In addition, in process research
and development expenses of approximately $195,000 were expensed during this
quarter. The acquisition of Cybertown, Inc. and the remaining portion of the
minority interest in blaxxun interactive AG took place during the third and
fourth quarters of fiscal 1999. Starting with the first quarter of fiscal 2000
amortization is steady.

Other, net significantly fluctuates primarily due to our financing and
investing activities as well as the impact of foreign currency fluctuations over
the various quarters that mainly impacted Deutsche Mark and euro denominated
account balances.

In addition, a variety of factors, many of which are outside of our
control, may affect our future quarterly operating results. These factors
include:

- the evolution of the market for Virtual Worlds infrastructure for
commerce, community, and collaboration;

- market acceptance of our products;

33
<PAGE> 39

- our success and timing in developing and introducing new products and
enhancements to existing products;

- market acceptance of products developed by competitors;

- changes in pricing policies by us or our competitors;

- length of sales cycle;

- changes in customer buying patterns;

- market entry by new competitors;

- general economic conditions; and

- economic conditions specific to Internet-related industries.

Our limited operating history and the undeveloped nature of the market for
Virtual Worlds infrastructure make predicting future revenue difficult. Our
expense levels are based, in part, on expectations regarding future revenue
increases, and to a large extent such expenses are fixed, particularly in the
short term. There can be no assurance that our expectations regarding future
revenue are accurate. Moreover, we may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall of revenue in relation to our expectations would likely
cause significant declines in our net income for that period.

Due to the foregoing factors, our operating results are difficult to
forecast. We believe that period-to-period comparisons of its historical
operating results are not meaningful and should not be relied upon as an
indication of future performance. Also, our operating results may fall below its
expectations or the expectations of securities analysts or investors in some
future quarter. In such event, the market price of our common stock would likely
be materially adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

At January 31, 2000, we had cash and cash equivalents of approximately
$2,271,000. We have funded our operations and investments primarily through net
cash proceeds from private placements of convertible preferred stock and
long-term and convertible notes payable. Since inception through July 31, 1999,
we have raised approximately $12,782,000 from the private issuance of equity
securities. On January 18, 2000, the Board of Directors approved the issuance of
up to 3,400,000 shares of Series F convertible preferred stock. On January 28,
2000, 215,000 shares of Series F convertible preferred stock were issued in a
private placement for cash of $2,537,000. From February 1, 2000 to February 29,
2000, 524,000 additional shares of Series F convertible preferred stock were
issued in private placements for cash of $6,183,000.

In addition, we have financed our operations through the issuance of
long-term notes payable and convertible notes payable in the aggregate amount of
approximately $4,598,000, $500,000 thereof have been repaid and another $500,000
have been converted into preferred stock. The stated interest rates on these
notes range between six and seven percent and are subject to substantial
repayment premiums ranging from 30% to 35% of the face amount of the respective
note. The holder of the convertible note payable of approximately $1,108,000 as
of January 31, 2000, exercised its conversion option on April 21, 1999 and
subsequently the note was converted into 300,000 shares of Series B convertible
preferred stock on March 29, 2000.

Six months ended January 31, 1999 and 2000

Operating activities used cash and cash equivalents of approximately
$1,701,000 and $1,890,000 for the six month periods ended January 31, 1999 and
2000.

Our investing activities used cash of approximately $166,000 and $1,262,000
for the six month periods ended January 31, 1999 and 2000. The increase is
mainly due to our investments in learnetix, a joint venture with Cornelsen
Verlag GmbH & Co., a German schoolbook publisher, to create and operate an
Internet learning community for young people. As part of the agreement, each
company invested approximately $602,000 primarily related to start-up cost, such
as website design, integration and customization of software to operate the
community. learnetix was launched to the public in November 1999. In addition,
the increase

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<PAGE> 40

from the prior year is due in part to purchases and replacements of office
equipment of approximately $458,000 mainly due to the move into new office
facilities in Munich and in San Francisco.

Financing activities provided cash and cash equivalents of approximately
$811,000 and $2,539,000 for the six month periods ending January 31, 1999 and
2000, primarily from the issuance during January 2000 of 215,000 shares of
Series F convertible preferred stock in a private placement for cash of
approximately $2,537,000.

Fiscal Years Ended July 31, 1998 and 1999

Operating activities used cash and cash equivalents of approximately
$1,951,000 and $3,370,000 during fiscal 1998 and 1999. The increase is
attributed to our growth as well as first time operating costs of Cybertown,
Inc. an Internet community which was acquired during November 1998.

Our investing activities used cash of approximately $33,000 and $285,000
for fiscal 1998 and 1999. The increase was primarily used for purchase of new
equipment and cash payments related to our acquisition of Cybertown.

Financing activities provided cash and cash equivalents of approximately
$5,001,000 and $3,819,000 for fiscal 1998 and 1999. During fiscal 1998, we
issued 555,626 shares of Series C preferred stock for cash of approximately
$2,978,000. In addition, we have financed our operations in fiscal 1998 through
long-term notes payable and convertible notes payable in the aggregate amount of
approximately $2,521,000. Our DM 1,700,000 unsecured convertible loan was issued
with a beneficial conversion feature and contained a repayment premium of 30% of
the face value of the note. These items resulted in a non-cash charge to
interest expense of $903,643 in fiscal year 1998. Additionally, we repaid
$500,000 of a $1,000,000 convertible note payable and converted the remaining
$500,000 into 93,284 shares of Series C Convertible Preferred Stock. During
fiscal 1999 we issued 150,000 shares of Series C preferred stock for cash of
$804,000 and 375,000 shares of Series E preferred stock for cash of $3,000,000.

Fiscal Years Ended July 31, 1997 and 1998

Operating activities used cash and cash equivalents of approximately
$4,650,000 and $1,951,000 during fiscal 1997 and 1998. The decrease from 1997 is
primarily due to the decision to significantly reduce the U.S. operations in the
second half of fiscal 1997.

Our investing activities used cash of approximately $157,000 and $33,000
for fiscal 1997 and 1998 related primarily to the acquisition of new equipment.

Financing activities provided cash and cash equivalents of approximately
$2,077,000 and $5,001,000 for fiscal 1997 and 1998. During fiscal 1997, we
entered into a long-term note payable of approximately $1,677,000 and a note
payable of $400,000. The stated interest rate on the note payable was 6% and it
is subject to repayment premiums, 30% of the face amount in most instances. The
note payable had an interest rate of FIBOR plus 4%. The note payable was
replaced by a $1,000,000 convertible loan agreement. During 1998, we repaid
$500,000 and converted $500,000 into 93,284 shares of Series C convertible
preferred stock.

Our capital expenditures and investment in joint venture were approximately
$1,475,000 from August 1, 1996 through January 31, 2000.

Our cash investments for the six month period ended January 31, 2000 and
fiscal years 1999, 1998, 1997 were as follows:

<TABLE>
<CAPTION>
2000 1999 1998 1997
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Investment in joint venture.......................... $528,144 $ -- $ -- $ --
Investment in subsidiary............................. -- 94,978 -- --
Software and equipment............................... 457,902 205,738 65,721 122,345
-------- -------- ------- --------
Total................................................ $986,046 $300,716 $65,721 $122,345
</TABLE>

Other capital expenditure plans for the second half of fiscal 2000 relate
primarily to the implementation of a SAP based management information system for
all group companies in addition to software and

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<PAGE> 41

equipment for new hires. We have no other material commitments other than
obligations under the notes payable and operating leases.

As of July 31, 1999, we have net operating loss carryforwards of
approximately $3,657,000, of which approximately $1,704,000 relates to our
German operations and approximately $1,953,000 to our U.S. operations. Such
carryforwards are limited in use by the particular entity that generated the
loss and, with respect to the German loss carryforwards, are not subject to an
expiration date. Prior to August 1, 1998, the Company was included as a member
of the CMGI consolidated group for income tax purposes. As such, all U.S.
federal and California state net operating losses and research credits generated
by the Company since inception to July 31, 1998 have been fully utilized by the
CMGI consolidated group and will not be available to the Company in the future.

Since our inception, our operating expenses have significantly increased.
We anticipate that we will continue to experience significant growth in our
operating expenses for the foreseeable future and that our operating expenses
and capital expenditures will constitute a material use of our cash resources.
In addition, we may utilize cash resources to fund acquisitions or investments
in businesses, technologies, products or services that are complementary to our
business. We believe that the net proceeds of this offering will be sufficient
to meet our anticipated cash requirements for working capital and capital
expenditures for at least 12 months. Thereafter, if cash generated from
operations is insufficient to satisfy our liquidity requirements, we may seek to
sell additional equity or debt securities, or obtain additional credit
facilities. The issuance of additional equity or convertible debt securities
could result in additional dilution to our stockholders.

Foreign Currency Exchange and Interest Rate Exposure. We are exposed to
market risk related to fluctuations in foreign currency exchange rates. During
fiscal 1998, 1999 and in the six month period ended January 31, 2000 we
generated 98%, 79% and 78%, respectively, of our total revenues through
customers located outside the U.S. with 23%, 53% and 47%, respectively,
generated from customers in Germany. Additionally, a significant portion of our
software development costs are currently denominated in the Deutsche Mark or
euro and therefore subject to foreign currency gains and losses. Our exposure to
market risk due to fluctuations in foreign currency exchange rates relates
primarily to the Deutsche Mark or euro denominated transactions, such as
billings to customers in Germany and Europe. Although we transact business in
various foreign countries, settlement amounts are usually based on U.S. dollars,
the Deutsche Mark or euro. Transaction gains or losses have been significant in
the past, and consequently, we expect that reductions in the value of such
accounts denominated in foreign currencies resulting from a sudden or
significant fluctuation in foreign exchange rates could have a direct material
impact on our financial position, results of operations, or cash flows. From our
inception, we have not engaged in foreign currency hedging activities, although
we may decide to hedge certain currency exposures in the future. We are not a
party to leveraged derivatives and we do not hold or issue derivative
investments for speculative purposes.

Notwithstanding the foregoing analysis of the direct effects of foreign
currency exchange rate fluctuations on the value of our investments and
accounts, the indirect effects of such fluctuations could have a material
adverse effect on our business, financial condition, and results of operations.
For example, international demand for our products is affected by foreign
currency exchange rates. In addition, interest rate fluctuations may affect the
buying patterns of our customers. Furthermore, interest rate and currency
exchange rate fluctuations have broad influence on the general condition of the
U.S., foreign, and global economies that could have a material adverse effect on
us.

We are exposed to interest rate risks through our debt instruments of our
subsidiary. As of July 31, 1999, we had fixed rate Deutsche Mark denominated
debt of approximately $1,639,000 and $929,000 which are due in 2006 and 2007,
respectively which has certain contingently payable interest based on our
earnings. The fair value of these notes payable was estimated to be
approximately $1,996,000 and $1,202,000, respectively, based on an estimated
market interest rate of 8% for debt of similar risks and no contingent interest
paid. Additionally, as of July 31, 1999, we had a Deutsche Mark denominated
convertible note payable of approximately $1,208,000 due in 2007. Based on
independent third party valuations of the securities that this note could be
exchanged for, the convertible note had a fair value of $2,400,000 as of July
31, 1999.

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<PAGE> 42

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133, as amended, is effective for our
fiscal 2001 fiscal year beginning on August 1, 2000. The Company has assessed
that, based on the derivative activity during 1999, the adoption of this
statement would not have a significant impact on our financial position at July
31, 1999 and results of operations and liquidity for the year then ended. The
Company will continue to monitor the potential financial impact through the date
of adoption.

YEAR 2000

We designed our products for use in the year 2000 and beyond and believe
that our products are Y2K compliant. Our business systems were acquired under
the condition that they were Y2K compliant. We did not experience any
significant problems with the Y2K transformation, nor do we expect any problems
in future.

INTRODUCTION OF THE EURO

On January 1, 1999, the euro was introduced as the common legal currency of
11 member states of the European Economic and Monetary Union, including Germany.
The exchange rates of the national currencies of all members were fixed to the
euro effective January 1, 1999. The Deutsche Mark was fixed at the official
exchange rate of DM1.95583 = 1 euro. Our business systems were acquired under
the condition to be euro compliant and we do not expect any significant costs or
expenses associated with the introduction and use of the euro.

RECENT BUSINESS DEVELOPMENT

Our fixed order backlog increased from January 31, 2000 to February 29,
2000 from approximately $4,055,000 to $16,515,000. The Product segment increased
from approximately $3,575,000 to $15,305,000 due to two significant agreements
with value added resellers to market our products. The Professional Services
segment increased from approximately $305,000 to $1,035,000. We expect to
recognize approximately $3,540,000 ($1,730,000 as of January 31, 2000) during
fiscal 2000 and the remaining $12,975,000 ($2,325,000 as of January 31, 2000)
over the next three fiscal years after fiscal 2000, although no assurance can be
given that such amounts will in fact be realized.

On February 1, 2000, we entered into an agreement with General Investment
Bankers, a Latin American Reseller, resulting in a fixed purchase commitment of
approximately $6,000,000 before a maximum rebate of $1,000,000, included above,
for the period from February 2000 until July 31, 2003. We expect to realize
approximately $400,000 from this agreement in fiscal 2000.

On February 25, 2000, we entered into an agreement with a Infomatec Media
AG, a German reseller and technology partner, resulting in an order commitment
of approximately $5,500,000, included above, to be realized from March 2000
through July 31, 2002. We expect to realize approximately $750,000 from this
agreement in fiscal 2000. Infomatec participated in our Series F round of
financing and, on February 28, 2000, purchased stock convertible into 508,000
shares of our common stock for a purchase price of $2,997,000. Under our
agreement with Infomatec, we have an option (but not an obligation) to
repurchase the Infomatec shares if Infomatec fails to meet purchasing benchmarks
within the time frames set forth in the agreement.

Our business continued its positive development during the third quarter of
fiscal 2000 ending April 30, 2000. Our revenues grew from approximately $473,000
for the quarter ending April 30, 1999 to approximately $2,085,000 for the
quarter ending April 30, 2000.

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BUSINESS

OVERVIEW

We are a provider of innovative software and services that allow
organizations to develop and operate Virtual Worlds for commerce, community and
collaboration over the Internet. Virtual Worlds are feature rich online
environments where people can come together and, by navigating through the
website:

- engage in commerce by going shopping and accessing customer service;

- engage in community by interacting with others, attending events and
being entertained; and

- engage in collaboration by participating in cooperation scenarios.

To address the needs of advanced Virtual Worlds applications, we have
developed a set of products and technologies that we license to our customers
directly and through third party resellers. We believe that our focus on
innovative technology, open technology standards and scalability and
extensibility (ability to easily add features and accommodate additional
volume), support of multiple hardware and software platforms and business
relationships has established us as a leader in the technology behind the
Internet Virtual Worlds market.

Our Virtual Worlds technologies utilize open standards and enable a variety
of new applications that were not feasible until recently. During the 1990's,
improvements in computer software and hardware performance and Internet
connection technology caused a significant increase in Internet usage. As a
result, several markets, including e-commerce, communities and collaboration,
have grown significantly. We believe that recent improvements in software and
hardware infrastructure, the increasing and broadening use of the Internet by
end users and the convergence of media platforms such as Internet PCs,
televisions and other devices provide opportunities for growing the Virtual
Worlds market, and that our leadership position in Virtual Worlds technology
makes us well suited to pursue those opportunities.

Our business consists of selling Virtual Worlds technology products like
the blaxxun Community Platform, providing professional services based on our
Virtual Worlds technology, as well as operating selected Internet Communities,
like cybertown.com, learnetix.de and soccercity.de, that use our technology to
create leading Virtual Worlds.

A number of global companies already use our technology for a variety of
applications. We intend to aggressively expand this customer base and to deepen
and extend relationships with existing customers, third party resellers and
technology collaborators. We also intend to leverage our technology leadership
position by targeting smaller business customers and individuals with new
products incorporating our technology, such as blaxxun3D, the blaxxun Avatar
Studio and the blaxxun Instant Community.

INDUSTRY BACKGROUND

The growth of the Internet along with advances in Internet technology
continue to encourage increased participation and investment in e-commerce,
online communities and on-line collaboration. These technological advances lower
infrastructure costs, facilitate speed and ease of use, permit greater security
and increase the range of services and applications available on the Internet.

The Evolution of Technology

Hardware Evolution. Hardware devices showed a significant increase in
performance during the past ten years. The speed and efficiency of processors
and the memory capacity of computers has been steadily increasing while the cost
of hardware devices has been dropping. This increase in speed, efficiency and
memory capacity has resulted in a dramatic change in the performance of
relatively inexpensive (costing less than $1,000) end-user devices.

Recently, additional devices such as mobile phones, televisions with set
top boxes, game consoles and a variety of other web-enabled mobile devices have
gained importance and user acceptance. We believe that these new devices will
lead to a convergence of applications that can be accessed through a variety of
devices

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and that the use of the Internet and Internet-based applications will continue
to increase at a substantial rate for the foreseeable future.

Network Infrastructure Evolution. The Internet and Intranets have created
a network infrastructure that has achieved significant relevance for businesses
and end users in a very short period of time. Availability, cost, access speed,
and other attributes have improved to the point that the Internet has now become
a significant component of the global economy. Broadband connectivity, including
cable modems, DSL, ISDN, and high speed satellite or wireless connections, is
technically feasible and is gaining more and more market share. Jupiter
estimates that by 2003, nearly 23% of online households will access the Internet
over a broadband connection. Already in 2000 there are many users with
sufficient bandwidth to effectively access sites providing advanced multimedia
content.

Importance of Open Standards. The quick growth of the Internet was
significantly facilitated by availability of widely utilized open standards,
including HTML, HTTP, XML and various others. Open standards, or publicly
available software applications that allow developers to create products
compatible with other applications utilizing the same standard, enable vendors
to cooperate and to focus on their respective strengths. For customers, open
standards provide higher independence from specific vendor technology and
therefore better protection of their investments in technology. New standards
for three-dimensional applications, VRML and MPEG4, have been established to
facilitate the development of three dimensional applications.

Growth of Internet Usage

The Internet has evolved into a global medium that allows millions of
people worldwide to access and retrieve information, interact with each other
and conduct business electronically. A variety of factors have driven the
pervasive adoption of these and other evolving applications, including:

- the growing numbers of people with access to a personal computer and
modem at home or at work;

- the development of the World Wide Web;

- the increasing reliance by businesses on the Internet and corporate
Intranets;

- the introduction of easy-to-use navigation tools and utilities; and

- the proliferation in the number of available informational, entertainment
and commercial applications for use on the Internet.

The Internet has experienced a rapid increase in users worldwide.

Our Target Markets

The E-Commerce Market. The Internet allows marketers to interact
effectively with customers in a scalable and cost effective manner and to obtain
relevant data about purchase interests, preferences and demands. According to
Jupiter, the percentage of Internet users buying goods and services on the
Internet will increase from approximately 22% in 1998 to approximately 36% in
2003 and the total online spending in the U.S. market will increase from
approximately $14.9 billion in 1998 to approximately $78.0 billion in 2003. We
that believe Virtual Worlds can enhance the e-commerce experience by making it
more natural and interactive.

The Online Communities Market. The Internet provides a forum for end-users
to publish information and to meet and communicate with other users based on
common interest. Typically, such member-generated content is hosted by community
sites that structure the information, provide tools and facilitate the
communication between members. The online communities market is an important,
end-user driven market and many of the top web sites offer some community
features. Our products serve to enhance and enliven this interactive
communication online.

The Collaboration Market. The Internet enables users to effectively
collaborate through e-mail, application sharing, document sharing, instant
messaging, workflow support and many dedicated applications
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based on these features. Online collaboration can reduce cost and increase
quality of work product. We believe that effective use of collaboration over the
Internet will be a competitive advantage for those companies that are successful
in using this new work tool. Our products and services facilitate collaboration
on the Internet by providing participants with product and data visualization
that can be accessed and modified together as a team. Users can communicate in
real-time about their work and jointly develop ideas and deliveries.

The blaxxun Solution

We are a provider of highly innovative software technology that enables
organizations to capitalize on the power of today's end-user devices and to
develop and operate advanced applications that better use the multimedia and
communication capabilities of the Internet. To this end, we have developed the
blaxxun Community Platform, an advanced client/server system that supports
Virtual Worlds for commerce, community and collaboration.

We also offer additional products that are complementary or derived from
the blaxxun Community Platform. Our blaxxun3D, a Java-based 3D-visualization
product, is well suited for e-commerce and data visualization. Our blaxxun
Avatar Studio supports the easy creation of highly realistic virtual persona
that can be used for the representation of visitors in Virtual Worlds, as well
as for shop assistants and service agents. Our blaxxun Instant Community is an
application product that facilitates very effective development and operation of
online communities.

Our products are based on open standards, are highly scalable and
extensible and are available for a variety of platforms. We play a key role in
the development of multimedia standards such as VRML, X3D, and MPEG4 through our
participation as a charter member in the Web3D Consortium and as a member in the
MPEG-4 Industry Forum, as well as in the MPEG Konsortium, the relevant standards
groups.

Our Strategy

Rapid technological progress has led and continues to lead to dramatic
changes in how business is done and how entertainment is delivered. New software
to facilitate innovative applications is required, however, in order to more
fully utilize the possibilities presented by the Internet.

Our objective is to be the leading vendor of software infrastructure that
facilitates the development and operation of Virtual Worlds for commerce,
community and collaboration. Our technology leverages the power of modern
end-user devices such as personal computers, television or PDA that are
connected to an increasingly popular Internet and Intranets. Through our
software, web sites can become more lifelike and, we believe, give our customers
an advantage over their competition. With our technology, users have an
experience that is more similar to television than the traditional text-oriented
Internet experience of the past. In addition, we provide technology for
sophisticated interactivity between users, making the applications even more
attractive. Key elements of our strategy include the following:

Technology Innovation and Leadership. We have been recognized as an
innovator in software technology. In 1996, we brought one of the first
standards-based multi-user Virtual Worlds system to the market. We also
presented one of the first PC-based NURBS (a highly compressed 3D format)
implementation, that was developed together with Intel. With blaxxun3D, we
introduced one of the first standards-based 3D Java applet worldwide. We believe
that our technology leadership is also confirmed by a variety of awards for our
products such as BYTE's "Best of CeBIT'97" Award for Best Multimedia Software,
1998 WebAward, Comdex Application Award in 1998, the 1998 London International
Advertising Award, the Deutsche Multimedia Award in 1999, the 1999 DigiGlobe
Award, and the Milia D'Or Award in 1999. We intend to continue to invest in our
base technology to ensure that we have the best offering for our customers and
distribution partners. In parallel, we intend to develop application specific
products that make use of our base technology and deliver cost effective
solutions to our customers. Based on our core competencies in scalable server
architectures and multimedia, we intend to be a leader in providing platforms
for a wide variety of Virtual World applications.

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Leveraging our Technology Leadership Position. We intend to develop and
market new products based on our Virtual Worlds technology. With products such
as blaxxun Avatar Studio and blaxxun Instant Community we will seek to provide
solutions to smaller business customers and individuals that help them take full
advantage of Virtual Worlds e-commerce, communities and collaboration.

Continued Focus on Open Standards. We intend to continue to use and
contribute to open standards in order to accelerate market growth and to enable
us to cooperate with various industry participants. We are a charter member in
the Web3D Consortium, a standard-setting body for 3D Internet technologies. The
other charter members of the consortium are Apple Computer Corporation,
Panasonic/Matsushita Electric, Microsoft Corporation, Silicon Graphics, Inc.,
Superscape plc and Sony. In 1999, we licensed certain technology to the Web3D
Consortium as Community Source for use by academic and non-commercial ventures.
We believe that this will allow technology innovators to use our technology as a
base for technological innovation, strengthen our reputation as a leading
producer of Virtual Worlds technology and help establish our technology as the
mainstream standard in Virtual Worlds technology.

Strategic Relationships with other Key Players. To enhance the
development, acceptance and marketing of our products, we have entered into
strategic relationships with technology vendors, original equipment
manufacturers, and sales and marketing sources. We are in technical cooperation
with companies such as Canal Plus Multimedia S.A., ELSA AG, Intel Corporation,
Parallel Graphics and Superscape plc. With Canal Plus Multimedia S.A., we
cooperate on joint product development (e.g. blaxxun Avatar Studio). With ELSA
AG, we work together on distribution of software and optimization of our
software for ELSA AG's 3D hardware. With Intel Corporation we developed advanced
3D compression technology and optimizations for new processor generations.
Parallel Graphics develops OEM technology for us, which gets included in our
product bundles. With Superscape plc we integrated our multi-user and
communication technology with their 3D technology. We have developed value added
resale relationships with companies such as Amdahl Deutschland GmbH, General
Investment Bankers S.A., Infomatec Media AG, Okupi Ltd., Silicon Artists S.A.,
Siemens AG and Suny Telecom Ltd. General Investment Bankers S.A. is our value
added reseller for Latin America with a fixed order commitment over the period
from February 2000 to July 31, 2003 of $6 million. In conjunction with Infomatec
Media AG, we have agreed to provide our Virtual Worlds technology for an online
trading application for Hornblower Fischer AG. In addition we have agreed to
integrate blaxxun community technology with Infomatec's JBT
Virtual-Cruiser-System for interactive TV applications. Infomatec Media AG has
also agreed to market blaxxun products as a value added reseller with an order
commitment of approximately $5,500,000 to be realized from March 2000 through
July 31, 2002. In conjunction with Siemens AG we developed innovative portal
applications for customers such as Bank Austria AG. In addition, with Okupi Ltd.
we developed applications for British TV/Internet customers. Silicon Artist
S.A., Hitech Media and Suny Telecom Ltd. are value added resellers for Spain,
Korea and Israel, respectively. We are also involved in several collaborative
research and co-development agreements with the European Commission with
companies such as British Broadcasting Corporation plc, BMW AG, British
Telecommunications plc, Canal Plus Multimedia S.A., Deutsche Telekom AG, France
Telecom S.A., Intershop Communications GmbH, Italtel SPA, Pixelpark MMK AG,
Siemens AG, Swisscom AG, Telecom Italia s.r.l., and Telenor AS. We will continue
to maintain and establish key strategic relationships such as these with
organizations that have complementary technology, appropriate sales channels or
relevant intellectual property rights.

Convergence of Platforms. We were and are involved in cross media projects
in which customers from the television market extend their offerings also to the
Internet. TerranetCafe was such a project where a Virtual World on the web was
used in parallel with a weekly television series. Internet users and television
viewers were able to interact, mediated by moderators in the television series.
Simsalagrimm is a media brand that is based on Grimm's Fairy Tales. The
television cartoon content is broadcasted in more than 90 countries and, based
on our technology, an interactive parallel world is accessible on the Internet.
We intend to continue to make our technology available on a wide range of
end-user devices to maximize the market for our customers and to position our
existing technology to new application areas. With the increasing convergence of
the Internet, television and mobile industries, we believe that these new
applications will provide significant opportunities for us and our existing and
future customers.

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Integration with Existing Systems. We intend to integrate our products
with those of other leading providers of commerce, community and collaboration
solutions. By integrating our products, we plan to enable customers who already
have other systems in use to easily upgrade to take advantage of the additional
benefits of our products.

Global Expansion. Currently, we have a sales and marketing team in the
United States and in Germany, and we sell to customers in 18 countries. We plan
to expand our sales and marketing team in the United States and also to extend
our sales and marketing into significant European markets such as the United
Kingdom, France, Spain, Italy, Benelux and Scandinavia and also to enter the
Asian markets, especially Japan. We plan to effect this expansion through
subsidiaries, joint ventures and strategic alliances. We believe that the global
reach of our existing network of strategic relationships will help us expand to
new markets. Our technology can be tailored to support new languages and other
local features relatively easily and thus, we believe, it is well suited for a
global market.

Products

blaxxun Community Platform. The blaxxun Community Platform is our core
product and has been under continuous development since 1995. Currently, the
fourth generation of the product is available. The blaxxun Community Platform is
a sophisticated client/server product that consists of the blaxxun Community
Server, the clients blaxxun Contact and blaxxun3D, the blaxxun Community
Platform SDK and various administration interfaces.

With our blaxxun Community Platform, we pursue a strategy of offering all
Virtual World features in pre-integrated form. This ensures that the
applications are based on a stable, tested environment and also keeps the
integration cost low for our customers. Our Community Platform is a highly
modular and extensible system and includes the following features:

- Place Management

- Member and Guest Management

- Registration and Authentication

- Member Directory

- 2D and 3D Avatars

- 2D and 3D Navigation and Interaction

- Real-time Text Chat

- Instant Messaging/Pager

- Friends/Buddy List

- Member Roles

- Message Boards/Calendars

- Incentive Programs

- Text-to-Speech

- Interest Club Management

- Access Rights

- Voting and Decision Making

- Agents

- Distributed Objects

- Member Homes
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- Avatar Libraries

Since our technology is based on open standards, our customers and partners
can choose from a variety of third party products for the development of their
applications. We provide the integration interfaces to bring everything together
and an SDK (software development kit) for extension and integration with other
products (e.g. shopping, personalization, member management, document
management, enterprise software).

Our customers install the blaxxun Community Server either on their own
hardware or have it operated by a hosting partner or application service
provider (ASP). Our Community Server co-exists with other software services and
is available for a variety of operating systems, including Linux, Windows NT and
others.

A specific strength of the blaxxun architecture is its high scalability.
The system is designed for millions of users and can scale very well just by
adding more server hardware and bandwidth. In addition to their ability to
handle high-loads, the efficiencies in our products allow customers to use less
hardware and bandwidth than they might need running other high-load
applications. We believe that enabling our customers to save significantly on
hardware and bandwidth, and providing a very low total cost of ownership for
high-load solutions, allows us to charge premium prices for our Community Server
product.

With the blaxxun Community Server comes an extensive administration
interface that enables the operator of the blaxxun-based application to monitor
usage statistics and to analyze traffic patterns, resource requirements, and
many other details. This helps our customers to effectively fine-tune their
applications and thus achieve even greater efficiencies.

The services of the blaxxun Community Server can be accessed by a variety
of client-side interfaces, ranging from simple HTML to Java applets and an
ActiveX plugin. This variety enables our customers to set their applications up
so that all virtually interested users can access them, independent of their
available hardware and bandwidth. Users with older hardware or bad Internet
connections can use the simpler applications with reduced features. Users with
state-of-the-art equipment can enjoy the whole multimedia presentation and
feature set. Our multimedia plugin is based on Microsoft's DirectX architecture
and also supports OpenGL. Thus, basically all rendering standards are supported.
Through integration with RealNetwork's RealPlayer, our customers get an
integrated multimedia platform with 2D, 3D, audio and video support.

Our customers license the blaxxun Community Platform, with fees based on
the expected usage volume. This volume can be increased through payment of
additional license fees. Thus, we participate in the success of our customers
and have aligned our interests with those of our customers. Through this
licensing model and together with our service offerings, we seek to establish a
close relationship with our customers, provide them continuously with
state-of-the-art technology and provide us with recurring revenue from our
customers.

blaxxun3D. blaxxun3D, launched in January 2000, is a small (55 KB) and
powerful Java applet for Internet-based 3D. Since it is 100% Java-based, it can
run on a wide variety of platforms. Our customers license blaxxun3D and put the
Java applet onto a web page. This process requires relatively little technical
expertise for our customers. More importantly, there are no technical or
installation requirements for the visitor to the site. Just by visiting the web
page, the end user automatically sees a dynamic 3D model that can be manipulated
in customer-defined ways. We believe blaxxun3D is becoming an integral part of
e-commerce and data visualization, with three-dimensional images helping web
site visitors to better understand a product or data. We believe that better
understanding of a product or data can help increase the purchase volume of a
product or reduce the time to analyze data.

blaxxun3D supports open standards such as VRML and X3D. This means that
third party development tools can be used and that artists, who would be
familiar with these standards, can immediately produce 3D content.

blaxxun Avatar Studio. blaxxun Avatar Studio, launched in November 1999,
is an innovative product that enables users to create and modify a 3D persona.
With an easy-to-use interface, users can start with a male or female 3D model
and change the whole look of the body, face, hair, and skin. The product
includes a

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library of clothing that can be changed with a few clicks and modified with
colors and textures. Finally, a simple animation editor helps to create
realistic animations in just a few minutes.

With blaxxun Avatar Studio, users can very easily create a realistic
graphical persona. This persona can then be used as one's representation in
Virtual Worlds. Avatars can also be used as shop assistants or service agents
that help potential purchasers to faster understand the e-commerce offering or
other information.

In addition to providing an intuitive interface, blaxxun Avatar Studio
produces very compact results. Avatars created using blaxxun Avatar Studio
generally consume five to ten times less bandwidth than avatars which are
designed manually using tools from various places. These manually-designed
avatars, because of their larger size, are not as well suited for high-traffic
Virtual Worlds as avatars created using blaxxun Avatar Studio. Additionally, the
quality of the blaxxun Avatar Studio created persona is comparable to the
results of mid-end and high-end tools that are generally many times more
expensive. Ease of use, low bandwidth consumption and low expense are an
important part of what we believe makes blaxxun Avatar Studio a superior
product.

We have created a product that is advantageous to its users and developed a
selling strategy that is advantageous to us. Generally, we license the product
to corporate customers in large volumes and these corporate customers then
distribute the product to their end-users. This strategy allows us to quickly
reach a wide audience with our product, while keeping our distribution and
administrative costs to a minimum.

blaxxun Instant Community. blaxxun Instant Community, in March 2000, is an
application product for quick creation of 3D communities. The product includes a
subset of the Community Platform features and also some simplified authoring and
development tools. With the included templates and development wizards (helper
software that enables our customers to more quickly create an application that
can then be fine-tuned and extended as desired), a 3D community can be developed
and set up in a relatively short time frame.

We sell blaxxun Instant Community through a network of strategic alliances.
We expect our resellers to add value through web site integration, content
development or hosting of the application. Our value added resellers get an
easy-to-use product that enables them to make their customer sites more
compelling and interactive. Often, the existing web site or corporate identity
of the end customer has to be taken into account, which is supported by blaxxun
Instant Community. Thus, web development agencies and Internet service providers
are among our target customers for this product.

Similar to the Community Platform, our customers can increase the "power"
of their application by purchasing a bigger license from us. This opportunity
for increased power allows for growth of a customer's site using blaxxun Instant
Community without requiring any changes to the existing 3D community or
interrupting service.

Our collaborative agreements with public entities, attributable to our
Product segment, relate to research and co-development projects that are
generally between one and three years in duration. Since inception, we have
entered into eight contracts that support our product development strategy.
Partners in these projects are, among others, British Broadcasting Corporation
plc, BMW AG, British Telecommunications plc. Canal Plus Multimedia S.A.,
Deutsche Telekom AG, Franco Telecom S.A., Intershop Communications GmbH, Italtel
SPA, Pixelpark-MMK AG, Siemens AG, Swisscom AG, Telecom Italia s.r.l., and
Telenor AS.

Products under development. We are currently developing an e-commerce
product which we expect to release in the next twelve months. This product,
which will incorporate features from the blaxxun Community Platform, is designed
to address specific customer needs for three dimensional visualization of
products as well as online customer service features with intelligent agents and
real customer service personnel.

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Professional Services

Our Professional Services Group supports customers in the business planning
stage and helps them to effectively design the application, determine cost and
resource requirements and optimize their business model. This group also
provides fee-based consulting services designed to allow the seamless
integration of our products into the software systems of our customers, as well
as custom application development, by which we add additional and customized
features and functionality to our product base.

Communities

In addition to our core business of product development and vending, we
also make strategic investments in Internet communities that are based on our
products. We believe that these investments have several strategic advantages
for us and our customers and will provide us with additional revenue growth
and/or profitability. We get very quick feedback from these communities about
market requirements and preferences and they provide us with a platform to test
how new features are accepted by the market. This feedback helps us to
continuously improve our technology.

Current Internet communities are as follows:

Cybertown. Cybertown, a state of the art 3D community, was launched in
California in 1995. After operating Cybertown as a joint venture to test and
develop our technology, we acquired Cybertown in November 1998. Cybertown is one
of today's biggest Virtual Worlds. In March 2000, Cybertown had over 300,000
registered members who had 2,200 clubs. There are now over 600,000 visitors per
month. The average length of visit has grown from 17 minutes in mid 1999 to 33
minutes at year end 1999. The daily busy period activity level has grown from
113 concurrent members in mid-May 1999 to between 300 and 340 by December 1999.
From February 1999 to February 2000, Cybertown achieved member growth of about
500%. We believe that Cybertown is one of the biggest and most active special
interest communities worldwide.

Cybertown is positioned as a Science Fiction community that has attractive
demographics (about 75% of users are 25 years or younger). Cybertown generates
revenues through advertising (3D advertising showed a click-through rate of 4.3%
on this site compared to an average 0.5% click-through rate for 2D banner
advertising), sponsoring (companies can sponsor 3D locations or certain
features) and e-commerce.

Cybertown members can select a traditional or futuristic avatar, visit a
large number of multimedia locations (e.g. a shopping mall with 3D products or
an entertainment theater where they can watch videos), establish their own
customizable 3D home in one of many topic neighborhoods, and participate in a
wide variety of community activities. Cybertown includes thousands of
member-managed interest clubs and has an effective delegation model in place,
where thousands of very active members have taken over responsibility for
certain tasks in Cybertown. The average visit time is over 30 minutes, compared
to significantly lower average visit times on traditional web sites.

Cybertown has established a number of strategic relationships with
companies that provide features, traffic or content to Cybertown. Several
companies have joined with Cybertown to build on its appealing demographics and
active community participation. Theses include Hallmark Entertainment Network, a
Hallmark Cards subsidiary that delivers television service to more than 60
countries, NextPlanetOver.com, the online destination with the widest selection
of entertainment products, SETI Institute, an organization for scientific
research into life in the universe that has 1.6 million users, Virtock
Technologies, Inc., which discounts its Spazz3D VRML animation editor for
Cybertown members and Centropolis Interactive, a Sony-based new media company
that is focused on the science fiction market. In addition, Cybertown has been
chosen to participate in the Intel WebOutfitter Service promotion of the Pentium
III.

We believe that Cybertown will continue to grow and continue to be one of
the most innovative and active Virtual Worlds.

Learnetix(TM). Learnetix is a 50% joint venture between blaxxun and
Cornelsen, a leading school book publisher in Germany. Learnetix is positioned
as an education community, where blaxxun provides technology and community
operation know-how and Cornelsen provides high-quality content and certain
marketing

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channels. Students between 10 and 20 years can become members of this community
and participate in a variety of educational and social activities. Initially,
quality content for Mathematics, English and German is offered. Members can
learn alone, together as groups, or in 1:1 situations with tutors. A network of
qualified teachers is available for the members and daily homework assistance is
offered as a premium service. 2D and 3D communication places are available and
members can create own interest clubs or join existing clubs (already over 1,000
clubs were established by March, 2000), where they can maintain information and
exchange views through real-time chat and message boards.

Learnetix was launched during November 1999 and as of March, 2000 had
already attracted over 15,000 registered members.

SoccerCity(TM). SoccerCity is a blaxxun subsidiary that develops,
maintains, operates, and markets a soccer community on the Internet. SoccerCity
was launched in November 1999. blaxxun intends to find strategic relationships
to support content and marketing channels for SoccerCity.

Competition

The Virtual Worlds technology market is competitive, subject to rapid
change and significantly affected by new product introductions and other
activities of industry participants. We compete with various providers of
multimedia communication solutions, including RealNetworks, Inc. and Macromedia,
Inc. We expect additional competition from other established and emerging
companies. Furthermore, our competitors may combine with each other, and other
companies may enter our markets by acquiring or entering into strategic
relationships with our competitors. Many of our current and potential
competitors have longer operating histories, significantly greater financial,
technical, product development and marketing resources, greater name recognition
and larger customer bases than we do. Our present or future competitors may be
able to develop products comparable or superior to those we offer, adapt more
quickly than we do to new technologies, evolving industry trends or customer
requirements, or devote greater resources to the development, promotion and sale
of their products than we do. We may not be able to compete effectively in our
markets, competition may intensify and our inability to compete successfully
against our current and future competitors may cause us to experience price
reductions, reduced gross margins and loss of market share, any one of which
could materially and adversely affect our business, operating results and
financial condition.

We offer products that we believe are highly innovative. We are not aware
of any competitive product that currently has a similar scope of features and
similar strengths in terms of scalability, standards-compliance, extensibility,
cross-platform support, and customer base. However, due to the wide scope of our
products, we face competition or potential competition in various areas. Our
sources of principal competition include:

- Other software vendors that address similar customer needs for rich media
environments, such as streaming video which customers may utilize for
commerce and community uses, and that may have a larger market share or
greater name recognition and resources than us, including vendors of
audio, video, and 2D animation technologies, such as Macromedia,
Microsoft and RealNetworks.

- Other software vendors that address partial areas of our scope, and that
may have a larger market share or greater name recognition and resources
than us, including vendors of web based 3D technologies, such as Adobe,
Computer Associates, MetaCreations and Superscape.

- Other application vendors that address partial areas of our scope, and
that may have a larger market share or greater name recognition and
resources than us, including vendors of proprietary virtual world
technologies, such as ActiveWorlds, Cryo Interactive, and Worlds.com.

- Potentially, vendors of game technologies, such as Electronic Arts,
Microsoft, Nintendo, Sega and Sony.

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Our community investments also face competition from various directions,
including:

- Traditional general-interest communities that have areas that compete
with the special interest of our communities, including companies such as
GeoCities/Yahoo, Tripod/Lycos, TalkCity and Xoom/ NBC.

- Portal and information sites that address a similar target audience as
our communities, including CBS Sportsline and Sport1.de for Soccercity,
various education sites for Learnetix, and various science fiction sites
for Cybertown.

Customers

We have licensed our products to customers in the U.S., Europe, Asia, Latin
America, Middle East and other geographies. Our customers, located in Germany,
the United States and 16 other countries, represent a broad spectrum of
enterprises within diverse sectors, including media, online, telecommunication,
finance, industry, technology and retail. Our strategy is to maintain and
enhance our existing customer relationships and to broaden our customer base by
adding sales staff and expanding to new territories.

Historically, we have received a significant portion of our revenues from a
limited number of sales and license agreements as well as from the sale of
customer support, maintenance, training services and software upgrades to our
existing customers. For fiscal 1998 and 1999 and the six months ended January
31, 2000, our top three, four and one customers represented 47%, 63% and 13%
respectively, of our revenues. As a result of this revenue concentration, our
accounts receivable are also concentrated. As of July 31, 1998 and July 31, 1999
and January 31, 2000, 99%, 85% and 36% respectively of our accounts receivable
were also owed by our top six, four and three customers. We believe that a
customer's decision to license its technology is relatively discretionary and,
for large-scale users, generally involves a significant commitment of capital
resources. Therefore, any downturn in the economy or in the business of our
current or potential customers could have a material adverse effect on our
revenues Additionally, we can not assure you that a sufficient number of our
customers will continue to enter into or renew existing support, maintenance and
upgrade contracts or that revenues from those contracts will continue to be
significant. The loss of a material portion of such revenues would likely have a
material adverse effect on our financial condition.

Employees

We consider our qualified and highly motivated employees a key success
factor. Our future success will depend in part on our ability to attract, retain
and motivate highly qualified personnel. See "Risk Factors" on page 12.
Approximately 72% of our employees hold a university degree. As of January 31,
2000, we had 76 full-time employees, including 28 in sales and marketing, 35 in
research and development, solutions, operations, and technical support, and 13
in general and administration. From time to time, we also employ independent
contractors to support our Products, Professional Services and Communities
segments. None of our employees are represented by a union. We believe our
relationship with our employees is good. Our average number of employees for
fiscal 1997 to 1999 and the 6 months period ending January 31, 2000 and 1999 as
well as number of employees at January 31, 2000 breaks down by geography as
follows:

<TABLE>
<CAPTION>
AVERAGE NUMBER OF EMPLOYEES
------------------------------------------
12 MONTHS ENDING 6 MONTHS ENDING
JULY 31 JANUARY 31 EMPLOYEES AT
-------------------- ---------------- 31-JAN
1997 1998 1999 1999 2000 2000
---- ---- ---- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Germany.................................. 23 21 29 25 45 54
U.S...................................... 15 2 10 5 18 22
-- -- -- -- -- --
38 23 39 30 63 76
== == == == == ==
</TABLE>

For further information regarding employee counts, see our comments in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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Proprietary Rights and Licensing

Our success and ability to compete is dependent upon our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
trademarks, trade secrets and copyright law, and contractual restrictions of our
customers, partners and employees, management contractors and consultants to
protect the proprietary aspects of our technology. In Germany, we have
registered as a trademark the blaxxun logo and have applied for registration of
the logo in the United States, Japan, Switzerland and the European Community.
Additionally, we have trademark applications pending in the United States,
Japan, Switzerland and the European Community for blaxxun, blaxxun Contact, The
Virtual Worlds Company, blaxxun Instant Community and blaxxun3D. In the United
States we have several registered trademarks and trade names, including
Cybertown, CyberCells, CyberGenes, CyberHub, CyberKit, CyberSockets and
CyberTwin.

We also license from a third party certain proprietary speech synthesis
technology and related software which we incorporate into our client
applications and on which we pay royalties. If we are unable to protect our
intellectual property rights, competitors may be able to use our technology or
trademarks, which could weaken our competitive position, reduce our revenues and
increase costs. See "Risk Factors" on page 12.

Facilities

Our U.S. headquarters are currently located at 1550 Bryant Street, a leased
facility in San Francisco, California, consisting of approximately 3,001 square
feet under a three-year lease, which expires in July 2002. The monthly rentals
owed by us under the Bryant Street lease are approximately $9,000. Our European
headquarters is currently located in Munich, Germany, consisting of
approximately 18,320 square feet under a five-year lease, which expires in
September 2004. Under the Munich lease, we have monthly rental payments of
approximately $30,000. We have also leased offices in Los Angeles, California,
Washington, District of Columbia and Berlin, Germany the leases for which are
terminable upon no more than three months notice. We own no real estate.

Legal Proceedings

We are not aware of any legal or arbitration proceedings, pending or
threatened, which could have a material adverse effect on our financial
position, nor have any such proceedings been initiated in the previous two
years.

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STATUTORY INFORMATION

We were incorporated in the United States of America under the laws of the
State of Delaware on July 27, 1995 and commenced operations in August 1995. Our
initial stockholder was CMGI@Ventures, Inc.. For information regarding the
initial stockholders, see "Management."

The following diagram displays the structure of the blaxxun entities:

[BLAXXUN INTERACTIVE, INC. FLOW CHART]

In this group of companies, we act as the entity which operates the U.S.
portion of our business, and as a holding company coordinates the business
activities of and provides financing to our two wholly owned subsidiaries,
blaxxun interactive AG and Cybertown, Inc. blaxxun interactive AG coordinates
the business activities and provides financing to its 100% owned subsidiaries
SoccerCity-Verwaltungsgesellschaft mbH and SoccerCity GmbH & Co. KG as well as
to the 50% owned affiliate Lernland Verwaltungsgesellschaft mbH and Lernland
GmbH & Co. KG. The book value of blaxxun interactive AG's interest in SoccerCity
Verwaltungsgesellschaft mbH, SoccerCity GmbH & Co. KG, Lernland
Verwaltungsgesellschaft mbH and Lernland GmbH & Co. KG as of January 31, 2000 is
approximately $25,000, $0, $25,000 and $212,000, respectively. The book value of
blaxxun interactive, Inc.'s interest in blaxxun interactive AG and Cybertown,
Inc. as of January 31, 2000 is approximately $14,060,000 and $150,000,
respectively.

- blaxxun interactive AG, Munich, Germany

blaxxun interactive AG, a company organized under the laws of Germany is
registered in the trade register of the lower court of Munich under registration
number HRB 113 609. blaxxun interactive AG currently has a registered share
capital of Deutsche Mark 120,000.

blaxxun interactive AG is, as our European headquarters, our European sales
and service organization and research and development competent center. During
fiscal 1996 we acquired a 50.5% interest in blaxxun interactive AG upon its
formation for approximately $37,000 in cash. Effective August 11, 1997, we
increased our interest in blaxxun interactive AG by 8.25% to 58.75% through a
$500,000 capital contribution. On August 10, 1998, we acquired another 38.17% of
the outstanding common stock of blaxxun interactive AG in exchange for 1,829,631
shares of Series D convertible preferred stock of the Company. The Series D
convertible preferred stock was valued by an independent consultant at $5.36 per
share, or a total consideration of approximately $9,807,000. On June 30, 1999,
we acquired the remaining shares of blaxxun interactive AG in exchange for
146,369 shares of Series D convertible preferred stock of the Company. The
Series D convertible preferred shares were valued by an independent consultant
at $8.00 per share, or a total consideration of approximately $1,171,000.

As of January 31, 2000, blaxxun interactive AG had an additional paid-in
capital of approximately $3,035,000. As of January 31, 2000, blaxxun interactive
AG had entered into 2 notes payable and 1 convertible note payable of in total
approximately $3,466,000. As of January 31, 2000 we received net intercompany

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<PAGE> 55

financing from blaxxun interactive AG of approximately $1,680,000. In fiscal
1999 blaxxun interactive AG had generated a net loss of approximately
$1,677,000. Up to now no dividends were paid to us.

- SoccerCity-Verwaltungs GmbH, Munich, Germany and SoccerCity GmbH & Co.
KG, Munich, Germany.

SoccerCity-Verwaltungsgesellschaft mbH (SoccerCity GmbH), a Company
organized under the law of Germany is registered in the trade register of the
lower court of Munich under registration number HRB 127 087. SoccerCity GmbH was
founded by blaxxun interactive AG on September 7, 1999. SoccerCity GmbH
currently has a registered share capital of euro 25,000. blaxxun interactive AG
owns all of SoccerCity GmbH's shares. Stockholder's equity as of January 31,
2000 was euro 25,000. SoccerCity GmbH manages the business of SoccerCity GmbH &
Co. KG.

SoccerCity GmbH & Co. KG (SoccerCity KG), a Company organized under the law
of Germany is registered in the trade register of the lower court of Munich
under registration number HRA 75 112. SoccerCity KG was founded on September 7,
1999 and is 100% owned by blaxxun interactive AG. Accumulated deficit as of
January 31, 2000 was approximately $172,000. SoccerCity KG operates the Internet
community soccercity.de.

- Lernland Verwaltungsgesellschaft mbH, Berlin, Germany and Lernland GmbH &
Co. KG, Berlin, Germany

Lernland Verwaltungsgesellschaft mbH (Lernland GmbH), a Company organized
under the law of Germany is registered in the trade register of the lower court
of Charlottenburg under registration number HRB 70 162. Lernland GmbH was
founded as a 50% joint venture of blaxxun interactive AG and Cornelsen-Verlag
GmbH & Co. on September 17, 1999. Lernland GmbH currently has a registered share
capital of euro 25,000. Lernland GmbH's stockholder's equity as of January 31,
2000 was euro 25,000. Lernland GmbH manages the business of Lernland GmbH & Co.
KG.

Lernland GmbH & Co. KG (Lernland KG), a Company organized under the law of
Germany is registered in the trade register of the lower court of Charlottenburg
under registration number HRA 30 610. Lernland KG was founded on September 17,
1999 and is 50% owned by blaxxun interactive AG. Lernland KG's accumulated
deficit as of January 31, 2000 was approximately $688,000. Lernland KG operates
the Internet community learnetix. de.

- Cybertown, Inc., Los Angeles, California, U.S.A.

Cybertown, Inc., a Delaware corporation, operates our online community
cybertown.com. Cybertown, Inc. was incorporated in the State of Delaware on
August 21, 1996. In November of 1998, we purchased all shares of Cybertown,
Inc., making Cybertown, Inc. a wholly owned subsidiary of blaxxun interactive,
Inc.

Cybertown, Inc. currently has no nominal share capital. We own all of
Cybertown, Inc.'s shares. As of January 31, 2000, Cybertown, Inc. had an
accumulated deficit of approximately $1,641,000. Intercompany financing to
Cybertown, Inc. amounted to approximately $1,359,000. In fiscal 1999, and the
six months ended January 31, 2000, Cybertown, Inc. had generated net losses of
approximately $875,000 and $766,000, respectively, and paid no dividends to us
for those periods.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers, their ages and positions as of March
1, 2000 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Franz Buchenberger............... 40 President, Chief Executive Officer and Director
Bernd-Michael Habermeyer......... 41 Chief Financial Officer and Vice President, Finance and
Administration
Walter Schwartz.................. 51 Chief Operating Officer, U.S.
Elmar Merget..................... 39 Vice President, Research and Development
Engelbert Woelfl................. 39 Vice President, Sales and Business
Development -- Europe
Guy Bradley...................... 36 Director
Heydan von Frankenberg........... 47 Director
Francois Stieger................. 50 Director
</TABLE>

Franz Buchenberger. Mr. Buchenberger co-founded blaxxun interactive in
1995. He has served as President and Chief Executive Officer and as a Director
since inception. After receiving his Masters in Computer Science from the
Technical University of Munich in 1985, Mr. Buchenberger spent ten years at
Softlab GmbH, a European developer of software engineering technology for large
project teams. While he was with Softlab, Mr. Buchenberger worked in a number of
positions, including system architect, development manager, product manager,
marketing manager and strategic planner.

Bernd-Michael Habermeyer. Mr. Habermeyer co-founded blaxxun interactive in
1995 and has served as Chief Financial Officer and Vice President of Finance and
Administration since inception. Prior to joining blaxxun, Mr. Habermeyer spent
10 years with KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft (1985-1991, 1993-1995) and KPMG Peat Marwick LLP
(1991-1993), since 1993 as a senior manager. Mr. Habermeyer holds an MBA from
the University of Munich (since 1985), is qualified as "Steuerberater" (German
tax advisor) (since 1988) and as "Wirtschaftspruefer" (German CPA) (since 1990).

Walter Schwartz. Mr. Schwartz has served as the Chief Operating Officer in
the U.S. since May 1999. From 1997 to May, 1999, Mr. Schwartz was a corporate
consultant on business development and enterprise software acquisition. From
1996 to 1997, Mr. Schwartz was Chief Operating Officer of Black Sun Interactive,
Inc. From 1991 to 1996, Mr. Schwartz was employed by Micrografx, Inc. in various
positions including Marketing Manager and Development Center Director. Prior to
that, Mr. Schwartz held various management and consulting positions with Digital
Research Incorporated, Xerox Corporation and IBM Corporation. Mr. Schwartz holds
a BS in Industrial Engineering and an MBA in Marketing from Cornell University.

Elmar Merget. Mr. Merget has served as Vice President of Research and
Development since February 1999. Before joining blaxxun in 1999, Mr. Merget was
President of Software System Merget GmbH, a company that specializes in
consulting and developing document management and E-commerce systems. Prior to
1990, Mr. Merget held various management positions at AKM Software Beratung und
Entwicklungs GmbH in Munich. Mr. Merget holds a degree in computer science from
Fachhochschule Wurzburg.

Engelbert Woelfl. Mr. Woelfl has served as Vice President of Sales and
Business Development in Europe since April 1998. Before joining blaxxun, Mr.
Woelfl was a Vice President at Interchip AG, where he was responsible for sales
and business development. Interchip AG is a German supplier of system management
software products. Mr. Woelfl created the sales organization of Interchip AG and
developed its sales and marketing strategies. Mr. Woelfl holds a degree in
economics from the Fachhochschule Munich.

Guy Bradley. Mr. Bradley has been a Director of blaxxun since 1995. Mr.
Bradley has been a general partner of CMGI@Ventures, Inc., (CMGI) an internet
focused venture capital company, since January 1995.

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He was Director of International Sales and Marketing for Booklink, Inc., a
subsidiary of CMGI, Inc. from August 1994 to December 1994. Mr. Bradley attended
Princeton University where he received a BA in Comparative Literature. Mr.
Bradley also serves on the boards of Silknet, Inc., Domania Inc., Idapta, Inc.,
ThingWorld.com LLC, OneCore Financial Network, Inc., WebCT, Inc., Koz.com, Inc.
and Virtual Ink Corporation.

Heydan von Frankenberg. Mr. von Frankenberg has been a Director of blaxxun
since 1996. He is currently Chief Executive Officer of D.C.S. Dialog
Communication Systems Aktiengesellschaft. Prior to that, he was Chief Executive
Officer of ERM Equity Research and Management Aktiengesellschaft fuer
Beteiligungsberatung (ERM). Prior to founding ERM in 1995, Mr. von Frankenberg
developed HKM Hypo Kapital Beteiligungs Management GmbH, the investment division
of Bayerische Hypotheken und Wechselbank. In the seven years before that, he was
Chief Operating Officer of Meissner & Wurst GmbH & Co. KG. Mr. Frankenberger
holds a jurisdiction degree from the University of Munich.

Francois Stieger. Mr. Stieger has been a Director of blaxxun since
December 1997. Mr. Stieger has served as Vice President and General Manager of
European Operations for BroadVision, Inc. since January, 1996. Before joining
BroadVision, Inc. Mr. Stieger was the Senior Vice President of Europe and the
Middle East for Openvision Technologies, Inc. which is a supplier of distributed
system management products and services. Mr. Stieger graduated from the
Technology Institute of the University of Strasbourg in France.

Our directors and officers and six of our founders, Franz Buchenberger,
Bernd-Michael Habermeyer, Robert Schoeller, Peter Graf, Kristof Nast-Kolb and
Thilo Schwerdfeger, can be contacted through one of our two executive offices in
San Francisco, California and Munich, Germany. Mr. Buchenberger is our CEO and
President, Mr. Habermeyer is our Chief Financial Officer, Mr. Schoeller is our
Chief Technology Officer, and Messrs. Graf, Nast-Kolb and Schwerdfeger are
directors of engineering. Another of our founders, Rainer Heigenmoser, is no
longer an employee, but can be reached at Bichl 16,83075, Bad Feilnbach,
Germany. Another of our founders, Robert Rockwell, is deceased.

BOARD COMPOSITION

Upon closing of the Offering, our Certificate of Incorporation will provide
for a classified Board of Directors divided into three classes, with each class
having a different term of office. The term of Class I Directors will expire at
the annual meeting of stockholders to be held in 2001, the term of Class II
Directors will expire at the annual meeting of stockholders to be held in 2002
and the term of Class III Directors will expire at the annual meeting of
stockholders to be held in 2003. Currently, Mr. von Frankenberg is the sole
Class I Director, Mr. Stieger is the sole Class II Director and Messrs.
Buchenberger and Bradley are Class III Directors. At each annual meeting of
stockholders, beginning with the 2001 annual meeting, the successors to
Directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election and
until their successors have been duly elected and qualified, or until their
earlier resignation or removal, if any. To the extent there is an increase or
reduction in the number of Directors, increase or decrease in directorships
resulting therefrom will be distributed among the classes so that, as nearly as
possible, each class will consist of an equal number of Directors. There are no
family relationships among any of our directors, officers or key employees.

BOARD COMMITTEES

The compensation committee currently consists of three members, Guy
Bradley, Heydan von Frankenberg and Francois Stieger.

The compensation committee:

- reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and

- makes recommendations to the board of directors regarding these matters.

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<PAGE> 58

The audit committee consists of three members: Guy Bradley, Heydan von
Frankenberg and Francois Stieger.

The audit committee:

- makes recommendations to the board of directors regarding the selection
of independent auditors;

- reviews the results and scope of the audit and other services provided by
our independent auditors; and

- reviews and evaluates our audit and control functions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No executive officer of blaxxun serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on blaxxun's board of directors or compensation committee.

DIRECTOR COMPENSATION

We do not currently compensate in cash our directors for their service as
members of the board of directors, except for reimbursement of reasonable travel
expenses relating to attendance at board and committee meetings. Under our 1996
Stock Plan, 1999 Stock Plan and 2000 Stock Plan, non-employee directors are
eligible to receive stock option grants at the discretion of the board of
directors. Francois Stieger received an option to purchase 80,000 shares under
the 1996 Stock Plan. See "Stock Plans" for more information regarding these
plans.

LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Section 145 of the
Delaware General Corporation Law provides that a director of a corporation will
not be personally liable for monetary damages for breach of the individual's
fiduciary duties as a director except for:

- liability for any breach of the director's duty of loyalty to blaxxun or
to its stockholders,

- liability for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law.

- liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law, or

- liability for any transaction from which a director derives an improper
personal benefit.

Our bylaws provide that blaxxun will indemnify its directors and executive
officers and may indemnify its officers, employees and other agents to the full
extent permitted by law. We believe that indemnification under our bylaws covers
at least negligence and gross negligence on the part of an indemnified party.
Our bylaws also permit us to advance expenses incurred by an indemnified party
in connection with the defense of any action or proceeding arising out of the
party's status or service as a director, officer, employee or other agent of
blaxxun upon an undertaking by the indemnified party to repay these advances if
it is ultimately determined that the party is not entitled to indemnification.

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

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<PAGE> 59

We believe that the indemnification provisions of our amended and restated
certificate of incorporation and bylaws are necessary to attract and retain
qualified persons as directors and officers.

At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of blaxxun where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned for services
rendered to us in all capacities for the fiscal year ended July 31, 1999 by our
Chief Executive Officer and our next most highly compensated executive officers
during the fiscal year ended July 31, 1999. None of our other executive officers
received more than $100,000 in cash compensation during the fiscal year ended
July 31, 1999. The total aggregate compensation for all executive officers for
the fiscal year ended July 31, 1999 was $358,308.

SUMMARY ANNUAL COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
---------------------------------------- ---------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(#) COMPENSATION($)
- --------------------------- --------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Franz Buchenberger.............. 89,266(a) 18,045(a) -- -- --
President, Chief Executive
Officer and Chairman
Bernd-Michael Habermeyer........ 89,266(a) 18,045(a) -- -- --
Chief Financial Officer
</TABLE>

- ---------------
(a) entire amount converted from Deutsche Mark based on an exchange rate of DM
1.77 to the dollar, the average exchange rate for fiscal year 1999.

OPTION GRANTS IN LAST FISCAL YEAR

The Company issued no stock options and no stock appreciation rights in the
year ended July 31, 1999, to any of the Company's executive officers named in
the Summary Compensation Table above.

AGGREGATE OPTION EXERCISES AND OPTION VALUES

The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the
executive officers named in the Summary Compensation Table as of July 31, 1999.
The value realized represents the difference between the fair market value of
the shares as of July 31, 1999, based on the assumed fair market value of $2.58,
as determined by an independent valuation company, per share and the exercise
price of the option. The value of the in-the money options is based on the
initial public offering price of E[ ] ($10.50 at an exchange rate
reported by the Wall Street Journal for , 2000 of $ per euro
per share), minus the per share exercise price, multiplied by the number of
shares underlying the option.

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<PAGE> 60

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES JULY 31, 1999 JULY 31, 1999
ACQUIRED VALUE --------------------------------- ---------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- -------------- ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Franz Buchenberger......... -- -- 26,086 -- 273,773 --
President, Chief Executive
Officer and Chairman
Bernd-Michael Habermeyer... 26,086 33,521 -- -- -- --
Chief Financial Officer
</TABLE>

INCENTIVE STOCK PLANS

2000 Stock Plan

Our 2000 Stock Plan was adopted by the board of directors and approved by
our stockholders in March 2000. A total of 6,000,000 shares of common stock have
been reserved for issuance under the 2000 Stock Plan, all of which will be
available for future grant. The purposes of the 2000 Stock Plan are to attract
and retain the best available personnel to blaxxun, to provide additional
incentives to our employees, directors and consultants and to promote the
success of our business. The 2000 Stock Plan provides for the grant of incentive
stock options to employees, including officers and directors, and non statutory
stock options and stock purchase rights to employees, consultants and including
non-employee directors. If not terminated earlier, the 2000 Stock Plan will
terminate in March 2010.

Options granted under our 2000 Stock Plan usually vest over service periods
determined to be appropriate by our compensation committee or Board of
Directors. Options may be granted, however, with no vesting requirements.

The 2000 Stock Plan may be administered by the board of directors or a
committee of the board. The administrator determines the terms of options and
stock purchase rights granted under the 2000 Stock Plan, including the number of
shares subject to the award, restrictions on shares covered by grants, exercise
or purchase price, term and exercisability. The administrator also determines
when, to whom and what type of grants are made. However, in the aggregate, under
the 2000 Stock Plan, each eligible employee may be granted incentive stock
options only to the extent that such options do not first become exercisable
during any calendar year in a manner which entitles the employee to purchase
more than $100,000 in fair market value of common stock in that year.

The exercise price of all stock options is determined by the administrator
at the time of grant. The exercise price of incentive stock options must be at
least equal to the fair market value of the common stock on the date of grant.
The exercise price of any incentive stock option granted to an optionee who owns
stock representing more than 10% of the total combined voting power of all
classes of outstanding capital stock of blaxxun or any parent or subsidiary
corporation of blaxxun must equal at least 110% of the fair market value of the
common stock on the date of grant.

The administrator determines the term of options, which may not exceed 10
years or five years in the case of an incentive stock option granted to a 10%
stockholder. Generally, no option may be transferred by the optionee other than
by will or the laws of descent or distribution.

In addition to stock options, the administrator may issue to employees,
directors and consultants stock purchase rights under the 2000 Stock Plan. The
administrator determines the number of shares, price, terms, conditions and
restrictions related to a grant of stock purchase rights.

If we sell all or substantially all of our assets, merge with another
corporation, recapitalize or engage in specified reorganizations, the 2000 Stock
Plan provides that blaxxun will take one or more of the following

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<PAGE> 61

actions: (i) make appropriate provision for the continuation of the options by
substituting on an equitable basis for the shares then subject to such options
the consideration payable with respect to the outstanding shares of common stock
in connection with an acquisition, (ii) accelerate the date of exercise of such
options or of any installment of any such options, (iii) upon written notice to
the optionees, provide that all options must be exercised, to the extent then
exercisable, within a specified number of days of the date of the notice, at the
end of which time the options terminate, (iv) terminate all options in exchange
for a cash payment equal to the excess of the fair market value of the shares
subject to the options, to the extent then exercisable, over the exercise price
thereof, or (v) if securities of another corporation are issued with respect to
the outstanding shares of common stock, entitle optionees to receive the
substituted securities upon exercise. Upon liquidation or dissolution, the
options will automatically be terminated. The administrator has the authority to
amend or terminate the 2000 Stock Plan as long as the amendment or termination
does not adversely affect any outstanding option or stock purchase right and
provided that stockholder approval will be obtained to the extent it is required
by applicable law.

1999 Stock Plan

Our 1999 Stock Plan was adopted by the board of directors and approved by
our stockholders in March 1999. A total of 2,000,000 shares of common stock have
been reserved for issuance under the 1999 Stock Plan. As of January 31, 2000
options to purchase 1,163,882 shares of common stock were outstanding and
836,118 shares were available for future grant. Our executive officers received
no grants under the 1999 Stock Plan. The purposes of the 1999 Stock Plan are to
attract and retain the best available personnel to blaxxun, to provide
additional incentives to our employees, directors and consultants and to promote
the success of our business. If not terminated earlier, the 1999 Stock Plan will
terminate in March 2009. In all other respects, the 1999 Stock Plan is
substantially the same as the 2000 Stock Plan described above.

1996 Stock Plan

Our 1996 Stock Plan was adopted by the board of directors and approved by
our stockholders in May 1996. A total of 2,128,000 shares of common stock have
been reserved for issuance under the 1996 Stock Plan. As of January 31, 2000
options to purchase 1,366,894 shares of common stock were outstanding and no
shares were available for future grant. Our executive officers and directors
currently hold the following options under the 1996 Stock Plan: Franz
Buchenberger -- 526,086; Bernd-Michael Habermeyer -- 250,000; Walter
Schwartz -- 100,000; Elmar Merget -- 120,000; Engelbert Woelfl -- 82,000 and
Francois Stieger -- 48,334. The purposes of the 1996 Stock Plan are to attract
and retain the best available personnel to blaxxun, to provide additional
incentives to our employees, directors and consultants and to promote the
success of our business. If not terminated earlier, the 1996 Stock Plan will
terminate in 2006. In all other respects, the 1996 Stock Plan is substantially
the same as the 2000 Stock Plan described above.

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<PAGE> 62

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of March 31, 2000, and as adjusted to reflect
the sale of the common stock offered hereby by:

- each person who is known by us to own beneficially more than 5% of the
outstanding shares of our capital stock;

- each of our directors;

- the named executive officers; and

- all directors and executive officers as a group.

Percentage of ownership is calculated as required by the Securities and
Exchange Commission. Except as indicated in the footnotes to this table, 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. The table below
includes the number of shares underlying options which are exercisable within 60
days from April 30, 2000. For purposes of calculating each person's or group's
percentage ownership, stock options exercisable within 60 days after April 30,
2000 are included for that person or group, but not the stock options of any
other person or group. The information in the columns "After the Offering" and
"Number of Shares to be Sold" assumes exercise in full of the underwriters
over-allotment option. Unless otherwise indicated, the address of each of the
beneficial owners identified is Elsenheimerstrasse 61, Munich, Germany. After
the offering, the 8,100,000 shares sold pursuant to this prospectus (assuming
exercise in full of the underwriters' over-allotment option) will be freely
tradeable without restriction.

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<PAGE> 63

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OWNED OF SHARES
------------------------------------- OUTSTANDING
NUMBER OF ------------------------
BEFORE THE AFTER THE SHARES TO BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING OFFERING(1) BE SOLD(1) OFFERING OFFERING(1)
- ------------------------------------ ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OTHER SELLING SHAREHOLDERS
EBIT Eigenkapital Beteiligungsgesellschaft
fur innovative Technologieunternehmen
Gesellschaft burgerlichen Rechts.......... 800,000 730,018 69,982 4.2 2.8
Bayern Kapital Riskokapitalbeteiligungs
GmbH...................................... 600,000 555,013 44,987 3.1 2.1
Kling, Jelko, Dr. Dehmel
Wertpapierdienstleistungs AG.............. 560,000 260,000 300,000 2.9 1.0
Rockwell, Claudia........................... 315,926 292,238 23,688 1.7 1.1
Heigenmoser, Rainer......................... 313,028 289,558 23,470 1.6 1.1
Nast-Kolb Kristof........................... 292,738 270,789 21,949 1.5 1.0
Schoeller, Robert........................... 292,738 270,789 21,949 1.5 1.0
Schwerdfeger, Thilo......................... 292,738 270,789 21,949 1.5 1.0
Grahn, Holger............................... 248,780 230,127 18,653 1.3 *
Malek, Moni................................. 186,568 172,579 13,989 1.0 *
Metz, Thomas................................ 185,000 171,129 13,871 1.0 *
blaxxun Beteiligungsgesellschaft
burgerlichen Rechts mit
Haftungsbeschrankung...................... 177,400 164,099 13,301 * *
Guericke, Konstantin........................ 138,542 128,154 10,388 * *
Piel, Siegfried............................. 87,500 47,500 40,000 * *
blaxxun Vermoegensverwaltungsgesellschaft
burgerlichen Rechts mit
Haftungsbeschrankung...................... 94,000 74,000 20,000 * *
Rockliff, Tony.............................. 56,000 46,500 10,000 * *
Baudar, Pascal.............................. 37,500 27,500 10,000 * *
</TABLE>

- ---------------
* Less than one percent

(1) Assuming exercise of the underwriters' over-allotment option.

(2) The percentages for this shareholder include 130,254 shares issuable upon
exercise of options exercisable by the shareholder within sixty (60) days
of March 31, 2000. It also includes 659,452 shares held by his spouse
Ingrid Buchenberger.

(3) The percentages for this shareholder include 52,084 shares issuable upon
exercise of options exercisable by the shareholder within sixty (60) days
of March 31, 2000.

(4) The percentages for this shareholder include 27,082 shares issuable upon
exercise of options exercisable by the shareholder within sixty (60) days
of March 31, 2000.

(5) The percentages for this shareholder include 38,000 shares issuable upon
exercise of options exercisable by the shareholder within sixty (60) days
of March 31, 2000.

(6) The percentages for this shareholder include 33,330 shares issuable upon
exercise of options exercisable by the shareholder within sixty (60) days
of March 31, 2000.

(7) The address of this beneficial owner is Cicerostr. 21, 10709 Berlin,
Germany. The numbers and percentages for this shareholder excludes 800,000
shares owned by EBIT Eigenkapital Beteiligungsgesellschaft fur innovative
Technologieunternehmen Gesellschaft burgerlichen Rechts mit
Haftungsbeschrankung and 94,000 shares owned by blaxxun
Vermogensverwaltungsgesellschaft burgerlichen Rechts mit
Haftungsbeschrankung to which Mr. von Frankenberg may be deemed beneficial
owner

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<PAGE> 64

and to which Mr. von Frankenberg disclaims beneficial ownership except to
the extent of his direct pecuniary interest. Mr. von Frankenberg is Chief
Executive Officer of these two entities.

(8) The address of this beneficial owner is c/o CMGI@Ventures, 100 Brickstone
Square, 5th Floor, Andover, MA 01810. The numbers and percentages for this
shareholder excludes 9,306,568 shares owned by CMGI@Ventures to which Mr.
Bradley may be deemed beneficial owner and as to which Mr. Bradley
disclaims beneficial ownership except to the extent of his direct
pecuniary interest. Mr. Bradley is a general partner of CMGI@Ventures and
a member of our board of directors.

(9) The percentages for this shareholder include 27,900 shares issuable upon
exercise of options exercisable by the shareholder within sixty (60) days
of March 31, 2000.

(10) Includes 9,306,568 shares owned by CMGI@Ventures of which Mr. Bradley, a
director, may be deemed beneficial owner of as to which Mr. Bradley
disclaims beneficial ownership, except to the extent of his direct
pecuniary interest.

(11) The address of this beneficial owner is 100 Brickstone Square, 5th Floor,
Andover, MA 01810.

Assuming the underwriters' over-allotment option is exercised, 8,100,000
shares, or 31%, of the outstanding common stock will be available for purchase
by public investors. Of this 31% of our outstanding common stock available for
purchase by public investors, up to 350,000 shares, or 1.3% will be allocated to
the Company's friends and family program.

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<PAGE> 65

RELATIONSHIPS WITH BLAXXUN AND RELATED TRANSACTIONS

Stock option grants to directors and executive officers of blaxxun are
described under the captions "Management -- Board Compensation" and
"-- Executive Compensation."

Since August 1, 1997, we have issued shares of our convertible preferred
stock to investors in private placement transactions as follows. Between July
and October of 1998 we issued a total of 798,910 shares of Series C convertible
preferred stock at $5.36 per share. CMGI@Ventures, Inc., purchased 93,284 shares
of Series C convertible preferred stock. CMGI@Ventures, Inc. is an entity
affiliated with Guy Bradley, one of our directors, and is also a 5% stockholder.
blaxxun Vermogensverwaltungsgesellschaft burgerlichen Rechts mit
Haftungsbeschrankung (blaxxun Vermogensverwaltung) purchased 47,000 shares of
Series C convertible preferred stock. blaxxun Vermogensverwaltung is an entity
affiliated with Heydan von Frankenberg, one of our directors. See "Principal
Stockholders" for more information on these affiliates.

Between October 1998 and June 1999, we issued 1,976,000 shares of Series D
convertible preferred stock to individuals in connection with our acquisition of
the minority interests of blaxxun interactive AG. The following table summarizes
the shares of convertible preferred stock issued to our executive officers in
connection with this acquisition. In connection with this transaction, blaxxun
entered into a Stockholder's Agreement, dated September 1, 1998, with certain of
its stockholders.

<TABLE>
<CAPTION>
SERIES D
NAME TITLE PREFERRED STOCK
- ---- ----- ---------------
<S> <C> <C>
Franz Buchenberger(1).................. President, CEO and Chairman of the 731,861
Board
Bernd-Michael Habermeyer............... CFO and Vice President of Finance and 365,925
Administration
</TABLE>

- ---------------
(1) Includes 329,726 shares held by Ingrid Buchenberger

CMGI@Ventures and its affiliated companies have provided us primarily with
human resource services during the years ended July 31, 1999 and 1998 for which
$59,706 and $46,223, respectively, in fees were charged. In fiscal 1998 it also
includes interest expense. On September 11, 1997, the Company entered into a
convertible loan agreement with CMGI@Ventures and ERM Equity Research and
Management Aktiengesellschaft fur Beteiligungsberatung for which total
borrowings would not exceed $1,000,000. As of July 31, 1997, the Company had
borrowed $400,000 in anticipation of the agreement. During the fiscal year 1998,
the Company borrowed an additional $600,000. Borrowings under this agreement
mature on December 31, 2007 and are secured by certain assets of the Company.
The interest rate was equal to FIBOR plus 4%. In June 1998, $500,000 of the note
was converted into 93,284 shares of Series C Convertible Preferred Stock based
on the terms of the Series C Convertible Preferred Stock Purchase Agreement,
dated June 24, 1998. In July 1998, the remaining $500,000 was repaid. Upon
conversion and repayment this loan agreement was cancelled.

No other director, executive officer, 5% stockholder or person or entity
associated with any director, executive officer or 5% stockholder participated
in any of these private placement transactions.

EMPLOYMENT AGREEMENTS

We entered into an employment agreement with Walter Schwartz, our Chief
Operating Officer U.S., on May 1, 1999. The agreement provides that Mr. Schwartz
is entitled to a base salary of $100,000 per year. In addition, Mr. Schwartz is
entitled to receive a bonus subject to the achievement of certain performance
criteria. Mr. Schwartz is also entitled to customary employee benefits. Mr.
Schwartz's employment agreement may be terminated by blaxxun at any time.

Messrs. Buchenberger, Habermeyer, Merget and Woelfl have each entered into
blaxxun interactive's standard form employment agreement. These agreements
provide that (i) the employee will not engage in any other occupation, (ii) the
employee will not have any right to bestow advantages on himself or an
affiliate, (iii) either party may terminate upon three months' written notice,
(iv) the employees receive base salaries (currently Deutsche Mark 170,000 for
Mr. Buchenberger and Mr. Habermeyer; Deutsche Mark 120,000 for

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<PAGE> 66

Mr. Woelfl; and Deutsche Mark 130,000 for Mr. Merget), plus bonuses to be set
each July and (v) the employee is entitled to 30 days paid leave annually. In
addition, each of the employees has entered into our standard form
non-disclosure agreement.

OTHER TRANSACTIONS WITH MANAGEMENT

Our executive officers receive compensation, bonuses and other benefits
under various employee benefit plan arrangements maintained by us and our
subsidiaries for all or substantially all of our employees.

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<PAGE> 67

DESCRIPTION OF CAPITAL STOCK

Upon completion of the offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.01 par value per share, of which
26,058,926 shares will be outstanding, and 1,000,000 shares of preferred stock,
$.01 par value per share, none of which will be outstanding. The following
description of our capital stock and certain provisions of our restated
certificate of incorporation, or the certificate of incorporation, and bylaws is
a summary of the material provisions of our capital stock. The certificate of
incorporation and bylaws of blaxxun have been filed as exhibits to this
registration Statement of which this prospectus is a part. Our board of
directors is expected to authorize, on May 25, 2000, the issuance of the shares
to be sold in this offering. Prior to completion of this offering, our
certificate of incorporation will be amended to increase our total number of
authorized shares and common stock to 100,000,000.

COMMON STOCK

Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The certificate of incorporation
does not provide for cumulative voting for the election of directors. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available therefor, and shall be entitled to receive, pro rata, all assets of
blaxxun available for distribution to such holders upon liquidation. Holders of
common stock have no preemptive, subscription or redemption rights.

PREFERRED STOCK

We are authorized to issue "blank check" preferred stock, which may be
issued from time to time in one or more series upon authorization by our board
of directors. The board of directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences and
any other rights, preferences, privileges and restrictions applicable to each
series of the preferred stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of common stock and, under certain circumstances, make it more difficult
for a third party to gain control of blaxxun, discourage bids for our common
stock at a premium or otherwise adversely affect the market price of our common
stock. We currently have no plans to issue any preferred stock. In the event
that we should issue preferred stock, such stock cannot be admitted for trading
in the Neuer Markt.

CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY ANTI-TAKEOVER
PROVISIONS AFFECTING STOCKHOLDERS

Classified Board. Our board of directors is divided into three classes,
each of which, after a transitional period, will serve for three years, with one
class being elected each year. Removal of a member of the board of directors
with or without cause requires a majority vote of the board of directors or of
the stockholders. A majority of the remaining directors then in office, though
less than a quorum, and the stockholders, are empowered to fill any vacancy on
the board of directors. A majority vote of the stockholders is required to
alter, amend or repeal the foregoing provisions.

Section 203 of Delaware Law. We are subject to the "business combination"
statute of the Delaware General Corporation Law. In general, this statute
prohibits a publicly held Delaware corporation from engaging in various
"business combination" transactions with any "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless (a) the transaction is approved by
the board of directors prior to the date the interested stockholder obtained
such status, (b) upon consummation of the transaction which resulted in the
shareholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (x) persons who are directors and
also officers and

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(y) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (c) on or subsequent to such date the
"business combination" is approved by the board of directors and authorized at
an annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to a stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within the previous three years, did own) 15% or more of a corporation's voting
stock. By virtue of our decision not to elect out of the statute's provisions,
the statute applies to us. None of our current stockholders is an "interested
stockholder" because their acquisition of shares was approved by our board of
directors. The statute could prohibit or delay the accomplishment of mergers or
other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.

Directors Liability. The certificate of incorporation provides that no
director shall be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any provision
of law imposing such liability, provided that, to the extent provided by
applicable law, the certificate of incorporation shall not eliminate the
liability of a director for (a) any breach of the director's duty of loyalty to
us or our stockholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases or (d) any transaction from which such director derives improper
personal benefit. The effect of this provision is to eliminate the rights of
blaxxun and our stockholders (through stockholders' derivative suits against
blaxxun) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (a) through (d) above. The limitations summarized above, however, do not
affect the ability of blaxxun or our stockholders to seek non-monetary based
remedies, such as an injunction or rescission, against a director for breach of
his fiduciary duty nor would such limitations limit liability under the Federal
securities laws. Our bylaws provide that we shall, to the extent permitted by
Delaware law, as amended from time to time, indemnify and advance expenses to
the currently acting and former directors, officers, employees and agents of
blaxxun or of another corporation, partnership, joint venture, trust or other
enterprise if serving at our request arising in connection with their acting in
such capacities.

Certain provisions described above may also have the effect of delaying
stockholder actions with respect to certain business combinations and the
election of new members to our board of directors. As such, the provisions could
have the effect of discouraging open market purchases of our common stock
because they may be considered disadvantageous by a stockholder who desires to
participate in a business combination with us or elect a new director to our
board.

GERMAN TAKE-OVER CODE

To date, Germany has not enacted legislation concerning public offers for
publicly traded companies. However, the Stock Exchange Expert Commission at the
German Federal Ministry of Finance (Borsensachverstandigenkommission beim
Bundesministerium der Finanzen) has issued the German Take-Over Code
(Ubernahmekodex) as a voluntary regulatory framework governing public take-over
bids for domestic stock corporations that are quoted on domestic stock
exchanges. As a prerequisite to the admission for trading of our shares of
common stock on the Neuer Markt, we are required to comply with the German
Take-Over Code. Consequently, if we intend to merge with and acquire a publicly
traded German stock corporation, we must (i) notify German regulatory
authorities and the public of the offer, (ii) provide disclosures to the target
company's stockholders, (iii) treat stockholders equally in an offer, and (iv)
comply with other regulatory requirements.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

We have entered into a registration rights agreement with all of our
preferred stock holders. Pursuant to this agreement, after the closing of this
offering, and subject to restrictions on transfer between these stockholders and
the underwriters, the holders of at least 3,659,564 of the registrable
securities then
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outstanding may require us to use our best efforts to register all of the
registrable securities for resale to the public. The preferred stockholders are
entitled, if we register any of our common stock for our own account or for the
account of other security preferred stockholders, to include their shares in
such registration. The preferred stockholders may also require us to register
all or a portion of their shares in a registration statement on Form S-3 when we
are eligible to use that form, provided that the proposed aggregate price to the
public of any offering is at least $1,000,000. We will bear all fees, costs and
expenses of these registrations, other than underwriting discounts and
commissions.

All of the registration rights described above are subject to conditions
and limitations, among them the right of the underwriters in any underwritten
offering to: (i) limit the number of shares of common stock to be included in a
registration and (ii) require a lockup agreement for up to 180 days from the
initial public offering or up to 90 days for any subsequent offering.

DEVELOPMENTS

Immediately prior to the consummation of this offering, all outstanding
shares of the Registrant's preferred stock will convert to common stock.
Additionally, upon the consummation of this offering, the Registrant will effect
a two-for-one split of the outstanding common stock in which every one
outstanding share of common stock will be split, by way of dividend, into two
shares of common stock.

HISTORICAL SALES

In May 1996, we issued and sold shares of Series B convertible preferred
stock convertible into an aggregate of 800,000 shares of common stock to one
investor for an aggregate purchase price of $2,000,000.

In August 1996, we issued an aggregate of 16,000 shares of common stock to
one person in exchange for technology valued on that date at an aggregate of
$4,000.

In August 1997, we issued an aggregate of 146,370 shares of common stock to
one person in exchange for technology valued on that date at an aggregate of
$36,593.

In June 1998 and October 1998, we issued and sold shares of Series C
convertible preferred stock convertible into an aggregate of 1,597,820 shares of
common stock to seven investors for an aggregate purchase price of $4,282,156.

In November 1998, we issued an aggregate of 100,000 shares of common stock
at an aggregate purchase price of $50,000 to seven individuals in exchange for a
portion of their equity interests in Cybertown, Inc., a wholly owned subsidiary
of ours.

In August of 1998 and June of 1999, we issued shares of Series D
convertible preferred stock convertible into an aggregate of 3,952,000 shares of
common stock to nine employees in exchange for their minority interests in the
blaxxun interactive AG, our wholly-owned subsidiary.

In March of 1999, we issued and sold shares of Series E convertible
preferred stock convertible into an aggregate of 750,000 shares of common stock
to five investors for an aggregate purchase price of $3,000,000.

From July 31, 1996 to January 31, 2000, we issued to our employees,
officers, directors and consultants options to purchase an aggregate of
3,194,292 shares of our common stock, at exercise prices ranging from $.0065 per
share to $5.00 per share and an aggregate of 498,736 shares of our common stock
at purchase prices ranging from $0.0065 per share to $0.50 per share.

In January and February of 2000, we issued and sold shares of Series F
convertible preferred Stock convertible into an aggregate of 1,478,000 shares of
common stock to ten investors for an aggregate purchase price of $8,720,200.

In March 2000, we issued 600,000 shares of Series B convertible preferred
stock upon conversion of a convertible note.

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Upon the consummation of this offering, no shares of preferred stock will
be outstanding and no series of preferred stock will be designated. Thus, no
shares of preferred stock will be registered on the Neuer Markt.

TAXPAYER IDENTIFICATION NUMBER

Our U.S. Employer Identification Number is 04-3284474.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, blaxxun will have outstanding 26,058,926
shares of common stock. Of these shares, the 7,000,000 shares offered hereby
(8,100,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradable without restriction or further registration under
the Securities Act, unless purchased by "affiliates" of blaxxun as that term is
defined in Rule 144 described below. The remaining 19,058,926 shares of common
stock outstanding upon closing of the offering will, subject to the lock-up
agreements described in the next paragraph, be eligible for immediate resale in
Germany. In the United States, these shares will also be subject to Rule 144 of
the Securities Act, as described below.

Our officers, directors, stockholders and optionholders have agreed not to
sell or otherwise dispose of any of their shares of common stock for a period of
at least six months after the date on which our shares have been admitted for
trading on the Frankfurt Stock Exchange's Neuer Markt. Our officers, directors
and significant stockholders have further agreed not to sell or otherwise
dispose of any shares of common stock for a period of at least six months
directly following the aforementioned six months period without the prior
written approval of DG BANK Deutsche Genossenschaftsbank AG, Frankfurt am Main,
acting on behalf of the underwriters. When the lock-up agreements expire or, in
the case of approval by DG BANK Deutsche Genossenschaftsbank AG, Frankfurt am
Main, on neither of which we may have influence, at any point prior to such
expiry, these shares and the shares underlying the options will become eligible
for sale.

For U.S. securities laws purposes, the 19,058,926 outstanding shares of
common stock owned by the stockholders which are not sold pursuant to this
offering are deemed "restricted shares" under Rule 144 of the Securities Act.
These shares may not be resold, except pursuant to an effective registration
statement or an applicable exemption from registration. The holders of the
restricted shares may sell those shares relying on the exemptions from
registration under Rule 144 and Rule 701 of the Securities Act. UPON EXPIRATION
OF THE LOCK-UP PERIODS DESCRIBED ABOVE, 16,781,098 SHARES WILL BE ELIGIBLE FOR
IMMEDIATE RESALE UNDER RULES 144 AND 701.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year from the later of the date those
restricted shares were acquired from blaxxun and (if applicable) the date they
were acquired from an affiliate, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock (261,256 shares based on the number of shares
to be outstanding after this offering) or the average weekly trading volume in
the public market in the United States (combined volume on all markets in the
United States) during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to certain requirements as to the manner and notice of
sale and the availability of public information concerning blaxxun. Affiliates
may sell shares which are not restricted shares in accordance with the foregoing
volume limitations and other restrictions, but without regard to the one-year
holding period. All sales of restricted shares held by affiliates of blaxxun
must be sold under Rule 144, subject to the foregoing volume limitations and
other restrictions. Further, under Rule 144(k), if a period of at least two
years has elapsed between the later of the date restricted shares were acquired
from blaxxun or an affiliate of blaxxun, a holder of the restricted shares who
is not an affiliate of blaxxun at the time of the sale and has not been an
affiliate of blaxxun for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
or other conditions described above.

Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans or written
contracts of a company not subject to the reporting requirements of Sections 13
or 15(d) of the Securities

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Exchange Act of 1934, as amended, referred to in this prospectus as the Exchange
Act. Any employee, officer or director of or consultant to blaxxun who acquired
shares of common stock from blaxxun prior to this offering or on exercise of a
stock option granted prior to this offering is entitled to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell such shares without
having to comply with the public information, holding period, volume limitation,
or notice requirements of Rule 144 and permit affiliates to sell their Rule 701
shares without having to comply with the holding period requirements of Rule 144
commencing, in each case, 90 days after the date of this prospectus.

The holders of an aggregate of 18,297,820 shares of common stock or their
transferees are entitled to rights with respect to the registration of these
shares under the Securities Act. See "Description of Capital
Stock -- Registration Rights of Certain Holders."

Prior to this offering, there has not been any public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect the prevailing market prices and impair blaxxun's
ability to raise capital through the sale of equity securities.

THE GERMAN EQUITY MARKET

GERMAN SECURITIES LAWS

As a United States company offering securities on a German stock exchange,
we are subject to various laws and regulations in both jurisdictions. Some of
these laws and regulations, in turn, can affect the ability of holders of our
securities to transfer or sell our securities.

At present, Germany does not restrict the export or import of capital,
except for investments in Iraq and Libya in accordance with applicable
resolutions adopted by the United Nations and the European Union. However, for
statistical purposes only, every individual or corporation residing in Germany
must report to the German Central Bank (Deutsche Bundesbank), subject only to
immaterial exceptions, any payment received from or made to an individual or a
corporation not a resident of Germany if such payment exceeds DM5,000 (E2,550 or
the equivalent in a foreign currency). In addition, residents of Germany must
report any claims against or any liabilities payable to non-residents if such
claims or liabilities, in the aggregate, exceed DM3.0 million (E1.53 million, or
the equivalent in a foreign currency) during any one month. Residents must also
report any direct investment outside Germany if such investment exceeds
DM100,000 (E51,000, or the equivalent in a foreign currency).

There are no limitations on the right of non-resident owners to hold or
vote the shares imposed by German law or our certificate of incorporation or
bylaws.

THE FRANKFURT STOCK EXCHANGE AND THE NEUER MARKT

The Frankfurt Stock Exchange is the most significant of the eight German
stock exchanges and accounted for approximately 78% of the turnover in traded
shares in Germany in 1998. The aggregate annual turnover of the Frankfurt Stock
Exchange in 1999 of approximately E4,078 billion, based on the Frankfurt Stock
Exchange's practice of separately recording the sale and purchase components
involved in any trade, for both equity and debt instruments, made it the fourth
largest stock exchange in the world behind the New York Stock Exchange, London
and Tokyo in terms of turnover.

The Neuer Markt segment of the Frankfurt Stock Exchange is a new trading
segment that was launched in March 1997. It is designed for innovative, small to
mid-size companies in high growth industries or in traditional industries that
have an international orientation and that are willing to provide active
investor relations. Issuers are requested to provide investors on an ongoing
basis with information such as annual and quarterly reports, including cash flow
statements, and a corporate action timetable. This information is required to be
submitted in English and German as well as in electronic form, thus enabling the
stock exchange to disseminate corporate information via the Internet.

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TRADING ON THE NEUER MARKT

Trading of shares listed on the Neuer Markt takes place on the floor of the
stock exchange, but is computer-aided. Shares listed on the Neuer Markt can also
be traded on a computer-aided system called Xetra. Trading takes place on every
business day between 8:30 a.m. and 5:00 p.m., Frankfurt time. Trading within the
Xetra system is done by banks and securities dealers who have been admitted to
trading on at least one of Germany's stock exchanges. Xetra is integrated into
the Frankfurt Stock Exchange and is subject to its rules and regulations.

Markets in listed securities are generally of the auction type, but listed
securities also change hands in inter-bank dealer markets off the Frankfurt
Stock Exchange. Price formation is determined by open bid by state-appointed
specialists (amtliche Makler) who are themselves exchange members, but who do
not, as a rule, deal with the public. Prices of shares traded on the Neuer Markt
are displayed continuously during trading hours. At the half-way point of each
trading day, a single standard quotation is determined for all shares. The
members' association of the Frankfurt Stock Exchange publishes a daily list of
prices which contains the standard prices of all traded securities, as well as
their highest and lowest quotations during the past year.

Transactions on the Frankfurt Stock Exchange, including transactions within
the Xetra system, are settled on the second business day following trading.
Transactions off the Frankfurt Stock Exchange, for large volumes or if one of
the parties is foreign, are generally also settled on the second business day
following trading, unless the parties have agreed upon a different date.
Following a recent amendment to the conditions of German banks for securities
trading (Sonderbedingungen fur Wertpapiergeschafte), customers' orders to buy or
sell listed securities must be executed on a stock exchange, unless the customer
instructs otherwise. Trading can be suspended by the Frankfurt Stock Exchange if
orderly stock exchange trading is temporarily endangered or if a suspension is
in the public interest.

A specific feature of the Neuer Markt is the introduction of the obligatory
"Designated Sponsor" or, an entity admitted for trading at the Frankfurt Stock
Exchange which provides additional liquidity by quoting prices for the buying
and selling of shares on request. Each issuer on the Neuer Markt is required to
nominate at least two Designated Sponsors which will not only ensure that there
is sufficient liquidity for its shares, but also serve as consultants on all
stock market related matters for the issuer. It is expected that DG Bank
Deutsche Genossenschaftsbank, AG and Merck Finck & Co. will be our Designated
Sponsors.

The shares have been admitted for listing on the Neuer Markt. It is
expected that trading in the Shares on the Neuer Markt under the symbol "BXX"
will commence on or about [ ], 2000. The Neuer Markt is still a
relatively new market. Accordingly, there can be no assurance that an active
trading market for the shares will develop on the Neuer Markt or that the Neuer
Markt will not experience problems in settlement or clearance as trading
develops. Any such delays or problems could adversely affect the market price of
the shares. Persons proposing to trade the shares on the Neuer Markt should
inform themselves about the potential costs of such trading.

PRICE RANGE, NUMBER OF SHARES, DELIVERY AND PAYMENTS

The initial public offering price payable by investors for the shares
offered will be determined in a book-building procedure conducted by the
underwriters according to customary practice in the Federal Republic of Germany.
We expect the price range within which investors may offer to purchase shares
will be fixed on [ ], 2000, and published in the Borsenzeitung on
[ ], 2000. We anticipate that the period of time within which investors
may offer to purchase shares will be from [ ], 2000 to [ ],
2000. We expect to determine, along with the underwriters, the final purchase
price per share on [ ], 2000, and to publish that purchase price in the
Borsenzeitung on [ ], 2000. We anticipate that beginning on
[ ], 2000, investors who placed orders with an underwriter may inquire
from such underwriter the number of shares allotted to them. It is currently
expected that the purchase price for shares offered will be payable by investors
on [ ], 2000, against delivery of such allotted shares in book entry
form. The share certificates representing the offered shares will be deposited
by us and the selling shareholders, respectively, with The Depository Trust
Company of New York. The Depository Trust Company's nominee,

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Cede & Co., will be the registered owner of such shares. At the closing of the
offering, The Depository Trust Company will electronically deposit the offered
shares in the account of Clearstream Banking AG with The Depository Trust
Company in book entry form for the benefit of DG BANK Deutsche
Genossenschaftsbank AG for the account of the underwriters, and DG BANK Deutsche
Genossenschaftsbank AG will thereby acquire beneficial ownership of the shares.
Thereafter, DG BANK Deutsche Genossenschaftsbank AG will electronically
transfer, in book entry form, beneficial ownership of the shares to the
purchasers of the shares through their brokers and other financial institutions
that are Clearstream Banking AG participants. Clearstream Banking AG will not
hold any certificates for common stock. Certificates representing shares of
common stock held through Clearstream Banking AG will not be issued unless such
shares are withdrawn from Clearstream Banking AG, in which case the shares will
not be eligible to trade on a German exchange unless such shares are
re-deposited with The Depository Trust Company for credit to Clearstream Banking
AG's account with The Depository Trust Company.

CLEARING AND TRANSFERABILITY OF THE SHARES

Shares transferred from the Depository Trust Company to Clearstream Banking
AG may be freely transferred among market participants through the Clearstream
Banking AG clearing system. The shares to be offered and listed for trading on
the Frankfurt Stock Exchange's Neuer Markt are registered shares. Accordingly,
stockholders holding share certificates who desire to transfer their shares
outside The Depository Trust Company/Clearstream Banking AG clearing system may
effect the transfer by submitting to our transfer agent their share
certificates, and the transfer agent will issue a new certificate in the name of
the transferee. If stockholders holding share certificates wish to transfer
their shares to The Depository Trust Company/Clearstream Banking AG clearing
system, the stockholders must submit their share certificates to our transfer
agent, and the transfer agent will register the shares in the name of Cede & Co.
These shares will be credited to the account of Clearstream Banking AG at The
Depository Trust Company. Upon registration of the shares with The Depository
Trust Company for the benefit of Clearstream Banking AG and fulfillment of any
other requirements of The Depository Trust Company or Clearstream Banking AG,
beneficial ownership of the shares may be transferred through the Clearstream
Banking AG system.

NOTICES

We will publish any notices to stockholders in the German Federal Gazette
(Bundesanzeiger) and in the Borsen-Zeitung.

PAYING AGENT

DG BANK Deutsche Genossenschaftsbank AG, Frankfurt am Main, will act as the
paying agents in Germany.

VOTING RIGHTS

Each share of common stock entitles its holder to one vote at all of our
shareholder's meetings.

Neither Cede & Co. as the registered owner of the shares of common stock
being offered hereunder, nor The Depository Trust Company, will exercise any
voting rights in connection with such shares. Pursuant to the procedures
generally applied by The Depository Trust Company, The Depository Trust Company
will provide an omnibus proxy to us after each record date for our shareholders'
meetings. Insofar as shares of common stock are held through the clearing system
of Clearstream Banking AG, such proxy will be for the benefit of Clearstream
Banking AG. Clearstream Banking AG will inform the beneficial owners of shares
held through Clearstream Banking AG via the respective Clearstream Banking AG
participants. Clearstream Banking AG will exercise voting rights pursuant to the
instructions of the beneficial owners of the shares and its general business
conditions. You should contact your securities account-carrying bank or broker
to inquire about any fees that may be charged for the services rendered to you
by such account-carrier in connection with your voting rights.

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DIVIDEND RIGHTS

Each of the holders of our common stock will be eligible to receive
dividends if and when declared by our Board of Directors. To date, we have not
paid any cash dividends on our shares of common stock. We intend to retain
future earnings to fund growth of our business and do not anticipate paying any
cash dividends on shares of common stock in the foreseeable future. (See
"Dividend Policy").

We will initially make payments of dividends, if any, or any other payments
to shareholders who hold shares of common stock on the relevant record date
through the clearing system of Clearstream Banking AG to Cede & Co. as The
Depository Trust Company's nominee. The Depository Trust Company will credit
such amounts to an account of Clearstream Banking AG, who will then distribute
such payments to the beneficial owners who hold shares of common stock with
participants of Clearstream Banking AG. Payments of The Depository Trust Company
and Clearstream Banking AG are subject to the decrees, procedures and laws in
effect at the time of the respective payment. Our dividends will be paid in U.S.
dollars; however, participants of Clearstream Banking AG may elect to receive
dividends and other payments on the shares either in U.S. dollars or euros. You
should contact your securities account-carrying bank or broker to inquire about
any fees that may be charged by such account-carrier for the distribution of our
dividends or any other payments to you.

SECURITIES IDENTIFICATION CODES

The German securities code number (WKN) for the shares of common stock is
938 019.

The international securities identification number (ISIN) for the shares of
common stock is U.S. 0934 7U 1060.

The common code is 11148760.

GERMAN TAX MATTERS

The following is a summary of certain tax matters arising under German tax
law in force at the date of this prospectus. The summary does not purport to be
a comprehensive description of all of the tax considerations which may be
relevant as to the decision to acquire shares of common stock. The summary is
based on the tax laws of Germany in effect on the date of this prospectus, which
may be subject to changes, possibly with retroactive effect. The summary does
not address aspects of German taxation other than taxation of dividends, capital
gains taxation and gift and inheritance taxation, and does not address all
aspects of such German taxation. The summary does not consider any specific
facts or circumstances that may apply to a particular purchaser. The summary
assumes that the stockholder is subject to unlimited German income taxation and
is referred to as a German holder. Prospective investors should consult their
professional advisors as to the tax consequences of the acquisition, holding and
disposal of the shares of common stock, including in particular, the effect of
tax laws of any other jurisdiction.

INCOME TAXATION OF DIVIDENDS

Any dividends distributed to German holders are, in principle, fully
subject to German income tax (Einkommenssteuer) including a solidarity surcharge
(Solidaritatszuschlag) and possibly church tax (Kirchensteuer). An individual
German holder will be entitled to a deduction of income-related expenses
(Werbungskosten) to be proved to the tax authorities or alternatively to a fixed
allowance of DM 100 per calendar year, and a tax exemption known as a savers
exemption of DM3,000 per calendar year in relation to his or her total income
from capital investments including dividends.

Dividend withholding tax levied in the United States in accordance with the
U.S./German Double Taxation Treaty of August 29, 1989 can be credited against
the German income tax liability of the German holder. Alternatively, a German
holder may deduct the total amount of U.S. withholding tax from his or her
German taxable income. This tax credit or deduction is not available if the
savers exemption mentioned above is available to the German holder.

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A German corporation that has beneficial title to at least 10% of the
shares in a U.S. corporation is entitled to a reduction or refund of U.S. tax in
excess of 5%, and all other German holders are entitled to a refund or reduction
of U.S. tax in excess of 15% if the treaty applies. If the shares are held by
German holders through a partnership, the dividends, including the withholding
tax credit are allocated to the partners according to their interest in the
partnership.

German holders that are corporate investors, or a German corporate holder,
holding at least 10% of the outstanding shares of common stock, and to whom the
Treaty applies, are exempt from German corporation tax in relation to dividends
received, and cannot claim any credit for, or deduction of, foreign withholding
taxes in Germany. Such dividends will be placed in the so-called EK01 equity
basket of the corporate investor. Upon distribution of dividends out of the EK01
equity basket to its stockholders, the German corporate holder does not need to
establish the corporation tax distribution burden, which presently is 30% plus
the solidarity surcharge at a rate of 5.5% of the corporation tax distribution
burden.

In addition, distributions to a German holder are subject to German
withholding tax at a rate of 25%, plus solidarity surcharge at a rate of 5.5%
thereon, resulting in an effective withholding tax rate of 26.37%.

German holders that are corporate investors holding less than 10% of our
shares will be entitled to a tax credit for U.S. withholding taxes.

On February 9, 2000 the German Government published a draft tax reform
bill. Income tax cuts contained in this draft bill would become effective in the
year 2001. German holders who are natural persons would pay income tax at their
personal income tax rate on the amount of 50% of the dividends distributed by
the Company under a so-called Halbeinkunfteverfahren. Dividends derived by a
German holder in the legal form of a corporation would be tax exempt in Germany.
If such tax exempt dividends were in turn distributed to a German holder of a
corporation who is a natural person, the distribution would be taxable at the
individual level under the Halbeinkunfteverfahrem.

CAPITAL GAINS TAX

Capital gains on the disposal of shares held as a private asset of a German
holder are only taxable if the disposal is (i) effected within a twelve-month
period after their acquisition or (ii) upon expiration of this speculation
period, if the stockholder at any time during the five years preceding the
disposal, directly or indirectly, held an interest of 10% or above in a company.

Capital gains resulting from the disposal of shares of common stock by a
stockholder who is not tax resident in Germany are not subject to German capital
gains tax unless the shares of common stock are part of the business property of
a permanent establishment or a fixed place of business of the stockholder
located in Germany.

GIFT AND INHERITANCE TAXES

Shares held by a person resident in Germany are subject to German
inheritance and gift tax upon transfer by reason of death or as a gift, based on
the market value at the time of the death or donation, respectively. Transfers
of shares of common stock held by a person who is not a tax resident in Germany
are not subject to German inheritance and gift tax, unless:

- the shares of common stock are part of the business property of a
permanent establishment or a fixed place of business of the stockholder
located in Germany; or

- the heir, donee or beneficiary is tax resident in Germany or, if of
German nationality, has been resident in Germany within the five-year
period prior to the death or the gift (certain public officials resident
abroad are also covered).

TRADE TAX

A holder who is not tax resident in Germany will not be subject to German
trade tax with respect to the shares of common stock, unless the shares of
common stock are part of the business property of a permanent
70
<PAGE> 76

establishment or a fixed place of business of the stockholder located in
Germany. If a German resident taxpayer elects to deduct the foreign withholding
taxes from his taxable income in Germany such deduction would not be accepted
for computing his taxable income for trade tax purposes.

The trade tax on income is levied at rates varying from 13 - 20%. Trade tax
qualifies for a deductible business expense for income tax purposes in Germany.

OTHER GERMAN TAXES

There are no German transfer, stamp or other similar taxes which would
apply to the sale or transfer of the shares of common stock.

71
<PAGE> 77

UNDERWRITING

blaxxun has entered into a German underwriting agreement with DG BANK and
Deutsche Genossenschaftsbank AG, as the lead German underwriters. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
DG BANK Deutsche Genossenschaftsbank AG..................... [ ]
Merck Finck & Co............................................ [ ]
VEM Virtuelles Emissionshaus AG............................. [ ]

Total....................................................... [ ]
</TABLE>

If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to 1,100,000 additional
shares from certain selling shareholders to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by blaxxun and the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase additional shares.

<TABLE>
<CAPTION>
PAID BY BLAXXUN
------------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................. [ ] [ ]
Total..................................................... [ ] [ ]
</TABLE>

<TABLE>
<CAPTION>
PAID BY THE SELLING STOCKHOLDERS
--------------------------------
NO EXERCISE FULL EXERCISE
------------ --------------
<S> <C> <C>
Per Share................................................. [ ] [ ]
Total..................................................... [ ] [ ]
</TABLE>

Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price.

blaxxun has agreed with the underwriters not to dispose of or hedge any of
its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 360 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
any existing employees benefit plans. See "Shares Available for Future Sale" for
a discussion of transfer restrictions.

Our officers, our board of directors, our stockholders and optionholders
have warranted to the Deutsche Borse AG and have agreed with the underwriters
not to dispose of or hedge any of their common stock or securities convertible
into or exchangeable for shares of common stock during the six months from the
date of this prospectus continuing through the first six months after the date
of admission of the shares of common stock to the regulated market (Geregelter
Markt) with trading on the Neuer Markt of the Frankfurt Stock Exchange. In
addition, our officers, directors and our significant stockholders have agreed
with the underwriters not to dispose of or hedge any common stock or securities
convertible into or exchangeable for

72
<PAGE> 78

shares of common stock during the six-month period from the end of the first
six-month lock-up period, except with the prior written consent of DG BANK
Deutsche Genossenschaftsbank AG acting on behalf of the underwriters. See
"Shares Available for Future Sale" for a discussion of certain transfer
restrictions. These lockups will be effected through stop transfer instructions
given to our Transfer Agent.

At blaxxun's request, the underwriters have reserved up to 350,000 shares
of the common stock offered hereby for sale, at the initial public offering
price, to employees, customers and other friends of blaxxun through a directed
share program. The number of shares available for sale to the general public
will be reduced to the extent these persons purchase the reserved shares. There
can be no assurance that any of the reserved shares will be so purchased. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same basis as other shares offered hereby. Shares
purchased through this directed share program will be subject to a minimum
lock-up of three months. This lock-up will be effected through stop-transfer
instructions given to our Transfer Agent.

The underwriters and two current stockholders, and have
entered into a stock lending arrangement. Under this arrangement, these
stockholders have agreed to lend the underwriters a total of 1,100,000 shares of
common stock for the 30-day period during which the underwriters have an
over-allotment option to purchase shares of common stock from us.

Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among blaxxun and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be blaxxun's historical performance, estimates of the business
potential and earnings prospects of blaxxun, an assessment of blaxxun's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.

The common stock is expected to be admitted to the Regulated Market
(Geregelter Markt) for trading on the Neuer Market of the Frankfurt Stock
Exchange under the symbol "BXX," on , 2000. Trading of the common
stock is expected to commence , 2000.

In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be completed on the Neuer
Markt.

The underwriters may not confirm sales to discretionary accounts without
the prior written approval of the customer.

blaxxun estimates that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $1,000,000.

blaxxun has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. In
addition, DG Bank has agreed to indemnify both blaxxun and the other
underwriters for liabilities arising out of the distribution of written
materials that were provided to approximately [ ] individuals that
blaxxun had designated as potential purchasers of up to 350,000 shares of common
stock in this offering through a directed share program.

73
<PAGE> 79

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Hutchins, Wheeler & Dittmar, A Professional Corporation, Boston,
Massachusetts. Certain matters of German law will be passed upon for the
underwriters by Bruckhaus Westrick Heller Lober.

EXPERTS

The consolidated financial statements of blaxxun interactive, Inc. and
subsidiaries as of and for each the years ended July 31, 1997, 1998 and 1999,
have been included herein and in the registration statement in reliance upon the
report of KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft, Elektrastrasse 6, 81925 Munich, Germany
independent accountants, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Publicly available documents pertaining to this offering and to which we
refer in this prospectus, as well as future annual interim reports that we
prepare, may be inspected during customary business hours at the offices of
blaxxun AG, Elsenheimerstrasse 61, 80687 Munich, Germany and at the offices of
DG BANK Deutsche Genossenschaftsbank AG, Am Platz der Republik, 60265 Frankfurt
am Main, Germany.

In addition, we have filed a registration statement on Form S-1 with the
Securities and Exchange Commission, or SEC, for the common stock we are offering
by this prospectus. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto. For
further information with respect to us and our common stock, we make reference
to the registration statement and to the exhibits and schedules filed therewith.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. A copy of the registration statement may be
inspected by anyone without charge at the SEC's principal office in Washington,
D.C., and copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. The SEC maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the web site
is http://www.sec.gov. Upon completion of the offering, we will be subject to
the information reporting requirements of the Securities Exchange Act of 1934,
as amended and, in accordance therewith, will file reports, proxy statements and
other information with the SEC.

We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited interim financial information.

74
<PAGE> 80

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................. F-3
Consolidated Balance Sheets as of July 31, 1999, 1998 and
1997................................................... F-4
Consolidated Statements of Operations for Years ended July
31, 1999, 1998 and 1997................................ F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for Years ended July 31, 1999, 1998 and 1997........... F-6
Consolidated Statements of Cash Flows for Years ended July
31, 1999, 1998 and 1997................................ F-7
Notes to Consolidated Financial Statements................ F-8
UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at January 31, 2000
and July 31, 1999...................................... F-26
Condensed Consolidated Statements of Operations for the
Six Months ended January 31, 2000 and 1999............. F-27
Condensed Consolidated Statements of Stockholders' Equity
for the Six Months ended January 31, 2000 and 1999..... F-28
Condensed Consolidated Statements of Cash Flows for the
Six Months ended January 31, 2000 and 1999............. F-29
Notes to Condensed Consolidated Financial Statements...... F-30
</TABLE>

F-1
<PAGE> 81

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 1999, 1998 AND 1997

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-2
<PAGE> 82

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
blaxxun interactive, Inc.:

We have audited the accompanying consolidated balance sheets of blaxxun
interactive, Inc. and subsidiaries as of July 31, 1999, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
blaxxun interactive, Inc. and subsidiaries as of July 31, 1999, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
then ended, in conformity with generally accepted accounting principles in the
United States of America.

/s/ KPMG Deutsche
Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft

Munich, Germany

November 3, 1999,

except as to paragraph 2 and 3

of Note 11, which is as of February 29, 2000, and

paragraph 6 of Note 11, which is as of March 29, 2000

F-3
<PAGE> 83

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JULY 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 3,214,681 3,111,002 27,575
Accounts receivable, less allowance for doubtful
accounts of $66,917, $44,917 and $0 in 1999,
1998 and 1997, respectively.................. 762,976 158,048 1,245
Projects in progress............................ 248,373 82,013 --
Prepaid expenses and other current assets....... 144,625 69,991 76,571
------------ ------------ -----------
Total current assets.................... 4,370,655 3,421,054 105,391
Equipment, net.................................... 210,006 125,115 182,054
Goodwill and other intangible assets, net......... 7,455,128 -- --
Other assets...................................... 49,257 46,310 79,406
------------ ------------ -----------
$ 12,085,046 3,592,479 366,851
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 322,390 83,012 176,099
Accrued expenses................................ 1,573,008 1,191,271 855,868
Deferred revenues............................... 61,189 31,481 --
------------ ------------ -----------
Total current liabilities............... 1,956,587 1,305,764 1,031,967
Notes payable..................................... 3,776,163 3,891,861 2,040,689
Commitments (Note 3)
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value;
4,052,410, 1,551,410 and 902,500 shares
issued and outstanding as of July 31, 1999,
1998 and 1997, respectively, (aggregate
liquidation value of $25,230,054, $10,240,042
and $6,424,250 as of July 31, 1999, 1998 and
1997, respectively).......................... 40,524 15,514 9,025
Common stock, $0.01 par value; 10,500,000
authorized as of July 31, 1999 and 10,000,000
shares authorized as of July 31, 1998 and
1997; 378,886, 166,299 and 8,000 issued and
outstanding as of July 31, 1999, 1998 and
1997, respectively........................... 3,789 1,663 80
Additional paid-in-capital...................... 25,250,500 10,351,701 6,109,587
Deferred compensation........................... (137,515) (99,358) (19,762)
Accumulated deficit............................. (18,475,094) (11,644,577) (8,568,356)
Cumulative translation adjustment............... (329,908) (230,089) (236,379)
------------ ------------ -----------
Total stockholders' equity (deficit).... 6,352,296 (1,605,146) (2,705,805)
------------ ------------ -----------
$ 12,085,046 3,592,479 366,851
============ ============ ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 84

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
License............................................. $ 649,139 450,241 293,805
Service............................................. 1,197,299 742,960 301,601
----------- ---------- ----------
1,846,438 1,193,201 595,406
Operating expenses:
Software development and maintenance................ 1,847,581 1,490,567 2,085,475
Sales and marketing................................. 2,027,442 694,766 2,471,696
General and administrative.......................... 1,202,775 706,443 1,563,506
Amortization of goodwill and other intangible
assets........................................... 3,520,792 -- --
----------- ---------- ----------
8,598,590 2,891,776 6,120,677
----------- ---------- ----------
Operating loss.............................. (6,752,152) (1,698,575) (5,525,271)
Other income (expense):
Interest income..................................... 111,884 13,604 48,625
Interest expense.................................... (214,830) (1,296,929) (201,594)
Loss on disposal of assets.......................... (6,452) -- (93,741)
Minority interest................................... -- -- 35,666
Foreign exchange, net............................... 32,633 (93,521) 384,770
----------- ---------- ----------
Total other income (expense)................ (76,765) (1,376,846) 173,726
----------- ---------- ----------
Loss before taxes........................... (6,828,917) (3,075,421) (5,351,545)
Franchise tax expense................................. 1,600 800 800
----------- ---------- ----------
Net loss.............................................. $(6,830,517) (3,076,221) (5,352,345)
=========== ========== ==========
Basic and diluted net loss per share.................. $ (23.96) (25.75) (669.04)
=========== ========== ==========
Weighted average number of basic and diluted shares
outstanding......................................... 285,093 119,473 8,000
=========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 85

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JULY 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------------------
COMMON STOCK SHARES SHARES
--------------- ISSUED AND CONVERTIBLE INTO ADDITIONAL
SHARES AMOUNT OUTSTANDING COMMON STOCK AMOUNT PAID-IN CAPITAL
------- ------ ----------- ---------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JULY 31, 1996............. -- $ -- 902,500 4,960,000 $ 9,025 $ 6,038,969
Issuance of common stock in connection
with acquisition of software
technology............................ 8,000 80 -- -- -- 3,920
Deferred compensation related to grant
of stock options...................... -- -- -- -- -- 127,577
Deferred compensation related to
canceled stock options................ -- -- -- -- -- (60,879)
Amortization of deferred compensation... -- -- -- -- -- --
Accumulated translation adjustment...... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
------- ------ --------- --------- ------- -----------
BALANCE AS OF JULY 31, 1997............. 8,000 80 902,500 4,960,000 9,025 6,109,587
Issuance of common stock in connection
with acquisition of software
technology............................ 73,185 732 -- -- -- 35,861
Issuance of common stock under stock
option plan........................... 85,114 851 -- -- -- (501)
Deferred compensation related to grant
of stock options...................... -- -- -- -- -- 114,778
Amortization of deferred compensation... -- -- -- -- -- --
Issuance of Series C convertible
preferred stock....................... -- -- 648,910 648,910 6,489 3,471,666
Intrinsic value of beneficial conversion
feature on convertible loan........... -- -- -- -- -- 620,310
Accumulated translation adjustment...... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
------- ------ --------- --------- ------- -----------
BALANCE AS OF JULY 31, 1998............. 166,299 1,663 1,551,410 5,608,910 15,514 10,351,701
Issuance of common stock in connection
with acquisition of company........... 50,000 500 -- -- -- 49,500
Issuance of common stock under stock
option plan........................... 162,587 1,626 -- -- -- 13,360
Deferred compensation related to grant
of stock options...................... -- -- -- -- -- 79,175
Amortization of deferred compensation... -- -- -- -- -- --
Issuance of Series C convertible
preferred stock....................... -- -- 150,000 150,000 1,500 802,500
Issuance of Series D convertible
preferred stock....................... -- -- 1,976,000 1,976,000 19,760 10,958,014
Issuance of Series E convertible
preferred stock....................... -- -- 375,000 375,000 3,750 2,996,250
Accumulated translation adjustment...... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
------- ------ --------- --------- ------- -----------
BALANCE AS OF JULY 31, 1999............. 378,886 $3,789 4,052,410 8,109,910 $40,524 $25,250,500
======= ====== ========= ========= ======= ===========

CUMULATIVE TOTAL
DEFERRED ACCUMULATED TRANSLATION STOCKHOLDERS' COMPREHENSIVE
COMPENSATION DEFICIT ADJUSTMENT EQUITY (DEFICIT) LOSS
------------ ------------ ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JULY 31, 1996............. $ (44,793) $ (3,216,011) $ (3,901) $ 2,783,289 $
Issuance of common stock in connection
with acquisition of software
technology............................ -- -- -- 4,000
Deferred compensation related to grant
of stock options...................... (127,577) -- -- --
Deferred compensation related to
canceled stock options................ 60,879 -- -- --
Amortization of deferred compensation... 91,729 -- -- 91,729
Accumulated translation adjustment...... -- -- (232,478) (232,478) (232,478)
Net loss................................ -- (5,352,345) -- (5,352,345) (5,352,345)
--------- ------------ --------- ----------- -----------
BALANCE AS OF JULY 31, 1997............. (19,762) (8,568,356) (236,379) (2,705,805) (5,584,823)
===========
Issuance of common stock in connection
with acquisition of software
technology............................ -- -- -- 36,593
Issuance of common stock under stock
option plan........................... -- -- -- 350
Deferred compensation related to grant
of stock options...................... (114,778) -- -- --
Amortization of deferred compensation... 35,182 -- -- 35,182
Issuance of Series C convertible
preferred stock....................... -- -- -- 3,478,155
Intrinsic value of beneficial conversion
feature on convertible loan........... -- -- -- 620,310
Accumulated translation adjustment...... -- -- 6,290 6,290 6,290
Net loss................................ -- (3,076,221) -- (3,076,221) (3,076,221)
--------- ------------ --------- ----------- -----------
BALANCE AS OF JULY 31, 1998............. (99,358) (11,644,577) (230,089) (1,605,146) (3,069,931)
===========
Issuance of common stock in connection
with acquisition of company........... -- -- -- 50,000
Issuance of common stock under stock
option plan........................... -- -- -- 14,986
Deferred compensation related to grant
of stock options...................... (79,175) -- -- --
Amortization of deferred compensation... 41,018 -- -- 41,018
Issuance of Series C convertible
preferred stock....................... -- -- -- 804,000
Issuance of Series D convertible
preferred stock....................... -- -- -- 10,977,774
Issuance of Series E convertible
preferred stock....................... -- -- -- 3,000,000
Accumulated translation adjustment...... -- -- (99,819) (99,819) (99,819)
Net loss................................ -- (6,830,517) -- (6,830,517) (6,830,517)
--------- ------------ --------- ----------- -----------
BALANCE AS OF JULY 31, 1999............. $(137,515) $(18,475,094) $(329,908) $ 6,352,296 $(6,930,336)
========= ============ ========= =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 86

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,830,517) (3,076,221) (5,352,345)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 88,671 125,163 159,247
Amortization of goodwill and other intangible assets... 3,520,792 -- --
Amortization of deferred compensation.................. 41,018 35,182 91,729
Amortization of beneficial conversion feature and
prepayment premium on convertible loan................ -- 903,643 --
Loss on disposal of assets............................. 6,452 -- 93,741
Other.................................................. -- 35,861 --
Minority interest in loss of subsidiary................ -- -- (35,666)
Changes in assets and liabilities:
Accounts receivable.................................. (624,807) (157,340) (1,245)
Projects in progress................................. (166,360) -- --
Prepaid expenses and other current assets............ (74,634) (75,433) 75,440
Accounts payable..................................... 210,685 (96,320) (120,162)
Accrued expenses..................................... 429,101 322,520 439,168
Deferred revenues.................................... 29,708 31,481 --
----------- ---------- ----------
Net cash used in operating activities............. (3,369,891) (1,951,464) (4,650,093)
----------- ---------- ----------
Cash flows from investing activities:
Acquisition, net of cash acquired......................... (94,978) -- --
Additions to equipment.................................... (205,738) (65,721) (122,345)
Proceeds from sale of assets.............................. 18,825 -- 40,596
Change in other assets.................................... (2,947) 33,096 (75,406)
----------- ---------- ----------
Net cash used in investing activities............. (284,838) (32,625) (157,155)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable................... -- 2,521,447 2,076,727
Repayment of notes payable................................ -- (500,000) --
Proceeds from issuance of preferred stock................. 3,804,000 2,978,155 --
Proceeds from issuance of common stock.................... 14,986 1,082 --
----------- ---------- ----------
Net cash provided by financing activities......... 3,818,986 5,000,684 2,076,727
----------- ---------- ----------
Effect of exchange rate changes on cash..................... (60,578) 66,832 (338,995)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........ 103,679 3,083,427 (3,069,516)
Cash and cash equivalents at beginning of period............ 3,111,002 27,575 3,097,091
----------- ---------- ----------
Cash and cash equivalents at end of period.................. $ 3,214,681 3,111,002 27,575
=========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 226,185 192,190 60,000
=========== ========== ==========
Franchise taxes paid...................................... $ 1,600 800 800
=========== ========== ==========
Non-cash financing and investing activities:
Deferred compensation related to stock option issuances... $ 79,175 114,778 127,577
=========== ========== ==========
Issuance of common stock in connection with acquisition of
software technology.................................... $ -- 35,861 4,000
=========== ========== ==========
Issuance of common stock in connection with acquisition of
company................................................ $ 50,000 -- --
=========== ========== ==========
Issuance of preferred stock in connection with acquisition
of minority interests.................................. $10,977,774 -- --
=========== ========== ==========
Conversion of note payable into preferred stock........... $ -- 500,000 --
=========== ========== ==========
Intrinsic value of beneficial conversion feature on
convertible loan....................................... $ -- 620,310 --
=========== ========== ==========
Recognition of prepayment premium on convertible loan..... $ -- 283,333 --
=========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.
F-7
<PAGE> 87

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

(a) Business Description

blaxxun interactive, Inc. (the "Company") develops and licenses technology
products for virtual worlds on the Internet. The Company has developed software
for servers and technology for multimedia web site environments, which are
intended to provide a more realistic experience on the Internet.

The blaxxun(TM) Community Platform is a multi-user server product. The
blaxxun Community Platform provides the basis for the Company's family of client
products (blaxxun Contact(TM) and blaxxun3D(TM)) and developer packages that are
the basis for custom solutions and packaged applications. These products also
enable customers to create virtual worlds on the Internet. The Company invests
in selected online communities, based on the blaxxun(TM) Community Platform,
such as Cybertown (www.cybertown.com), a science fiction community.

The Company conducts its business within three business segments: Products,
Professional Services and Communities.

The Company was incorporated under the laws of the State of Delaware in
July 1995. The Company's wholly owned subsidiaries are blaxxun interactive AG,
incorporated under the laws of Germany and Cybertown, Inc., a company
incorporated in the State of Delaware (together the "Subsidiaries"). U.S.
principle executive offices are located in San Francisco and European executive
offices are located in Munich, Germany.

The Company is subject to a number of risks, including, but not limited to
rapid technology changes, dependence on certain significant customers and
changes in the exchange rate between the U.S. dollar and the Deutsche Mark or
euro. The future viability of the Company is dependent upon its ability to
develop or acquire new technologies which may require substantial investments.
Portions of such investments might not be recoverable if development efforts are
not successful or fail to gain commercial market acceptance. These investments
are dependent upon the Company's ability to generate sufficient cash flows from
operations in the future or to raise additional capital through other means.

(b) Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America. The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.

The Company generates revenue from: product licensing fees; post-contract
support and maintenance; and collaborative software co-development agreements
with public entities, primarily the European Commission (Product segment);
solutions to modify, customize and integrate the software (Professional Services
segment;) and from the operation of Internet communities (Communities segment).

The Company recognizes revenues in accordance with AICPA Statement of
Position (SOP) 97-2, Software Revenue Recognition. Product license fee revenues
are recognized when the following criteria have been met: persuasive evidence of
an arrangement exists; delivery has occurred; the fee is fixed or determinable;
and collectibility is probable. Revenue from multiple element software
arrangements are allocated to each element of the arrangement based on the
relative fair value of each element. Advance payments received in excess of
amounts earned are recorded as deferred income.

F-8
<PAGE> 88

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenues from post-contract customer support and maintenance services are
recognized ratably over the term of the support period, typically twelve months.
Revenue from Professional Services is recognized when earned based upon the
performance requirements of the respective agreements. These agreements are
generally less than one year. Revenues from the operation of Internet
communities are recognized as the services are performed.

Barter transactions are recognized when services have been received or used
and are reported at the estimated fair value of the services received. No
revenue was recognized from barter transactions during any of the three years
ended July 31, 1999. During fiscal 1999, Cybertown entered one barter
transaction, however, the fair value of the transaction was not determinable
and, therefore, no revenue or expense was recognized.

Public Entity Agreements

The Company has been awarded co-development agreements with public
entities, primarily the European Commission. These agreements typically call for
the collaboration of the Company and others on the development of a specified
software technology. Revenue under collaborative co-development agreements
typically consist of research and co-development milestone payments. Revenue is
earned upon the attainment milestones, which is determined when the public
entity agrees that the required results stipulated in the contract have been
met. The Company does not have an obligation to refund, nor does there exist the
presumption of an obligation to refund, ongoing research and co-development
payments.

The Company's collaborative agreements with the European Commission are
generally three years in length, are classified as product revenues and have
accounted for 19%, 21% and 0% of total revenues in 1999, 1998 and 1997,
respectively. Such revenues approximate one half of the aggregate research and
development expenses and applicable overhead costs incurred by the Company. As
part of the long-term agreements, the European Commission acquires the right to
internally use and purchase, on favorable terms, the products that are developed
as a result of research and development activities. The collaborators retain the
rights to market the products developed.

(d) Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit with banks and
investments with maturities of three months or less at the time of acquisition.

(e) Projects in Process

Projects in process includes costs incurred on collaborative software
co-development agreements and contracts to modify, customize and integrate
software. These costs primarily include direct labor, allocated overhead and any
cost of materials or other specified contract costs.

(f) Equipment

Equipment are stated at cost and depreciated on a straight-line basis over
their estimated useful lives, generally three years.

(g) Goodwill and other Intangible Assets

The excess of purchase price over the fair value of net assets acquired is
capitalized as goodwill. Goodwill and other intangible assets are amortized on a
straight-line basis over the expected period to be benefited, which is
thirty-six months for goodwill and from seven to thirty-six months for other
intangible assets.

F-9
<PAGE> 89

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(h) Impairment of Long-lived Assets

The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Estimated fair value is generally based on either appraised value or
measured by undiscounted estimated future cash flows. Considerable management
judgment is necessary to estimate undiscounted future cash flows.

(i) Capitalized Software

Costs incurred in the research and development of new software products are
expensed as incurred until technological feasibility in the form of a working
model has been established. As of July 31, 1999, all costs incurred between
technological feasibility and the first shipment of product have been
insignificant, and, accordingly, no costs have been capitalized.

(j) Software Development and Maintenance

Software development and maintenance consists of costs incurred under
co-development contracts; post-contract support and maintenance; and product
research and development.

(k) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years that those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

(l) Foreign Currency Translation

The reporting currency for the consolidated financial statements is the
U.S. dollar. The financial statements of blaxxun interactive AG are measured
using the local currency Deutsche Mark (DM) as the functional currency. Assets
and liabilities of the blaxxun interactive AG are translated to U.S. dollars at
year-end exchange rates, and revenues and expenses are translated at average
rates prevailing during the year. Differences arising from the translation of
assets and liabilities in comparison with the translation of previous periods
are included in other comprehensive income and are reported as a separate
component of stockholders' equity (deficit). Foreign currency transaction gains
and losses are included in results of operations.

On January 1, 1999, certain member nations of the European Economic and
Monetary Union (EMU) adopted a common currency, the euro. The exchange rates of
the national currencies of all EMU members, including the DM, were fixed to the
euro effective January 1, 1999. This change to the euro is not expected to
significantly impact the Company.

(m) Stock-Based Compensation

The Company accounts for its stock-based compensation arrangements using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25 (APB 25); Accounting for Stock Issued to Employees, and applies the pro forma
disclosure requirements under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. As such, compensation expense is
recorded
F-10
<PAGE> 90

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

when, at the date of grant, the intrinsic value of the underlying common stock
exceeds the exercise price for stock options.

(n) Basic and Diluted Earnings (Loss) per Share

Basic earnings (loss) per share is based upon the weighted average number
of common shares outstanding during the period. Diluted earnings (loss) per
share is based upon the weighted average number of common shares outstanding
during the period plus additional weighted average common equivalent shares
outstanding during the period, computed using the "if-converted method". Common
equivalent shares have been excluded from the computation of diluted loss per
share, as their effect would have been anti-dilutive in each period presented.
Had the Company reported net income for the fiscal year ended July 31, 1999, the
weighted average number of shares outstanding at July 31, 1999 would have
increased by 446,019 for stock options (not assuming the effects of applying the
treasury stock method).

The reconciliation of the numerators and denominators of the basic and
diluted loss per share computations for the Company's reported net loss is as
follows:

<TABLE>
<CAPTION>
BASIC AND DILUTED LOSS PER SHARE
FOR THE YEARS ENDED JULY 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net loss.................................. $(6,830,517) $(3,076,221) $(5,352,345)
Denominator:
Weighted average number of basic and
diluted shares outstanding............. 285,093 119,473 8,000
----------- ----------- -----------
Basic and diluted loss per share............ $ (23.96) $ (25.75) $ (669.04)
=========== =========== ===========
</TABLE>

As described in Note 4, conversion of all preferred stock will occur upon
the completion of a qualified public offering of the Company's common stock. Had
these shares been converted, the weighted average number of shares would have
increased by 7,646,572, 5,021,286, and 4,960,000 at July 31, 1999, 1998 and
1997, respectively.

(o) Use of Estimates

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

(p) Reclassifications

Certain prior year amounts have been reclassified to conform to the 1999
presentation.

(q) New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains and losses resulting from changes in
the value of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133, as
amended, is effective for the Company's fiscal year beginning August 1, 2000.
The Company has assessed that, based on the derivative activity during 1999, the

F-11
<PAGE> 91

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

adoption of this statement would not have had a significant impact on its
financial position at July 31, 1999 and results of operations and liquidity for
the year then ended. The Company will continue to monitor the potential
financial impact through the date of adoption.

(2) BALANCE SHEET COMPONENTS

(a) Accounts Receivable

Included in accounts receivable at July 31, 1999 are $647,348 receivables
from four customers. As of July 31, 1998 six customers accounted for $156,994 of
accounts receivable. The Company did not have a concentration of accounts
receivable at July 31, 1997.

(b) Equipment

Equipment consisted of the following as of July 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Purchased software................................. $125,668 98,340 71,439
Computers and equipment............................ 528,267 437,976 397,204
Furniture and fixtures............................. 8,093 10,283 9,732
-------- -------- --------
662,028 546,599 478,375
Less accumulated depreciation...................... (452,022) (421,484) (296,321)
-------- -------- --------
$210,006 125,115 182,054
======== ======== ========
</TABLE>

Depreciation and amortization expense for equipment amounted to $88,671,
$125,163 and $159,247 for the years ended July 31, 1999, 1998 and 1997,
respectively.

Goodwill and other intangible assets consisted of the following as of July
31, 1999:

<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Goodwill.................................................... $10,575,920
Less accumulated amortization............................... (3,247,459)
-----------
Goodwill, net............................................. 7,328,461
-----------
Other intangible assets..................................... 205,000
Less accumulated amortization............................... (78,333)
-----------
Other intangible assets, net.............................. 126,667
-----------
Goodwill and other intangible assets, net................... $ 7,455,128
===========
</TABLE>

Other intangible assets include an assembled workforce and licensing
agreements related to the purchase of the remaining interest in blaxxun
interactive AG. See Note 6 -- Acquisitions for additional discussion.
Amortization expense for intangible assets amounted to $3,325,792 for the year
ended July 31, 1999.

F-12
<PAGE> 92

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Accrued Expenses

Accrued expenses as of July 31, 1999, 1998 and 1997, consisted of the
following:

<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- -------
<S> <C> <C> <C>
Accrued interest expense.......................... $ 484,829 371,227 152,162
Compensation and benefits......................... 557,673 330,519 201,191
Outstanding invoices.............................. 287,605 192,261 132,018
Professional fees................................. 211,042 165,770 98,813
Losses from contractual obligations............... -- 92,068 142,034
Trademark claim................................... -- -- 124,690
Other............................................. 31,859 39,426 4,960
---------- --------- -------
$1,573,008 1,191,271 855,868
========== ========= =======
</TABLE>

Accrued interest expense includes a pro rata portion of the expected
repayment premiums of long-term notes payable. See Note 8.

(3) COMMITMENTS

The Company leases its facilities and certain other equipment under
operating lease agreements expiring through 2004.

Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING JULY 31:
- --------------------
<S> <C>
2000...................................................... $ 582,753
2001...................................................... 467,840
2002...................................................... 461,873
2003...................................................... 353,837
2004...................................................... 353,837
----------
$2,220,140
==========
</TABLE>

Rent expense was $102,706, $121,178 and $340,305 for the years ended July
31, 1999, 1998 and 1997, respectively.

(4) STOCKHOLDERS' EQUITY (DEFICIT)

(a) Common Stock

Common stock outstanding as of July 31, 1999, 1998 and 1997 consisted of
378,886, 166,299 and 8,000 shares, par value $0.01.

On March 17, 1999, the Board of Directors of the Company approved an
increase in the authorized number of shares of common stock from 10,000,000 to
10,500,000.

F-13
<PAGE> 93

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Convertible Preferred Stock

Convertible preferred stock, par value $0.01 per share, as of July 31, 1999
consisted of the following issuances:

<TABLE>
<CAPTION>
SHARES ISSUED CONVERTIBLE
AND INTO SHARES OF LIQUIDATION
OUTSTANDING COMMON STOCK PREFERENCE
------------- -------------- -----------
<S> <C> <C> <C>
Series A
Series A-1................................ 200,000 1,814,925 $ 1,215,506
Series A-2................................ 135,000 1,225,075 1,186,566
Series A-3................................ 167,500 1,520,000 2,344,191
--------- --------- -----------
502,500 4,560,000 4,746,263
Series B.................................... 400,000 400,000 2,336,473
Series C.................................... 798,910 798,910 4,503,459
Series D.................................... 1,976,000 1,976,000 10,591,360
Series E.................................... 375,000 375,000 3,052,500
--------- --------- -----------
4,052,410 8,109,910 $25,230,055
========= ========= ===========
</TABLE>

Preferred stock as of July 31, 1998 consisted of the following convertible
preferred stock, par value $0.01 per share:

<TABLE>
<CAPTION>
SHARES ISSUED CONVERTIBLE
AND INTO SHARES OF LIQUIDATION
OUTSTANDING COMMON STOCK PREFERENCE
------------- -------------- -----------
<S> <C> <C> <C>
Series A
Series A-1................................ 200,000 1,814,925 $ 1,157,625
Series A-2................................ 135,000 1,225,075 1,130,063
Series A-3................................ 167,500 1,520,000 2,232,563
--------- --------- -----------
502,500 4,560,000 4,520,251
Series B.................................... 400,000 400,000 2,225,213
Series C.................................... 648,910 648,910 3,494,580
--------- --------- -----------
1,551,410 5,608,910 $10,240,044
========= ========= ===========
</TABLE>

Preferred stock as of July 31, 1997 consisted of the following convertible
preferred stock, par value $0.01 per share:

<TABLE>
<CAPTION>
SHARES ISSUED CONVERTIBLE
AND INTO SHARES OF LIQUIDATION
OUTSTANDING COMMON STOCK PREFERENCE
------------- -------------- -----------
<S> <C> <C> <C>
Series A
Series A-1................................. 200,000 1,814,925 $1,102,500
Series A-2................................. 135,000 1,225,075 1,076,250
Series A-3................................. 167,500 1,520,000 2,126,250
------- --------- ----------
502,500 4,560,000 4,305,000
Series B..................................... 400,000 400,000 2,119,250
------- --------- ----------
902,500 4,960,000 $6,424,250
======= ========= ==========
</TABLE>

F-14
<PAGE> 94

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Holders of the preferred stock are entitled to one vote for each share of
common stock into which such shares may be converted.

Each share of Series A, B, C, D and E preferred stock is convertible into
common stock at the option of the holder, subject to certain adjustments. All
outstanding shares of preferred stock will automatically convert to common stock
upon the completion of an underwritten public offering of the Company's common
stock in which the aggregate gross proceeds equal or exceed $10,000,000. The
Company has reserved a sufficient number of shares of common stock to permit
conversion of the preferred stock in accordance with the respective terms.

During fiscal 1998 the Company issued 555,626 shares of Series C
convertible preferred stock for cash of $2,978,155. Additionally a note payable
for $500,000 was converted into 93,284 shares of Series C convertible preferred
stock. See Note 8.

During fiscal 1999 the Company issued 150,000 shares of Series C
convertible preferred stock for cash of $804,000 and 375,000 shares of Series E
convertible preferred stock for cash of $3,000,000. Additionally, during fiscal
1999, the Company issued 1,976,000 shares of Series D convertible preferred
stock in conjunction with the acquisition of the minority interests in blaxxun
interactive AG, as more fully disclosed in Note 6.

In the event of liquidation, the preferred stock has preference over the
common stock in the amounts of $0.55, $0.82, $1.32, $5.00, $5.36, $5.36 and
$8.00 (adjusted to an as converted basis) per share for Series A-1, A-2, A-3, B,
C, D and E convertible preferred stock, respectively, plus an amount of 5% of
the liquidation preference for such shares of preferred stock compounded per
annum (excluding Series D convertible preferred stock), plus declared but unpaid
dividends, subject to certain adjustments. No dividends have been declared
during the three years until July 31, 1999. The Series D convertible preferred
stock is subordinate in liquidation preference to the Series A, B, C and E
convertible preferred stock.

During 1996, the Company adopted the 1996 Stock Plan (the "1996 Plan").
Pursuant to the 1996 Plan, 1,064,000 shares of the Company's common stock have
been reserved for issuance. The 1996 Plan provides for the grant of incentive
stock options, non-qualified stock options and stock awards to employees of the
Company. Under the 1996 Plan, incentive stock options shall not be granted at
less than the fair market value per share of common stock on the date of grant
and all other options to purchase shares of common stock may be granted at an
exercise price determined by the Compensation Committee of the Board of
Directors or, in the absence of such a committee, by the Board of Directors and
such exercise price shall not be less than the minimum legal consideration
required under the laws of the State of Delaware. Employee options expire 10
years from the date granted and generally vest over service periods ranging up
to 48 months.

During 1999, the Company adopted the 1999 Stock Plan (the "1999 Plan").
Pursuant to the 1999 Plan, 1,000,000 shares of the Company's common stock have
been reserved for issuance. The 1999 Plan provides for the grant of incentive
stock options, non-qualified stock options and stock awards to current and
future employees of the Company. The terms and conditions under the 1999 Plan
are consistent with the 1996 Plan. No options under the 1999 Plan were granted
during the fiscal year ended July 31, 1999.

F-15
<PAGE> 95

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in outstanding options under the Company's 1996 Plan are as
follows:

<TABLE>
<CAPTION>
NUMBER OF
OPTIONS RANGE OF
OUTSTANDING EXERCISE PRICE
----------------- --------------
<S> <C> <C>
Balance as of July 31, 1996........................ 264,936 $ 0.0013
Options granted.................................. 373,611 0.0013 - 1.00
Options canceled................................. (329,757) 0.0013 - 1.00
-------- --------------
Balance as of July 31, 1997........................ 308,790 $0.0013 - 0.50
Options granted.................................. 265,585 0.01 - 0.50
Options exercised................................ (85,114) 0.0013 - 0.50
Options canceled................................. (42,471) 0.0013 - 0.50
-------- --------------
Balance as of July 31, 1998........................ 446,790 $ 0.01 - 0.50
Options granted.................................. 225,500 0.01 - 3.00
Options exercised................................ (162,587) 0.01 - 0.50
Options canceled................................. (27,818) 0.01 - 2.00
-------- --------------
Balance as of July 31, 1999........................ 481,885 $ 0.01 - 3.00
======== ==============
</TABLE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------------
NUMBER NUMBER
OUTSTANDING AT OUTSTANDING AT
JULY 31, 1998 GRANTED EXERCISED CANCELED JULY 31, 1999
-------------- ------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Exercise price $0.01......... 255,990 50,000 (135,108) (1,750) 169,132
Exercise price $0.50......... 190,800 4,700 (27,479) (4,084) 163,937
Exercise price $1.50......... -- 43,500 -- (20,333) 23,167
Exercise price $2.00......... -- 43,300 -- (1,651) 41,649
Exercise price $2.50......... -- 2,000 -- -- 2,000
Exercise price $3.00......... -- 82,000 -- -- 82,000
------- ------- -------- ------- -------
446,790 225,500 (162,587) (27,818) 481,885
======= ======= ======== ======= =======
</TABLE>

The weighted average grant date fair value of options granted during the
year ended July 31, 1999 was $1.94.

The following table provides summary information about the Company's stock
options outstanding and stock options exercisable at July 31, 1999:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE AT JULY 31, EXERCISE
EXERCISE PRICE JULY 31, 1999 LIFE PRICE 1999 PRICE
- -------------- -------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.01 - $1.00 333,069 8.5 $0.25 157,652 $0.14
$1.00 - $2.00 64,816 9.4 1.64 7,944 1.46
$2.00 - $3.00 84,000 9.7 2.99 0 0
------- --- ----- ------- -----
481,885 8.8 $0.92 165,596 $0.20
======= === ===== ======= =====
</TABLE>

As of July 31, 1999, 1998 and 1997, there was an aggregate 1,203,229,
450,911 and 747,210 additional shares available for grant under the 1996 and
1999 Plans.

The Company accounts for stock-based compensation using the intrinsic value
method prescribed by APB No. 25, Accounting for Stock Issued to Employees, under
which no compensation cost for stock options

F-16
<PAGE> 96

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is recognized for stock option awards granted at or above fair market value. The
Company has recorded deferred compensation expense during the years ended July
31, 1999, 1998 and 1997 of $79,175, $114,778 and $127,577, respectively, for the
difference between the grant price and the estimated fair value of the Company's
stock as of the date of grant. This amount is being amortized over the vesting
period, generally ranging up to 48 months, of the individual option grants on a
straight-line basis, determined separately for each portion of the options that
vest in each year. Deferred compensation expense amortized during the years
ended July 31, 1999, 1998 and 1997 was $41,018, $35,182 and $91,729,
respectively.

Had the Company determined compensation cost based on the fair value at the
grant date under SFAS No. 123, the Company's net loss would have been increased
to the pro-forma amounts indicated below.

<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net Loss:
As reported................................. $(6,830,517) (3,076,221) (5,352,345)
Effect of 1996 Plan......................... (51,982) (140,796) (293,001)
----------- ---------- ----------
Pro forma................................... $(6,882,499) (3,217,017) (5,645,346)
=========== ========== ==========
</TABLE>

The fair value of stock options is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: 1999 risk free interest rate of 5.9%, an expected dividend yield of
0.0%, and an expected life of 7 years; 1998 risk free interest rate of 6.3%, an
expected dividend yield of 0.0%, and an expected life of 7 years; 1997 risk free
interest rate of 6.42% and an expected life of 10 years.

Pro forma results reflect only options granted in 1999, 1998 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts referred
to above because compensation cost is reflected over the vesting period of the
options.

(5) RELATED PARTY TRANSACTIONS

CMGI@Ventures (CMGI) and affiliated companies have provided the Company
with services during the years ended July 31, 1999, 1998 and 1997 for which
$59,706, $46,223 and $60,007, respectively, in fees were charged. CMGI is a
related party by virtue of its ownership of the Company's entire Series A
convertible preferred stock, and 93,284 shares of Series C convertible preferred
stock. Based on the Company's outstanding common and preferred shares as of July
31, 1999, CMGI's financial interest reflected a 56.46% voting interest in the
Company.

In addition, the Company recognized revenues of $243,000 with CMGI-related
companies in the year ended July 31, 1997. The Company did not have related
party revenues in the years ended July 31, 1999 and 1998.

(6) ACQUISITIONS

During fiscal 1996, the Company acquired a 50.5% interest in blaxxun
interactive AG upon its formation for $36,973 in cash. Effective August 11,
1997, the Company increased its interest in blaxxun interactive AG by 8.25% to
58.75% through a $500,000 capital contribution. Since the financial interest of
the minority shareholders was reduced to zero during 1997, all financial results
of blaxxun interactive AG since that date have been 100% consolidated by the
Company.

On August 10, 1998, the Company acquired 458 shares of blaxxun interactive
AG in exchange for 1,829,631 shares of Series D convertible preferred stock of
the Company. The Series D convertible preferred stock was valued by an
independent consultant at $5.36 per share, or total consideration of $9,806,822.
The acquisition represented 38.17% of the outstanding common stock of blaxxun
interactive AG.

F-17
<PAGE> 97

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On June 30, 1999, the Company acquired the remaining shares of blaxxun
interactive AG in exchange for 146,369 shares of Series D convertible preferred
stock of the Company. The Series D convertible preferred shares were valued by
an independent consultant at $8.00 per share, or total consideration of
$1,170,952.

The Company accounted for the acquisitions of the minority interests using
the purchase method of accounting. During 1999, the Company incurred a charge
immediately following the acquisition for purchased research and development
costs. The charge of $195,000, included in amortization expense, represents the
fair value of the technologies acquired for use in the Company's own development
efforts. The Company determined the amount of the purchase price to be allocated
to in-process research and development based upon an independent third party
valuation. The technological feasibility of the products being developed had not
been established as of the date of the acquisition and, if unsuccessful, had no
alternative future use in research and development activities or otherwise. The
purchase price was also allocated to identifiable intangible assets including an
assembled work force ($190,000); licensing agreements ($15,000) and goodwill
($10,577,774). These intangible assets are being amortized over periods ranging
from seven to 36 months.

On October 31, 1998, the Company acquired all the shares of Cybertown, Inc.
in exchange for 50,000 shares of common stock of the Company. The shares were
valued at $1.00 per share. In addition, the Company paid a cash consideration of
$100,000 and assumed net liabilities of $ 32,386.

On August 20, 1997, the Company acquired substantially all of the
technology rights of GLView, a VRML browser for 73,185 shares of common stock,
which had a fair value of $36,593.

In August 1996, the Company acquired substantially all of the technology
rights and assets of Attic Graphics, Inc. for $5,000 in cash and 8,000 shares of
common stock.

(7) INCOME TAXES

Loss before income taxes is attributable to the following geographic
locations for the fiscal years ended July 31:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
United States................................. $(5,455,279) (978,545) (4,733,232)
Germany....................................... (1,373,638) (2,096,876) (618,313)
----------- ---------- ----------
Loss before taxes............................. $(6,828,917) (3,075,421) (5,351,545)
=========== ========== ==========
</TABLE>

Income tax expense for the years ended July 31, consisted of the following:

<TABLE>
<CAPTION>
1999 1998 1997
------ ---- ----
<S> <C> <C> <C>
Current:
United States............................................. $1,600 800 800
Germany................................................... -- -- --
------ --- ---
1,600 800 800
------ --- ---
Deferred:
United States............................................. -- -- --
Germany................................................... -- -- --
------ --- ---
$1,600 800 800
====== === ===
</TABLE>

F-18
<PAGE> 98

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at July 31, are
presented below:

<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
Accrued expenses................................. $ 178,414 2,142 --
Deferred start-up costs.......................... 57,228 110,997 155,395
Net operating loss carryforwards................. 1,693,371 616,430 360,598
Others........................................... 544 272 272
----------- -------- --------
Total deferred tax assets........................ 1,929,557 729,841 516,265
Less valuation allowance......................... (1,926,902) (726,985) (414,491)
----------- -------- --------
Total deferred tax assets less valuation
allowance...................................... 2,655 2,856 101,774
----------- -------- --------
Deferred tax liabilities......................... (2,655) (2,856) (101,774)
Total deferred tax liabilities................... (2,655) (2,856) (101,774)
----------- -------- --------
Net deferred tax................................. -- -- --
=========== ======== ========
</TABLE>

The acquisitions of blaxxun interactive AG and Cybertown, Inc. were
structured as a tax-free exchange of stock, therefore, the difference between
recognized fair values of acquired net assets and their historical tax bases are
not deductible for tax purposes.

The Company computes its income tax provision on a separate return basis.
Prior to August 1, 1998 the Company was included as a member of the CMGI
consolidated group for income tax purposes. As such, all U.S. federal and
California state net operating losses and research credits generated by the
Company since inception to July 31, 1998 have been fully utilized by the CMGI
consolidated group and will not be available to the Company in the future.

Based on the available objective evidence, management believes it is more
likely than not that the net deferred tax assets will not be fully realizable,
therefore, management has established a valuation allowance for a portion of
deferred tax assets. The valuation allowance for deferred tax assets was
$1,926,902, $726,985 and $414,491 as of July 31, 1999, 1998, and 1997,
respectively. The net change in the valuation allowance for the year ended July
31, 1999 and 1998 was an increase of $1,199,917 and $312,494, respectively.

At July 31, 1999, 1998 and 1997, the Company had total net operating loss
carryforwards of $3,656,778, $1,146,633 and $670,756, respectively, of which
$1,703,868, $1,146,633 and $670,756 related to its German operations and
$1,952,910, $0 and $0 to its U.S. operations, respectively. The net operating
loss carryforwards are available to reduce future income subject to income
taxes. The U.S. net operating loss carryforwards expire in 2019 and the German
net loss carryforwards are not subject to an expiration date.

U.S. tax laws impose substantial restrictions on the utilization of net
operating loss and credit carryforwards in the event of an "ownership change"
for tax purposes, as defined in Section 382 of the Internal Revenue Code. German
tax regulations impose similar restrictions. The Company has not yet determined
whether an ownership change occurred due to significant stock transactions in
each of the reporting years disclosed. If an ownership change occurred,
utilization of the net operating loss carryforwards could be reduced
significantly.

F-19
<PAGE> 99

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the principal reasons for the difference
between the effective tax rate and the United States federal statutory income
tax rate of 34% for the years ended July 31:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" income tax (benefit)
expense at the United States federal statutory
income tax rate............................... $(2,321,832) (1,045,643) (1,819,525)
Increase (decrease) in taxes resulting from:
State and local income tax expense.......... 1,600 800 800
Losses for which tax benefit was not
utilized................................. 1,493,214 662,072 332,405
Losses transferred to CMGI consolidated
group.................................... -- 317,830 1,605,468
Goodwill amortization....................... 1,207,333
Foreign tax rate differential............... (415,802) 50,866 (122,179)
Nondeductible expenses...................... 37,087 14,875 3,831
----------- ---------- ----------
Provision for income taxes.................... $ 1,600 800 800
----------- ---------- ----------
Effective income tax rate..................... (0.02)% (0.04)% (0.01)%
=========== ========== ==========
</TABLE>

(8) NOTES PAYABLE

Notes payable consisted of the following as of July 31, 1999, 1998 and
1997:

<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Unsecured convertible note due 2007.............. $ -- -- 400,000
Unsecured DM 3,000,000 note due 2006
(Note I)....................................... 1,639,435 1,689,664 1,640,689
Unsecured DM 1,700,000 note due 2007
(Note II)...................................... 929,012 957,477 --
Unsecured DM 1,700,000 convertible note due 2007
(Note III)..................................... 1,207,716 1,244,720 --
---------- --------- ---------
$3,776,163 3,891,861 2,040,689
========== ========= =========
</TABLE>

On July 24, 1996, blaxxun interactive AG entered into an unsecured loan
agreement due on July 31, 2006 for which total borrowings cannot exceed
DM3,000,000 (Note I). Interest includes both a fixed and variable component
depending on the amount of borrowings and the schedule of repayment. The fixed
interest rate is 6% per annum payable in arrears on March 31 and September 30.
For the variable interest portion of Note I, see discussion of Note II below.
The original issue discount is 1% of the face value of the note, payable at the
time of issuance which the Company is amortizing on a straight-line basis over
60 months. A repayment premium of 15% of the face value of the note is payable
in case of repayment by July 29, 1998. The repayment premium is 30% in case of
repayment from July 30, 1998 to July 30, 2001. The repayment premium increases
by 6% each year after July 31, 2001. The maximum repayment premium is 60% in
case of repayment by July 31, 2006. The Company is accruing, as part of interest
expense, a repayment premium assuming repayment of the note prior to July 30,
2001. The Company can call and repay the note on a half-year-basis on June 30
and December 31 by giving three months prior notice. The issuance of the note
required a long-term loan from the Company to blaxxun interactive AG of
DM3,000,000 (the "Intercompany Loan"). The holder of the note can terminate the
note in certain circumstances, including in the case of repayment of the
Intercompany Loan.

F-20
<PAGE> 100

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On August 26, 1997, blaxxun interactive AG entered into an unsecured loan
agreement due on December 31, 2007 for which total borrowings cannot exceed
DM1,700,000 (Note II). Interest includes both a fixed and variable component
depending on the amount of borrowings and the schedule of repayment. The fixed
interest rate is 7% per annum payable in arrears on May 31 and November 30. For
Notes I and II combined, variable interest is computed at 9% of the Company's
net income, if any. The original issue discount is 1% of the face value of the
note, payable at the time of issuance which the Company is amortizing on a
straight-line basis over 60 months. A repayment premium of 15% of the face value
of the note is payable in case of repayment by August 25, 1999. The repayment
premium is 35% in case of repayment from August 26, 1999 to August 25, 2002. The
repayment premium increases by 7% each year after August 26, 2002. The maximum
repayment premium is 70% in case of repayment by December 31, 2007. The Company
is accruing a repayment premium as part of interest expense, assuming repayment
of the note prior to August 25, 2002. The Company can call and repay the note on
a half-year-basis on June 30 and December 31 by giving three months prior
notice. Issuance of the note required a long-term loan or equity financing from
the Company to blaxxun interactive AG of DM1,700,000 (the "Intercompany
Financing"). The holder of the note can terminate the note in certain
circumstances, including in the case of repayment of the Intercompany Financing.

On November 24, 1997, blaxxun interactive AG entered into an unsecured
convertible loan agreement due on December 31, 2007 for which total borrowings
cannot exceed DM1,700,000 (Note III). Interest includes both a fixed and
variable component depending on the amount of borrowings and the schedule of
repayment. The fixed interest rate is 6.75% per annum payable quarterly in
arrears on March 31, June 30, September 30 and December 31. Variable interest is
8% of the Company's net income, if any. The minimum variable interest is 4% per
annum of the face value of the note, payable in the case the Company generates
net income. The maximum variable interest per annum is 10% of the face value of
the note. The loan agreement contains a repayment premium of 30% of the face
value of the note or DM510,000. The note is convertible into Series B
convertible preferred stock based on a formula which considers subsequent
financings by the Company through June 30, 1998. As a result the convertible
note was issued with a beneficial conversion feature with an intrinsic value of
approximately $620,310, which was allocated to additional paid-in-capital.
During fiscal 1998 the Company amortized $903,643, representing the value of the
beneficial conversion feature and the repayment premium, to interest expense
over the period from the date of issuance to June 30, 1998, the first date the
loan was convertible. The Company can call and repay the note on a
half-year-basis on June 30 and December 31 by giving 3 months prior notice.
Issuance of the note required a long-term loan or equity financing from the
Company to blaxxun interactive AG of DM 1,700,000. This is the same loan as
mentioned above (the "Intercompany Financing"). The holder of the note can
terminate the note in certain circumstances, including in case of repayment of
the Intercompany Financing. On April 21, 1999, the holder of the note exercised
the conversion option. The note was not converted at July 31, 1999, due to the
parties clarifying one component of the conversion formula. The Company has
continued to accrue interest on this obligation through July 31, 1999, pending
completion of the negotiations.

The loan agreements contain various covenants, including that the holder of
the note can terminate the note in case of repayment of the Intercompany
Financing and Intercompany Loan. The Company was in compliance with such
agreements at July 31, 1999, 1998 and 1997.

On September 11, 1997, the Company entered into a convertible loan
agreement with CMG@Ventures and ERM Equity Research and Management
Aktiengesellschaft fur Beteiligungsberatung for which total borrowings would not
exceed $1,000,000. As of July 31, 1997, the Company had borrowed $400,000 in
anticipation of the agreement. During the fiscal year 1998, the Company borrowed
an additional $600,000. Borrowings under this agreement mature on December 31,
2007 and are secured by certain assets of the Company. The interest rate was
equal to FIBOR plus 4%. In June 1998, $500,000 of the note was converted into
93,284 shares of Series C convertible preferred stock based on the terms of the
Series C Convertible

F-21
<PAGE> 101

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Preferred Stock Purchase agreement, dated June 24, 1998. In July 1998, the
remaining $500,000 was repaid. Upon conversion and repayment this loan agreement
was cancelled.

(9) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair values of the
Company's financial instruments at July 31, 1999, 1998 and 1997. FASB Statement
No. 107, Disclosures about Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.

<TABLE>
<CAPTION>
1999 1998 1997
---------------------- --------------------- ---------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Notes payable.................. $3,776,163 5,598,172 3,891,861 4,798,626 2,040,689 2,295,649
</TABLE>

Estimation of Fair Values

The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments.

Short-term financial instruments are valued at their carrying amounts
included in the statement of financial position, which are reasonable estimates
of fair value due to the relatively short period to maturity of the instruments.
This approach applies to cash and cash equivalents, receivables, and accounts
payable.

Notes payable are valued at their present value of estimated future cash
flows using a discount rate commensurate with the risks involved and assuming no
variable interest due based on the Company's net income. Notes payable
convertible into preferred stock are valued as if conversion on the balance
sheet date using the fair value of preferred securities derived from an
independent third party valuation.

(10) BUSINESS SEGMENTS

In fiscal 1999, the Company adopted SFAS 131, Disclosures about Segments of
an Enterprise and Related Information.

Starting in fiscal 1999, the Company conducts its business within three
business segments: Products, Professional Services and Communities. The Products
segment develops, markets and licenses the Company's technology products for
virtual worlds on the Internet; provides post-contract support and maintenance;
and enters into collaborative co-development agreements for the development of
specific technological applications. In the Professional Services segment, the
Company supports customers in the design, customization and integration of the
Company's technology products into the software systems of their customers. The
Communities segment operates selected online communities, based on blaxxun's
technology. During 1999, the operations of the Communities segment consisted
solely of Cybertown, an Internet entertainment website.

The Company's Chief Executive Officer is its Chief Operating Decision Maker
("CODM"). The CODM evaluates the performance of its segments based on revenues
and EBITA ("earnings before interest, taxes and amortization of goodwill and
other intangible assets"). Based on the nature of the Company's business, assets
are not reported internally on a segment by segment basis. In addition, the CODM
does not allocate resources based on segment assets. Therefore, segment assets
have not been presented by segment in the accompanying schedules. There are no
differences between the accounting policies used to measure profit and loss for
segments and those used on a consolidated basis. Inter-segment transactions are
recorded at the estimated fair value of the transaction. Revenues are allocated
to countries based on the location of the customer.

F-22
<PAGE> 102

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EBITA should not be construed as an alternative to net earnings determined
in accordance with generally accepted accounting principles or to cash flow from
operations, investing activities or financing activities or as a measure of cash
flows. Because EBITA is not calculated consistently by all companies, the
presentation herein may not be comparable to other similarly titled measures of
other companies.

Business segments:

<TABLE>
<CAPTION>
PROFESSIONAL CORPORATE AND
1999 PRODUCTS SERVICES COMMUNITIES RECONCILIATION CONSOLIDATED
- ---- ----------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 1,156,222 726,864 -- (36,648) 1,846,438
EBITA (loss).................. (2,256,615) (84,571) (863,993) -- (3,205,179)
Amortization of goodwill and
other intangible assets.... (3,520,792) (3,520,792)
Interest, net................. (102,946)
----------
Net loss before taxes......... $ (6,828,917)
==========
</TABLE>

<TABLE>
<CAPTION>
PROFESSIONAL CORPORATE AND
1998 PRODUCTS SERVICES COMMUNITIES RECONCILIATION CONSOLIDATED
- ---- ----------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................. $ 761,266 431,935 -- -- 1,193,201
EBITA (loss)............. (1,586,405) (205,691) -- -- (1,792,096)
Interest, net............ (1,283,325)
----------
Net loss before taxes.... $ (3,075,421)
==========
</TABLE>

<TABLE>
<CAPTION>
PROFESSIONAL CORPORATE AND
1997 PRODUCTS SERVICES COMMUNITIES RECONCILIATION CONSOLIDATED
- ---- ----------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues............. $ 314,551 280,855 -- -- 595,406
EBITA (loss)............. (5,231,887) 33,311 -- -- (5,198,576)
Interest, net............ (152,969)
----------
Net loss before taxes.... $ (5,351,545)
==========
</TABLE>

Consolidated net revenue by geographic area:

<TABLE>
<CAPTION>
1999 CONSOLIDATED
- ---- ------------
<S> <C>
Germany................................................... 973,456
United States............................................. 380,498
Belgium................................................... 294,134
Other..................................................... 198,350
---------
1,846,438
=========
</TABLE>

<TABLE>
<CAPTION>
1998 CONSOLIDATED
- ---- ------------
<S> <C>
Belgium................................................... 276,798
Germany................................................... 268,900
Canada.................................................... 159,375
United Kingdom............................................ 259,906
Other..................................................... 228,222
---------
1,193,201
=========
</TABLE>

F-23
<PAGE> 103

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1997 CONSOLIDATED
---- ------------
<S> <C>
United States............................................. $312,838
Germany................................................... 282,568
--------
$595,406
========
</TABLE>

Long-lived assets by country:

<TABLE>
<CAPTION>
1999 GERMANY U.S. CONSOLIDATED
- ---- ---------- ------- ------------
<S> <C> <C> <C>
Net equipment.................................. $ 157,432 52,574 210,006
Goodwill and other intangible assets, net...... 7,316,379 138,749 7,455,128
Other long-lived assets........................ 24,581 24,676 49,257
---------- ------- ---------
$7,498,392 215,999 7,714,391
========== ======= =========
</TABLE>

<TABLE>
<CAPTION>
1998 GERMANY U.S. CONSOLIDATED
- ---- ---------- ------- ------------
<S> <C> <C> <C>
Net equipment.................................. $ 87,897 37,218 125,115
Other long-lived assets........................ 25,334 20,976 46,310
---------- ------- ---------
$ 113,231 58,194 171,425
========== ======= =========
</TABLE>

<TABLE>
<CAPTION>
1997 GERMANY U.S. CONSOLIDATED
- ---- ---------- ------- ------------
<S> <C> <C> <C>
Net equipment.................................. $ 138,578 43,476 182,054
Other long-lived assets........................ 24,337 55,069 79,406
---------- ------- ---------
$ 162,915 98,545 261,460
========== ======= =========
</TABLE>

Approximately 63%, 47% and 56% of total revenues were generated with four,
three and two significant customers during fiscal 1999, 1998 and 1997,
respectively. The revenue amounts from significant customers were derived from
the Products and Professional Services business segments and are as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ------- -------
<S> <C> <C> <C>
Customer A.......................................... $ 321,740 254,767 --
Customer B.......................................... 322,720 -- --
Customer C.......................................... 268,000 -- --
Customer D.......................................... 258,425 -- --
Customer E.......................................... -- 176,824 --
Customer F.......................................... -- 131,725
Customer G.......................................... -- -- 213,200
Customer H.......................................... -- -- 120,000
---------- ------- -------
$1,170,885 563,316 333,200
========== ======= =======
</TABLE>

(11) SUBSEQUENT EVENTS

During August and September 1999, the Company granted an aggregate 732,450
stock options to employees at an exercise price of $3 which was in excess of the
fair value of the options of $2.58 based on an independent valuation. During the
period from October 1, 1999 to December 21, 1999, the Company granted 50,720
additional stock options at exercise prices between $5.00 and $10.00.

On January 18, 2000, the Board of Directors of the Company approved an
increase in the authorized number of shares of common stock from 10,500,000 to
20,000,000.
F-24
<PAGE> 104

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additionally, on January 18, 2000, the Board of Directors approved the
issuance of 3,400,000 shares of Series F convertible preferred stock. On January
28, 2000, 215,000 shares of Series F convertible preferred stock were issued in
a private placement for cash of $2,537,000. Through February 29, 2000, 524,000
additional shares of Series F convertible preferred stock were issued in private
placements for cash of $6,183,200. In the event of liquidation, the Series F
preferred stock has preference over the common stock in the amount of $11.80
(adjusted to an as converted basis) per share. In addition, each share would
receive an amount of 5% of the liquidation preference for such shares of
preferred stock compounded per annum, plus declared but unpaid dividends,
subject to certain adjustments. Each share of Series F preferred stock is
convertible into one share of common stock at the option of the holder.

During September 1999, the Company entered into a 50% joint venture with
Cornelsen Verlag GmbH & Co. ("Cornelsen"), a German schoolbook publisher, to
create and operate learnetix.de, an Internet learning community for young
people. As part of the agreement the Company invested a net $528,144. The
Company has sold technology and has provided other software customization
services to the joint venture totaling approximately $316,605 through January
31, 2000.

In addition, the Company founded SoccerCity GmbH & Co. KG and
SoccerCity-Verwaltungsgesellschaft mbH, which operates soccercity.de, an
Internet soccer community.

As described in Note 8, the holder of the unsecured convertible note
payable exercised the conversion right on April 21, 1999. On March 29, 2000, the
Company and the holder of the note reached agreement as to the conversion terms
which provide for the issuance of 300,000 shares of Series B convertible
preferred stock in consideration for the principal balance of the note of
Deutsche Mark 1,700,000 ($929,012) and the repayment premium of Deutsche Mark
510,000 ($278,704). Accrued interest through the effective date of the
conversion will be paid in cash.

F-25
<PAGE> 105

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
AT JANUARY 31, 2000 AND JULY 31, 1999

<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,270,643 3,214,681
Accounts receivable, less allowance for doubtful accounts
of $24,714 and $66,917 at January 31, 2000 and July 31,
1999, respectively..................................... 832,092 762,976
Projects in progress...................................... 628,265 248,373
Prepaid expenses and other current assets................. 234,116 144,625
------------ -----------
Total current assets.............................. 3,965,116 4,370,655
Equipment, net.............................................. 569,306 210,006
Goodwill and other intangible assets, net................... 5,229,002 7,455,128
Investment in joint venture................................. 236,879 --
Other assets................................................ 324,815 49,257
------------ -----------
$ 10,325,118 12,085,046
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 765,757 322,390
Accrued expenses.......................................... 2,010,470 1,573,008
Deferred revenues......................................... 392,931 61,189
------------ -----------
Total current liabilities......................... 3,169,158 1,956,587
Notes payable............................................... 3,465,917 3,776,163
Commitments
Stockholders' equity:
Convertible preferred stock, $0.01 par value; 4,267,410
and 4,052,410, shares issued and outstanding as of
January 31, 2000 and July 31, 1999 (aggregate
liquidation value of $27,222,559 and $25,230,054 at
January 31, 2000 and as of July 31, 1999,
respectively).......................................... 42,674 40,524
Common stock, $0.01 par value; 20,000,000 authorized as of
January 31, 2000 and 10,500,000 authorized as of July
31, 1999; 380,553 and 378,886 issued and outstanding as
of January 31, 2000 and as of July 31, 1999,
respectively........................................... 3,806 3,789
Additional paid-in-capital................................ 28,153,774 25,250,500
Deferred compensation..................................... (441,728) (137,515)
Accumulated deficit....................................... (23,426,107) (18,475,094)
Cumulative translation adjustment......................... (642,376) (329,908)
------------ -----------
Total stockholders' equity........................ 3,690,043 6,352,296
------------ -----------
$ 10,325,118 12,085,046
============ ===========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.
F-26
<PAGE> 106

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, 2000 AND 1999

<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Revenues:
License................................................... $ 767,550 277,814
Service................................................... 1,272,329 582,285
----------- ----------
2,039,879 860,099
Operating expenses:
Software development and maintenance...................... 1,766,876 855,717
Sales and marketing....................................... 2,131,385 662,129
General and administrative................................ 934,956 499,677
Amortization of goodwill and other intangible assets...... 1,707,403 1,824,750
----------- ----------
6,540,620 3,842,273
----------- ----------
Operating loss.................................... (4,500,741) (2,982,174)
Other income (expense):
Interest income........................................... 32,041 54,199
Interest expense.......................................... (199,132) (238,646)
Loss on disposal of assets................................ -- (6,452)
Equity in loss of joint venture........................... (316,387) --
Foreign exchange, net..................................... 34,006 (202,177)
----------- ----------
Total other expenses, net......................... (449,472) (393,076)
----------- ----------
Loss before taxes................................. (4,950,213) (3,375,250)
Franchise tax expense....................................... 800 800
----------- ----------
Net loss.................................................... $(4,951,013) (3,376,050)
=========== ==========
Basic and diluted net loss per share........................ $ (13.04) (17.65)
=========== ==========
Weighted average number of basic and diluted shares
outstanding............................................... 379,803 191,299
=========== ==========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

F-27
<PAGE> 107

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, 2000

<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------------------------
COMMON STOCK SHARES CONVERTIBLE ADDITIONAL
---------------- SHARES ISSUED INTO PAID-IN DEFERRED
SHARES AMOUNT AND OUTSTANDING COMMON STOCK AMOUNT CAPITAL COMPENSATION
------- ------ --------------- ------------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of July
31, 1999........... 378,886 $3,789 4,052,410 8,109,910 $40,524 $25,250,500 $(137,515)
Issuance of common
stock upon the
exercise of stock
options............ 1,667 17 -- -- -- 1,650 --
Deferred compensation
related to grant of
stock options...... -- -- -- -- -- 366,774 (366,774)
Amortization of
deferred
compensation....... -- -- -- -- -- -- 62,561
Issuance of Series F
convertible
preferred stock.... -- -- 215,000 215,000 2,150 2,534,850 --
Accumulated
translation
adjustment......... -- -- -- -- -- -- --
Net loss............. -- -- -- -- -- -- --
------- ------ --------- --------- ------- ----------- ---------
Balance as of January
31, 2000........... 380,553 $3,806 4,267,410 8,324,910 $42,674 $28,153,774 $(441,728)
======= ====== ========= ========= ======= =========== =========

CUMULATIVE TOTAL
ACCUMULATED TRANSLATION STOCKHOLDERS' COMPREHENSIVE
DEFICIT ADJUSTMENT EQUITY LOSS
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance as of July
31, 1999........... $(18,475,094) $(329,908) $6,352,296
Issuance of common
stock upon the
exercise of stock
options............ -- -- 1,667
Deferred compensation
related to grant of
stock options...... -- -- --
Amortization of
deferred
compensation....... -- -- 62,561
Issuance of Series F
convertible
preferred stock.... -- -- 2,537,000
Accumulated
translation
adjustment......... -- (312,468) (312,468) (312,468)
Net loss............. (4,951,013) -- (4,951,013) (4,951,013)
------------ --------- ---------- -----------
Balance as of January
31, 2000........... $(23,426,107) $(642,376) $3,690,043 $(5,263,481)
============ ========= ========== ===========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

F-28
<PAGE> 108

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, 2000 AND 1999

<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,951,013) (3,376,050)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 98,602 63,111
Amortization of goodwill and other intangible assets... 1,707,403 1,824,750
Amortization of deferred compensation.................. 62,561 40,520
Loss on sale of assets................................. -- 6,452
Equity in loss of joint venture........................ 316,387 --
Changes in assets and liabilities:
Accounts receivable.................................. (32,100) (176,847)
Projects in progress................................. (379,892) (261,484)
Prepaid expenses and other current assets............ (89,491) (44,003)
Accounts payable..................................... 469,367 107,785
Accrued expenses..................................... 576,792 129,435
Deferred revenues.................................... 331,742 (14,474)
----------- ----------
Net cash used in operating activities............. (1,889,642) (1,700,805)
----------- ----------
Cash flows from investing activities:
Investment in joint venture............................... (528,144) --
Acquisition cost, net of cash acquired.................... -- (94,978)
Additions to equipment.................................... (457,902) (85,258)
Proceeds from sale of assets.............................. -- 18,825
Other..................................................... (275,558) (4,545)
----------- ----------
Net cash used in investing activities............. (1,261,604) (165,956)
----------- ----------
Cash flows from by financing activities:
Proceeds from issuance of preferred stock................. 2,537,000 804,000
Proceeds from issuance of common stock.................... 1,667 7,486
----------- ----------
Net cash provided by financing activities......... 2,538,667 811,486
----------- ----------
Effect of exchange rate changes on cash..................... (331,459) 130,032
----------- ----------
Net decrease in cash and cash equivalents................... (944,038) (925,243)
Cash and cash equivalents at beginning of period............ 3,214,681 3,111,002
----------- ----------
Cash and cash equivalents at end of period.................. $ 2,270,643 2,185,759
=========== ==========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 79,521 114,931
=========== ==========
Income taxes paid......................................... $ 800 800
=========== ==========
Non-cash financing and investing activities:
Deferred compensation related to stock option issuances... $ 366,774 108,000
=========== ==========
Issuance of common stock in connection with acquisition of
company................................................ $ -- 50,000
=========== ==========
Issuance of preferred stock in connection with acquisition
of minority interests.................................. $ -- 9,806,822
=========== ==========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

F-29
<PAGE> 109

BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000

(1) THE COMPANY AND BASIS OF PRESENTATION

The Company

The Company conducts its business within three segments: Products,
Professional Services, and Communities.

The Company is subject to a number of risks, including, but not limited to
rapid technology changes, dependance on certain significant customers and
changes in the exchange rate between the U.S. dollar and the Deutsche Mark or
euro. The future viability of the Company is dependent upon its ability to
develop and acquire new technologies which may require substantial investments.
Portions of such investments might not be recoverable if development efforts are
not successful or fail to gain commercial market acceptance. These investments
are dependent upon the Company's ability to generate sufficient cash flows from
operations in the future or to raise additional capital through other means.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited interim condensed consolidated financial
statements of blaxxun interactive, Inc. and subsidiaries have been prepared in
accordance with the principles of consolidation and accounting policies stated
in the July 31, 1999 consolidated financial statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission rules and
regulations. The accompanying financial statements should be read in conjunction
with the audited consolidated financial statements for the years ended July 31,
1999, 1998 and 1997.

The condensed consolidated financial statements include all companies in
which the Company has legal control. All intercompany transactions and balances
have been eliminated. The equity method of accounting is used for the investment
in joint venture (50% owned).

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position, results of operations and cash flows of the
interim periods presented. All such adjustments are of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of the results for the full fiscal year.

(2) BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is based upon the weighted average number
of common shares outstanding during the period. Diluted earnings (loss) per
share is based upon the weighted average number of common shares outstanding
during the period plus additional weighted average common equivalent shares
outstanding during the period, computed using the "if-converted method". Common
equivalent shares have been excluded from the computation of diluted loss per
share, as their effect would have been anti-dilutive in each period presented.
Had the Company reported net income for the six months ended January 31, 2000,
the weighted average number of shares at January 31, 2000, would have increased
by 1,247,028 for stock options (not assuming the effects of applying the
treasury stock method).

F-30
<PAGE> 110
BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reconciliation of the numerators and denominators of the basic and
diluted loss per share computations for the Company's reported net loss is as
follows:

<TABLE>
<CAPTION>
BASIC AND DILUTED LOSS PER SHARE
FOR THE SIX MONTHS ENDED
JANUARY 31
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Numerator:
Net loss................................................ $(4,951,013) $(3,376,050)
Denominator:
Weighted average number of basic and diluted shares
outstanding.......................................... 379,803 191,299
----------- -----------
Basic and diluted loss per share.......................... $ (13.04) $ (17.65)
=========== ===========
</TABLE>

The conversion of all preferred stock will occur upon the completion of a
qualified public offering of the Company's common stock. Had these shares been
converted the weighted average number of shares would have increased by
8,114,688 and 7,412,728 at January 31, 2000 and 1999, respectively.

(3) BALANCE SHEET COMPONENTS

(a) Other Assets

The Company has deferred $209,155 in incremental costs directly
attributable to the Company's proposed initial public offering of common stock.
These costs are included in other assets at January 31, 2000.

(b) Accrued expenses

Accrued expenses consisted of the following as of:

<TABLE>
<CAPTION>
JANUARY 31 JULY 31,
2000 1999
----------- ---------
<S> <C> <C>
Accrued interest expense.................................... $ 540,388 484,829
Compensation and benefits................................... 844,541 557,673
Outstanding invoices........................................ 375,735 287,605
Professional fees........................................... 228,739 211,042
Other....................................................... 21,067 31,859
---------- ---------
$2,010,470 1,573,008
========== =========
</TABLE>

Accrued interest expense includes a pro rata portion of the expected
repayment premiums of long-term notes payable.

(4) STOCKHOLDERS' EQUITY

On January 18, 2000, the Board of Directors of the Company approved an
increase in the authorized number of shares of common stock from 10,500,000 to
20,000,000

F-31
<PAGE> 111
BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

would receive an amount of 5% of the liquidation preference for such shares of
preferred stock compounded per annum, plus declared but unpaid dividends,
subject to certain adjustments. Each share of Series F convertible preferred
stock is convertible into one share of common stock at the option of the holder.

All outstanding shares of preferred stock will automatically convert to
common stock upon the completion of an underwritten public offering of the
Company's common stock in which the aggregate gross proceeds equal or exceed
$10,000,000. The Company has reserved a sufficient number of shares of common
stock to permit conversion of the preferred stock in accordance with the
respective terms.

(5) STOCK PLANS

During August and September 1999, the Company granted 732,450 stock options
to employees at an exercise price of $3 which was in excess of fair value of
options of $2.58 based on an independent valuation. During the period from
October 1, 1999 to December 21, 1999, the Company granted 50,720 additional
stock options at exercise prices between $5.00 and $10.00. The Company has
recorded deferred compensation expense during the six months ended January 31,
2000, of $366,774 for the difference between the grant price and the estimated
fair value of the Company's stock as of the date of grant. Deferred compensation
expense amortized during the six months ended January 31, 2000, was $62,561.

(6) INVESTMENT IN JOINT VENTURE

During the first six months of fiscal year 2000, the Company entered into a
50% joint venture with Cornelsen Verlag GmbH & Co. ("Cornelsen"), a German
schoolbook publisher, to create and operate learnetix.de, an Internet learning
community for young people. As part of the agreement each company has invested
$601,846. The Company has sold technology and has provided other software
customization and administrative services to the joint venture totaling
approximately $316,605 through January 31, 2000. The Company has eliminated 50%
of this revenue, related expenses and profit in these condensed consolidated
financial statements.

(7) BUSINESS SEGMENTS

In fiscal 1999, the Company adopted SFAS 131, Disclosures about Segments of
an Enterprise and Related Information.

Starting in fiscal 1999, the Company conducts its business within three
industry segments: Products, Professional Services, and Communities. The
Products segment develops, markets and licenses the Company's technology
products for virtual worlds on the Internet; provides post-contract support and
maintenance; and enters into collaborative co-development agreements for the
development of specific technological applications. In the Professional Services
segment, the Company supports customers in the design, customization and
integration of the Company's technology products into the software systems of
their customers. The Communities segment operates and invests in selected online
communities, based on blaxxun's technology. During the six months ended January
31, 1999, the Communities segment operations consisted solely of Cybertown, an
Internet entertainment website. As of January 31, 2000, the Communities segment
operated Cybertown, Soccercity and learnetix.

The Company's Chief Executive Officer is its Chief Operating Decision maker
("CODM"). The CODM evaluates the performance of its segments based on revenues
and EBITA ("earnings before interest, taxes and amortization of goodwill and
other intangible assets"). Based on the nature of the Company's business, assets
are not reported internally on a segment by segment basis. In addition, the CODM
does not allocate resources based on segment assets. Therefore, segment assets
have not been presented by segment in the accompanying schedules. There are no
significant differences between the accounting policies used to measure profit
and loss

F-32
<PAGE> 112
BLAXXUN INTERACTIVE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for segments and measurements of reportable segment assets and those used on a
consolidated basis. Inter-segment transactions are recorded at the estimated
fair value of the transaction.

EBITA should not be construed as an alternative to net earnings determined
in accordance with generally accepted accounting principles or to cash flow from
operations, investing activities or financing activities or as a measure of cash
flow. Because EBITA is not calculated consistently by all companies, the
presentation herein may not be comparable to other similarly titled measures of
other companies.

Selected segment data for the six months ended January 31, 2000 and 1999
are as follows:

<TABLE>
<CAPTION>
PROFESSIONAL CORPORATE AND
2000 PRODUCTS SERVICES COMMUNITIES RECONCILIATION CONSOLIDATED
- ---- ----------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues....................... $ 1,086,189 705,023 248,667 -- 2,039,879
EBITA (loss)....................... (1,623,068) (222,085) (914,179) -- (2,759,332)
Losses on investment in joint
venture.......................... -- -- (316,387) -- (316,387)
Amortization of goodwill and other
intangible assets................ (1,707,403)
Interest, net...................... (167,091)
----------
Net loss before taxes.............. $ (4,950,213)
==========
</TABLE>

<TABLE>
<CAPTION>
PROFESSIONAL CORPORATE AND
1999 PRODUCTS SERVICES COMMUNITIES RECONCILIATION CONSOLIDATED
- ---- ----------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net Revenues....................... $ 515,399 344,700 -- -- 860,099
EBITA (loss)....................... (1,071,511) (195,894) (98,648) -- (1,366,053)
Amortization of goodwill and other
intangible assets................ (1,824,750)
Interest, net...................... (184,447)
----------
Net loss before taxes.............. $ (3,375,250)
==========
</TABLE>

(8) SUBSEQUENT EVENTS

On March 30, 2000, the 2000 Stock Plan was adopted by the Board of
Directors. Approximately 3,000,000 shares of common stock have been reserved for
issuance under the 2000 Stock Plan. Options granted under the Plan will vest
over service periods as determined by the Board of Directors. The exercise price
of the options granted will be determined by the administrator at the time of
grant. The exercise price of incentive stock options must be at least equal to
the fair market value of the common stock on the date of grant. As of April 4,
2000, no options have been granted under this plan.

The holder of the unsecured convertible note payable exercised the
conversion right on April 21, 1999. On March 29, 2000, the Company and the
holder of the note reached agreement as to the terms which provide for the
issuance of 300,000 shares of Series B convertible preferred stock in
consideration of the principal balance of the note of Deutsche Mark 1,700,000
($852,686) and the repayment premium of Deutsche Mark 510,000 ($255,806) Accrued
interest through the effective date of the conversion will be paid in cash.

F-33
<PAGE> 113

[ALTERNATE PAGES FOR THE GERMAN PROSPECTUS]

PRELIMINARY OFFERING CIRCULAR OF [MAY ], 2000

for

7,000,000 SHARES OF COMMON STOCK

with a par value of $0.01 per share
to be newly issued by blaxxun interactive, Inc.

and
up to

1,100,000 SHARES OF COMMON STOCK

with a par value of $0.01 per share
to be sold by certain current shareholders, pursuant to an
over-allotment option granted to
DG BANK Deutsche Genossenschaftsbank AG

each such offered Share of Common Stock
eligible to receive dividends, if any, for fiscal 2000

German Securities Identification Number (WKN) 938,019

BLAXXUN INTERACTIVE, INC.

San Francisco, California, U.S.A.

A-1
<PAGE> 114

[ALTERNATE PAGES FOR THE GERMAN PROSPECTUS]

AS WELL AS

COMPANY REPORT 1999

for the admission of

26,125,592 SHARES OF COMMON STOCK

with a par value of $0.01 per share (all Shares of Common Stock outstanding
at the point of time of admission),

German Securities Identification Number (WKN) 938,019

BLAXXUN INTERACTIVE, INC.

to the Regulated Market (Geregelter Markt) with trading on the Neuer Markt

of the Frankfurt Stock Exchange.

A-2
<PAGE> 115
[ALTERNATE PAGES FOR THE GERMAN PROSPECTUS]

GENERAL INFORMATION

SUBJECT OF THIS PROSPECTUS

This prospectus will be filed with the U.S. Securities and Exchange
Commission but will not be used as a sales or listing prospectus in the United
States. In the Federal Republic of Germany, this prospectus will be filed with
the Frankfurt Stock Exchange and will serve (i) as a preliminary sales
prospectus (Verkaufsprospekt) in relation to the sale of the 7,000,000 shares of
common stock being offered by us, each share having a par value of $0.01,
$[ ]in the aggregate, and 1,100,000 shares of common stock from
holdings of certain current shareholders under the terms of an over-allotment
option we have granted to the underwriters, each share having a par value of
$0.01, $[ ] in the aggregate, and (ii) as a company report
(Unternehmensbericht) that will be used to list on the Frankfurt Stock
Exchange's Neuer Markt our entire issued and outstanding share capital of
26,058,926 shares of common stock.

The shares of common stock offered by us will be new shares, each with a
par value of $0.01, issued pursuant to a resolution of our board of directors
passed on [ ], subject to approval by our pricing committee, which
is expected to take place immediately prior to the offering. As a result of this
offering, the number of our issued and outstanding shares of common stock will
be increased from 19,058,926 shares, assuming conversion of all outstanding
shares of preferred stock into shares of common stock, to 26,058,926 shares
through the issuance of new shares. Our current stockholders will have no
preemptive or other subscription rights to the newly issued shares of common
stock. The conversion and redesignation will occur immediately prior to the
consummation of this offering. See "Description of Capital Stock."

RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

Pursuant to Section 13 of the German Securities Selling Prospectus Act
(Verkaufsprospektgesetz), and in connection with Sections 45 and 77 of the
German Stock Exchange Act (Borsengesetz), we, together with the underwriters, DG
BANK and Deutsche Genossenschaftsbank AG, VEM Virtuelles Emissionshaus AG and
Merck Finck & Co. take responsibility for the contents of this preliminary
prospectus and company report and hereby state that, to the best of our
knowledge, the information contained in this preliminary prospectus and company
report is correct, and no material information has been omitted. In making an
investment decision, you must rely on your own examination of our company and
the terms of the offering, including the merits and risks involved. See
"Business" and "Risk Factors."

Pursuant to Section 10 of the German Securities Selling Prospectus Act,
this prospectus is published on a preliminary basis and will be supplemented in
the future. Any supplements and terms of the offering that have been omitted in
this preliminary prospectus will be published in Germany in conformity with the
provisions of the German Selling Securities Prospectus Act. The company report
will also be published in supplemented form after admission of the shares to
exchange trading in the Federal Republic of Germany.

RECENT DEVELOPMENTS AND OUTLOOK

We believe that sales of our Community Platform Product line will continue
to grow and that sales of our blaxxun3D and Avatar Studio will become more
significant sources of revenue in fiscal 2000. However, as blaxxun3D and Avatar
Studio are new products, we have no meaningful financial data or market
experience on which to base our beliefs concerning these products.

As our business expands, we will likely encounter significantly increasing
operating expenses in the areas of research and development, sales and
marketing, and general and administration. Accordingly, we expect to incur
significant operating losses for the foreseeable future. We may also increase
research and development expenses for new customization software, if necessary.
As a publicly-traded company, we may face an increase in general and
administration expenses due to the additional costs for accounting and reporting
and to prepare the internal systems for further growth.

A-3
<PAGE> 116

[ALTERNATE PAGES FOR THE GERMAN PROSPECTUS]

Our future operating results will depend on many factors, including,
without limitation, the level and pace of acceptance of our current and new
products and the continuous growth and development of the Internet. The success
of blaxxun is subject to numerous risks, many of which are beyond our control,
described in "Risk Factors" beginning on page 7.

San Francisco, CA March 2000
blaxxun interactive, Inc.

A-4
<PAGE> 117

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses (other than the underwriting discount) payable in
connection with the sale of the common stock offered hereby are as follows, all
of which will be paid by the Company:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC Registration fee........................................ $ 26,400
Neuer Markt Listing fee..................................... $ 6,200
NASD filing fees............................................ $ 0
Blue Sky fees and expenses.................................. $ 0
Printing expenses........................................... $ 300,000
Legal fees and expenses..................................... $ 300,000
Accounting fees and expenses................................ $ 200,000
Transfer agent and registrar fees and expenses.............. $ 10,000
Miscellaneous............................................... $1,157,400
----------
Total............................................. $2,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware
provides as follows:

A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact the he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent or another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interest of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and a manner he
reasonably believed to in or not opposed to the best interest of the corporation
and except that no indemnification shall be made in respect to any claim, issue
or matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

In addition, pursuant to our certificate of incorporation and bylaws, we
shall indemnify our directors and officers against expenses (including judgments
or amounts paid in settlement) incurred in any action, civil or

II-1
<PAGE> 118

criminal, to which any such person is a party by reason of any alleged act or
failure to act in his capacity as such, except as to a matter as to which such
director or officer shall have been finally adjudged not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
corporation.

The underwriting agreement between blaxxun and the underwriters of this
offering provides that the underwriters are obligated, under certain
circumstances, to indemnify our directors, officers and controlling persons
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement filed at Exhibit 1.1
hereto.

We maintain directors and officers liability insurance for the benefit of
our directors and certain of our officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

(a) Since July 31, 1996, the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:

1. Upon the consummation of this offering, the Registrant will effect
a two-for-one split of the outstanding common stock in which every one
outstanding share of common stock will be split, by way of dividend, into
two shares of common stock.

2. In May 1996, in reliance on Section 4(2) of the Securities Act of
1933, the Registrant issued and sold shares of Series B convertible
preferred stock convertible into an aggregate of 800,000 shares of common
stock to one sophisticated, accredited investor for an aggregate purchase
price of $2,000,000.

3. In August 1996, in reliance on Section 4(2) of the Securities Act
of 1933, the Registrant issued an aggregate of 16,000 shares of common
stock to one sophisticated, accredited person in exchange for technology
valued on that date at an aggregate of $4,000.

4. In August 1997, in reliance on Section 4(2) of the Securities Act
of 1933, the Registrant issued an aggregate of 146,370 shares of common
stock to one sophisticated, accredited person in exchange for technology
valued on that date at an aggregate of $36,593.

5. In June 1998 and October 1998, in reliance on Section 4(2) of the
Securities Act of 1933, the Registrant issued and sold shares of Series C
convertible preferred stock convertible into an aggregate of 1,597,820
shares of common stock to seven sophisticated, accredited investors for an
aggregate purchase price of $4,282,156.

6. In November 1998, in reliance on Section 4(2) of the Securities
Act of 1933, the Registrant issued an aggregate of 100,000 shares of common
stock at an aggregate purchase price of $50,000 to seven sophisticated,
accredited individuals in exchange for a portion of their equity interests
in Cybertown, Inc., a wholly owned subsidiary of the Registrant.

7. In August of 1998 and June of 1999, in reliance on Section 4(2) of
the Securities Act of 1933, the Registrant issued shares of Series D
convertible preferred stock convertible into an aggregate of 3,952,000
shares of common stock to nine sophisticated, accredited employees in
exchange for their minority interests in the blaxxun interactive AG,
Registrant's wholly-owned subsidiary.

8. In March of 1999, in reliance on Section 4(2) of the Securities
Act of 1933, the Registrant issued and sold shares of Series E convertible
preferred stock convertible into an aggregate of 750,000 shares of common
stock to five sophisticated, accredited investors for an aggregate purchase
price of $3,000,000.

9. From July 31, 1996 to January 31, 2000, under our 1996 and 1999
stock option plans and in reliance on Section 701 of the Securities Act of
1933, we issued to our employees, officers, directors and consultants
options to purchase an aggregate of 3,194,292 shares of our common stock,
at exercise prices ranging from $.0065 per share to $5.00 per share and an
aggregate of 498,736 shares of our common stock at purchase prices ranging
from $0.0065 per share to $0.50 per share.

II-2
<PAGE> 119

10. In January and February of 2000, in reliance on Section 4(2) of
the Securities Act of 1933, the Registrant issued and sold shares of Series
F convertible preferred Stock convertible into an aggregate of 1,478,000
shares of common stock to ten sophisticated, accredited investors for an
aggregate purchase price of $8,720,200.

11. In March 2000, in reliance on Section 4(2) of the Securities Act
of 1933, the Registrant issued 600,000 shares of Series B convertible
preferred stock upon conversion of a convertible note.

(b) There were no underwritten offerings employed in connection with any of
the transactions described in Item 15(a).

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENTS
--- ------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
5.1* Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation
10.1 Amended and Restated Registration Rights Agreement, dated as
of January 2000 among the Registrant and certain of its
stockholders.
10.2 Stockholders Agreement, dated September 1998 among the
Registrant and certain of its stockholders.
10.3 1996 Stock Option Plan
10.4 1999 Stock Option Plan
10.5 2000 Stock Option Plan
10.6 Agreement with General Investment Bankers (confidential
treatment requested)
10.7 Agreement with Infomatec Media AG (confidential treatment
requested).
10.8 Employment Agreement with Mr. Buchenberger
10.9 Employment Agreement with Mr. Habermeyer
10.10 Employment Agreement with Mr. Schwartz
10.11 Employment Agreement with Mr. Merget
10.12 Employment Agreement with Mr. Woelfl
21.1** Subsidiaries
23.1 Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftspruefungsgesellschaft
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1)
24.1** Power of Attorney
27.1** Financial Data Schedule
</TABLE>

- ---------------
* To be filed by amendment

** Previoulsy filed

All other schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.

II-3
<PAGE> 120

ITEM 17. UNDERTAKINGS

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

The undersigned registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, 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; and (2) for the purpose of determining any liability under the
Securities Act, 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.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the SEC 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.

II-4
<PAGE> 121

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Munich, Germany, on May 26,
2000.

BLAXXUN INTERACTIVE, INC.

By: /s/ FRANZ BUCHENBERGER
------------------------------------

Franz Buchenberger, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this amended registration statement has been signed by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FRANZ BUCHENBERGER President, Chief Executive Officer and May 26, 2000
- ------------------------------------------------ Chairman of the Board (Principal
Franz Buchenberger Executive Officer)

/s/ BERND-MICHAEL HABERMEYER Chief Financial Officer and Vice May 26, 2000
- ------------------------------------------------ President of Finance and
Bernd-Michael Habermeyer Administration (Principal Financial
Officer)

* Director May 26, 2000
- ------------------------------------------------
Guy Bradley

* Director May 26, 2000
- ------------------------------------------------
Heydan von Frankenberg

* Director May 26, 2000
- ------------------------------------------------
Francois Stieger

*By: /s/ FRANZ BUCHENBERGER
- ------------------------------------------------
Franz Buchenberger
Attorney-in-fact
</TABLE>

II-5
<PAGE> 122

EXHIBIT INDEX

<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENTS
--- ------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
5.1* Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation
10.1 Amended and Restated Registration Rights Agreement, dated as
of January 2000 among the Registrant and certain of its
stockholders.
10.2 Stockholders Agreement, dated September 1998 among the
Registrant and certain of its stockholders.
10.3 1996 Stock Option Plan
10.4 1999 Stock Option Plan
10.5 2000 Stock Option Plan
10.6 General Agreement with General Investment Bankers
(confidential treatment requested)
10.7 Agreement with Infomatec Media AG (confidential treatment
requested)
10.8 Employment Agreement with Mr. Buchenberger
10.9 Employment Agreement with Mr. Habermeyer
10.10 Employment Agreement with Mr. Schwartz
10.11 Employment Agreement with Mr. Merget
10.12 Employment Agreement with Mr. Woelfl
21.1** Subsidiaries
23.1 Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftspruefungsgesellschaft
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1)
24.1** Power of Attorney
27.1** Financial Data Schedule
</TABLE>

- ---------------
* To be filed by amendment

** Previously filed

<PAGE> 1
EXHIBIT 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

BLAXXUN INTERACTIVE, INC.

blaxxun interactive, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as
follows:

The date of filing of its original Certificate of Incorporation with
the Secretary of State of the State of Delaware was July 28, 1995.

The Board of Directors of the Corporation, by unanimous written
consent, duly adopted resolutions setting forth the Amended and Restated
Certificate of Incorporation herein contained, declaring its advisability and
directing that such Amended and Restated Certificate of Incorporation be
submitted to the holders of the issued and outstanding capital stock for
approval in accordance with the applicable provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware and the Corporation's
Certificate of Incorporation, as previously amended.

The Amended and Restated Certificate of Incorporation was duly adopted,
after having been declared advisable by the Board of Directors of the
Corporation by the stockholders of the Corporation by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and prompt written notice of the taking of the action without a
meeting by less than unanimous written consent has been given in accordance with
section 228(d) to the stockholders who did not consent in writing.

The text of the Amended and Restated Certificate of Incorporation of
the Corporation, as restated and amended (herein called the "Restated
Certificate of Incorporation") shall read in its entirety as follows:

FIRST: The name of the Corporation shall be:

BLAXXUN INTERACTIVE, INC.

SECOND: The registered office of the Corporation in the State of
Delaware is located at 1209 Orange Street, in the City of Wilmington, County of
New Castle, 19801, and its registered agent at such address is The Corporation
Trust Company.

THIRD: The purpose or purposes of the Corporation shall be to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.

FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 101,000,000 shares, which shares shall be
divided into two classes consisting of: (i) 100,000,000 shares of Common Stock
(with $.01 par value per share) ("Common Stock")
<PAGE> 2
and (ii) 1,000,000 shares of Preferred Stock (with $.01 par value per share)
("Blank Check Preferred Stock").

The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the Common Stock and the
Preferred Stock shall be as follows:

A. COMMON STOCK

1. Voting Rights. Except as otherwise required by law or this Amended
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of Common Stock held by him of record on
the books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation.

2. Dividends. The holders of shares of Common Stock shall be entitled
to receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock, subject, however, to the
limitations contained in Part B below.

3. Dissolution, Liquidation or Winding Up. After distribution in full
of the preferential amount, if any, to be distributed to the holders of series
of the Blank Check Preferred Stock (in accordance with the relative preferences
among such series) in the event of involuntary liquidation, distribution,
dissolution or winding-up, of the Corporation, the holders of the Common Stock
shall be entitled to receive all of the remaining assets of the Corporation,
tangible and intangible, or whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of Common Stock held
by them respectively.

B. BLANK CHECK PREFERRED STOCK

1. Issuance. Shares of Blank Check Preferred Stock may be issued from
time to time in one or more series as may from time to time be determined by the
Board of Directors, each of said series to be distinctly designated. All shares
of any one series of the Blank Check Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends, if
any, thereon shall be cumulative, if made cumulative. The voting powers, if any,
and the designations, relative preferences, participating, optional or other
special rights or privileges of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.

2. Authority of the Board of Directors. The Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of this
Article FOURTH, to provide for the issuance of the shares of the Blank Check
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors of the Corporation the voting powers, if any, and the
designations, relative preferences, participating, optional or other special
rights or privileges, and the qualifications, limitations or restrictions of
such series, including, but without limiting the generality of the foregoing,
the following:

-2-
<PAGE> 3
(a) The distinctive designation of, and the number of
shares of the Blank Check Preferred Stock which shall
constitute such series. The designation of a series of
preferred stock need not include the words "preferred" or
"preference" and may be designated "special" or other
distinctive term. Unless otherwise provided in the resolution
issuing such series, the number of shares of any series of the
Blank Check Preferred Stock may be increased or decreased (but
not below the number of shares thereof then outstanding) by
the Board of Directors in the manner prescribed by law;

(b) The rate and times at which, and the terms and
conditions upon which, dividends, if any, on the Blank Check
Preferred Stock of such series shall be paid, the extent of
the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of
the same or other classes of stock and whether such dividends
shall be cumulative or non-cumulative and, if cumulative, the
date from which such dividends shall be cumulative;

(c) Whether the series shall be convertible into, or
exchangeable for, at the option of the holders of the Blank
Check Preferred Stock of such series or the Corporation or
upon the happening of a specified event, shares of any other
class or classes or any other series of the same or any other
class or classes of stock of the Corporation, and the terms
and conditions of such conversion or exchange, including
provisions for the adjustment of any such conversion rate in
such events as the Board of Directors shall determine;

(d) Whether or not the Blank Check Preferred Stock of such
series shall be subject to redemption at the option of the
Corporation or the holders of such series or upon the
happening of a specified event, and the redemption price or
prices and the time or times at which, and the terms and
conditions upon which, the Blank Check Preferred Stock of such
series may be redeemed;

(e) The rights, if any, of the holders of the Blank Check
Preferred Stock of such series upon the voluntary or
involuntary liquidation, merger, consolidation, distribution
or sale of assets, dissolution or winding-up, of the
Corporation;

(f) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Blank Check Preferred
Stock of such series; and

(g) Subject to subparagraph 5 of Paragraph C hereof,
whether such series of the Blank Check Preferred Stock shall
have full, limited or no voting powers including, without
limiting the generality of the foregoing, whether such series
shall have the right, voting as a series by itself or together
with other series of the Blank Check Preferred Stock or all
series of the Blank Check Preferred Stock as a class, to elect
one or more directors of the Corporation if there shall have
been a default in the payment of dividends on any one or more
series of the Blank Check Preferred Stock or under such other
circumstances and on such conditions as the Board of Directors
may determine.

-3-
<PAGE> 4
C. OTHER PROVISIONS.

1. No holder of any of the shares of any class or series of stock or
of options, warrants or other rights to purchase shares of any class or series
of stock or of other securities of the Corporation shall have any preemptive
right to purchase or subscribe for any unissued stock of any class or series or
any additional shares of any class or series to be issued by reason of any
increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, or carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class or
series of stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations or
associations (including such holders or others) and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its sole
discretion.

2. The relative powers, preferences and rights of each series of the
Blank Check Preferred Stock in relation to the powers, preferences and rights of
each other series of the Blank Check Preferred Stock shall, in each case, be as
fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Paragraph B hereof. The
consent, by class or series vote or otherwise, of the holders of such of the
series of the Blank Check Preferred Stock as are from time to time outstanding
shall not be required for the issuance by the Board of Directors of any other
series of the Blank Check Preferred Stock whether or not the powers, preferences
and rights of such other series shall be fixed by the Board of Directors as
senior to, or on a parity with, the powers, preferences and rights of such
outstanding series, or any of them; provided, however, that the Board of
Directors may provide in the resolution or resolutions as to any series of the
Blank Check Preferred Stock adopted pursuant to Paragraph B hereof, the
conditions, if any, under which the consent of the holders of a majority (or
such greater proportion as shall be fixed therein) of the outstanding shares of
such series shall be required for the issuance of any or all other series of the
Blank Check Preferred Stock.

3. Subject to the provisions of subparagraph 2 of this Paragraph C,
shares of any series of the Blank Check Preferred Stock may be issued from time
to time as the Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of Directors.

4. Shares of authorized Common Stock may be issued from time to time
as the Board of Directors of the Corporation shall determine and on such terms
and for such consideration as shall be fixed by the Board of Directors.

5. The number of authorized shares of Common Stock and of the Blank
Check Preferred Stock, without a class or series vote, may be increased or
decreased from time to time (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote thereon.

FIFTH:

-4-
<PAGE> 5
A. Number, Election and Terms of Directors. The number of directors
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by the Board of Directors. The Directors of the
Corporation shall be divided into three classes: Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of one-third of the
whole number of the Board of Directors. If the Board of Directors is not evenly
divisible by three, the Board of Directors shall determine the number of
Directors to be elected to each class. The initial members of Class I shall be
_______ and _________ and they shall hold office for a term to expire at the
Annual Meeting of the Stockholders to be held in 2001; the initial member of
Class II shall be _____________ and he shall hold office for a term to expire at
the Annual Meeting of the Stockholders to be held in 2002; the initial member of
Class III shall be _____________ and he shall hold office for a term to expire
at the Annual Meeting of the Stockholders to be held in 2003; and in the case of
each class, until their respective successors are duly elected and qualified. At
each annual election held commencing with the annual election in 2001, the
Directors elected to succeed those whose terms expire shall be identified as
being of the same class as the Directors they succeed and shall be elected to
hold office for a term to expire at the third Annual Meeting of the Stockholders
after their election, and until their respective successors are duly elected and
qualified. If the number of Directors changes, any increase or decrease in
Directors shall be apportioned among the classes so as to maintain all classes
as equal in number as possible, and any additional Director elected to any class
shall hold office for a term which shall coincide with the terms of the other
Directors in such class and until his successor is duly elected and qualified.

B. Removal. Any Director or the entire Board of Directors may be
removed with or without cause by the holders of a majority of the shares then
entitled to vote at an election of Directors, or a majority vote of the Board of
Directors.

C. Amendment, Repeal or Alteration. Notwithstanding any other
provisions of the Restated Certificate of Incorporation or the Restated By-Laws
of the Corporation or the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of greater than fifty percent (50%) of the
combined voting power of the outstanding stock of the Corporation entitled to
vote generally in the election of Directors, voting together as a single class,
shall be required to amend, alter, adopt any provision inconsistent with or to
repeal this Article FIFTH.

SIXTH: The Corporation hereby affirmatively elects in this Restated
Certificate of Incorporation to be governed by Section 203 of the General
Corporation Law of Delaware.

SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,

-5-
<PAGE> 6
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.

EIGHTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability; provided that, to
the extent provided by applicable law, this provision shall not eliminate the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.

NINTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware.

A. The Board of Directors of the Corporation is expressly authorized
to adopt, amend, or repeal the By-laws of the Corporation.

B. Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.

C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.

TENTH: Except as otherwise stated elsewhere in this Restated
Certificate of Incorporation, the Corporation reserves the right to amend or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
a stockholder herein are granted subject to this reservation.

ELEVENTH: The Corporation is to have perpetual existence.

[Remainder of Page Intentionally Left Blank]

-6-
<PAGE> 7
Exhibit 3.1
-----------

IN WITNESS WHEREOF, blaxxun interactive, Inc. has caused this Restated
Certificate of Incorporation to be signed by Franz Buchenberger, its President,
who hereby acknowledges under penalties of perjury that the facts herein stated
are true and that this Restated Certificate of Incorporation is his act and
deed, and attested by Bernd-Michael Habermeyer, its Secretary, as of the day
of _________, 2000.

BLAXXUN INTERACTIVE, INC.

By: _______________________
Name: Franz Buchenberger
Title: President

-7-

<PAGE> 1
EXHIBIT 3.2

AMENDED AND RESTATED

BY-LAWS

BLAXXUN INTERACTIVE, INC.

(A Delaware Corporation)

Effective Date: ____________

<PAGE> 2
AMENDED AND RESTATED

BY-LAWS

BLAXXUN INTERACTIVE, INC.

(A Delaware Corporation)

<TABLE>

<S> <C>
ARTICLE 1 4
Section 1.1 Contents 4
--------------------
Section 1.2 Certificate in Effect 4
---------------------------------
ARTICLE 2 4
Section 2.1 Place 4
-----------------
Section 2.2 Annual Meeting 4
--------------------------
Section 2.3 Notice of Stockholder Business 5
------------------------------------------
Section 2.4 Special Meetings 6
----------------------------
Section 2.5 Notice of Meetings 6
------------------------------
Section 2.6 Affidavit of Notice 7
-------------------------------
Section 2.7 Quorum 7
------------------
Section 2.8 Voting Requirements 7
-------------------------------
Section 2.9 Proxies and Voting 7
------------------------------
Section 2.10 Action Without Meeting 8
-----------------------------------
Section 2.11 Stockholder List 9
-----------------------------
Section 2.12 Record Date 9
------------------------
ARTICLE 3 10
Section 3.1 Number; Election and Term of Office 10
-----------------------------------------------
Section 3.2 Duties 11
------------------
Section 3.3 Compensation 11
------------------------
Section 3.4 Reliance on Books 11
-----------------------------
ARTICLE 4 11
Section 4.1 Place 11
-----------------
Section 4.2 Annual Meeting 12
--------------------------
Section 4.3 Regular Meetings 12
----------------------------
Section 4.4 Special Meetings 12
----------------------------
Section 4.5 Quorum 12
------------------
Section 4.6 Action Without Meeting 12
----------------------------------
Section 4.7 Telephone Meetings 13
------------------------------
ARTICLE 5 13
Section 5.1 Designation 13
-----------------------
Section 5.2 Records of Meetings 14
-------------------------------
ARTICLE 6 14
</TABLE>

-2-
<PAGE> 3

<TABLE>
<S> <C>
Section 6.1 Method of Giving Notice 14
-----------------------------------
Section 6.2 Waiver 14
------------------
ARTICLE 7 15
Section 7.1 In General 15
----------------------
Section 7.2 Election of President, Secretary and Treasurer 15
----------------------------------------------------------
Section 7.3 Election of Other Officers 15
--------------------------------------
Section 7.4 Salaries 15
--------------------
Section 7.5 Term of Office 15
--------------------------
Section 7.6 Duties of President and Chairman of the Board 16
---------------------------------------------------------
Section 7.7 Duties of Vice President 16
------------------------------------
Section 7.8 Duties of Secretary 17
-------------------------------
Section 7.9 Duties of Assistant Secretary 17
-----------------------------------------
Section 7.10 Duties of Treasurer 17
--------------------------------
Section 7.11 Duties of Assistant Treasurer 18
------------------------------------------
ARTICLE 8 18
Section 8.1 Directors 18
---------------------
Section 8.2 Officers 19
--------------------
ARTICLE 9 20
Section 9.1 Issuance of Stock 20
-----------------------------
Section 9.2 Right to Certificate; Form 20
--------------------------------------
Section 9.3 Facsimile Signature 20
-------------------------------
Section 9.4 Lost Certificates 20
-----------------------------
Section 9.5 Transfer of Stock 21
-----------------------------
Section 9.6 Registered Stockholders 21
-----------------------------------
ARTICLE 10 21
Section 10.1 Third Party Actions 21
--------------------------------
Section 10.2 Derivative Actions 22
-------------------------------
Section 10.3 Expenses 23
---------------------
Section 10.4 Authorization 23
--------------------------
Section 10.5 Advance Payment of Expenses 23
----------------------------------------
Section 10.6 Non-Exclusiveness 24
------------------------------
Section 10.7 Insurance 24
----------------------
Section 10.8 Constituent Corporations 24
-------------------------------------
Section 10.9 Additional Indemnification 25
---------------------------------------
ARTICLE 11 25
ARTICLE 12 25
ARTICLE 13 25
ARTICLE 14 26
ARTICLE 15 26
</TABLE>

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<PAGE> 4

BLAXXUN INTERACTIVE, INC.

AMENDED AND RESTATED BY-LAWS

ARTICLE 1

CERTIFICATE OF INCORPORATION

Section 1.1 Contents. The name, location of principal office and purposes
of the Corporation shall be as set forth in its Certificate of Incorporation.
These By-Laws, the powers of the Corporation and of its Directors and
stockholders, and all matters concerning the conduct and regulation of the
business of the Corporation shall be subject to such provisions in regard
thereto, if any, as are set forth in said Certificate of Incorporation. The
Certificate of Incorporation is hereby made a part of these By-Laws.

Section 1.2 Certificate in Effect. All references in these By-Laws to the
Certificate of Incorporation shall be construed to mean the Certificate of
Incorporation of the Corporation as from time to time amended, including (unless
the context shall otherwise require) all certificates and any agreement of
consolidation or merger filed pursuant to the Delaware General Corporation Law,
as amended.
ARTICLE 2

MEETINGS OF STOCKHOLDERS

Section 2.1 Place. All meetings of the stockholders may be held at such
place either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors, the Chairman of the Board of Directors
or the President and stated in the notice of the meeting or in any duly executed
waiver of notice thereof.

Section 2.2 Annual Meeting. Annual meetings of stock holders, shall be
held on the 2nd Tuesday of April in each year, if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 A.M., or at such
other date and time as shall be designated from

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<PAGE> 5
time to time by the Board of Directors, the Chairman of the Board of Directors
or the President and stated in the notice of the meeting. If such annual meeting
has not been held on the day herein provided therefor, a special meeting of the
stockholders in lieu of the annual meeting may be held, and any business
transacted or elections held at such special meeting shall have the same effect
as if transacted or held at the annual meeting, and in such case all references
in these By-Laws, except in this Section 2.2, to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.

Section 2.3 Notice of Stockholder Business. To be properly brought before
the meeting, business must be of a nature that is appropriate for consideration
at an Annual Meeting and must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, or
(ii) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before the Annual Meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, each such notice must be given either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (1) with respect to a matter to be brought before an
Annual Meeting of Stockholders or a Special Meeting in Lieu of an Annual
Meeting, sixty (60) days prior to the date set forth in the By-Laws for the
Annual Meeting and (2) with respect to a matter to be brought before a Special
Meeting of the Stockholders not in lieu of an Annual Meeting, the close of
business on the tenth day following the date on which notice of such meeting is
first given to stockholders. The notice shall set forth (i) information
concerning the stockholder, including his or her name and address, (ii) a
representation that the stockholder is

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entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to present the matter specified in the notice, and (iii) such other
information as would be required to be included in a proxy statement soliciting
proxies for the presentation of such matter to the meeting.

Notwithstanding anything in these By-Laws to the contrary, no business
shall be transacted at the Annual Meeting except in accordance with the
procedures set forth in this section; provided, however, that nothing in this
section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the Annual Meeting in accordance with these
By-Laws.

Section 2.4 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President, the Chairman of
the Board, or by the Board of Directors and shall be called by the President or
Secretary at the request in writing of a majority of the Directors then in
office. Such request shall state the purpose or purposes of the proposed
meeting, which need not be the exclusive purposes for which the meeting is
called. The stockholder shall not have the right, in their capacity as
stockholders, to call a special meeting of the stockholders.

Section 2.5 Notice of Meetings. A written notice of all meetings of
stockholders stating the place, date and hour of the meeting and, in the case of
a special meeting, the purpose or purposes for which the special meeting is
called, shall be given to each stockholder entitled to vote at such meeting.
Except as otherwise provided by law, such notice shall be given not less than
ten nor more than sixty days before the date of the meeting. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.

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<PAGE> 7
Section 2.6 Affidavit of Notice. An affidavit of the Secretary or an
Assistant Secretary or the transfer agent of the Corporation that notice of a
stockholders meeting has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.

Section 2.7 Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented by proxy at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, except as hereinafter provided, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

Section 2.8 Voting Requirements. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of any
applicable statute or of the Certificate of Incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such question.

Section 2.9 Proxies and Voting. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote

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<PAGE> 8
in person or by proxy for each share of the capital stock having voting power
held by such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period. Persons holding stock
in a fiduciary capacity shall be entitled to vote the shares so held, and
persons whose stock is pledged shall be entitled to vote the pledged shares,
unless in the transfer by the pledgor on the books of the Corporation he shall
have expressly empowered the Pledgee to vote said shares, in which case only the
pledgee, or his proxy, may represent and vote such shares. Shares of the capital
stock of the Corporation owned by the Corporation shall not be voted, directly
or indirectly.

Section 2.10 Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, until the closing of an underwritten public
offering of the Corporation's Common Stock (a "Public Offering") any action
referred or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote on such action were present and voted. Prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing. Effective upon the closing of a Public Offering, any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without
vote, only if all stockholders entitled to vote on the matter consent to the
action in writing and written consents are filed with the records of the
meetings of the stockholders. Such consents shall be treated for all purposes as
a vote at a meeting.

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<PAGE> 9

Section 2.11 Stockholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The original or duplicate stock ledger shall be the only evidence as to
who are the stockholders entitled to examine such list, the stock ledger or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.

Section 2.12 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.

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<PAGE> 10
If no record date is fixed by the Board of Directors:

(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.

(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.

(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.

ARTICLE 3

DIRECTORS

Section 3.1 Number; Election and Term of Office. There shall be a Board
of Directors of the Corporation consisting of not less than one member, the
number of members to be determined by resolution of the Board of Directors,
unless the Certificate of Incorporation fixes the number of Directors, in which
case a change in the number of Directors shall be made only by amendment of the
Certificate. The Board of Directors shall be divided into such classes for such
terms as are provided for in the Certificate of Incorporation. Subject to any
limitation which may be contained within the Certificate of Incorporation, the
number of the Board of Directors may be increased at any time by vote of a
majority of the Directors then in office. The Directors shall be elected at the
annual meeting of the stockholders at which the term of office of the class to
which they have been elected expires, except as provided in paragraph (c) of
Section

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8.1, and each Director elected shall hold office until his successor is elected
and qualified or until his earlier resignation or removal. Directors need not be
stockholders.

Section 3.2 Duties. The business of the Corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.

Section 3.3 Compensation. Unless otherwise restricted by the Certificate
of Incorporation or these By-Laws, the Board of Directors shall have the
authority to fix the compensation of Directors. No such payment shall preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.

Section 3.4 Reliance on Books. A member of the Board of Directors or a
member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any committee, or in relying in
good faith upon other records of the Corporation.

ARTICLE 4

MEETINGS OF THE BOARD OF DIRECTORS

Section 4.1 Place. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.

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Section 4.2 Annual Meeting. The first meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
stockholders or any special meeting held in lieu thereof, and no notice of such
meeting shall be necessary to the newly elected Directors in order legally to
constitute the meeting.

Section 4.3 Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board.

Section 4.4 Special Meetings. Special meetings of the Board may be called
by the President on two days' notice to each Director either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
Directors unless the Board consists of only one Director, in which case special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of the sole Director.

Section 4.5 Quorum. At all meetings of the Board a majority of the
Directors then in office shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be Present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.

Section 4.6 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all

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members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.

Section 4.7 Telephone Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.

ARTICLE 5

COMMITTEES OF DIRECTORS

Section 5.1 Designation.

(a) The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.

(b) In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.

(c) Any such committee, to the extent provided in the resolution
of the Board of Directors designating the committee, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such

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committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.

Section 5.2 Records of Meetings. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
ARTICLE 6

NOTICES

Section 6.1 Method of Giving Notice. Whenever, under any provision of the
law or of the Certificate of Incorporation or of these By-Laws, notice is
required to be given to any Director or stockholder, such notice shall be given
in writing by the Secretary or the person or persons calling the meeting by
leaving such notice with such Director or stockholder at his residence or usual
place of business or by mailing it addressed to such Director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to Directors may
also be given by telegram.

Section 6.2 Waiver. Whenever any notice is required to be given under any
provision of law or of the Certificate of Incorporation or of these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein,

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shall be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened.

ARTICLE 7

OFFICERS

Section 7.1 In General. The officers of the Corporation shall be chosen
by the Board of Directors and shall include a President, a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board, one
or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws otherwise provide.

Section 7.2 Election of President, Secretary and Treasurer. The Board of
Directors at its first meeting after each annual meeting of stockholders shall
choose a President, a Secretary and a Treasurer.

Section 7.3 Election of Other Officers. The Board of Directors may
appoint such other officers and agents as it shall deem appropriate who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.

Section 7.4 Salaries. The salaries of all officers and agents of the
Corporation may be fixed by the Board of Directors or by a Committee designated
by the Board of Directors pursuant to Section 5.1 hereof.

Section 7.5 Term of Office. The officers of the Corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time in the manner specified in Section 8.2.

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Section 7.6 Duties of President and Chairman of the Board. The President
shall be the chief executive officer of the Corporation, shall preside at all
meetings of the stockholders and, if he is a Director, at all meetings of the
Board of Directors if there shall be no Chairman of the Board or in the absence
of the Chairman of the Board, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. The President shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The Chairman of the Board, if any, shall make his counsel
available to the other officers of the Corporation, shall be authorized to sign
stock certificates on behalf of the Corporation, shall preside at all meetings
of the Directors at which he is present, and, in the absence of the President at
all meetings of the stockholders, and shall have such other duties and powers as
may from time to time be conferred upon him by the Directors.

Section 7.7 Duties of Vice President. In the absence of the President or
in the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated by the Directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President not otherwise
conferred upon the Chairman of the Board, if any, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President. The
Vice Presidents shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.

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<PAGE> 17
Section 7.8 Duties of Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, except as otherwise provided in these By-Laws, and shall perform such
other duties as may be prescribed by the Board of Directors or President, under
whose supervision he shall be. He shall have charge of the stock ledger (which
may, however, be kept by any transfer agent or agents of the Corporation under
his direction) and of the corporate seal of the Corporation.

Section 7.9 Duties of Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.

Section 7.10 Duties of Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all of his transactions as Treasurer and of the financial condition of the

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Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of this office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.

Section 7.11 Duties of Assistant Treasurer. The Assistant Treasurer, or
if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.

ARTICLE 8

RESIGNATIONS, REMOVALS AND VACANCIES

Section 8.1 Directors.

(a) Resignations. Any Director may resign at any time by giving
written notice to the Board of Directors or the President or the Secretary. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.

(b) Removals. Subject to any provisions of the Certificate of
Incorporation, any Director or the entire Board of Directors may be removed with
or without cause, at any meeting called for the purpose, by vote of the holders
of a majority of the shares entitled to vote for the election of Directors, or a
majority vote of the Board of Directors. This Section 8.1(b) may not

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be altered, amended or repealed except by the holders of a majority of the
shares of stock issued and outstanding and entitled to vote for the election of
the Directors.

(c) Vacancies. Vacancies occurring in the office of Director and
newly created Directorships resulting from any increase in the authorized number
of Directors shall be filled by a majority of the Directors then in office,
though less than a quorum, unless previously filled by the stockholders entitled
to vote for the election of Directors, and the Directors so chosen shall hold
office subject to the By-Laws until the next annual meeting of Stockholders at
which the term of office of the class to which they have been elected expires
and until their successors are duly elected and qualify or until their earlier
resignation or removal. If there are no Directors in office, then an election of
Directors may be held in the manner provided by statute.

Section 8.2 Officers. Any officer may resign at any time by giving
written notice to the Board of Directors or the President or the Secretary. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. The Board of Directors may, at any meeting
called for the purpose, by vote of a majority of their entire number, remove
from office any officer of the Corporation or any member of a committee, with or
without cause. Any vacancy occurring in the office of President, Secretary or
Treasurer shall be filled by the Board of Directors and the officers so chosen
shall hold office subject to the By-Laws for the unexpired term in respect of
which the vacancy occurred and until their successors shall be elected and
qualify or until their earlier resignation or removal.

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ARTICLE 9

CERTIFICATE OF STOCK

Section 9.1 Issuance of Stock. The Directors may, at any time and from
time to time, if all of the shares of capital stock which the Corporation is
authorized by its Certificate of Incorporation to issue have not been issued,
subscribed for, or otherwise committed to be issued, issue or take subscriptions
for additional shares of its capital stock up to the amount authorized in its
Certificate of Incorporation. Such stock shall be issued and the consideration
paid therefor in the manner prescribed by law.

Section 9.2 Right to Certificate; Form. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board, the President or a Vice
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation; provided that the Directors may provide by one or more
resolutions that some or all of any or all classes or series of the
Corporation's stock shall be uncertified shares. Certificates may be issued for
partly paid shares and in such case upon the face or back of the certificates
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.

Section 9.3 Facsimile Signature. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.

Section 9.4 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the

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Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.

Section 9.5 Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.

Section 9.6 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE 10

INDEMNIFICATION

Section 10.1 Third Party Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action

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by or in the right of the Corporation) by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

Section 10.2 Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be

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<PAGE> 23
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

Section 10.3 Expenses. To the extent that a Director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 10.1 and 10.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.

Section 10.4 Authorization. Any indemnification under Sections 10.1 and
10.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 10.1 and 10.2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.

Section 10.5 Advance Payment of Expenses. Expenses incurred by an officer
or Director in defending a civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of such officer or Director to repay
such amount unless it shall ultimately be determined that he is entitled to be

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<PAGE> 24
indemnified by the Corporation as authorized in this Article 10. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.

Section 10.6 Non-Exclusiveness. The indemnification provided by this
Article 10 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

Section 10.7 Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 10.

Section 10.8 Constituent Corporations. The Corporation shall have power
to indemnify any person who is or was a director, officer, employee or agent of
a constituent corporation absorbed in a consolidation or merger with this
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for any person who is or was a Director, officer, employee or agent of
the Corporation, or is or

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<PAGE> 25
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.

Section 10.9 Additional Indemnification. In addition to the foregoing
provisions of this Article 10, the Corporation shall have the power, to the full
extent provided by law, to indemnify any person for any act or omission of such
person against all loss, cost, damage and expense (including attorney's fees) if
such person is determined (in the manner prescribed in Section 10.4 hereof) to
have acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interest of the Corporation.

ARTICLE 11

EXECUTION OF PAPERS

Except as otherwise provided in these By-Laws or as the Board of
Directors may generally or in particular cases otherwise determine, all deeds,
leases, transfers, contracts, bonds, notes, checks, drafts and other instruments
authorized to be executed on behalf of the Corporation shall be executed by the
President or the Treasurer.

ARTICLE 12

FISCAL YEAR

The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.

ARTICLE 13

SEAL

The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the word "Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.

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<PAGE> 26

ARTICLE 14

OFFICES

In addition to its principal office, the Corporation may have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 15

AMENDMENTS

Except as otherwise provided herein, these By-Laws may be altered,
amended or repealed or new By-Laws may be adopted by the stockholders or by the
Board of Directors, when such power is conferred upon the Board of Directors by
the Certificate of Incorporation, at any regular meeting of the stockholders or
of the Board of Directors, or at any special meeting of the stockholders or of
the Board of Directors if notice of such alteration, amendment, repeal or
adoption of new By-Laws is contained in the notice of such special meeting, or
by the written consent of a majority in interest of the outstanding voting stock
of the Corporation or by the unanimous written consent of the Directors. If the
power to adopt, amend or repeal by-laws is conferred upon the Board of Directors
by the Certificate of Incorporation, it shall not divest or limit the power of
the stockholders to adopt, amend or repeal by-laws.

HWD: 393499-1

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<PAGE> 1
EXHIBIT 10.1

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

AGREEMENT, made as of the ___ day of January , 2000, by and among
blaxxun interactive, Inc., a Delaware corporation (the "Company"), those persons
listed on the signature page as the Series A Stockholders (the "Series A
Holders"), those persons listed on the signature page as the Series B
Stockholders (the "Series B Holders"), those persons listed on the signature
page as the Series C Stockholders (the "Series C Holders"), those persons listed
on the signature page as the Series D Stockholders (the "Series D Holders"),
those persons listed on the signature page as the Series E Stockholders (the
"Series E Holders"), and those persons listed on the signature page as the
Series F Stockholders (the "Series F Holders, and together with the Series A
Holders, the Series B Holders, the Series C Holders, the Series D Holders, and
the Series E Holders, the "Preferred Holders").

WHEREAS, the Company, the Series A Holders, the Series B Holders, the
Series C Holders, the Series D Holders and the Series E Holders are parties to
that certain Amended and Restated Registration Rights Agreement, dated as of
March 24 , 1999 (the "Old Agreement");

WHEREAS, the Series A Holders own 502,500 shares of the Company's
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred"), the Series B Holders own 400,000 shares of the Company's Series B
Convertible Preferred Stock, $.01 par value per share (the "Series B
Preferred"), the Series C Holders own 798,910 shares of the Company's Series C
Convertible Preferred Stock, $.01 par value per share (the "Series C
Preferred"), the Series D Holders own 1,976,000 shares of the Company's Series D
Preferred Stock, $.01 par value per share (the "Series D Preferred"), the Series
E Holders own 375,000 shares of the Company's Series E Preferred Stock , $.01
par value per share (the "Series E Preferred") and the Series F Holders are
acquiring up to 3,400,000 shares of Series F Preferred Stock, $.01 par value per
share (the "Series F Preferred, "and together with the Series A Preferred, the
Series B Preferred, the Series C Preferred, the Series D Preferred and the
Series E Preferred, the "Preferred Stock") pursuant to the Series F Preferred
Stock Purchase Agreement, dated as of January __, 2000, by and among the
Company and the Series F Holders (the "Purchase Agreement"),

WHEREAS, the Preferred Stock is convertible into shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock"), under
certain circumstances as more fully set forth in the Company's Certificate of
Incorporation, as amended to date; and

WHEREAS, the Company and the Preferred Holders desire to amend and
restate the Old Agreement in connection with the consummation of the
transactions contemplated by the Purchase Agreement;

NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:

<PAGE> 2

1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:

"Act" means the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.

"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Act.

"Common Stock" shall mean the Company's Common Stock, $.01 par value
per share.

"Company" means blaxxun interactive, Inc., a Delaware corporation, and
its successors and assigns, including any successors by merger.

"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

"Holder" means any person who is then the record owner of Registrable
Securities which have not been sold to the public.

"Preferred Stock" shall mean the Company's (i) Series A Preferred Stock
, par value $.01 per share, (ii) Series B Preferred Stock, par value $.01 per
share, (iii) Series C Preferred Stock, par value $.01 per share, (iv) Series D
Preferred Stock, par value $.01 per share, (v) Series E Preferred Stock, par
value $.01 per share and (vi) Series F Preferred Stock, par value $.01 per
share.

"Registrable Securities" shall mean all shares of Common Stock of the
Company issued or issuable upon conversion of the Preferred Stock owned by the
Preferred Holders; excluding Common Stock which (a) has been registered under
the Securities Act pursuant to an effective registration statement filed
thereunder and disposed of in accordance with the registration statement
covering them, (b) has been publicly sold pursuant to Rule 144 under the
Securities Act or (c) is then immediately available for sale pursuant to Rule
144 under the Securities Act.

The term "register" means to register under the Act and applicable
state securities laws for the purpose of effecting a public sale of securities.

2. Required Registration.

(a) At any time after the earlier of the initial public
offering of the Company's Common Stock or three years after the date hereof, the
Holders of Registrable Shares constituting at least 20% of the Registrable
Shares then outstanding may request that the Company register under the
Securities Act all or any portion of the Registrable Shares held by such
requesting Holder or Holders for sale in the manner specified in such notice
provided, however, that the Registrable Shares for which registration has been
requested shall constitute at

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<PAGE> 3

least 20% of the total Registrable Shares outstanding (or any lesser percentage
if the reasonably anticipated aggregate price to the public of such public
offering would exceed $5,000,000). Notwithstanding anything to the contrary
contained herein, no request may be made under this Section 2 within 180 days
after the effective date of a registration statement filed by the Company
covering a firm commitment underwritten public offering in which the Holders of
Registrable Shares shall have been entitled to join pursuant to Sections 3 or 4
hereof and in which there shall have been effectively registered all shares of
Registrable Shares as to which registration shall have been requested.

(b) Following receipt of any notice under this Section 2, the
Company shall immediately notify all Holders of Registrable Shares from whom
notice has not been received and shall use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting Holders, the number of Registrable
Shares specified in such notice (and in all notices received by the Company from
other Holders within 30 days after the giving of such notice by the Company). If
such method of disposition shall be an underwritten public offering, the Holders
of a majority of the Registrable Shares to be sold in such offering may
designate the managing underwriter of such offering, subject to the approval of
the Company, which approval shall not be unreasonably withheld or delayed. The
Company shall be obligated to register Registrable Shares pursuant to this
Section 2 on two occasions only; provided, however, that unless (i) the
registration statement is withdrawn and such withdrawal is not attributable to
adverse information concerning the Company's operations, condition or prospects
or (ii) the number of Registrable Shares covered thereby is reduced, in either
case at the request of Holders of Registrable Shares covered thereby, such
obligation shall be deemed satisfied only when the registration statement
covering all Registrable Shares specified in notices received as aforesaid, for
sale in accordance with the method of disposition specified by the requesting
Holders, shall have become effective and, if such method of disposition is a
firm commitment underwritten public offering, all such Registrable Shares shall
have been sold pursuant thereto. The Company, not more than once in any period
of twelve consecutive months, may defer the effectiveness of such registration
for up to one hundred eighty (180) days from the date of the notice of request
is received, upon determination by the Board of Directors that such registration
would be detrimental to the Company.

(c) The Company shall be entitled to include in any
registration statement referred to in this Section 2, for sale in accordance
with the method of disposition specified by the requesting Holders, shares of
Common Stock to be sold by the Company for its own account, except as and to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Registrable Shares to be sold. If Common
Stock is included by the Company for its own account and such Common Stock
constitutes at least 51% of the total shares covered by the registration
statement filed pursuant to this Section 2, such registration will be deemed to
have been completed pursuant to Section 3 hereof and not this Section 2. Except
for registration statements on Form S-4 or Form S-8 or any successor thereto,
the Company will not file with the Commission any other registration statement
with respect to its Common Stock, whether for its own account or that of other
Holders, from the date of receipt of a notice from requesting

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<PAGE> 4

Holders pursuant to this Section 2 until the completion of the period of
distribution of the registration contemplated thereby.

3. Incidental Registration. If the Company at any time (other
than pursuant to Section 2 or Section 4) proposes to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Form S-4, Form S-8, their respective
successor forms, or another form not available for registering the Registrable
Shares for sale to the public), each such time it will give written notice to
all Holders of outstanding Registrable Shares of its intention so to do. For a
period of five (5) years following such registration, the Company shall, upon
the written request of any such Holder, received by the Company within 20 days
after the giving of any such notice by the Company, to register any of its
Registrable Shares (which request shall state the intended method of disposition
thereof), use its best efforts to cause the Registrable Shares as to which
registration shall have been so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the Company all to
the extent requisite to permit the sale or other disposition by the Holder (in
accordance with its written request) of such Registrable Shares so registered.
In the event that any registration pursuant to this Section 3 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Common Stock to be included in such an underwriting may be reduced
(pro rata among the requesting Holders based upon the number of shares of Common
Stock owned by such Holders) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold by the Company therein. Notwithstanding the
foregoing provisions, the Company may withdraw any registration statement
referred to in this Section 3 without thereby incurring any liability to the
Holders of Registrable Shares (other than as provided in Section 6).

4. Registration on Form S-3.

(a) If at any time (i) a Holder or Holders of Registrable
Shares requests that the Company file a registration statement on Form S-3 or
any successor thereto for a public offering of all or any portion of the
Registrable Shares held by such requesting Holder or Holders, the reasonably
anticipated aggregate price to the public of which would exceed $1,000,000, and
(ii) the Company is a registrant entitled to use Form S-3 or any successor
thereto to register such shares, then the Company shall use its reasonable best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of Registrable Shares specified in such notice.
Whenever the Company is required by this Section 4 to use its reasonable best
efforts to effect the registration of Registrable Shares, each of the procedures
and requirements of Section 2 (including but not limited to the requirement that
the Company notify all Holders of Registrable Shares from whom notice has not
been received and provide them with the opportunity to participate in the
offering) shall apply to such registration; provided, however, that there shall
be no limitation on the number or registrations on Form S-3 which may be issued
and obtained under this Section 4; and provided, further, however, that the
requirements contained in the first sentence of Section 2(a) shall not apply to
any registration on Form S-3 which may be requested under this Section 4.

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<PAGE> 5

(b) The Company shall not be obliged to effect any
registration, qualification or compliance, pursuant to this Section 4 if: (i)
Form S-3 (or any successor form to Form S-3 regardless of its designation) is
not available for such offering by the Holders; (ii) the aggregate net offering
price (after deduction of underwriting discounts and commissions) of the
Registrable Securities specified in such request is not at least $1,000,000;
(iii) the Company has already effected one registration on Form S-3 within the
previous six-month period; or (iv) the Company shall furnish to the Holders a
certificate signed by the president of the Company stating that, in the good
faith judgment of the Board of Directors, it would not be in the best interests
of the Company and its stockholders for such Form S-3 registration to be
effected at such time, in which event the Company shall have the right to defer
the filing of the Form S-3 registration for a period of not more than one
hundred eighty (180) days after receipt of the request of the Holder or Holders
under this Section 4; provided, however, that the Company shall not utilize this
right more than once in any twelve-month period.

5. Expenses. The Company shall pay all out-of-pocket costs in
connection with any registration pursuant to this Agreement. The costs and
expenses of any such registration shall include, without limitation, the fees
and expenses of the Company's counsel and its accountants and all other
out-of-pocket costs and expenses of the Company incident to the preparation,
printing and filing under the Securities Act of the registration statement and
all amendments and supplements thereto and the cost of furnishing copies of each
preliminary prospectus, each final prospectus and each amendment or supplement
thereto to underwriters, dealers and other purchasers of the securities so
registered, the costs and expenses incurred in connection with the qualification
of such securities so registered under the "blue sky" laws of various
jurisdictions, the fees and expenses of the Company's transfer agent, the fees
and expenses of one counsel for the Holders, expenses of all marketing and
promotional efforts requested by the managing underwriter and all other costs
and expenses of complying with the foregoing provisions hereof with respect to
such registration. The Holders shall bear underwriting discounts, selling
commissions and transfer taxes with respect to the shares sold by them pursuant
to the registration.

6. Registration Procedures. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep each
Holder of Registrable Securities included in such registration advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will do the following for the benefit of
such Holders:

(a) Keep such registration effective for a period of 90 days
or until the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend or
supplement such registration statement and the prospectus contained therein from
time to time to the extent necessary to comply with the Act and applicable state
securities laws. If at any time the Commission should institute or threaten to
institute any proceedings for the purpose of issuing, or should issue a stop
order suspending the effectiveness of any such registration statement, the
Company will promptly notify the Holder and will use reasonable efforts to
prevent the issuance of any such stop order or to obtain the withdrawal thereof
as soon as possible;

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<PAGE> 6

(b) Use its best efforts to register or qualify the
Registrable Securities covered by such registration under the applicable
securities or "blue sky" laws of such jurisdictions as the selling shareholders
may reasonably request; provided, that the Company shall not be obligated to
qualify to do business in any jurisdiction where it is not then so qualified or
otherwise required to be so qualified or to take any action which would subject
it to the service of process in suits other than those arising out of such
registration;

(c) Furnish such number of prospectuses and other documents
incident thereto as a Holder or the underwriter from time to time may reasonably
request;

(d) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and is entered into by the Holder and provided
further that, if the underwriter so requests, the underwriting agreement will
contain customary contribution provisions on the part of the Company;

(e) To the extent then permitted under applicable professional
guidelines and standards, use its best efforts to obtain a comfort letter from
the Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters and an opinion from
the Company's counsel in customary form and covering such matters of the type
customarily covered in a public issuance of securities, in each case addressed
to the Holders, and provide copies thereof to the Holders; and

(f) Permit the counsel to the selling shareholders whose
expenses are being paid pursuant to Section 4 hereof to inspect and copy such
corporate documents as he may reasonably request.

7. Indemnification.

(a) The Company will, and hereby does, indemnify and hold
harmless each Holder, each of its officers, directors and partners, and each
person controlling such Holder within the meaning of the Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls such
underwriter within the meaning of the Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Act or the Exchange Act or securities act of any state or any
rule or regulation thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person

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<PAGE> 7

who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, whether or not resulting in any
liability; provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is (x) based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon information furnished in writing to
the Company by the Holders or any underwriter or any controlling person of the
Holders or any such underwriter specifically for use therein, or (v) made in any
preliminary prospectus, if the prospectus contained in the registration
statement as declared effective or in the form filed by the Company with the
Commission pursuant to Rule 424 under the Securities Act shall have corrected
such statement or omission, ample copies of such prospectus (together with a
statement that such corrected prospectus must be used in lieu of all prior
prospectuses) shall have been provided by the Company to the Holders or
underwriter, and a copy of such prospectus shall not have been sent or otherwise
delivered to such person by the Holders or underwriter at or prior to the
confirmation of such sale to such person.

(b) By requesting registration under this Agreement each
Holder shall agree in the same manner and to the same extent as set forth in the
preceding paragraph, to indemnify and to hold harmless the Company and its
directors and officers and each person, if any, who controls the Company within
the meaning of the Securities Act and any underwriter (as defined in the
Securities Act) of any shares offered by the Holders, against any such claim,
loss, damage, liability or expense, joint or several, to which any of such
persons may be subject under the Securities Act or otherwise, and to reimburse
any of such persons for any legal or other expenses reasonably incurred by them
in connection with investigating or defending against any such claim, loss,
damage, liability or expense, but only to the extent it arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission of a material fact in any registration statement under which
the Holders' shares were registered under the Securities Act pursuant to this
Agreement, any prospectus contained therein, or any amendment or supplement
thereto, which was based upon and made in conformity with information furnished
in writing to the Company by the Holders or such underwriter expressly for use
therein; provided however, that the obligations of each Holder hereunder shall
be limited to an amount equal to the net proceeds received by such Holder upon
the sales of the securities.

(c) Each party entitled to indemnification under this Section
6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought. The
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations under this Section 6, except and to the
extent the Indemnifying Party has been prejudiced as a consequence thereof and
in no event shall such failure relieve the underlying party from any other
liability which it may have to such indemnified party. The Indemnifying Party
will be entitled to participate in, and to the extent that it may elect by
written notice delivered to the Indemnified Party promptly after receiving the
aforesaid notice from such Indemnified Party, at its expense to assume, the
defense of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party, provided that the Indemnified
Party may participate in such defense at its

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<PAGE> 8

expense, notwithstanding the assumption of such defense by the Indemnifying
Party, and provided, further, that if the defendants in any such action shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Parties which are different
from or additional to those available to the Indemnifying Party, the Indemnified
Party or Parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such Indemnified Party or Parties and the fees and expenses of such
counsel shall be paid by the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall (i) furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom and
(ii) shall reasonably assist the Indemnifying Party in any such defense,
provided that the Indemnified Party shall not be required to expend its funds in
connection with such assistance.

(d) No Holder shall be required to participate in a
registration pursuant to which it would be required to execute an underwriting
agreement in connection with a registration effected under Section 2 or 3 which
imposes indemnification or contribution obligations on such Holder more onerous
than those imposed hereunder; provided, however, that the Company shall not be
deemed to breach the provisions of Section 2 or 3 if a Holder is not permitted
to participate in a registration on account of his refusal to execute an
underwriting agreement on the basis of this subsection (d).

8. Lock-up Agreement. If requested by the underwriter in any
registered public offering by the Company, the Holder agrees not to sell or
otherwise transfer any Registrable Securities for such period of time after the
date of such offering as may be requested by the underwriter, but in no event to
exceed 180 days from the close of the initial registered public offering and 90
days from the close of any subsequent registered public offering, provided that
all executive officers and directors of the Company enter into similar
agreements.

9. Information by Holder. Each Holder of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement or otherwise required by applicable state or federal securities
laws.

10. Limitations on Registration Rights. From and after the date of
this Agreement, the Company shall not, without the prior written consent by the
holders of at least a majority of the then outstanding shares of Preferred
Stock, enter into any agreement with any holder or prospective holder of any
securities of the Company which would give any such holder or prospective holder
(a) the right to require the Company, upon any registration of any of its
securities, to include, among the securities which the Company is then
registering, securities

-8-
<PAGE> 9

owned by such holder, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of its securities will not limit the number of
Registrable Securities sought to be included by the Holders of Registrable
Securities or reduce the offering price thereof; or (b) the right to require the
Company to initiate any registration of any securities of the Company.

11. Exception to Registration. The Company shall not be required
to effect a registration under this Agreement if (i) in the written opinion of
counsel for the Company, which counsel and the opinion so rendered shall be
reasonably acceptable to the Holders of Registrable Securities, such Holders may
sell without registration under the Act all Registrable Securities for which
they requested registration under the provisions of the Act and in the manner
and in the quantity in which the Registrable Securities were proposed to be
sold, or (ii) the Company shall have obtained from the Commission a "no-action"
letter to that effect; provided that this Section 10 shall not apply to sales
made under Rule 144(k) or any successor rule promulgated by the Commission until
after the effective date of the Company's initial registration of shares under
the Act. Notwithstanding the foregoing, in no event shall the provisions of this
Section 10 be construed to preclude a Holder of Registrable Securities from
exercising rights under Section 3 for a period of three years after the
effective date of the Company's initial registration of shares under the Act.

12. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of restricted securities (as that term is used in Rule 144 under the Act)
to the public without registration, the Company agrees to:

(a) make and keep public information available as those terms
are understood and defined in Rule 144 under the Act, at all times from and
after ninety days following the effective date of the first registration under
the Act filed by the Company for an offering of its securities to the general
public;

(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Act and the Exchange Act at any time after it has become subject to such
reporting requirements; and

(c) so long as a Holder owns any restricted securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Act and Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed by the Company as the Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing the Holder to sell any such
securities without registration.

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<PAGE> 10

13. Listing Application. If shares of any class of stock of the
Company shall be listed on a national securities exchange, the Company shall, at
its expense, include in its listing application all of the shares of the listed
class then owned by any Holder.

14. Damages. The Company recognizes and agrees that the Holder of
Registrable Securities shall not have an adequate remedy if the Company fails to
comply with the provisions of this Agreement, and that damages will not be
readily ascertainable, and the Company expressly agrees that in the event of
such failure any Holder of Registrable Securities shall be entitled to seek
specific performance of the Company's obligations hereunder and that the Company
will not oppose an application seeking such specific performance.

15. Representations and Warranties of the Company. The Company
represents and warrants to the Holder as follows:

(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other agency of
government by which the Company or any of its properties or assets is bound, the
Certificate of Incorporation or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which the Company or any or its
properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.

(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.

16. Miscellaneous.

(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto (including
without limitation transferees of any Registrable Securities), whether so
expressed or not.

(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or registered
mail, return receipt requested, postage prepaid, or telecopied or sent by other
facsimile method addressed as follows:

If to the Company, or a Holder, at the address of such party
set forth on Schedule I hereto or the most recent address as is shown
on the stock records of the Company; and

If to any subsequent Holder of Registrable Securities, to it
at such address as may have been furnished to the Company in writing by
such Holder; or, in any case, at such other address or addresses as
shall have been furnished in writing to the Company (in the

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<PAGE> 11

case of a Holder of Registrable Securities) or to the Holders of
Registrable Securities (in the case of the Company) in accordance with
the provisions of this paragraph.

(c) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the conflicts of laws principles thereof.

(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least a majority of the then outstanding Registrable
Securities, except that any amendment or waiver to Section 3 hereof which does
not similarly affect all Holders will require the written consent of all Holders
of at least two-thirds of the outstanding Registrable Securities.

(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

(f) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.

(g) This Agreement contains the entire agreement between the
Company and the Preferred Holders with respect to registration rights and
supersedes all prior agreements relating to the same subject matter (in
particular, this Agreement shall supersede and replace (i) Section 8 of the
Second Amended and Restated Founders' Agreement, entered into as of July 31,
1996, as amended from time to time, by and among the Company, CMG Information
Services, Inc., CMG@Ventures, Inc., certain founders of the Company and EBIT
Eigenkapital Beteiligungsgesellschaft fuer Innovative Techologieunterneehmen
Gesellschaft Buergerlichen Rechts, with limitation of liability and (ii) the Old
Agreement).

[Remainder of the Page Intentionally Left Blank]

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<PAGE> 12

IN WITNESS WHEREOF, this Agreement has been executed by duly authorized
representation of each of the signatories hereto as of the date and year first
above written.

COMPANY:

BLAXXUN INTERACTIVE, INC.

By: ________________________
Name:
Title:

SERIES A HOLDERS:

CMG@VENTURES, INC.

By: ________________________
Name:
Title:

SERIES B HOLDERS:

EBIT EIGENKAPITAL
BETEILIGUNGSGESELLSCHAFT FUER INNOVATIVE
TECHOLOGIEUNTERNEHMEN GESELLSCHAFT
BUERGERLICHEN RECHTS,
WITH LIMITATION OF LIABILITY

By:________________________________
Name: Klaus Hufnagel/Heydan von
Frankenberg
Title: Directors

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<PAGE> 13

SERIES C HOLDERS:

BLAXXUN BETEILIGUNGSGESELLSCHAFT
BUERGERLICHEN RECHTS MIT
HAFTUNGSBESCHRAENKUNG

By:________________________________
Name: Stefan Graber
Title: Chief Executive Officer

BLAXXUN VERMOEGENSVERWALTUNGS-
GESELLSCHAFT BUERGERLICHEN RECHTS
MIT HAFTUNGSBESCHRAENKUNG

By:________________________________
Name: Heydan von Frankenberg
Title: Chief Executive Officer

KLINK, JELKO, DR. DEHMEL
WERTPAPIERDIENSTLEISTUNGS AG

By:________________________________
Name: Dr. Dehmel
Title: Chief Executive Officer

-----------------------------------
Moni Malek, individually

-----------------------------------
Christian Sprenger, individually

CMG@VENTURES, INC.

By: ________________________
Name:
Title:

KONSORTIUM AG

By:__________________________
Name:
Title:

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<PAGE> 14

SERIES D HOLDERS:

-----------------------------------
Franz W. Buchenberger

-----------------------------------
Bernd-Michael Habermeyer

-----------------------------------
Ingrid Buchenberger

-----------------------------------
Rainer Heigenmoser

-----------------------------------
Kristof Nast-Kolb

-----------------------------------
Robert Schoeller

-----------------------------------
Thilo Schwerdfeger

-----------------------------------
Claudia Rockwell

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<PAGE> 15

SERIES E HOLDERS:

------------------------------
Otto Dauer

------------------------------
Thomas Metz

------------------------------
Siegfried Piel

------------------------------
PRIME ASSET MANAGEMENT

------------------------------
Dieter Pfundt

SERIES F HOLDERS:

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<PAGE> 1
EXHIBIT 10.2

BLAXXUN INTERACTIVE, INC.
STOCKHOLDERS' AGREEMENT

This Stockholders' Agreement (hereinafter referred to as the
"Stockholders' Agreement") is entered into as of September __, 1998, by and
among blaxxun interactive, Inc., a Delaware corporation (the "Company"), CMG
Information Services, Inc., a Delaware corporation ("CMGI"), CMG@Ventures, Inc.,
a Delaware corporation and wholly-owned subsidiary of CMGI ("@Ventures"), the
founders of the Company set forth in Schedule I attached hereto (the "Founders")
and EBIT Eigenkapital Beteiligungsgesellschaft fuer Innovative
Technologieunternehmen Gesellschaft Buergerlichen Rechts, with limitation of
liability ("EBIT). This Stockholders' Agreement amends and restates in its
entirety the Second Amended and Restated Founders' Agreement, dated as of May
24, 1996, between the Company, CMGI, @Ventures, the Founders and EBIT, as
amended to date, which agreement and all amendments thereto shall become null
and void upon the execution hereof.

WHEREAS, CMGI, @Ventures, and the Founders previously entered into a
Founders' Agreement dated as of July 31, 1995 (the "Original Agreement") and a
Series A Convertible Preferred Stock Purchase Agreement dated as of July 31,
1995 (the "Stock Purchase Agreement");

WHEREAS, CMGI, @Ventures and the Founders entered into an Amended and
Restated Founders' Agreement dated as of July 24, 1996 (the "Restated
Agreement") to amend and restate in its entirety the Original Agreement;

WHEREAS, EBIT purchased an aggregate of 400,000 shares of Series B
Convertible Preferred Stock, par value $.01 per share, of the Company (the
"Series B Preferred Stock"), pursuant to a Series B Convertible Preferred Stock
Purchase Agreement dated as of May 24, 1996 (the "EBIT Purchase Agreement");

WHEREAS, concurrently with the EBIT Purchase Agreement, CMGI,
@Ventures, the Founders and EBIT entered into a Second Amended and Restated
Founders' Agreement (the "Second Restated Agreement") to amend and restate in
its entirety the Restated Agreement to include EBIT as a party thereto;

WHEREAS, CMGI, @Ventures, EBIT and the Founders entered into an
Amendment No. 1, dated as of September __, 1997, to the Second Restated
Agreement ("Amendment No. 1") in order to, among other things, modify the
composition of the Board of Directors of the Company;

WHEREAS, the Corporation previously entered into a certain Stock
Exchange Agreement, dated as of September 13, 1995 (as amended to date) with the
Founders and blaxxun interactive Aktiengesellschaft (the "AG"), whereby the
Founders have the right at any time to exchange their entire equity interest in
the AG for 1,976,000 shares of Common Stock of the

<PAGE> 2

Corporation, as more fully set forth in the Stock Exchange Agreement (the
"Exchange", and the occurrence of such Exchange is referred to herein as the
"Exchange Event").

WHEREAS, the Founders with the exception of Peter Graf (the
"Participating Founders") have effected the Exchange in accordance with the
terms of the Stock Exchange Agreement and the Restated Founders' Agreement,
except that the Company and the Participating Founders have agreed to modify the
terms of the Exchange so that each of the Participating Founders shall exchange
his or her equity interest in the AG for that number of shares of the Company's
newly authorized Series D Preferred Stock, $.01 par value per share (the "Series
D Preferred") listed opposite such Participating Founders' name on Schedule I
attached hereto, in lieu of exchanging his or her equity interest in the AG for
shares of the Company's Common Stock, as previously contemplated;

WHEREAS, the Company, CMGI, @Ventures, EBIT and the Founders desire to
amend and restate the Second Restated Agreement in its entirety in order to (i)
account for the modification of the terms of the Exchange by replacing any
references to the Founders' Common Stock in the Second Restated Founders'
Agreement with references to the Founders' Series D Preferred, which such Series
D Preferred is convertible at any time into Common Stock, so that the rights and
restrictions placed on the Common Stock by the Second Restated Founders'
Agreement shall now be applicable to the Series D Preferred Stock, (ii)
eliminate the provisions of the Second Restated Agreement which are no longer
applicable, (iii) restate the rights, obligations and restrictions with respect
to the sale, transfer, pledge or other disposition of the shares of capital
stock of the Company now or hereafter owned by any of the undersigned, and (iv)
change the name of this Agreement from "Second Restated Founders' Agreement" to
"Stockholders' Agreement";

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Second Restated Agreement shall be further amended and restated as follows:

1. Election of Directors: Compensation.

1.1 Election of Directors. Prior to the completion of a
Qualified IPO or Qualified Sale, at each annual meeting of the stockholders of
the Company, or at each special meeting of the stockholders of the Company
involving the election of directors of the Company, and at any other time at
which stockholders of the Company will have the right to or will vote for or
render consent in writing regarding the election of directors of the Company,
then and in each event, @Ventures, CMGI, EBIT and each of the Founders hereby
covenants and agrees to vote all shares of capital stock ("Capital Stock") of
the Company presently owned or hereafter acquired by them (including such shares
owned of record or over which any one or more of them exercises voting control)
in favor of the following actions:

(a) to fix and maintain the number of Directors of the Company
at not more than three Directors;

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<PAGE> 3

(b) to cause and maintain the election to the Board of
Directors of the

Company of one designated representative of the Founders nominated by Founders,
who shall

be initially Franz W. Buchenberger (the "Management Director");

(c) to cause and maintain the election to the Board of
Directors of the Company of one designated representative of @Ventures nominated
by @Ventures, who shall

be initially Guy A. Bradley (the "@Ventures Director");

(d) to cause and maintain the election to the Board of
Directors of the Company of one designated representative of EBIT nominated by
EBIT, who shall initially be Heydan von Frankenberg; and

(e) to cause and maintain the election by the Board of
Directors of the Company of a Compensation Committee of the Board comprised of
the three Directors specified above.

1.2 Vacancies and Removal. The Management Director designated above in
Section 1.1 shall be elected at any annual or special meeting of stockholders
(or by written consent in lieu of a meeting of stockholders) by the holders of a
majority of the outstanding shares of Series D Preferred Stock and shall serve
until his successor is designated by the Founders and elected and qualified or
until his earlier death, resignation or removal. The Management Director may be
removed during his term of office by and only by the affirmative vote or written
consent of the holders of a majority of the outstanding shares of Series D
Preferred Stock and the consent of the Founders. Upon the Management Director's
death, resignation or removal, his successor shall be designated by the Founders
and elected and qualified immediately. The Founders may not assign their rights
under this Section 1.2.

1.3 Compensation Committee. The Compensation Committee shall determine
the compensation of the members of the management team (including salary,
bonuses and options).

2. Right of First Refusal on Dispositions: Co-Sale Rights.

2.1 Receipt of Third-Party Offer. If at any time prior
to the completion of a Qualified IPO or Qualified Sale as hereinafter defined,
any Founder or EBIT (the "Selling Holder") desires to sell for cash, cash
equivalents or any other form of consideration (including a promissory note) all
or any part of its shares of Capital Stock of the Company pursuant to an offer
(or proposed offer) from any third party (the "Proposed Transferee"), the
Selling Holder shall submit a written offer (the "Offer") to sell such shares
(the "Offered Shares") to all the holders of Series A Preferred Stock of the
Company on terms and conditions, including price, not less favorable to such
holders than those on which the Founder or EBIT, as the case may be, proposes to
sell such Offered Shares to the Proposed Transferee. The Offer shall disclose
the identity of the Proposed Transferee, the number of Offered Shares proposed
to be sold, the total

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<PAGE> 4

number of shares owned by the Selling Holder, the terms and conditions,
including price, of the proposed sale, and any other material facts relating to
the proposed sale. The Offer shall further state that the holders of Series A
Preferred Stock may acquire, in accordance with the provisions of this
Agreement, all of the Offered Shares offered by any one Selling Holder and all
or any part of the Offered Shares offered by more than one of the Selling Holder
(if such shares represent in excess of 10% of the voting Common Stock of the
Company) for the price and upon the other terms and conditions, including
deferred payment (if applicable), set forth therein.

2.2 Notice of Intent to Purchase. If any one or more of the
holders of Series A Preferred Shares desires to purchase all or any part of the
Offered Shares, such holder or holders shall each have the right to purchase its
pro-rata share of the Offered Shares in proportion to its holdings of such
Preferred Shares (together with a right to purchase all or any part of such
Offered Shares not purchased by other holders of Series A Preferred Shares also
in proportion, in each instance, to the holdings of such Preferred Shares among
those holders desiring to purchase such Offered Shares) and such holder or
holders shall communicate in writing its or their election to purchase to the
Selling Holder, which communication shall state the number of Offered Shares
such holder or holders desire to purchase and shall be delivered in person or
mailed to the Selling Holder within 20 days of the receipt of the Offer by the
holders of Series A Preferred Stock. Such communication shall, when taken in
conjunction with the Offer, be deemed to constitute a valid, legally binding and
enforceable agreement for the sale and purchase of the Offered Shares. Sales of
the Offered Shares to be sold to the holders of Series A Preferred Stock
pursuant to this Section 5 shall be made at the offices of the Company on the
40th day following the date the Offer is received by such holders (or if such
40th day is not a business day, then on the next succeeding business day) or on
such other day and at such time and place as the parties shall mutually agree.
Such sales shall be effected by the Selling Holder's delivery to such holders of
a certificate or certificates evidencing the Offered Shares (or any portion
thereof) to be purchased by it, duly endorsed for transfer to such holders,
against payment to the Selling Holder of the purchase price therefor by such
holders.

2.3 Sale to Third Party. If the holders of Series A
Preferred Stock do not purchase all of the Offered Shares, the Offered Shares
may be sold by the Selling Stockholder, at any time within 90 days after the
date the Offer was made, subject to the provisions of this Section 5. Any such
sale shall be to the Proposed Transferee, at not less than the price and upon
other terms and conditions, if any, not more favorable to the Proposed
Transferee than those specified in the Offer. Any Offered Shares not sold within
the 90 day period shall continue to be subject to the requirements of a prior
offer pursuant to this Section 5. If Offered Shares are sold pursuant to this
Section 5 to any purchaser who is not a party to this Agreement, the Offered
Shares so sold shall no longer be subject to any of the restrictions imposed by
this Agreement.

2.4 Limitations on Pledge. Each Founder agrees that he or she
will not mortgage, pledge, hypothecate or otherwise encumber his or her
respective shares of Series D Preferred Stock of the Company without the prior
written consent of the holders of a majority of the Series A Preferred Shares.

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<PAGE> 5

2.5 Co-Sale Right. If at any time any holder of Series A
Preferred Stock, any Founder or EBIT desires to sell all or any part of the
shares of Capital Stock of the Company (the "Co-Sale Shares") owned by such
holder (the "Selling Stockholder") to any person or entity (excluding sales to
one or more of the holders of Series A Preferred Stock pursuant to the right of
first refusal set forth in Sections 5.1 and 5.2 above), such Selling Stockholder
shall provide written notice to all the holders of Series A Preferred Stock, the
Founders and EBIT of the terms and conditions of such proposed sale at least 20
days prior to the closing of such sale and each holder of Series A Preferred
Stock, each Founder and EBIT shall have the right to sell to the Purchaser, at
the same price per share and on the same terms and conditions as involved in
such sale by the Selling Stockholder, such number of shares of Capital Stock of
the Company owned by such holder as is equal to the number of Co-Sale Shares
(which term shall include the number of shares of Common Stock into which shares
of Series A Preferred Stock, Series B Preferred Stock and Series D Preferred
Stock being sold by the Selling Stockholder could be converted and the number of
shares of Common Stock issuable upon the exercise of presently exercisable
options) multiplied by a fraction, the numerator of which is the aggregate
number of shares of Common Stock of the Company owned by such holder (including
the aggregate number of shares of Common Stock into which shares of Series A
Preferred Stock, Series B Preferred Stock and Series D Preferred Stock owned by
such holder or Founder could be converted and the aggregate number of shares of
Common Stock issuable upon the exercise of any presently exercisable options
owned by such Founder), and the denominator of which is the sum of all shares of
Capital Stock of the Company owned by the holders of Series A Preferred Stock
and Series B Preferred Stock, by the Founders and by EBIT on an as if converted
basis and upon exercise of options as aforesaid.

2.6 Notice of Intent to Participate. If any holder wishes to
so participate in any sale under Section 2.5, it shall notify the Selling
Stockholder in writing of such intention as soon as practicable after receipt of
the Offer made pursuant to Section 2.5, and in any event within 20 days after
the date such Offer was made. Such notification shall be delivered in person or
mailed to the Selling Stockholder.

2.7 Sale of Co-Sale Shares. The Selling Stockholder and any
participating holder shall sell to the Purchaser all, or at the option of the
Purchaser, any part of the shares proposed to be sold by them at not less than
the price and upon other terms and conditions, if any, not more favorable to the
Purchaser than those in the Offer provided by the Selling Stockholder under
Section 2.5 above; provided, however, that any purchase of less than all of such
shares by the Purchaser shall be made from the Selling Stockholder and any
participating holder pro rata based upon the relative amounts of the shares that
the Selling Stockholder and any participating holder are otherwise entitled to
sell pursuant to Section 2.5.

2.8 Release of Shares. Any shares sold pursuant to Section 2.7
shall no longer be subject to the restrictions imposed by this Agreement and
shall no longer be entitled to the benefits conferred by this Agreement. On and
after August 1, 2000, EBIT shall be released from its obligations under Section
2.5, 2.6 and 2.7 hereof, but shall remain subject to the other terms and
conditions of this Agreement.

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<PAGE> 6

2.9 Permitted Transfer. The terms and conditions of this
Section 2 shall not apply to any Permitted Transfer by any holder of Series A or
B Preferred Stock or the Founders. For purposes of this Agreement, "Permitted
Transfer" means (i) any transfer by a Founder to his or her Immediate Family
Member or a trust solely for the benefit of an Immediate Family Member or (ii)
any transfer by any holder of Series A Preferred Stock of any of its shares of
Capital Stock of the Company to or for the benefit of any Affiliate of
@Ventures, or (iii) any transfer by any holder of Series B Preferred Stock or
any of its shares of Capital Stock of the Company to or for the benefit of any
Affiliate or EBIT or (iv) on or after the date of filing by the Company for
bankruptcy or for the initiation of insolvency proceedings, any transfer by EBIT
to a German governmental agency which has provided financing to the Company (the
"German Partner"), but only to the extent that the transfer to the German
Partner is pursuant to the exercise of a purchase right granted by EBIT to the
German Partner as an inducement for the German Partner to provide financing to
the Company; provided that it shall be a condition of each such transfer that
the transferee agrees to be bound by the terms of this Agreement as though no
such transfer had taken place. For purposes of the Agreement the term
"Affiliate" means any person or entity controlling, controlled by or under
common control with, @Ventures or EBIT, as the case may be.

2.10 Right of First Refusal in Company Sales.

(a) Right of First Refusal on Company Issuances. The Company
shall, prior to any proposed issuance by the Company of any of its securities,
first offer to each of the holders of Series A Preferred Stock, the holders of
the Series B Preferred Stock and to each of the Founders (the "Offerees"), by
written notice the right, for a period of 30 days, to purchase for cash at an
amount equal to the price or other consideration for which such securities are
to be issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Common Stock of such securities that are so
convertible, exercisable or exchangeable), each of the Offerees will continue to
maintain in its same proportionate equity ownership (on a fully-diluted basis)
in the Company as of the date of such notice (treating each such party, for the
purpose of such computation, as the holder of the number of shares of Common
Stock which would be issuable to such party upon conversion, exercise and
exchange of all securities held by such party on the date such offer is made,
that are convertible, exercisable or exchangeable into or for (whether directly
or indirectly) shares of Common Stock and assuming the like conversion, exercise
and exchange of all such other securities held by other persons).

(b) Exceptions to Right of First Refusal. The participation
rights of each of the Offerees pursuant to this Section 2.10 shall not apply to
securities issued or issuable: (A) upon conversion of any of the Company's
outstanding convertible securities (including without limitation any class or
series of Preferred Stock, including the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock),
(B) as a stock dividend or upon any subdivision of shares of Common Stock,
provided that the securities pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (C) pursuant to subscriptions,
warrants, options, convertible securities, or other rights which are outstanding
on the date of this Agreement, (D) solely in consideration for the

-6-
<PAGE> 7

acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity, (E) pursuant to a public offering, (F) pursuant to the exercise of
options or warrants to purchase Common Stock granted in the future to directors,
officers, employees or consultants of the Company and approved after the date of
this Agreement by the Compensation Committee, and (G) upon the exercise of any
right which was not itself in violation of the terms of this Section 2.10.

(c) Mechanics of Right of First Refusal. The Company's written
notice to the Offerees shall describe the securities proposed to be issued by
the Company and specify the number, price and payment terms. Each of the
Offerees may accept the Company's offer as to the full number of securities
offered to it or any lesser number, by written notice thereof given by it to the
Company prior to the expiration of the aforesaid 30 day period, in which event
the Company shall sell and such party shall buy, upon the terms specified, the
number of securities agreed to be purchased by such party at such time and
commensurate with the sale by the Company of all of the remainder of such
securities and as hereinafter provided. The Company shall be free at any time
prior to 180 days after the date of its notice of offer to each of the Offerees,
to offer and sell to any third party or parties the remainder of such securities
proposed to be issued by the Company (including but not limited to the
securities not agreed by the Offerees to be purchased by them), at a price and
on payment terms no less favorable to the Company than those specified in such
notice of offer to the Offerees. However, if such third party sale or sales are
not consummated within such 180 day period, the Company shall not sell such
securities as shall not have been purchased within such period without again
complying with this Section 2.10. The issuance by the Company of any of its
securities to @Ventures or an entity affiliated with @Ventures shall be subject
to appraisal in the manner and to the extent provided in Section 3 below.

3. Merger or Sale of Company. Any merger or sale of the Company will be
carried out in such a way so that all shareholders benefit equally in proportion
to their share-holdings. Any merger or sale (or partial sale) of the Company to
an entity affiliated with @Ventures will be carried out at arms length and
according to fair market value. If the Founders disagree with the value defined
by @Ventures, the following arbitration process will be followed. @Ventures and
the Founders will each commission an independent appraisal firm to estimate the
fair market value of the Company. If the differences between the two values is
less than or equal to 10% of the upper value, then the average of the two values
will be defined as the fair market value. Otherwise the two appraisal firms will
agree on a third appraisal firm, which will estimate a third value. The fair
market value will then be defined as the average of the third value and the
closest of the other two. Appraisal costs will be paid by the Company. If
@Ventures or an entity affiliated with @Ventures invests an additional sum in
the Company, then if the Founders disagree with the implied valuation of the
Company the appraisal process described in this Section 3 will be used to
determine the valuation to be used.

4. Interested Transactions Except as expressly contemplated by this
Agreement, the Company shall not buy, sell, lease or license any substantial
assets from, borrow from or lend any money to, or deal with or enter into any
other material transactions or agreements with

-7-
<PAGE> 8

CMGI, @Ventures or an Affiliate of either of them, unless such transaction is
negotiated in good faith in the ordinary course of business and on an
arm's-length basis.

5. Control. From and after the First Closing, @Ventures shall have all
the rights of a control stockholder under Delaware law commensurate with its
ownership of Capital Stock of the Company so long as @Ventures owns a majority
of the voting securities of the Company.

6. Miscellaneous.

6.1 Termination of Covenants. The covenants set forth in this
Agreement shall terminate and be of no further force or effect upon the first to
occur of (i) the closing of the Company's Qualified Initial Public Offering or
Qualified Sale as defined below (except with respect to Co-Sale Rights), or (ii)
the Company first becoming subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act, or (iii) the redemption of all the
Company's Series A Preferred Stock and Series B Preferred Stock, or (iv) written
agreement between the Company, @Ventures or its successors or assigns, the
Founders and EBIT. The term "Qualified Initial Public Offering" shall mean an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
shares of Common Stock of the Company but only if (i) the Common Stock of the
Company is sold at a price to the public of not less than ten times the average
price per share paid to the Company for the Series A Preferred Stock (such
amount to be equitably adjusted whenever there shall occur a stock split,
combination, reclassification or other similar event affecting the Common
Stock), (ii) the aggregate proceeds (before deduction of any underwriting
discounts, commissions or expenses) received by the Company from such public
offering, at the public offering price shall equal or exceed $10 million; and
(iii) each of the underwriters participating in such public offering shall be
obligated to buy on a "firm commitment" basis all shares of capital stock of the
Company which such underwriters shall have agreed to distribute. The term
"Qualified Sale" shall mean a sale of substantially all the assets of the
Company or a merger of the Company but only if the Preferred Stock of the
Company, sold on an "as-if" converted basis, is sold at a price per share or for
other consideration valued at not less than ten times the average price per
share paid to the Company for the Series A Preferred Stock (such amount to be
equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event effecting the Common Stock).

6.2 Transfer of Stock. Except as otherwise expressly provided
by this Agreement, each party to this Agreement agrees not to transfer any of
its shares of Capital Stock of the Company unless the transferee agrees in
writing to be bound by the terms and conditions of this Agreement and executes a
counterpart of this Agreement, and unless such Investor has compiled with
applicable law in connection with such transfer.

6.3 Legend. Each certificate representing shares of Common
Stock, Series A Preferred Stock, Series B Preferred Stock and Series D Preferred
Stock shall bear the following legends, until such time as the shares of Common
Stock, Series A Preferred Stock, Series B Preferred Stock or Series D Preferred
Stock represented thereby are no longer subject to the provisions hereof.

-8-
<PAGE> 9

"The sale, transfer or assignment of the securities
represented by this certificate are subject to the terms and
conditions of a certain Stockholders' Agreement dated as of
September ___, 1998, among the Company and certain of its
stockholders. Copies of such Agreement may be obtained at no
cost by written request made by the holder of record of its
certificate to the Secretary of the Company."

"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
applicable state securities laws. These securities have been
acquired for investment and not with a view to distribution or
resale, and may not be sold, offered for sale, mortgaged,
pledged, hypothecated or otherwise transferred without a
registration statement for such securities being in effect
under the Securities Act of 1933 and any applicable state
securities laws or an opinion of counsel satisfactory to the
Company to the effect that such registrations are not
required."

6.4 Severability; Governing Law. If any provisions of this
Agreement shall be determined to be illegal or unenforceable by any court of
law, the remaining provisions shall be several and enforceable in accordance
with their terms. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts.

6.5 Injunctive Relief. It is acknowledged that it will be
impossible to measure the damages that would be suffered by the parties hereto
if any party fails to comply with the provisions of this Agreement and that in
the event of any such failure, the other parties will not have an adequate
remedy at law. The parties hereto shall, therefore, be entitled to obtain
specific performance of all obligations hereunder and to obtain immediate
injunctive relief. No party shall urge, as a defense to any proceeding for such
specific performance or injunctive relief, that any other party has an adequate
remedy at law.

6.6 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns, legal representatives and heirs.

6.7 Modification or Amendment. Neither this Agreement nor any
provision hereof can be modified, amended, changed, discharged, waived or
terminated except by an instrument in writing, signed by all the parties hereto,
except that the Founders can be bound by the decision of a majority vote of the
outstanding shares of Series D Preferred Stock held by the Founders.

6.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original. but all of
which taken together shall constitute one and the same instrument.

6.9 Notices. All notices and other communications which by
any provision of this Shareholder Agreement are required or permitted to be
given shall be given in writing and

-9-
<PAGE> 10

shall be (a) mailed by first-class or express mail, postage prepaid, (b) sent by
telex, telecopy or other form of rapid transmission, confirmed by mailing (by
first class or express mail, postage prepaid) written confirmation at
substantially the same time as such rapid transmission or (c) personally
delivered to the receiving party (which if other than an individual shall be an
officer or other responsible party of the receiving party). All such notices and
communications she be mailed, sent or delivered as follows:

If to @VENTURES, to: CMG@Ventures Management Services, Inc.
100 Brickstone Square
Andover, MA 01810
Attn: Guy Bradley
Facsimile: (978) 684-3672

with a copy to: William Williams II, Esq.
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Facsimile: (617) 227-4420

If to the Founders, to: The Founders at the addresses set
forth on Schedule I

with a copy to: Michael J. Riccio Jr., Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Facsimile: (617) 951-1295

If to the Company, to: blaxxun interactive, Inc.
14 Juri Street
San Francisco, CA 94110
Facsimile: (415) 273-7001

with a copy to: Michael J. Riccio, Jr., Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Facsimile: (617) 951-1295

If to EBIT, to: EBIT Eigenkapital Beteiligungsgesellschaft
fuer Innovative Technologieunternehmen
Gesellschaft Buergerlichen Rechts,
with limitation of liability

-10-
<PAGE> 11

c/o Equity Research & Management
Aktiengesellschaft
fuer Beteiligungsberatung
Facsimile: 49 89 29095499

with a copy to: Andreas Rodin, Esq.
Baker & McKenzie
Pollath + Partner
Friedrichstrasse 200
D-10117 Berlin-Mitte
10787 Berlin, Germany
Facsimile: *49-30-2233-2200

or to such other person(s), telex or facsimile number(s) or address(es) as the
party to receive any such communication or notice may have designated by written
notice to the other party.

6.10 Merger Provision; Termination of Restated Agreement. This
Agreement constitutes the entire agreement by any of the parties hereto
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, whether oral or written, of any
of the parties hereto concerning the subject matter hereof. Concurrently with
the execution and delivery of this Agreement by CMGI, @Ventures and the
Founders, the Second Restated Agreement shall be terminated and of no further
force or effect.

6.11 Mutual Intent. CMGI, @Ventures, EBIT, the Founders and the
Company intend to work towards the goal of maximizing shareholder value through
a long-term partnership culminating in an IPO or a sale of the Company.

* * *

-11-
<PAGE> 12

IN WITNESS WHEREOF, the parties hereto have caused this Stockholders'
Agreement to be executed as of the date first above written.

BLAXXUN INTERACTIVE, INC. CMG@VENTURES, INC.

By:____________________________ By:________________________________
Name: Franz Buchenberger Name:
Title: President Title:

CMG INFORMATION SERVICES, INC.

By:________________________________
Name:
Title:

-----------------------------------
Franz W. Buchenberger

-----------------------------------
Peter Graf

-----------------------------------
Bernd-Michael Habermeyer

-----------------------------------
Rainer Heigenmoser

-----------------------------------
Kristof Nast-Kolb

-----------------------------------
Claudia Rockwell

-----------------------------------
Robert Schoeller

-12-
<PAGE> 13

-----------------------------------
Thilo Schwerdfeger

EBIT Eigenkapital Beteiligungsgesell
schaft fuer Innovative
Technologieunternehmen Gesellschaft
Buergerlichen Rechts, with
limitation of liability

By:________________________________
Name: Klaus Hufnagel / Heydan
von Frankenberg
Title: Directors

-13-
<PAGE> 14

BLAXXUN INTERACTIVE, INC.

STOCKHOLDERS' AGREEMENT

SCHEDULE 1

<TABLE>
<CAPTION>
Founders Series D Preferred
Stock
-----
<S> <C>
Franz W. Buchenberger 402,135.00
Parchetwiesen 33 365,925.00
D-82362 weilheim
Bernd-Michael Habermeyer
Herzogstandstrasse 21
D-82362 Weilheim
Ingrid Buchenberger 329,726.00
Parchetwiesen 33 146,369.00
D-82362 weilheim
Claudia Rockwell *
Milloeckerstrasse 34A
D-81477 Muenchen
Rainer Heigenmoser 146,369.00
Ausser Muenchnerstrasse 1
D-83026 Rosenheim
Kristof Nast-Kolb 146,369.00
Alte Bahnhofstrasse 13
D-82343 Poecking
Robert Schoeller 146,369.00
Brunnenweg 14
D-85757 Karlsfeld
Peter Graf ** 146,369.00
14 Juri Street
San Francisco, CA 94110
Thilo Schwerdfeger 146,369.00
Karlstrasse 118
D-80335 Muenchen

TOTAL 1,976,000.00
</TABLE>

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

* Includes portion of the AG held in the name of Robert Rockwell.

-14-

<PAGE> 1
EXHIBIT 10.3

BLACK SUN INTERACTIVE, INC.

1996 STOCK PLAN

1. PURPOSE. This 1996 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Black Sun Interactive,
Inc. (the "Company"), its parent (if any) and any present or future subsidiaries
of the Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of restricted stock in the Company ("Awards"); and (d) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options".
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.

2. ADMINISTRATION OF THE PLAN.

A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board"). The Board
may appoint a Stock Plan Committee or Compensation Committee (the "Committee")
of two or more of its members to administer this Plan. Hereinafter, all
references in this Plan to the Committee shall mean the Board if no Committee
has been appointed. Subject to ratification of the grant or authorization of
each Stock Right by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee shall have the authority to (i)
determine the employees of the Company and Related Corporations (from among the
class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may
be granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) to whom Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which Options or
Awards may be granted or Purchases made; (iii) determine the option price of
shares subject to each option, which price shall not be less than the minimum
price specified in paragraph 6, and the purchase price of shares subject to each
Purchase; (iv) determine whether each Option granted shall be an ISO or a
Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times
when each option shall become exercisable and the duration of the exercise
period; (vi) determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the nature of
such restrictions, if any, and (vii) interpret the Plan and prescribe and
rescind rules and regulations relating to it. If the Committee determines to
issue a Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated thereunder, to
ensure that such Option is not

<PAGE> 2

treated as an ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Stock Right granted under it shall be final
unless otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may deem best.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Right
granted under it.

B. COMMITTEE ACTIONS. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and places as it
may determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. From time to time the Board may increase the size
of the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.

C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be
granted to members of the Board, but any such grant shall be made and approved
in accordance with paragraph 2(D), if applicable. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Members of the
Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii)
have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to himself of Stock
Rights, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting to him of Stock Rights.

D. COMPLIANCE WITH FEDERAL SECURITIES LAWS. In the event the
Company registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grant of
Stock Rights to a member of the Board (made at any time from the effective date
of such registration until six months after the termination of such
registration) must be approved by a majority vote of the other members of the
Board; provided, however, that if a majority of the Board is eligible for
selection to participate in the Plan or in any other stock option or other stock
plan of the Company or any of its affiliates, or has been so eligible at any
time within the preceding year, any grant of Stock Rights to a member of the
Board must be made by, or only in accordance with the recommendation of, the
Committee or a committee consisting of three or more persons, who may but need
not be directors or employees of the Company, appointed by the Board but having
full authority to act in the matter, none of whom is eligible to participate in
this Plan or any other stock option or other stock plan of the Company or any of
its affiliates, or has been so eligible at any time within the preceding year.
The requirements imposed by the preceding sentence shall also apply with respect
to grants to officers who are not also directors. Once appointed, such committee
shall continue to serve until otherwise directed by the Board.

-2-
<PAGE> 3

authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant an ISO, a Non-Qualified
Option, an Award or an authorization to make a Purchase. Granting of any Stock
Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participation in any other grant of Stock
Rights.

4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, $0.01 par value
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 140,000, subject to adjustment as provided in paragraph
13. Any such shares may be issued as ISOs, Non-Qualified Options or Awards, or
to persons or entities making Purchases, so long as the number of shares so
issued does not exceed such number, as adjusted. If any Option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part, or if
the Company shall reacquire any unvested shares issued pursuant to Awards or
Purchases, the unpurchased shares subject to such Options and any unvested
shares so reacquired by the Company shall again be available for grants of Stock
Rights under the Plan.

5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after May 1, 1996 and prior to April 30, 2006. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right.

-3-
<PAGE> 4

6. MINIMUM OPTION PRICE; ISO LIMITATIONS.

A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per
share specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the the minimum legal
consideration required therefor under the laws of the State of Delaware.

B. PRICE FOR ISOS. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock equal to more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.

C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee
may be granted ISOs only to the extent that, in the aggregate under this Plan
and all incentive stock option plans of the Company and any Related Corporation,
such ISOs do not become exercisable for the first time by such employee during
any calendar year in a manner which would entitle the employee to purchase more
than $100,000 in fair market value (determined at the time the ISOs were
granted) of Common Stock in that year. Any options granted to an employee in
excess of such amount will be granted as Non-Qualified Options.

D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for which
the prices or quotes discussed in this sentence are available prior to the date
such option is granted and shall mean (i) the average (on that date) of the high
and low prices of the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the NASDAQ National Market. However, if the Common Stock is not
publicly traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as determined by
the Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.

7. OPTION DURATION. Subject to earlier termination as provided in
paragraph 10, each Option shall expire on the date specified by the Committee,
but not more than (i) ten years from the date of grant in the case of
Non-Qualified Options, (ii) ten years from the date of grant in the case of IS0s
generally, and (iii) five years from the date of grant in the case of ISOs
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Related Corporation.

-4-
<PAGE> 5

8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 10
through 12, each Option granted under the Plan shall be exercisable as follows:

A. VESTING. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such installments as
the Committee may specify.

B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.

C. PARTIAL EXERCISE. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.

D. ACCELERATION OF VESTING. The Committee shall have the right
to accelerate the date of exercise of any installment of any Option.

9. AWARDS AND STOCK PURCHASES.

A. NATURE OF AWARDS. The Committee may grant an Award or
authorize Purchases to any director, officer, employee or consultant of the
Company or any Related Corporation. An Award or Purchase entitles the recipient
to acquire, at no cost or for a purchase price determined by the Committee, as
the case may be, Shares subject to such restrictions and conditions as the
Committee may determine at the time of grant ("Restricted Stock"). Conditions
may be based on continuing employment (or other business relationship) and/or
achievement of pre-established performance goals and objectives.

B. RIGHTS AS A STOCKHOLDER. Upon execution of a written
instrument setting forth the Award and paying any applicable price, a
participant shall have the rights of a stockholder with respect to the voting of
the Restricted Stock, subject to such conditions contained in the written
instrument evidencing the Award or Purchase. Unless the Committee shall
otherwise determine, certificates evidencing the Restricted Stock shall remain
in the possession of the Company or its designee until such Restricted Stock is
vested as provided in paragraph 9(D) below.

C. RESTRICTIONS. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the Award
or Purchase. In the case of Restricted Stock granted to an employee, if the
participant's employment with the Company or the Related Corporations terminates
for any reason, the Company shall have the right, at the discretion of the
Committee, to repurchase the Shares of Restricted Stock with respect to which
conditions have not lapsed at their purchase price, or to require forfeiture of
such Shares to the Company if acquired at no cost, from the participant or the
participant's legal representative. The Company must exercise such right of
repurchase or forfeiture not later than the 180th day following such termination
of employment (unless otherwise specified in the written instrument evidencing
the Award or Purchase). Restricted Stock granted to a director, officer or
consultant who is not an employee shall be subject to such forfeiture and
repurchase provisions as the Committee shall specify.

-5-
<PAGE> 6

D. VESTING OF RESTRICTED STOCK. The Committee at the time of
grant shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the Shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested."

10. TERMINATION OF EMPLOYMENT. Except as may otherwise be provided in
the instrument evidencing the Options, if an optionee ceases to be employed by
the Company and all Related Corporations, no further installments of his Options
shall become exercisable. In the event an optionee ceases to be employed by the
Company and all Related Corporations, his Options shall terminate in the manner
and to the extent set forth in the instrument evidencing the Options. Nothing in
the Plan shall be deemed to give any grantee of any Stock Right the right to be
retained in employment or other service by the Company or any Related
Corporation for any period of time.

11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution or (solely
with respect to Non-Qualified Options) pursuant to a qualified domestic
relations order (as defined in the Code) or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, and during the lifetime of the
optionee each Option shall be exercisable only by him.

12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.

13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:

A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.

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<PAGE> 7

B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board") shall, with respect to outstanding
options, take one or more of the following actions: (i) make appropriate
provision for the continuation of such options by substituting on an equitable
basis for the shares then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition; (ii) accelerate the date of exercise of such Options or of any
installment of any such options; (iii) upon written notice to the optionees,
provide that all Options must be exercised, to the extent then exercisable,
within a specified number of days of the date of such notice, at the end of
which period the Options shall terminate; or (iv) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to such Options (to the extent then exercisable) over the
exercise price thereof.

C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his option prior to such recapitalization or
reorganization.

D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.

E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.

F. ISSUANCES OF SECURITIES. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.

G. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.

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<PAGE> 8

events described in such subparagraphs. The Committee or the Successor Board
shall determine the specific adjustments to be made under this paragraph 13 and,
subject to paragraph 2, its determination shall be conclusive.

If any person or entity owning restricted Common Stock
obtained by exercise of a Stock Right made hereunder receives shares or
securities or cash in connection with a corporate transaction described in
subparagraphs A, B or C above as a result of owning such restricted Common
Stock, such shares or securities or cash shall be subject to all of the
conditions and restrictions applicable to the restricted Common Stock with
respect to which such shares or securities or cash were issued, unless otherwise
determined by the Committee or the Successor Board.

14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by delivery
of the grantee's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by
any combination of (a), (b) and (c) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c), or (d) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of a Stock Right shall not have the rights of a shareholder
with respect to the shares covered by his Stock Right until the date of issuance
of a stock certificate to him for such shares. Except as expressly provided
above in paragraph 13 with respect to changes in capitalization and stock
dividends, no adjustment shall be made for dividends or similar rights for which
the record date is before the date such stock certificate is issued.

15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
May 1, 1996, subject (with respect to the validation of ISOs granted under the
Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained by April 30, 1997, any grants of ISO's under the
Plan made prior to that date will be rescinded. The Plan shall expire on April
30, 2006 (except as to Options outstanding on that date). Subject to the
provisions of Paragraph 5 above, Stock Rights may be granted under the Plan
prior to the date of stockholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that, without the approval
of the stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
14); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided

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<PAGE> 9

in this paragraph 13, in no event may action of the Board or stockholders alter
or impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.

16. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted, Awards made and Purchases authorized
under the Plan shall be used for general corporate purposes.

17. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.

18. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 19) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.

19. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or

(b) one year after the date the employee acquired Common Stock by exercising the
ISO. If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.

20. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the Instruments evidencing Stock Rights shall be governed by the laws
of the State of Delaware, or the laws of any jurisdiction in which the Company
or its successors in interest may be organized. In construing this Plan, the
singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.

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<PAGE> 1
EXHIBIT 10.4

BLAXXUN INTERACTIVE, INC.

1999 STOCK PLAN

1. PURPOSE. This 1999 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Black Sun Interactive,
Inc. (the "Company"), its parent (if any) and any present or future subsidiaries
of the Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of restricted stock in the Company ("Awards"); and (d) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options".
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.

2. ADMINISTRATION OF THE PLAN.

<PAGE> 2

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<PAGE> 3

5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after May 1, 1999 and prior to April 30, 2006. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right.

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<PAGE> 4

6. MINIMUM OPTION PRICE; ISO LIMITATIONS.

A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per
share specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the minimum legal consideration
required therefor under the laws of the State of Delaware.

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<PAGE> 5

8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 10
through 12, each Option granted under the Plan shall be exercisable as follows:

A. VESTING. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such installments as
the Committee may specify.

B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.

D. ACCELERATION OF VESTING. The Committee shall have the right
to accelerate the date of exercise of any installment of any Option.

9. AWARDS AND STOCK PURCHASES.

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<PAGE> 7

G. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.

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<PAGE> 8

15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
May 1, 1999, subject (with respect to the validation of ISOs granted under the
Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained by April 30, 1997, any grants of ISO's under the
Plan made prior to that date will be rescinded. The Plan shall expire on April
30, 2006 (except as to Options outstanding on that date). Subject to the
provisions of Paragraph 5 above, Stock Rights may be granted under the Plan
prior to the date of stockholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that, without the approval
of the stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
14); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided

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<PAGE> 9

in this paragraph 13, in no event may action of the Board or stockholders alter
or impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.

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<PAGE> 1
Exhibit 10.5

BLAXXUN INTERACTIVE, INC.

2000 STOCK PLAN

1. PURPOSE. This 2000 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of blaxxun interactive, Inc.
(the "Company"), its parent (if any) and any present or future subsidiaries of
the Company (collectively, "Related Corporations") and any present or future
related entities, including but not limited to L.L.C.s, by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of restricted stock in the Company ("Awards"); and (d) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options".
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.

2. ADMINISTRATION OF THE PLAN.

C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may
be granted to members of the Board, but any such grant shall be made and
approved in accordance with paragraph 2(D), if applicable. All grants of Stock
Rights to members of the Board shall in all other respects be made in accordance
with the provisions of this Plan applicable to other eligible persons. Members
of the Board who are either (i) eligible for Stock Rights pursuant to the Plan
or (ii) have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to himself of Stock
Rights, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting to him of Stock Rights.

D. COMPLIANCE WITH SECURITIES LAWS. In the event the
Company registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grant of
Stock Rights to a member of the Board (made at any time from the effective date
of such registration until six months after the termination of such
registration) must be approved by a majority vote of the other members of the
Board. The requirements imposed by the preceding sentence shall also apply with
respect to grants to officers who are not also directors. Once appointed, such
committee shall continue to serve until otherwise directed by the Board. In
addition to compliance with relevant domestic law, all actions of the Company
under the Plan must also comply with any applicable foreign securities law.

3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee
of the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee, officer or director (whether or not also an employee)
or consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.

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<PAGE> 3
4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, $0.01 par value
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 2,750,000, subject to adjustment as provided in
paragraph 13. The maximum number of shares of Company Common Stock with respect
to which an option or options may be granted to any employee in any one taxable
year of the Company shall not exceed 2,750,000 shares, taking into account
shares subject to options granted and terminated, or repriced, during such
taxable year. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, or if the Company shall reacquire any unvested shares issued pursuant to
Awards or Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan.

5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the
Plan at any time on or after March 31, 2000 and prior to March 31, 2010. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right.

6. MINIMUM OPTION PRICE; ISO LIMITATIONS.

A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per
share specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the minimum legal consideration
required therefor under the laws of the State of Delaware.

B. PRICE FOR ISOS. The exercise price per share specified
in the agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock equal to more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, the price per share specified
in the agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant.

C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible
employee may be granted ISOs only to the extent that, in the aggregate under
this Plan and all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by such
employee during any calendar year in a manner which would entitle the employee
to purchase more than $100,000 in fair market value (determined at the time the
ISOs were granted) of Common Stock in that year. Any options granted to an
employee in excess of such amount will be granted as Non-Qualified Options.

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<PAGE> 4
that date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the NASDAQ National
Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National Market.
However, if the Common Stock is not publicly traded at the time an Option is
granted under the Plan, "fair market value" shall be deemed to be the fair value
of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.

8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 10
through 12, each Option granted under the Plan shall be exercisable as follows:

A. VESTING. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such installments as
the Committee may specify.

B. FULL VESTING OF INSTALLMENTS. Once an installment
becomes exercisable it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.

D. ACCELERATION OF VESTING. The Committee shall have the
right to accelerate the date of exercise of any installment of any Option.

9. AWARDS AND STOCK PURCHASES.

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B. RIGHTS AS A STOCKHOLDER. Upon execution of a written
instrument setting forth the Award and paying any applicable price, a
participant shall have the rights of a stockholder with respect to the voting of
the Restricted Stock, subject to such conditions contained in the written
instrument evidencing the Award or Purchase. Unless the Committee shall
otherwise determine, certificates evidencing the Restricted Stock shall remain
in the possession of the Company or its designee until such Restricted Stock is
vested as provided in paragraph 9(D) below.

D. VESTING OF RESTRICTED STOCK. The Committee at the time
of grant shall specify the date or dates and/or the attainment of
pre-established performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the Shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested."

11. ASSIGNABILITY. No Option shall be assignable or transferable by
the optionee except by will or by the laws of descent and distribution or
(solely with respect to Non-Qualified Options) pursuant to a qualified domestic
relations order (as defined in the Code) or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, and during the lifetime of the
optionee each Option shall be exercisable only by him.

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<PAGE> 6
hereof and may contain such other provisions as the Committee deems advisable
which are not inconsistent with the Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options. In granting any
Non-Qualified Option, the Committee may specify that such Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs, or
to such other termination and cancellation provisions as the Committee may
determine. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the Company to execute and deliver such instruments. The proper officers of the
Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.

13. ADJUSTMENTS. Upon the occurrence of any of the following events,
an optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:

A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
Common Stock shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.

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<PAGE> 7
Section 424 of the Code) or would cause any adverse tax consequences for the
holders of such ISOs. If the Committee determines that such adjustments made
with respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments.

G. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.

H. ADJUSTMENTS. Upon the happening of any of the foregoing
events described in subparagraphs A, B or C above, the class and aggregate
number of shares set forth in paragraph 4 hereof that are subject to Stock
Rights which previously have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the specific
adjustments to be made under this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.

14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by delivery
of the grantee's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, (d) by delivery of a properly executed exercise
notice to the Company, together with a copy of irrevocable instrument to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the exercise price, or (e) at the discretion of the Committee, by any
combination of (a), (b), (c) and (d) above. If the Committee

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exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), or (d) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.

15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
March 31, 2000, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained by March 31, 2001, any grants of ISO's under the
Plan made prior to that date will be rescinded. The Plan shall expire on March
31, 2010 (except as to Options outstanding on that date). Subject to the
provisions of Paragraph 5 above, Stock Rights may be granted under the Plan
prior to the date of stockholder approval of the Plan. Except as otherwise
prohibited by any applicable law, the Board may terminate or amend the Plan in
any respect at any time. Except as otherwise provided in this paragraph 13, in
no event may action of the Board or stockholders alter or impair the rights of a
grantee, without his consent, under any Stock Right previously granted to him.

16. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of shares pursuant to Options granted, Awards made and Purchases
authorized under the Plan shall be used for general corporate purposes.

18. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 19) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, or with any other applicable
domestic or foreign law, may require the optionee, Award recipient or purchaser
to pay additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the grant of an
Award, (iii) the making of a Purchase of Common Stock for less than its fair
market value, or (iv) the vesting of restricted Common Stock acquired by
exercising a Stock Right, on the grantee's payment of such additional
withholding taxes.

-8-
<PAGE> 9
(b) one year after the date the employee acquired Common Stock by exercising the
ISO. If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.

HWD: 395251-2

-9-

<PAGE> 1
Exhibit 10.6

VALUE ADDED RESELLER

AGREEMENT

between

blaxxun interactive
Aktiengesellschaft
Mittererstr. 9
80336 Munich

- hereinafter referred to as "blaxxun"-

and

General Investment Bankers SA.
San Martin 323 - piso 20
1004 Buenos Aires

- hereinafter referred to as "the VAR" -

<PAGE> 2

RECITALS

WHEREAS blaxxun develops and markets the blaxxun Community Platform and Value
Added Reseller (hereinafter referred to as "VAR") is using the blaxxun Community
Software Development Kit to render services to his customers;

AND WHEREAS VAR shall receive from blaxxun the right, pursuant to the following
terms, to develop application software for his customers on the basis of the
blaxxun Community Software Development Kit and to distribute the blaxxun
Community Platform Software and other blaxxun products to his customers;

NOW, THEREFORE, the parties agree to the following:

1 MARKETING THE SOFTWARE

1. VAR is hereby granted the right to market the blaxxun Community Platform
Software and other blaxxun Products (hereinafter referred to as the
"Products"), in each case in his own name and for his own account.

2. VAR shall use the blaxxun Community Software Development Kit to develop
application software based on the Products in accordance with the
requirements and wishes of his customers (hereinafter referred to as
"Applications").

3. VAR shall distribute the Products to his customers in conjunction with the
Applications.

4. VAR is not entitled to represent blaxxun in legal transactions.

5. blaxxun conveys the marketing of the Products to VAR in the Territory as
described in Attachment A.

6. The technical features and capabilities of the Products are defined by the
product documentation of the respective Products. blaxxun may undertake
Product modifications not affecting the technical capability of the
Products, merely improving such capability or otherwise modifying such
capability in a manner VAR can be reasonably expected to accept without
consulting with VAR.

7. Should VAR desire a modification of Products, he shall notify blaxxun
hereof in writing. blaxxun shall state its approval or disapproval within
30 calendar days. Should blaxxun make no response, it shall be deemed not
to have given its approval.

2 INDIVIDUAL LICENSES

1. Orders by VAR must be in writing. Orders must include, in particular, the
IP address and the desired port number of the machine the product is
intended to run on, as well as an exact product description.

2. Orders shall not become valid until accepted by blaxxun, or, as the case
may be, upon the shipment of the Products.

3. The delivery of the Products and the access code for the ordered Products
to VAR shall take place upon consultation with VAR either by electronic
transmission or by CD-ROM.

4. Upon the delivery of the access code, blaxxun shall grant to VAR the right,
for the term of this Agreement, to resell the ordered Products to VAR`s
customers.

2
<PAGE> 3

5. VAR shall ensure by written license agreements with his customers that

[_] VAR's customer is only entitled to reproduce the Products to the
extent that this is required for loading, executing or transmitting or
sending by wire or radio, even in the interactive area, as well as
storing the Products (hereinafter referred to as "Use");

[_] VAR's customer will use the Products only within the scope of the
maximum amount of users stated in the Access Code at the IP address
specified in the Access Code (hereinafter collectively referred to as
"Contractual Use");

[_] the right to a Contractual Use of the Products is granted in each case
as a non-exclusive and nontransferable right, unlimited in time and
geographical area and

[_] VAR's customer is not entitled to translate, process or undertake
other modifications of the Products, including error corrections.

6. VAR is only entitled to a Contractual Use of the Products. He is
particularly not entitled to translate, process or undertake other
modifications of the Products, including error corrections. VAR's right to
develop and distribute applications shall remain unaffected.

7. All copies of reproductions of the Product must be labeled with the
Trademarks and notices of intellectual property rights in the same manner
as the original data memory delivered by blaxxun.

3 TRADEMARKS

1. blaxxun hereby grants to VAR the non-exclusive right to use international
and domestic trademarks ("Trademarks") (currently blaxxun, blaxxun logo,
blaxxun Contact, blaxxun Instant Community) hereto during the term of this
Agreement within the scope of joint marketing activities to promote VAR's
sales efforts. VAR shall only sell the Products in connection with the
Trademarks. VAR shall furthermore only use the Trademarks upon blaxxun's
written consent, and shall not, in particular, issue any sublicenses for
use.

2. VAR warrants that he shall only use the Trademarks in a manner protecting
their legal integrity and shall encourage or support the Trademarks. VAR
furthermore warrants that he shall undertake all reasonable efforts to
maintain the Trademarks.

3. VAR shall ensure that the applications distributed together with the
Products are of a uniform and consistently high quality that promotes the
image of the Trademarks to the best extent possible.

4 VAR PERFORMANCE

1. VAR shall set up and maintain reasonable First Level Support for his
customers. First Level Support includes, at a minimum, the Services
described in Attachment C.

2. VAR shall create and maintain his own website. VAR's website shall contain
links to the blaxxun website and the blaxxun download area prominently
displayed.

3. VAR shall ensure that the Products will each be distributed in their most
updated version.

4. During the term of this VAR Agreement, VAR shall not develop applications
on the basis of software in competition with the Products without blaxxun's
written consent.

3
<PAGE> 4

5 BLAXXUN PERFORMANCE

Upon VAR's request, blaxxun shall provide the following services:

1. Prominent display on the blaxxun web site as a VAR Solution Provider.

2. Sales collateral to assist the selling; thereof up to 50 copies are free of
charge; additional copies are available at blaxxun cost; minimum order is
50 copies.

3. VAR shall receive a limited, non-transferable demo license for the Products
as presentation support.

4. VAR is entitled, upon co-ordination with blaxxun, to provide major
customers with operable demo licenses for up to 10 simultaneous users free
of charge. The entitlement to use such demo licenses shall be limited to
three months per VAR customer.

5. blaxxun shall support VAR with Second Level Support as defined in detail in
Attachment C.

6. Upon request by VAR, blaxxun shall assume First Level Support in accordance
with the Software Support Agreement to be entered into separately. The
support fees shall be 13 per cent of the respective VAR's customer sales as
determined under the blaxxun End-User Price List.

7. VAR may participate in the VAR workshops given by blaxxun. Unless otherwise
provided for, these shall take place in Munich. blaxxun shall charge VAR
the currently applicable fees for participating in the workshops.

8. VAR shall have the opportunity to take part in blaxxun Beta programs.

<PAGE> 5

6 PRICES AND DUE DATES

1. The VAR shall pay to blaxxun the applicable prices of the current blaxxun
End-User Price List minus the VAR discount specified in Attachment B.
Royalties shall be calculated on the basis of the delivered Access Codes.

2. Value-added tax in the applicable amount shall be added to all fees and
prices.

3. The payment of prices/fees is due within 10 days of delivery or
performance, but no later than within 10 days of invoicing. blaxxun is
entitled to charge default interest of 4% above the applicable discount
rate of the European Federal Bank for late payments as of the due date.

7 DELIVERY DATES, FORCE MAJOR

1. Delivery dates or delivery periods are approximations unless they have been
confirmed by blaxxun in writing as being binding. Delivery periods shall
not commence unless all of the questions relating to the delivery of the
Products have been settled.

2. If blaxxun has exceeded a delivery date on grounds for which it bears the
responsibility and has not remedied such default within a reasonable grace
period of at least two weeks set by VAR, VAR may cancel the individual
order in question. Any further claims on the part of VAR are excluded
unless otherwise provided for in this Agreement.

3. Should there be a considerable deterioration in the financial situation of
VAR after the execution of this Agreement or should blaxxun become aware
after the execution of this Agreement of facts indicating a lack of
creditworthiness or the insolvency of VAR which already existed upon the
execution of this Agreement and threatens blaxxun's claims to
counter-performance, blaxxun is entitled to withhold the delivery of the
Products and the rendering of other performance until VAR has rendered
counterperformance or given a performance bond. Furthermore, blaxxun is
entitled to rescind this Agreement and demand damages for non-performance,
provided that VAR does not effectuate counterperformance within a
reasonable period or provide a performance bond.

4. In the event of force majeure and other unforeseeable circumstances and
circumstances for which the respective party bears no responsibility, such
as an interruption of operations, strikes, lock-outs, scarcity of means of
transport, governmental acts or difficulties in procuring energy supplies,
the period of delivery shall be extended by the period in which such
obstructing circumstance continues. Should this be for a period of more
than 4 months, blaxxun and VAR are entitled to terminate or rescind the
contract for the delivery of individual Access Codes if it cannot be
reasonably expected of the respective party that it wait until such
obstructing circumstance is removed.

5
<PAGE> 6

8 WARRANTY

1. blaxxun warrants for 6 months from the provision of the Access Code and the
delivery of the Products that the Products are free of defects when used in
accordance with Contractual Use, that is, they will essentially function in
accordance with the specifications contained in the documentation.

2. Should an error occur during the Contractual Use of the Products, blaxxun
is entitled to first test the Products and, at its option, either remedy
the error or deliver a replacement copy. To such extent blaxxun shall bear
all costs incurred, provided that the error was reported by the VAR in
writing within the warranty period. Should blaxxun be unable to correct the
error within a reasonable period, the VAR is entitled to cancel the
contract for the delivery of the equivalent Access Code or reasonably
reduce the royalty to be paid by it accordingly.

3. As soon as the VAR makes use of his right to cancel the contract in respect
of the delivered Products, the right to use the reproduced copies of the
Product shall terminate. In this case all of the reproduced copies of the
Products made usable with the help of the Access Code delivered accordingly
and the Access Code itself shall be surrendered to blaxxun without undue
delay or, at blaxxun's option, destroyed.

9 CONFIDENTIALITY

1. VAR shall maintain confidentiality concerning all of the information
disclosed to him by blaxxun under this Agreement and all of the knowledge
VAR has obtained through performing this Agreement or during his
collaboration with blaxxun of a technical, commercial or organizational
nature (hereinafter collectively referred to "Information") and shall not
exploit such Information or disclose it to third parties during the term of
this Agreement and for a period of five years after the termination hereof
without blaxxun's prior written consent. VAR shall in particular only use
such Information for the performance of this Agreement, only disclose the
Information to employees who need to know the Information for the
performance of this Agreement, provided that such employees have been
obligated to maintain the confidentiality of the Information for the term
of their employment and, to the extent permitted under law, for the period
after they have left VAR, and VAR shall use, in respect of the
confidentiality of the Information, at least the care he would use in his
own similar matters, but in any event at least the care usual in the
industry.

2. The obligation to maintain confidentiality shall not apply for such
Information VAR is able to document to have been disclosed to him by a
third party not obligated to maintain confidentiality and not obligated to
refrain from using the Information, provided that such third party has not
directly or indirectly received the Information from blaxxun. This
obligation to maintain confidentiality shall furthermore not apply to
Information already known to VAR on the date of its disclosure or which was
common knowledge on the date of disclosure or thereafter becomes common
knowledge without any involvement on the part of VAR.

6
<PAGE> 7

10 LIABILITY

1. blaxxun shall only be liable for the loss incurred by VAR if blaxxun or the
individuals used to perform its duties are guilty of willful or grossly
negligent behavior.

2. In addition, blaxxun shall only be liable for the amount of typically
foreseeable damages even in the case of damage blaxxun or the executive
officers of blaxxun have caused by a breach of material contractual duties
whose performance VAR was particularly entitled to rely on.

3. This limitation of liability shall apply in respect of all damage claims,
irrespective of the legal grounds therefor, particularly in respect of all
precontractual or ancillary obligations. It does not limit any mandatory
liability under the German Product Liability Act or mandatory liability for
descriptions of guaranteed qualities to the extent the guarantees given
were intended to protect VAR from the damage that has been incurred.

11 TERM OF CONTRACT

1. The term of this Agreement shall begin upon its execution by both parties
and shall run until December 31, 2002.

2. The right to a termination without notice for cause shall remain hereby
unaffected. In the case of blaxxun, cause shall exist in particular if VAR

|_| infringes blaxxun's intellectual property rights and such infringement
has not been remedied within 30 days following an equivalent request
by blaxxun;

|_| is in breach of his obligations under this Agreement and such breach
is not remedied within 30 days after an equivalent request;

3. blaxxun has the right to a terminate exclusivity mentioned in Appendix A
without notice for cause in case VAR does not pay the minimum licenses
outlined in Appendix A.

12 GENERAL CONDITIONS

1. The parties may assign this agreement to its related companies. The
assignee must obligate himself to the entire obligations of this agreement.
Any assignment needs to be notified to the other party in writing before
the transaction.

2. A set-off or right of retention shall only be possible in respect of
finally adjudicated or undisputed claims, unless otherwise expressly
provided for herein.

3. This Agreement and the Attachments hereto constitute the entire agreement
between the parties in respect of the subject matter of this Agreement. All
amendments and supplements shall require written form.

4. Should a provision of this Agreement be or become invalid or unenforceable
or should this Agreement be incomplete, this shall not affect the validity
of the remaining provisions of this Agreement. The parties agree in such
event to replace the provision in question or, as the case may be, to
remedy such incompleteness by a provision which comes closest to the
economic intent of the Agreement.

7
<PAGE> 8

5. This Agreement shall be governed by German law with the exception of the
United Nations Convention on Contracts for the International Sale of Goods.

6. Exclusive venue for all disputes under this Agreement is Munich, provided
that this Agreement has been entered into with a merchant entered as such
in the Commercial Register, a legal entity under public law or a public law
special fund. The same shall apply if the VAR does not have any general
place of jurisdiction within Germany or a party becomes domiciled outside
the jurisdiction of the German Code of Civil Procedure following the
execution of this Agreement. blaxxun is furthermore entitled to enter an
action against the VAR at any court having jurisdiction over him under law.

Munich,
February 2, 2000

General Investment Bankers S.A.
By
------------------------
Name: Emilio Gorriti
Title: Presidente

BLAXXUN INTERACTIVE AG

By
------------------------
Name: Bernd-Michael Habermeyer
Title: CFO

8
<PAGE> 9

ATTACHMENT A

TERRITORY AND EXCLUSIVITY

1. VAR's Territory is defined as Latin America on an exclusive basis (for
blaxxun Community Platform and blaxxun Instant Community and blaxxun Avatar
Studio) for a period of 36 months starting at signature date of this
contract and ending December 31, 2002 under the following conditions:

2. VAR will sell blaxxun Community Platform and blaxxun Instant Community and
blaxxun Avatar Studio to any customer in Latin America.

3. VAR firmly purchases at a minimum blaxxun licenses in the amount of
$6,000,000 (net of any VAR discounts) over the period of 36 months based on
the blaxxun price lists provided under Attachment B.

4. It is intended to allocate the licenses to the following products:

blaxxun Community Platform $2,000,000
blaxxun Instant Community $3,000,000
blaxxun Avatar Studio $1,000,000

VAR has the option to allocate between the product categories.

5. VAR minimum payment and delivery schedule is based on the following table:

Signature of contract US$ 100,000
30. Jun 00 US$ 300,000
31. Dec 00 US$ 800,000
30. Jun 01 US$ 900,000
31. Dec 01 US$ 900,000
30. Jun 02 US$ 1,500,000
31. Dec 02 US$ 1,500,000
--------------
Total US$ 6,000,000
==============

9
<PAGE> 10

6. blaxxun pays VAR an additional bonus of $1,000,000 on January 1, 2002, if
VAR purchases and pays all licenses by December 31, 2001 (one year earlier)
based on the following table:

Signature of contract US$ 100,000
30. Jun 00 US$ 300,000
31. Dec 00 US$ 800,000
30. Jun 01 US$ 900,000
31. Dec 01 US$ 3,900,000
--------------
Total US$ 6,000,000
==============
TOTAL NET PAYMENT OF VAR IN THIS CASE IS REDUCED TO $5,000,000.

7. If VAR purchases licenses, in addition to the licenses worth of $ 6,000,000
based on the table provided under 4 above, blaxxun will pay an additional
bonus of [**] of the excess purchase (e.g. if VAR purchases in the 6 months
period ending December 31, 2000 licenses worth of $1,600,000 instead of the
minimum purchase of $800,000 in this period, blaxxun would pay to VAR a
bonus of [**]).

THE EXCESS PURCHASE MUST BE IN ADDITION TO THE $6,000,000 MINIMUM LICENSE.

8. The parties acknowledge that blaxxun has entered into an agreement with
[**], a Soccer-Community with exclusivity for America for soccer only.

9. The parties acknowledge that blaxxun has entered into an agreement with
[**], a non exclusive VAR for Brazil.

[**]

10. In addition to the territory mentioned under 1. above VAR gets exclusivity
for Spanish and Portuguese ONLY speaking communities in the US, limited to
the blaxxun Community Platform for a period of 36 months starting at
signature date of this contract and ending December 31, 2002 under the
following conditions:

(a) VAR will sell blaxxun products to any customer in the market of
Spanish and Portuguese ONLY speaking communities in the US.

(b) Any sales into this market are in excess of the minimum purchases of
$6,000,000 mentioned above.

(c) VAR discount for any sales into this market is limited to 30% across
the board on the applicable undiscounted blaxxun end-user price list.
In case of active involvement of blaxxun during the acquisition, the
discount percentage will be divided into half, unless agreed upon
otherwise. DISCOUNTS LISTED UNDER APPENDIX B DO NOT APPLY TO THESE
SALES

[**] indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment

<PAGE> 11

ATTACHMENT B

BLAXXUN COMMUNITY PLATFORM

PRICE LIST 2000

The blaxxun Community Platform is a distributed client-server system comprised
of the blaxxun Community Server, the blaxxun Contact clients, the blaxxun3D Java
technology, and the blaxxun Community Platform Software Development Kit (SDK).

LICENSING MODELS: ONE-TIME FEE OR MONTHLY RENT

The blaxxun Community Platform can either be licensed through a one-time
payment, in combination with an annual support plan.

Or it can be rented on a monthly basis. The rental model has a minimum run-time
of 12 months and extends by 12 months periods unless terminated 3 months before
expiration. The cost is calculated as license cost divided by 20, plus support
cost divided by 12. The last 3 months of the contract period have to be paid in
advance with signature of the contract.

BLAXXUN COMMUNITY PLATFORM SUPPORT PLAN

The Community Platform is always sold with a related support contract. This
contract (the blaxxun Community Platform Support Plan) includes bug fixes,
technical support, minor and major release upgrades.

<TABLE>
<CAPTION>
- -------------------------- ------------------- ------------------------------------- -----------------------
CONCURRENT USERS LICENSE COST ANNUAL SUPPORT PLAN COST MONTHLY RENT
- -------------------------- ------------------- ------------------------------------- -----------------------
<S> <C> <C> <C>
[**] [**] [**] [**]
- -------------------------- ------------------- ------------------------------------- -----------------------
</TABLE>

VOLUME DISCOUNTS

Customers receive volume discounts for the blaxxun Community Platform. With
every purchase, the maximum discount applies for all additional units. Volume
licenses can be used for one site, for several sites, or for the hosting of
several customer applications (e.g., by an ASP). However, licenses cannot be
split in units under [**] concurrent users per site. Unlimited licenses can only
be used for one site.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
UNITS A [**] MAXIMUM REGULAR CUSTOMER AGGREGATED ANNUAL ANNUAL MONTHLY
CONCURRENT CONCURRENT COST PER DISCOUNT COST FOR SUPPORT SUPPORT RENT FOR
USERS USERS UNIT CUSTOMER RATE PLAN COST CUSTOMER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**]
</TABLE>

[**] indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment

<PAGE> 12

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
UNITS A [**] MAXIMUM REGULAR ADDITIONAL AGGREGATED ANNUAL ANNUAL MONTHLY
CONCURRENT CONCURRENT COST PER PARTNER COST FOR SUPPORT SUPPORT RENT FOR
USERS USERS UNIT DISCOUNT PARTNER RATE PLAN COST PARTNER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
[**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------
</TABLE>

ACADEMIC DISCOUNT

The blaxxun Community Platform is available to universities, research
institutions, and non-profit organizations at a [**] discount. These licenses
may not be used for any commercial purposes. The [**] discount doesn't apply for
the mandatory support contract.

Prices do not include applicable sales tax.

[**] indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment

<PAGE> 13

BLAXXUN INSTANT COMMUNITY 1.0

PRICE LIST 2000

blaxxun Instant Community 1.0 is a sophisticated product that supports the
creation, operation, and administration of attractive 3D communities. For
details see the related product specs.

The suggested purchase cost for blaxxun Instant Community 1.0 is [**]. The
product is sold exclusively through a partner channel. [**].

VOLUME DISCOUNTS FOR BLAXXUN INSTANT COMMUNITY 1.0

<TABLE>
<CAPTION>
- ------------------ --------------- ---------------- --------------- --------------- ----------------
Product Units Cost per Unit Volume Discount Volume Cost Plus Partner Partner Cost
per Unit Discount per Unit
- ------------------ --------------- ---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
[**] [**] [**] [**] [**] [**]
- ------------------ --------------- ---------------- --------------- --------------- ----------------
[**] [**] [**] [**] [**] [**]
- ------------------ --------------- ---------------- --------------- --------------- ----------------
[**] [**] [**] [**] [**] [**]
- ------------------ --------------- ---------------- --------------- --------------- ----------------
[**] [**] [**] [**] [**] [**]
- ------------------ --------------- ---------------- --------------- --------------- ----------------
</TABLE>

VOLUME DISCOUNTS FOR SERVER UPGRADES OF BLAXXUN INSTANT COMMUNITY 1.0

The server component of blaxxun Instant Community 1.0 can be easily upgraded to
accommodate more concurrent users. The following table shows volume and partner
discounts for the server upgrades.

<TABLE>
<CAPTION>
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
PRODUCT UNITS COST PER CONCURRENT USERS VOLUME VOLUME COST PLUS PARTNER
UNIT DISCOUNT PER UNIT PARTNER COST PER
DISCOUNT UNIT
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
[**] [**] [**] [**] [**] [**] [**]
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
[**] [**] [**] [**] [**] [**] [**]
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
[**] [**] [**] [**] [**] [**] [**]
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
[**] [**] [**] [**] [**] [**] [**]
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
[**] [**] [**] [**] [**] [**] [**]
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
[**] [**] [**] [**] [**] [**] [**]
- -------------- ----------- ----------------- ------------- ------------- ------------- -------------
</TABLE>

ACADEMIC DISCOUNT

blaxxun Instant Community 1.0 and related server upgrades are available to
universities, research institutions, and non-profit organizations at [**]. These
licenses may not be used for any commercial purposes.

[**] indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment

<PAGE> 14

TECHNICAL SUPPORT

blaxxun provides all authorized partners with technical support. Support for end
customers is a responsibility of the authorized partner.

Prices do not include applicable sales tax.

BLAXXUN AVATAR STUDIO

VOLUME PRICE LIST 2000

The blaxxun Avatar Studio is a consumer product that is used by members of
blaxxun based community applications. blaxxun offers the product for online
purchase for $20 + handling/shipping.

Customers of the blaxxun Community Platform can purchase blaxxun Avatar Studio
in volume and either sell it to their members or offer it as an incentive for
free. blaxxun customers are responsible for purchase/handling/shipping processes
and related cost.

<TABLE>
<CAPTION>
- --------------- ------------------ -------------- -------------------------------- -------------------------
UNITS COST PER UNIT DISCOUNT DISCOUNTED COST PER UNIT COMPLETE COST
- --------------- ------------------ -------------- -------------------------------- -------------------------
<S> <C> <C> <C> <C>
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
[**] [**] [**] [**] [**]
- --------------- ------------------ -------------- -------------------------------- -------------------------
</TABLE>

blaxxun provides the complete products for volumes of [**] and [**] units.

Starting with [**] units, the customer is responsible for production of the
product (CDs and folders). All materials require blaxxun approval. Also starting
with [**] units, blaxxun Avatar Studio can be co-branded for the customer. That
means that the customers' name and logo can be shown at the start-up screen of
the product, the folder, and other appropriate spots.

Starting with [**] units, custom versions of blaxxun Avatar Studio can be
created with customized clothing and accessories. Cost depends on detail
requirements and are determined on a case-by-case basis.

Avatars created with co-branded and customized versions of blaxxun Avatar Studio
are restricted for defined customer sites and cannot be used for other sites.

Prices do not include applicable sales tax.

[**] indicates that information has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment

<PAGE> 15

ATTACHMENT C

FIRST AND SECOND LEVEL SUPPORT

FIRST LEVEL SUPPORT

1. Telephone and Internet customer service.

2. Customer help and advice when installing and configuring Products.

3. Customer support when integrating the Products into existing Network
structures and incorporating the planned HTTP Contents (HTML, VRML, etc.)
in an existing HTTP Server installation.

4. Diagnosis and isolation of errors reported by the customer on the basis of
the blaxxun checklist.

SECOND LEVEL SUPPORT

Second Level Support is understood to be support of VAR when he is supporting
his customers. Second Level Support is generally given during normal business
hours by telephone, over the Internet or, if requested, at the premises of VAR's
customer.

<PAGE> 1
Exhibit 10.7

AGREEMENT

The following Agreement is hereby concluded by and between

BLAXXUN INTERACTIVE AG
Eisenheimer Strasse 61-63
80687 Munich

- hereinafter called "blaxxun" or "manufacturer" -

and

INFOMATEC MEDIA AG
Steinerne Furt 76
86167 Augsburg

- hereinafter called "Infomatec Media AG" or VAR Partner -
<PAGE> 2
1. PRELIMINARY REMARKS

blaxxun has special software products and developers with particular experience
in the area of 3D worlds. Infomatec Media AG is currently preparing projects in
which software and development services, such as are available at blaxxun, are
needed to a large extent.

2. ACCEPTANCE OF DEVELOPMENT SERVICES

Infomatec Media AG hereby undertakes to accept development services in the
amount of 500 man-days at $1000 each by 12/31/2000.

In this way, development services in the area of 3D worlds and adaptations of
blaxxun software to the planned projects of Infomatec Media AG are to be
provided.

3. USE OF THE BLAXXUN SOFTWARE

(1)Infomatec Media AG needs special client software for the realization of the
projects currently being prepared by it. In the view of Infomatec Media AG,
blaxxun has a suitable product (blaxxun Community Platform plus Development
Kit).

(2)Infomatec Media AG hereby undertakes in a binding manner to use the software
of blaxxun in the realization of the current project at [**](1) (preparation
of an on-line trading system with Virtual Community), and to acquire the
necessary licenses from blaxxun for this purpose.

(3)Infomatec Media AG hereby further undertakes to accept blaxxun licenses for
all other projects in which Virtual Communities are prepared and the software
of blaxxun can be used according to the particular project specifications.

(4) For currently ongoing and future projects, licenses shall be accepted from
blaxxun for the following amounts:

licenses valued at $ 0.5 million by July 31, 2000,
additional licenses valued at $ 1.5 million by July 31, 2001,
additional licenses valued at $ 3 million by July 31, 2002.

In the event that use of the blaxxun software in the projects of Infomatec Media
AG is not possible according to performance certificates or project
specifications, the acceptance quantities according to paragraph 4 of this
Agreement may be adjusted accordingly.

- --------
(1) [**] Indicates that information has been omitted and filed separately
with the Commission pursuant to a request for confidential
treatment.
<PAGE> 3
4. BUYBACK OPTION

(1)Infomatec Media AG has acquired a share in blaxxun interactive, with
registered office in San Francisco (USA), through a separate agreement (Stock
Purchase Agreement dated February 25, 2000).

(2)It is hereby agreed by and between blaxxun interactive, Inc. and Infomatec
Media AG that blaxxun interactive, Inc. shall be entitled to buy back its
shares from Infomatec Media AG under the following conditions:

- - If Infomatec Media AG does not accept licenses valued at $ 0.5 million
by July 31, 2000 in accordance with No. 3 paragraph 4 of this
Agreement, then blaxxun interactive, Inc. shall have the right to buy
back 10% of the shares at a price of $ 11.80 per share. This right
shall expire at the end of the day on August 30, 2000.
- - If Infomatec Media AG does not accept additional licenses valued at $
1.5 million by July 31, 2001 in accordance with No. 3 paragraph 4 of
this Agreement, then blaxxun interactive, Inc. shall have the right to
buy back 30% of the shares at a price of $ 11.80 per share. This right
shall expire at the end of the day on August 30, 2001.
- - If Infomatec Media AG does not accept additional licenses valued at $ 3
million by July 31, 2002 in accordance with No. 3 paragraph 4 of this
Agreement, then blaxxun interactive, Inc. shall have the right to buy
back 60% of the shares at a price of $ 11.80 per share. This right
shall expire at the end of the day on August 30, 2002.

The amount which blaxxun interactive, Inc. must pay to Infomatec Media AG in the
event of exercise of a buyback right shall be increased by an amount of 5% per
year starting on February 25, 2000, as well as by the costs demonstrated by
Infomatec Media AG for acquisition of the shares in blaxxun interactive, Inc.

5. VAR AGREEMENT

For the acquisition of licenses, the conclusion of a separate VAR Agreement is
hereby stipulated. In it, in particular the details of the strategic partnership
pursued, the details of the transfer of rights, and the details of the
collaboration in the area of sales shall be regulated.

6. PERPETUATION OF SOFTWARE ON LINUX

Because of the strategic partnership with Infomatec Media AG to support its
Linux-based technology, blaxxun will aim for a platform-crossing (and thus also
a Linux) client solution and will make it the subject matter of the next major
product release. blaxxun assumes that a release date within a period of [**](2)
from the date of conclusion of this Agreement can be expected.

- --------
(2) [**] Indicates that information has been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.
<PAGE> 4
blaxxun sees this as a chance to expand its license business to the Linux worlds
and so it will not charge anything separately for this development expense.
Infomatec Media AG shall be given an opportunity to propose specific
requirements and to collaborate closely in the product test phase.

7. CONFIDENTIALITY

(1)The parties are hereby obligated to keep strictly secret all information
which they receive in connection with performance of the intended
collaboration and which is of a technical, financial or otherwise commercial
nature, as well as which relate to the composition, manufacture, application,
marketing, product service, raw material purchasing sources, product
customers or other details of the business operation of the parties
(hereinafter "information") and not to pass it on to third parties. In
addition, the parties are prohibited from using the information for purposes
other than those expressly mentioned in this Agreement. The confidentiality
agreement contained in this paragraph is not applicable to information which
the parties have obtained from third parties in a legally permissible manner
or which is public knowledge. The passing on of information to persons
legally bound to maintain confidentiality (banks, accountants, etc.) is not
detrimental.

(2)The parties shall see to it that their employees, representatives, or other
persons who have access to the information are subject to the same
confidentiality obligations as are set forth in the foregoing paragraph (1).

(3)Each party which violates one or more of the obligations mentioned in the
aforementioned paragraphs (1) and (2) shall be obligated to pay to the party
damaged by the corresponding violation of duty for each individual case an
amount of EUR 50,000.00 as a minimum damage compensation. The right of the
affected party to demand compensation for further damage suffered due to the
violation of duty shall remain unaffected.

(4)Both parties are aware that, according to Section 12 and following of the
Securities Act, the status of a primary insider may be applicable and the
aforementioned law must be observed.

8. NOTIFICATIONS

(1)Notifications which may or which must occur according to this Memorandum of
Understanding shall be sent to the addresses mentioned on the title page of
this Memorandum of Understanding.

(2)The parties shall inform one another mutually without delay about any
changes which occur with respect to their addresses or communications
systems.
<PAGE> 5
9. APPLICABLE LAW AND JURISDICTION

(1)This Agreement and all obligations resulting therefrom, including possible
damage compensation claims, shall be entirely subject to the laws of the
Federal Republic of Germany.

(2)The exclusive place of jurisdiction for any disputes which may arise from
this Agreement shall be Munich. The plaintiff shall also be entitled,
moreover, to file a complaint with the competent courts for the registered
office of the respondent.

Munich, Augsburg,
February 25, 2000 February 25, 2000
-- --

[signature] [signature]
blaxxun interactive AG Infomatec Media AG

Munich,
February __, 2000

[signature]
blaxxun interactive, Inc.

<PAGE> 1
EXHIBIT 10.8

MANAGING DIRECTOR'S AGREEMENT

BETWEEN

BLACK SUN INTERACTIVE GMBH

with its seat in

Schillerstrasse 5
80336 Munchen
Germany

-hereinafter called "the Company"-

and

FRANZ WOLFGANG BUCHENBERGER

residing

Parchetwiesen 33
82362 Weilheim
Germany

-hereinafter called "Managing Director"-
<PAGE> 2
Managing Director's Agreement
between Black Sun Interactive GmbH and
Fraz Wolfgang Buchenberger

ART. 1
Duties and Responsibilities

1. The Managing Director shall act as Managing Director (Geschaftsfuhrer
bzw. Vorstand) of the Company. He shall represent the Company in
accordance with the provisions of the Company's Articles of Association
and the Shareholders' Resolution and the Mangement-By-Laws of the
Company.

2. The Shareholders shall have the right to appoint additional Managing
Directors. The Shareholders shall determine the allocation of functions
among the Managing Directors from time to time.

3. The Managing Director shall conduct the Company's business in
compliance with the provisions of the pertinent laws, the Articles of
Association, the Company's Management Procedures ('Geschaftsordnung der
Geschaftsfuhrer bzw. des Borstandes'), if any, and the Shareholders
Resolutions.

He will act as the Company's Chief Executive Officer ('CEO'). He will
develop and maintain the vision of the Company. He will be responsible
for the leadership and management of the Company. He will oversee
marketing, product development, production and finance.

The Managing Director shall adopt the Company's Management Procedures.

4. The Managing Director shall devote his energy and experience
exclusively to the Company. He shall not engaged in any other
occupation, gainful or otherwise taking up a substantial amount of his
time, or act as a member of a supervisory or advisory board or in a
similar capacity, without prior approval of the Shareholder.

5. The Managing Director shall not have the right to bestow advantages of
any kind on himself, to Shareholders or affiliated persons or
affiliated companies by contract or by unilateral declaration outside a
duly made profit distribution resolution taken in the Shareholders'
meeting.

6. According to the Articles of Association, article 7, the Managing
Director must obtain the prior consent of the Board for the following
transactions:

a) the adoption of the annual budget,

b) the conclusion and termination of any rental, tenancy
and lease agreements as far as they concern
liabilities of more than DM 100,000.00 p.a. and as
far as they are not within the frame of the annual
budget as resolved by the Board,

c) the purchase or sale of economic goods of the fixed
current assets, as far
<PAGE> 3
Managing Director's Agreement
between Black Sun Interactive GmbH and
Fraz Wolfgang Buchenberger

-2-

as the respective investments are higher than DM
100,000.00 and as far as they are not within the
frame of the annual budget as resolved by the Board,

d) the assumption of any obligations of any kind of more
than DM 100,000.00 as far as these exceed the current
business and as far as these obligations are not
covered by the annual budget as resolved by the
Board,

e) any measures for the procurement of capital by
holding companies or the allocation of own resources
to holding companies in a different way; the
assumption of guarantees and the assumption of
liabilities on bills as well as the granting of
loans, the granting of loans to and the assumption of
liabilities for holding companies, if an amount of DM
200,000.00 is exceeded in the specific case,

f) taking up of loans from DM 500,000.00 onwards as far
as they are not covered by the annual budget as
resolved by the Board; the issuance of bonds and
participating certificates

g) the appointment and recall of Managing Directors of
subsidiaries as well as the conclusion, the
termination or the substantial alteration of
employment agreements of the Company and/or the
holding companies for Managing Directors with an
annual salary of more than DM 200,000.00,

h) the new determination of the salary of the Managing
Director(s),

i) the appointment and withdrawal of "Prokuren" (full
power of attorney) and commercial powers of attorney,

7. According to the Articles of Association, article 9, paragraph 9, the
Managing Director shall be subject to the prior approval of 90% of the
votes of the Shareholders for the following transactions:

a) the purchase and sale of director or indirect participation in
other companies, the establishing of other companies as well
as the exclusion and merging of company functions to other
companies, the purchase, the sale and the creation of
encumbrances on real property and equivalent rights and/or any
kind of liabilities coordinated on such measures.

b) liquidation of the Company

c) increase of the Company's capital and changes of the articles
of association of the Company.
<PAGE> 4
Managing Director's Agreement
between Black Sun Interactive GmbH and
Fraz Wolfgang Buchenberger

-3-

It is the Shareholders' meeting's intent to achieve agreement between
the Shareholders as broad as possible for all important businesses. In
the event no majority can be achieved, the Board shall be competent to
decide according to the Articles of Association article 8 no. 1.

8. The list of actions the execution of which requires the prior approval
of the Shareholders can be extended at any time or reduced by means of
a Shareholder's resolution.

9. The Managing Director is committed to present to the Shareholders'
meeting, by the end of a fiscal year at the latest, a budget and
investment plan for the following fiscal year, showing the
to-be-expected current expenses classified by subjects, the planned
investments and the financing proposed to cover the expenses.

ART. 2
Commencement and Duration

1. This contract shall become effective on September 1, 1995.

2. Notwithstanding mandatory periods of notice set forth by German law
either party may terminate the contract by given 3 (three) months
written notice to the end of the calendar month.

3. The right to termination without notice for good cause (Art. 626 German
Civil Code) is not affected.

ART. 3
Remuneration, Expenses

1. The Managing Director will receive a base gross salary of DM 11,250.00
per month (payable 12 times a year). The remuneration is to be paid at
the end of each month.

2. Additionally, the Managing Director shall receive bonus payments. The
bonus will be agreed in July of each year for the following year
between the parties.

Bonus payments for 1995/1996 are as described in the attachment to this
agreement.

3. Expenses of the Managing Director in performing his duties under the
contract, including travel and entertainment expenses, will be
reimbursed in accordance with the German wage tax regulations
(Lohnsteuerrichtlinien).

ART. 4
Payment of Remuneration in the Event of Illness

In the event of the Managing Director's temporary incapacity due to illness or
of any other reasons for which the Managing Director is not responsible, the
remuneration acceding to Article
<PAGE> 5
Managing Director's Agreement
between Black Sun Interactive GmbH and
Fraz Wolfgang Buchenberger

-4-

3 above will be continued to be paid for a period of six weeks. The Company's
payments will be continued beyond a period of six weeks or beyond the date of
termination of this contract.

ART. 5
Annual Leave

1. The Managing Director shall be entitled to a paid annual leave of 30
working days.

2. If the Managing Director is not employed for the entire calendar year,
then he shall only be entitled to the corresponding portion of the
leave mentioned in paragraph 1.

3. Vacation periods shall be agreed upon with the other Managing Directors
bearing in mind the interest of the Company. If no further Managing
Director was appointed, vacation has to be stipulated with the
Shareholders.

ART. 6
Non-Disclosure, Non-Competition and Development Agreements

The Managing Director undertakes to observe utmost secrecy vis-a-vis third
parties regarding all matters pertaining to the Company's business. This
obligation continues after the termination of this agreement. The Managing
Director agrees to the Company's Non-Disclosure, Non-Competition and
Developments Agreements attached to this Manager's Employment Agreement and is
to sign said attachment.

ART. 7
General Provisions

1. Should any provisions of this contract be invalid, the remaining
provisions shall nevertheless continue to be fully effective. It shall
be the responsibility of the parties to replace the invalid provisions
by a valid one which comes as near as possible to the parties' intended
purpose.

2. Modifications of this contract and supplements to this contract shall
not be valid unless in writing. This shall also apply to any
modification of the foregoing sentence.
<PAGE> 6
Managing Director's Agreement
between Black Sun Interactive GmbH and
Fraz Wolfgang Buchenberger

-5-

3. This contract is subject to German law.

Munich,
August 7, 1995

--------------------------
Fraz Wolfgang Buchenberger

--------------------------
Black Sun Interactive GmbH

Approved by the Members of the Board:

--------------------------
Chairman of the Board
Black Sun Interactive GmbH

Enclosures:
1 Non-Disclosure, Non-Competition and Developments Agreement

<PAGE> 1
EXHIBIT 10.9

MANAGING DIRECTOR'S AGREEMENT

BETWEEN

BLACK SUN INTERACTIVE GMBH

with its seat in

Schillerstrasse 5
80336 Munchen
Germany

-hereafter called "the Company"-

and

BERND-MICHAEL HABERMEYER

residing

Herzogstandstrasse 21
82362 Weilheim
Germany

-hereafter called "Managing Director"-

<PAGE> 2
Managing Director's Agreement
between Black Sun Interactive GmbH
and Bernd-Michael Habermeyer

-2-

ART. I
Duties and Responsibilities

2. The Shareholders shall have the right to appoint additional Managing
Directors. The Shareholders shall determine the allocation of functions
among the Managing Directors from time to time.

3. The Managing Director shall conduct the Company's business in compliance
with the provisions of the pertinent laws, the Articles of Association,
the Company's Management Procedures ('Geschaftsordnung der
Geschaftsfuhrer bzw. des Vorstandes'), if any, and the Shareholder's
Resolutions.

He will act as the Company's Chief Financial Officer ('CFO'). He will be
especially responsible for finance and administration.

The Managing Director shall adopt the Company's Management Procedures.

4. The Managing Director shall devote his energy and experience exclusively
to the Company. He shall not engage in any other occupation, gainful or
otherwise taking up a substantial amount of his time, or act as a member
of a supervisory or advisory board or in a similar capacity, without
prior approval of the Shareholder.

5. The Managing Director shall not have the right to bestow advantages of
any kind on himself, to Shareholders or affiliated persons or affiliated
companies by contract or by unilateral declaration outside a duly made
profit distribution resolution taken in the Shareholders' meeting.

6. According to the Articles of Association, article 7, the Managing
Director must obtain the prior consent of the Board for the following
transactions:

a) the adoption of the annual budget,

b) the conclusion and termination of any rental, tenancy and
lease agreements as far as they concern liabilities of more
than DM 100,000.00 p.a. and as far as they are not within the
frame of the annual budget as resolved by the Board,

c) the purchase or sale of economic goods of the fixed and
current assets, as far as the respective investments are
higher than DM 100,000.00 and as far as they are not within
the frame of the annual budget as resolved by the Board,

<PAGE> 3
Managing Director's Agreement
between Black Sun Interactive GmbH
and Bernd-Michael Habermeyer

-3-

d) the assumption of any obligations of any kind of more than DM
100,000.00 as far as these exceed the current business and as
far as these obligations are not covered by the annual budget
as resolved by the Board,

e) any measures for the procurement of capital by holding
companies or the allocation of own resources to holding
companies in a different way; the assumption of guarantees and
the Managing Director's Agreement between Black Sun
Interactive assumption of liabilities on bills as well as the
granting of loans, the granting of loans to and the assumption
of liabilities for holding companies, if an amount of DM
200,000.00 is exceeded in the specific case,

f) taking up of loans from DM 500,000.00 onwards as far as they
are not covered by the annual budget as resolved by the Board;
the issuance of bonds and participating certificates,

g) the appointment and recall of Managing Directors of
subsidiaries as well as the conclusion, the termination or the
substantial alteration of employment agreements of the Company
and/or the holding companies for Managing Directors with an
annual salary of more than DM 200,000.00,

h) the new determination of the salary of the Managing
Director(s),

i) the appointment and withdrawal of "Prokuren" (full power of
attorney) and commercial powers of attorney.

7. According to the Articles of Association, article 9, paragraph 9, the
Managing Director shall be subject to the prior approval of 90 % of the
votes of the Shareholders for the following transactions:

a) the purchase and sale of direct or indirect participation in
other companies, the establishing of other companies as well
as the exclusion and merging of company functions to other
companies, the purchase, the sale and the creation of
encumbrances on real property and equivalent rights and/or any
kind of liabilities coordinated on such measures,

b) liquidation of the Company

c) increase of the Company's capital and changes of the articles
of association of the Company.

It is the Shareholders' meeting's intent to achieve agreement between
the Shareholders as broad as possible for all important businesses. In
the event no majority can be achieved,

<PAGE> 4
Managing Director's Agreement
between Black Sun Interactive GmbH
and Bernd-Michael Habermeyer

-4-

the Board shall be competent to decide according to the Articles of
Association article 8 no. 1.

8. The list of actions the execution of which requires the prior approval
of the Shareholders can be extended at any time or reduced by means of
a Shareholder's resolution.

ART. 2
Commencement and Duration

1. This contract shall become effective on November 1, 1995.

2. Notwithstanding mandatory periods of notice set forth by German law
either party may terminate the contract by giving 3 (three) months
written notice to the end of the calendar month.

3. The right to termination without notice for good cause (Art. 626 German
Civil Code) is not affected.

ART. 3
Remuneration, Expenses

1. The Managing Director will receive a base gross salary of DM 11,250 per
month (payable 12 times a year). The remuneration is to be paid at the
end of each month.

2. Additionally, the Managing Director shall receive bonus payments. The
bonus will be agreed in July of each year for the following year
between the parties.

Bonus payments for 1995/96 are as described in the attachment to this
agreement.

ART. 4
Payment of Remuneration in the Event of Illness

In the event of the Managing Director's temporary incapacity due to illness or
of any other reasons for which the Managing Director is not responsible, the
remuneration according to Article 3 above will be continued to be paid for a
period of six weeks. The Company's payments

<PAGE> 5
Managing Director's Agreement
between Black Sun Interactive GmbH
and Bernd-Michael Habermeyer

-5-

will not be continued beyond a period of six weeks or beyond the date of
termination of this contract.

ART. 5
Annual Leave

1. The Managing Director shall be entitled to a paid annual leave of 30
working days.

2. If the Managing Director is not employed for the entire calendar year,
then he shall only be entitled to the corresponding portion of the
leave mentioned in paragraph 1.

ART. 6
Non-Disclosure, Non-Competition and Developments Agreements

The Managing Director undertakes to observe utmost secrecy vis-5-vis third
parties regarding all matters pertaining to the Company's business. This
obligation continues after the termination of this agreement. The Managing
Director agrees to the Company's Non-Disclosure, Non-Competition and
Developments Agreements attached to this Manager's Employment Agreement and is
to sign said attachment.

ART. 7
General Provisions

2. Modifications of this contract and supplements to this contract shall
not be valid unless in writing. This shall also apply to any
modification of the foregoing sentence.

3. This contract is subject to German law.

Munich,
August 7, 1995

------------------------------
Bernd-Michael Habermeyer

<PAGE> 6
Managing Director's Agreement
between Black Sun Interactive GmbH
and Bernd-Michael Habermeyer

-6-

------------------------------
Black Sun Interactive GmbH

Approved by the Members of the Board:

------------------------------
Chairman of the Board
Black Sun Interactive GmbH

Enclosures:

1. Non-Disclosure, Non-Competition and Developments Agreement

<PAGE> 1
EXHIBIT 10.10

EMPLOYMENT AGREEMENT

BETWEEN

BLAXXUN INTERACTIVE, INC.

375 Alabama Street, Suite 415
San Francisco, CA 94110

-hereinafter called "the Company"-

and

WALTER SCHWARTZ

residing at

314 West 27th Avenue
San Mateo, CA 94403 - 2420

-hereinafter called "Employee"-.
<PAGE> 2
Employment Agreement
between blaxxun interactive, Inc. and
Walter Schwartz

ART. 1

Duties and Responsibilities

1. Employee shall act as Chief Operating Officer (COO). The COO is
responsible for all various aspects of the business (such as
production, handling, distribution, shipping). The COO reports to the
Chief Executive Officer of the Company.

2. Employee shall devote his energy and experience exclusively to the
Company.

ART. 2

Commencement

This contract shall become effective on May 1, 1999.

ART. 3

Remuneration

1. Employee will receive an annualized base gross salary of $100,000
payable in semi-monthly installments of $4,166.67 at the end of each
period, subject to withholding and other applicable taxes.

2. Employee shall be entitled to receive certain specified bonus subject
to the achievement of certain performance criteria. Bonus and
performance criteria are reviewed yearly. The bonus for fiscal year
1998/99 will be $30,000 for 12 months. The fiscal year ends on July 31
of each year and the bonus will be calculated pro rata. Details to the
bonus and performance criteria are provided in the blaxxun General
Compensation Plan. A copy of the Fiscal 98/99 blaxxun General
Compensation Plan is attached to this agreement.

3. The Company will provide health care benefits that are industry
competitive.

ART. 4

Annual Leave

1. Employee shall be entitled to a paid annual vacation of 15 working
days.

2. If Employee is not employed for the entire calendar year, then he/she
shall only be entitled to the corresponding portion of the vacation
mentioned in paragraph 1.

3. Vacation periods shall be agreed upon with the Company bearing in mind
the interest of the Company.
<PAGE> 3
Employment Agreement
between blaxxun interactive, Inc. and
Walter Schwartz

ART. 5

Non-Disclosure and Developments Agreements

1. Employee acknowledges that he/she will have access at the highest level
to, and the opportunity to acquire knowledge of, trade secrets and
other valuable confidential and proprietary information of the Company.
Employee undertakes to observe utmost secrecy vis-a-vis third parties
regarding all matters pertaining to the Company's business. This
obligation continues after the termination of this agreement. Employee
agrees to the Company's Non-Disclosure and Developments Agreements
attached to this Employment Agreement (Enclosure 1) and is to sign said
attachment. Employee acknowledges that he/she is entering into
covenants contained in this Article 5 and the Non-Disclosure and
Developments Agreement in order to preserve the goodwill and going
concern value of the Company.

2. Employee represents and warrants to the Company that the performance of
his duties for the Company would not violate any Non-Competition,
Non-Disclosure or similar agreement that Employee has with any third
party.

ART. 6

Termination of Employment

Termination of Employment. The employment of the Employee may be terminated by
the Company either with Cause (as defined below) or without Cause at any time
effective upon written notice to the Employee. For purposes hereof, the term
"Cause" shall mean that any one or more of the following has occurred:

(a) The Employee shall have been convicted of, or shall have
plead guilty or no lo contendere to, any felony.

(b) the Employee shall have committed any fraud, embezzlement
or misappropriation of funds against the Company or intentional act of
dishonesty detrimental to the Company.

(c) the Employee shall have (i) failed to perform or refused
to perform his duties or (ii) breached any one or more of the material
provisions of this Agreement or the Nondisclosure and Developments
Agreement attached hereto as Schedule 1 and incorporated herein by
reference (the "NDA"), which failure, refusal or breach in the case of
(i) or (ii) continues for a period of ten (10) days after written
notice from the Company describing such failure, refusal or breach in
reasonable detail.

(d) The Employee's death or permanent incapacity.
<PAGE> 4
Employment Agreement
between blaxxun interactive, Inc. and
Walter Schwartz

ART. 7

General Provisions

2. This Agreement and the enclosures hereto constitute the entire
agreement and understanding of the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.

3. Modifications of this contract and supplements to this contract shall
not be valid unless in writing.

4. The terms of this Agreement shall be governed by and construed under
the laws of the State of California. In the unlikely event that any
dispute shall arise out of any obligations under this agreement the
parties hereby agree that proper venue for any such dispute shall be
San Francisco County.

5. In the event of a dispute the prevailing party shall be entitled to
reasonable attorney's fee.

San Francisco,
April 30, 1999

-----------------------------------
Walter Schwartz

------------------------------------
blaxxun interactive, Inc.
Bernd-Michael Habermeyer
C F O

ENCLOSURES:

1 Non-Disclosure and Developments Agreement
2 Fiscal 98/99 blaxxun General Compensation Plan

<PAGE> 1
EXHIBIT 10.11

EMPLOYMENT AGREEMENT

BETWEEN

BLAXXUN INTERACTIVE
AKTIENGESELLSCHAFT
MITTERERSTRASSE 9
80336 MUNICH

- HEREINAFTER CALLED 'BLAXXUN' -

AND

ELMAR MERGET
GEORG-BAUMANN-STRASSE 7
85567 GRAFING

- HEREINAFTER CALLED 'EMPLOYEE' -

<PAGE> 2
Employment Agreement
between blaxxun interactive Aktiengesellschaft
and Elmar Merget

1 ACTIVITY

The employee shall be employed at blaxxun as VP Engineering starting February 8,
1999. blaxxun reserves the right to assign the employee to other employment
matching the knowledge and prior training of the employee.

The employee and blaxxun hereby stipulate a phase-in period of no more than 3
months in which the employee can wind up his prior customer contracts. The
coordination with respect to time and the corresponding reduction of
remuneration during this period shall occur by mutual consent.

The responsibilities of the employee shall include in particular:

Management of product development and the solution area.

2 COMPENSATION

The employee shall receive a gross annual basis compensation in the amount of

DM 120,000.00.

It shall be comprised of twelve monthly payments in the amount of

DM 10,000.00 each.

In addition, the employee shall receive a performance-based variable target
income, of which the amount and calculation basis shall be separately regulated
and newly set every year. Initially, the annual performance-based variable
target income shall be

DM 25,000.00.

These payments shall cover compensation for any necessary overtime.

The basis compensation shall be transferred at the end of every month. The
variable compensation shall be oriented according to the valid updated blaxxun
interactive General Compensation Plan (current version attached). The taxes and
social security contributions to be withheld shall reduce the gross compensation
and shall be deducted by blaxxun. The annual compensation package shall be
reviewed at the start of every financial year (August 1 to July 31), for the
first time on August 1, 1999.

<PAGE> 3
Employment Agreement
between blaxxun interactive Aktiengesellschaft
and Elmar Merget

shall immediately inform blaxxun of the number of shares acquired based on the
options and the date and time of the acquisition and shall take all required
steps in order to enable blaxxun to fulfill its obligations under wage tax law.
The employee shall indemnify blaxxun against any claim brought by tax
authorities, insofar as the claim is based on a violation of the employee's
obligations.

3 LEAVE

The duration of leave is based on provisions in effect at blaxxun and currently
equals 30 days per year. Leave shall be scheduled by mutual consent.

4 PROBATIONARY PERIOD

The Agreement is concluded for a six-month probationary period and during this
period it may be terminated by either party as of the end of a month, with one
month's prior notice. If the Agreement is not terminated by either party during
the probationary period, then it shall continue in effect as a full employment
agreement without a limit of duration.

5 TERMINATION

After the lapse of the probationary period, the agreement may be terminated as
of the end of a month with three months' prior notice. Notice of termination
must be in written form.

6 OUTSIDE ACTIVITIES

The employee hereby undertakes not to exercise any outside activities for the
term of this employment relationship - even while on leave - and not to work for
other principals either with or without compensation. This is not applicable
during the phase-in period. This shall not affect the formal activity as
managing director of Software System Merget GmbH, on the condition that the
employee does not carry out any projects for this company, or the activity for
the adult education center ("Volkshochschule"). Both activities shall be
exercised outside of working hours. The time requirement shall have no
significant impact on the activity at blaxxun.

An exception to this regulation shall be possible only after express, written
consent from blaxxun. The employee hereby undertakes not to acquire shares in
companies which are in competition with blaxxun.

A non-competition clause is not a component of this Agreement.

7 CONFIDENTIALITY, DOCUMENTS

<PAGE> 4
Employment Agreement
between blaxxun interactive Aktiengesellschaft
and Elmar Merget

Knowledge of internal operating processes, in particular all operating and
commercial secrets of blaxxun and its customers, of which the employee learns as
a result of the employment relationship, shall be kept secret from outside third
parties. This regulation shall be applicable also to the period after expiration
of this Agreement.

All work documents and other business documents which are made available to the
employee within the framework of his responsibilities or which he himself
prepares in the course of the contractual relationship shall be treated as the
property of blaxxun and carefully maintained. The documents and data media which
contain business secrets of blaxxun, or works to which blaxxun holds rights,
shall be returned to blaxxun on request, and no later than the expiration of the
contractual relationship even without specific request.

The same shall be applicable also to documents which the employee has acquired
within the framework of customer projects. In the event of a grossly negligent
violation of these obligations during the term of the contractual relationship
or after the expiration of the contractual relationship, blaxxun may bind the
employee, or the former employee, to compensate all damages to blaxxun and its
clients.

The employee hereby undertakes to sign the "Non-Disclosure and Development
Agreement", which forms an integral part of this Agreement and is attached as
Appendix 1 to this Agreement.

8 OTHER PROVISIONS

To the extent that no other regulation occurs in an individual contract, the
provisions of the employee handbook and the valid shop agreements, if such
exist, shall be applicable to the employment relationship. For the rest, the
provisions of law shall be applicable.

No oral subagreements exist. Amendments and additions to this Agreement shall
require written form to be effective. If a provision of the Agreement is
ineffective, the remainder of the Agreement shall nonetheless remain in effect.
The ineffective provision shall be replaced by an effective provision which
shall come as close as possible to the economic purpose of the ineffective
provision.

Munich, February 4, 1999

- ------------------------ ------------------------
blaxxun interactive Elmar Merget
Aktiengesellschaft

<PAGE> 1
EXHIBIT 10.12

EMPLOYMENT AGREEMENT

BETWEEN

BLAXXUN INTERACTIVE
AKTIENGESELLSCHAFT
MITTERERSTRASSE 9
80336 MUNICH

- HEREINAFTER CALLED 'BLAXXUN' -

AND

ENGLBERT WOLFL
HANS-SCHMIDMAIER-STRASSE 76
85435 ERDING

- HEREINAFTER CALLED 'EMPLOYEE' -

<PAGE> 2
Employment Agreement
between blaxxun interactive AG
and Englbert Wolfl

1 ACTIVITY

The employee shall be employed at blaxxun as VP Sales and Business Development
Europe starting April 1, 1998. If it is possible for the employee, an earlier
start of employment is desired. blaxxun reserves the right to assign the
employee to other employment matching the knowledge and prior training of the
employee.

The responsibilities of the employee include in particular:

Responsible management of the area of Sales and Business Development for Europe.
Setup and organization of a distribution structure, especially distribution
channels (OEMs; VARs, ICPs, ISPs, etc.) and employee management. The revenue
responsibility extends to all European markets.

In the event of successful activity, there is the prospect of an assumption of
the corresponding responsibilities within the Managing Board, but not before
completion of the probationary period.

2 COMPENSATION

The employee shall receive a gross annual basis compensation in the amount of

DM 100,000.00.

It shall be comprised of twelve monthly payments in the amount of

DM 8,333.34 each.

In addition, the employee shall receive a performance-based variable target
income, of which the amount and calculation basis shall be separately regulated
and newly set every year. For the financial year 1997/98, the annual variable
target income shall be

DM 130,000.00.

The variable income shall be calculated as a percentage revenue participation
from the quotient of variable target income and the European third-party
revenues budgeted for the respective financial year. From the start of
employment until the end of the financial year (July 31, 1998), the percentage
revenue participation shall be 3.25% of the total European third-party revenues
earned in this period. In financial year 1998/99, the annual variable target
income shall increase by 10% to DM 143,000. The percentage revenue
participations shall be again calculated from the quotient of variable target
income and the European revenues budgeted for this financial year. The
pre-condition for percentage revenue participation is the achievement of a gross
proceeds margin, which in financial year 1997/98 shall amount to at least 60%.
Higher gross proceeds margins for individual

<PAGE> 3
Employment Agreement
between blaxxun interactive AG
and Englbert Wolfl

revenues may be compensated with lower gross proceeds margins for other revenues
in the same financial year.

Insofar as and to the extent that the employee is granted options for
acquisition of shares in blaxxun interactive, Inc., San Francisco, the rights of
the employee shall be determined solely according to an agreement to be
concluded between him and blaxxun interactive, Inc. blaxxun makes no guarantee
that options shall be granted to the employee; blaxxun is expressly not
obligated to influence blaxxun interactive, Inc. in any way regarding the
granting of options. The employee acknowledges that the granting of options is
subject to the sole discretion of blaxxun interactive, Inc. If the employee
exercises the options granted to him entirely or partially, then he shall
immediately inform blaxxun of the number of shares acquired based on the options
and the date and time of the acquisition and shall take all required steps in
order to enable blaxxun to fulfill its obligations under wage tax law. The
employee shall indemnify blaxxun against any claim brought by tax authorities,
insofar as the claim is based on a violation of the employee's obligations.

These payments shall cover compensation for any necessary overtime.

The basis compensation shall be transferred at the end of every month. The
performance-based variable compensation shall be payable upon secure receipt of
customer payment and shall be paid out monthly together with the subsequent
salary payment. The taxes and social security contributions to be withheld
reduce the gross compensation and are deducted by blaxxun. The annual
compensation package shall be reviewed at the start of every financial year.

3 LEAVE

The duration of leave is based on provisions in effect at blaxxun and currently
equals 30 days per year. Leave shall be scheduled by mutual consent.

4 PROBATIONARY PERIOD

5 TERMINATION

<PAGE> 4
Employment Agreement
between blaxxun interactive AG
and Englbert Wolfl

After the lapse of the probationary period, the agreement may be terminated as
of the end of a month with three months' prior notice. Notice of termination
must be in written form.

6 OUTSIDE ACTIVITIES

The employee hereby undertakes not to exercise any outside activities for the
term of this employment relationship - even while on leave - and not to work for
other principals either with or without compensation. An exception to this
regulation shall be possible only after express, written consent from blaxxun.
The employee hereby undertakes not to acquire shares in companies which are in
competition with blaxxun.

A non-competition clause is not a component of this Agreement.

7 CONFIDENTIALITY, DOCUMENTS

The employee hereby undertakes to sign the "Non-Disclosure and Development
Agreement", which forms an integral part of this Agreement and is attached as
Appendix 1 to this Agreement.

8 OTHER PROVISIONS

<PAGE> 5
Employment Agreement
between blaxxun interactive AG
and Englbert Wolfl

Munich, January 9, 1998

blaxxun interactive Englbert Wolfl
Aktiengesellschaft

<PAGE> 1
Exhibit 23.1

[KPMG logo]

The Board of Directors
blaxxun interactive, Inc.
1550 Bryant Street, Suite 770
San Francisco, CA 94103
U.S.A.

The Board of Directors and Stockholders
blaxxun interactive, Inc.:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft

/s/ KPMG Deutsche Treuhand-Gesellschaft AG

Munich, Germany
May 25, 2000