10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, 2003

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

         COMMISSION FILE NUMBER 000-26355

eUniverse, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware	06-1556248
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6060 Center Drive, Suite 300, Los Angeles, CA 90045
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (310) 215-1001

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  o     No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes  o     No  x

As of September 30, 2002, the aggregate market value of the Company’s outstanding common shares held by non-affiliates of the Registrant (based upon the closing sale price of such shares on the NASDAQ Small Cap Market on September 30, 2002) was approximately $35,233,760. Shares of the Registrant’s common stock held by each executive officer and director and by each entity that owns 5% or more of the Registrant’s outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of July 31, 2003, there were 26,562,239 shares of the Registrant’s common stock outstanding.

eUniverse, Inc.

Annual Report on Form 10-K for the Year Ended March 31, 2003

TABLE OF CONTENTS

PART I			3
	ITEM 1.	BUSINESS	3
	ITEM 2.	FACILITIES	24
	ITEM 3.	LEGAL PROCEEDINGS	24
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	26
PART II			26
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	26
	ITEM 6	SELECTED FINANCIAL DATA	28
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	42
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	42
PART III			43
	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	43
	ITEM 11.	EXECUTIVE COMPENSATION	45
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	50
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	51
	ITEM 14.	CONTROLS AND PROCEDURES	52
	ITEM 15.	PRINCIPAL ACCOUNTING FEES AND SERVICES	54
PART IV			55
	ITEM 16.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	55
		SIGNATURES

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PART I

Forward-Looking Statements

         This document contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

         Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this annual report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

         Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to, those discussed in the section entitled Risk Factors beginning on page 16 of this Form 10-K.

         eUniverse, Inc. and its subsidiaries are referred to herein as “eUniverse,” “we” and “the Company”.

ITEM 1.   BUSINESS

Recent Events

Restatement

         On May 6, 2003, the Company announced its intent to restate its previously reported quarterly financial results for the fiscal year ended March 31, 2003 because of accounting errors it had identified in the Company’s financial statements (the “Restatement”).

         As a result of the discovery of the accounting errors, management initiated an internal review of its accounting records and its accounting policies and procedures. In an effort to identify the extent of the accounting errors, and to identify any deficiencies in the Company’s system of internal controls, management significantly expanded its accounting and finance staff and retained an outside accounting firm to assist in the process. In addition to the foregoing, the Company’s Board of Directors directed the Audit Committee of the Board to explore the facts and circumstances giving rise to the Restatement as well as to evaluate the Company’s accounting practices, policies and procedures (the “Audit Committee review”). To assist with the Audit Committee review, the Audit Committee engaged the law firm of Foley & Lardner.

         During management’s and the Audit Committee reviews of the Company’s accounting records and procedures, and during the audit of the Company’s financial statements for the year ended March 31, 2003, various deficiencies in the Company’s internal controls were identified. The Company believes such deficiencies were attributable to the following broad factors: insufficient supervision and oversight of the Company’s accounting systems and personnel; a poorly designed, non-integrated accounting system; the rapid growth in the Company’s business operations during the course of fiscal year 2003; difficulties in absorbing and integrating the acquisition of a sizable e-commerce company, ResponseBase LLC, during the third and fourth quarters of fiscal year 2003; the loss of critical personnel; and limited human resources in the Company’s accounting and financial reporting function with which to respond to the Company’s increased business scale and growing complexity.

         As a result of management’s and the Audit Committee reviews, the Company has determined the need to restate its consolidated financial statements for the first three quarters of fiscal year 2003, ended June 30, September 30, and December 31, 2002, respectively. The following table summarizes the impact of the adjustments on the Company’s statement of operations.

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Restatement Impact on Classifications Within the Statements of Operations
(In thousands, except share and per share data)
(unaudited)

	Quarter Ended June 30, 2002									Quarter Ended September 30, 2002									Quarter Ended December 31, 2002
	As Reported and Reclassified		(1)	Restated			Difference			As Reported and Reclassified		(1)	Restated			Difference			As Reported and Reclassified		(1)	Restated			Difference			Total(2)
Revenues	$	11,412		$	10,782		$	(630	)	$	12,487		$	10,988		$	(1,499	)	$	25,823		$	21,959		$	(3,864	)	$	(5,993	)
Cost of sales		2,600			2,164			(436	)		2,216			1,637			(579	)		6,730			6,830			100			(915	)
Operating expenses		6,924			7,212			288			8,032			9,195			1,163			15,709			15,238			(471	)		980
Non-operating expenses (income)		(646	)		(664	)		(18	)		132			335			203			120			376			256			441
Discontinued operations		41			—			(41	)		105			—			(105	)		—			(235	)		(235	)		(381	)
Income tax expense (benefit)		—			(4	)		(4	)		—			(2	)		(2	)		—			—			—			(6	)
Net income (loss)	$	2,493		$	2,074		$	(419	)	$	2,002		$	(177	)	$	(2,179	)	$	3,264		$	(250	)	$	(3,514	)	$	(6,112	)
Earnings (loss) per share:
Basic	$	0.11		$	0.09		$	(0.02	)	$	0.08		$	(0.01	)	$	(0.09	)	$	0.13		$	(0.01	)	$	(0.14	)	$	(0.25	)
Diluted	$	0.08		$	0.06		$	(0.02	)	$	0.07		$	(0.01	)	$	(0.09	)	$	0.10		$	(0.01	)	$	(0.14	)	$	(0.25	)

(1)  The financial results set forth for the quarters ended June 30, September 30, and December 31, 2002 include the reclassification of certain items to conform to their presentation for the quarter ended December 31, 2002 and the year ended March 31, 2003. These reclassifications had no effect on previously reported net income in any of the first three quarters of fiscal year 2003. Certain fees paid to third parties for media space, license agreements, and ad revenue-sharing arrangements, which had previously been included in cost of goods sold, are reflected in marketing and sales expenses. In addition, credit card fees, which had previously been included in general and administrative expense, have been reclassified and appear in cost of sales.

(2)  Amounts reflect the aggregate effect of the restatement adjustments and reclassifications through December 31, 2002.

Overall Analysis of the Restatement

         The adjustments reflected in each of the periods above generally arise from the following:

• Inaccurate source data utilized in accounting records

• Improper recordation of accounting transactions

• Improper recording of transactions between periods (“cut-off errors”)

• Improper application of generally accepted accounting principles

         The impact of the adjustments to the specific classifications in the Company’s statement of operations is discussed in detail below.

Revenues

         Revenue has been decreased by approximately $630,000, $1,499,000 and $3,864,000 for the Company’s first, second and third fiscal quarters respectively. The adjustments to revenue are primarily attributable to correction of the allowance for product sales returns, and correction of the accounting for revenue related to certain products and services, in the second and third fiscal quarters.

         The Company’s review of its accounting records indicated the Company had relied upon inaccurate and incomplete source data, and had applied an inaccurate methodology, in calculating the allowance necessary for product returns and sales charge backs. These types of accounting errors were particularly pronounced in the third fiscal quarter, a period in which the Company experienced a dramatic increase in the volume of its e-commerce transactions as a result of its acquisition of ResponseBase and the Company’s own internal growth and expansion. In addition, the Company experienced a high rate of product returns during the quarter as a result of delayed order fulfillment during the December holiday season. The Company’s review also indicated the Company had incorrectly accounted for certain credit card transactions and merchant bank activity, resulting in an inaccurate calculation of sales return reserves, and contributing to the overstatement of revenue.

         The Company’s review of its accounting records also revealed that the recording of certain service revenue had been premised upon inaccurate data. Additionally, it was determined that certain revenue relating to product sales had been inappropriately recorded, and that certain deferred revenue had been recognized in an incorrect period.

         Although the overall impact of the adjustments was to reduce revenue by approximately $5,993,000 for the nine months ended December 31, 2002, and there was no impact to the Company’s reported cash balances as a result of the revenue restatements.

Cost of Sales and Operating Expenses

         Cost of sales has been decreased by approximately $436,000 and $579,000, and increased by $100,000, for the Company’s first, second, and third fiscal quarters, respectively. Additionally, operating expenses have been increased by approximately $288,000 and $1,163,000, and decreased by approximately $471,000, for the respective three fiscal quarters. The adjustments to costs of sales and operating expenses primarily relate to the correction of accounts payable cutoff errors. An examination of the Company’s accounts payable records disclosed that, in certain instances, improper cutoff procedures were applied when calculating the accounts payable amounts, mistakes were made in postings to the accounts payable system, and invoices were incorrectly processed. The adjustments also include correction of the accounting methodology applied to certain capital lease transactions.

Non-operating Expenses

         Non-operating expenses have been decreased by approximately $18,000, and increased by approximately $203,000 and $256,000, for the first, second, and third fiscal quarters of 2003, respectively. These adjustments result from the correction of the accounting for a sale and leaseback transaction, and correction of interest expense amortization for certain debt obligations.

Discontinued Operations

         Discontinued operations have been decreased by approximately $41,000, $105,000, and $235,000, for the first, second and third fiscal quarters of 2003, respectively. These changes relate to the incorrect classification of certain transactions between discontinued operations and other income statement classifications.

Balance Sheet Adjustments

         The net balance sheet impact of the foregoing adjustments is to decrease stockholders’ equity by approximately $6,112,000 for the nine months ended December 31, 2002. Further information with respect to our restated financial statements is presented in “Item 14–Controls and Procedures,” and in Notes 2 and 21 of Notes to Consolidated Financial Statements.

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NASDAQ Trading Halt, NASDAQ Delisting Proceedings and SEC Investigation

         In response to the announcement of the Restatement, on May 6, 2003 NASDAQ halted trading of the Company’s common Stock, and trading remains halted through the date of this filing. On June 13, 2003, the Company received a NASDAQ Staff Determination stating that its common stock was subject to delisting from The NASDAQ SmallCap Market (the “SmallCap Market”) due to the NASDAQ Staff’s in ability to assess the Company’s current financial position and the Company’s ability to sustain compliance with NASDAQ’s continued listing requirements. On July 2, 2003, the Company received notice of an additional listing deficiency from NASDAQ indicating that the Company was not in compliance with the filing requirement for continued listing due to the Company’s failure to timely file its Annual Report on Form 10-K. Subsequently, on August 15, 2003, the Company filed a Report on Form 12b-25 with the Securities and Exchange Commission (the “SEC”) as a result of its failure to timely file its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003. The Company currently anticipates it will file this Form 10-Q in September 2003. The Company has appealed the NASDAQ Staff’s determination to delist the Company’s securities to a Listing Qualifications Hearings Panel (the “Panel”). On July 31, 2003, in an oral hearing before the Panel, the Company presented its plan for providing current financial information to the market place and complying with NASDAQ filing requirements. The Panel has not yet made a determination on the Company’s appeal and there has been no indication from the NASDAQ Staff as to whether the halt in trading of the Company’s common stock will be lifted. The Company can provide no assurance that the Panel will grant the Company’s request for continued listing or that trading in the Company’s common stock on the SmallCap Market will resume.

         Immediately after announcing its intention to restate its quarterly financial statements, the Company contacted the SEC to notify it of the Restatement. The SEC Staff initiated an informal inquiry into the matter and the Company has remained in regular contact with the SEC Staff concerning the status of the Restatement and Audit Committee review. The Company has been and intends to continue cooperating with the SEC. The Company cannot predict the outcome of the SEC’s inquiry.

Enhancements to Accounting and Financial Reporting Procedures and Controls

         In response to the rapid growth, change, and complexity in the Company’s business during the course of fiscal year 2003, management undertook several initiatives to enhance the efficiency of its accounting and finance functions. These initiatives included the hiring of consultants to review the Company’s financial reporting efficiency and organizational structure. In addition, management determined the need to enhance its accounting software for cash management and inventory tracking, and the need to supplement Company personnel with significant additional resources to address staffing shortages and accounting department backlogs.

         More recently, in response to the matters identified in connection with the review of the Company’s accounting records and procedures by management and the Audit Committee, the Company has implemented a number of remedial and other actions designed to improve its accounting and financial reporting procedures and controls. These actions have included, among others: (i) significant expansion of the resources of the accounting and financial reporting department, nearly doubling the department’s staff size, and replacing all pre-existing accounting personnel with individuals of greater experience and expertise, (ii) replacement of the leadership of the department with a new controller who has experience with the challenges of system and business scaling, and (iii) the search for a new Chief Financial Officer to fill the vacancy resulting from the departure of Joseph L. Varraveto, who resigned effective August 19, 2003.

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         As part of its remedial actions, the Company has also implemented or strengthened a number of internal controls. These measures include requiring enhanced levels of authorization for transactions, strictly limiting access to various accounting modules, improving the processing of transactional documentation, augmenting cash management controls, enhancing inventory controls, and redesigning the sales order process. Management has also initiated a reorganization and upgrade of the Company’s accounting systems and processes. In particular, management has begun migrating the Company to a new integrated financial reporting system, one that is more appropriate to the size and complexity of the Company’s current business operations.

         Management is also presently evaluating several experienced consulting firms with respect to an engagement to advise the Company on further enhancements to internal and operational controls. The Company expects to be an early adopter of the internal control attestation requirements of the Sarbanes-Oxley Act of 2002.

         The Company has also appointed Lawrence Moreau to its Board of Directors and to serve as the Audit Committee Chair.

Operational Reorganization

         eUniverse has initiated, and largely completed, significant steps to streamline the Company’s operating structure. The Company has closed four of its under-performing business lines, UltraConversions, FitnessHeaven, MegaLottoClub and FamilyCareAdvantage, and has consolidated certain core properties. In addition, the Company has reduced headcount by approximately 20% to 241 employees as of August 8, 2003. These actions are expected to result in annual savings of more than $6 million, and should simplify the Company’s financial reporting and operational structure.

Additional Financing

         In July 2003, the Company received $2 million of debt financing from VP Alpha Holdings IV, L.L.C. (“VPVP”) an affiliate of VantagePoint Venture Partners. The debt financing consisted of a $2 million, 8% secured note (the “VPVP Note”) which is due on the first to occur of: (i) the maturity of a note held by a wholly-owned subsidiary of Sony Music Entertainment (currently due March 31, 2005), (ii) the closing of the preferred stock investment (described below) by VPVP, at which point the VPVP Note would be applied toward the purchase price, (iii) March 31, 2005 and (iv) the closing by the Company of a debt or equity financing in excess of $2.5 million with a party other than VPVP.

         Concurrently with the debt financing, the Company and VPVP entered into a term sheet relating to a second phase of financing that would consist of an up to $10 million preferred stock investment by VPVP in eUniverse, and the provision of an additional $20 million dollar “line of credit” to be used in future merger and acquisition transactions. The terms of the second phase of the financing as set forth in the term sheet, are non-binding. The term sheet contemplates that VPVP would purchase up to $10 million shares of a newly authorized series of preferred stock, as more fully described below. The purchase price of the shares is expected to be $1.50 per share. The VPVP Note would be credited towards the purchase price. Upon the closing of the sale of the preferred stock to VPVP, the term sheet contemplates that VPVP would provide the Company with a line of credit of up to $20 million for making acquisitions and entering into strategic business development ventures. VPVP would have discretion over eUniverse’s use of the line of credit, the detailed terms of which are to be negotiated.

         Also in connection with the debt financing, VPVP purchased from 550 Digital Media Ventures, Inc. (“550 DMV”), a wholly owned subsidiary of Sony Music Entertainment, $0.5 million of an approximately $2.3 million note held by 550 DMV (the “Sony Note”) and an option (the “Option”) to purchase up to 3,050,000 shares of the Company’s Common Stock and up to 1,750,000 shares of the Company’s Series B Convertible Preferred Stock held by 550 DMV for a purchase price of $1.10 per share, with the price subject to adjustment under certain conditions. If the Option is exercised for all the shares subject to it, 550 DMV and any assignee of its remaining Series B shares will, in future votes, vote in the same manner as VPVP with respect to the Series B shares purchased pursuant to the Option. Any and all rights that 550 DMV has associated with the Common Stock and the Series B, including but not limited to registration rights, voting rights, preemptive rights, liquidation preference, or otherwise, will be deemed transferred (to the extent transferable) to VPVP upon its exercise of the Option and the payment of the related purchase price. In addition, 550 DMV has agreed that it will vote as a stockholder in favor of any investment and loan transaction between the Company and VPVP resulting in an additional investment in the Company by VPVP of not less than $5

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million at a price of at least $1.00 per share (if an equity transaction), as approved by the Board of Directors of the Company. In connection with the consummation of any such transaction, 550 DMV will be deemed to have waived any anti-dilution protection and any pre-emptive rights and rights of first refusal that 550 DMV may have in connection with its securities holdings in the Company. Pursuant to the debt financing agreements, eUniverse and VPVP agreed that in the event that VPVP does not exercise the Option within 120 days of its grant, that VPVP may, within 10 days after the expiration of such 120-day period, transfer the Option to eUniverse in exchange for a warrant (the “Warrant”) to purchase 200,000 shares of the Company’s Series C Convertible Preferred Stock.

         In connection with the above-referenced transactions, eUniverse agreed that it will create a new series of preferred stock if (i) VPVP exercises the Option, and (ii) the Company and VPVP agree to consummate the preferred stock financing described above. The Company currently expects that the new series of preferred stock will be designated Series C Convertible Preferred Stock (the “Series C”) and will be created by board resolution in accordance with the Company’s certificate of incorporation. If the Series C is so created, VPVP would purchase Series C in the second phase of financing, VPVP would receive the right to exchange any shares of Series B acquired pursuant to the Option for Series C and the Warrant (if issued) would be exercisable into Series C.

         As currently contemplated, the Series C would be substantially similar to the Company’s Series B, subject to the following differences, among others: (a) the Series C would be entitled to an 8% cumulative dividend payable in additional shares of Series C; (b) the conversion price would be $1.50; (c) the Series C would be convertible into common stock at VPVP’s election; and (d) upon other events to be negotiated between the Company and VPVP and acceptable to VPVP. If the Option has been exercised in full, the Series C would also have additional rights as follows: (a) the Series C would have the right to elect a number of the members of the Company’s Board of Directors identical to the current rights of the Series B to elect members of the Board of Directors, as 550 DMV would be required to vote in the same manner as VPVP, such board members would constitute both the Series B and Series C board representatives; and (b) so long as VPVP or any of its affiliates owns at least 1,442,308 shares of Series C or Common Stock (as adjusted for any stock split, combination, reorganization, reclassification, stock dividend, stock distribution or similar event), the Company would not, without the affirmative consent or  vote of at least two-thirds of the Board of Directors (i) enter into an agreement for or consummate, a Corporate Transaction (as defined in the Series B Certificate of Designations), (ii) enter into transactions which result in or require the Company to issue shares of its capital stock in excess of 5% (in any one transaction) or 12.5% (in the aggregate) of the Company’s then-current market capitalization, (iii) increase or decrease the number of authorized shares of capital stock, (iv) directly or indirectly declare or pay any dividend or make any other distribution in respect thereof, or purchase, redeem, repurchase or otherwise acquire any shares of capital stock of the Company or any subsidiary, other than as specified in the Series B Certificate of Designations, or (v) increase or decrease the size of the Company’s Board of Directors. In the event the agreement reached with VPVP with respect to the second phase of financing would require the Company to issue securities in an amount equal or greater than 20% or more of the Company’s common stock or voting power outstanding before the issuance, the Company may need to seek shareholder approval of the transaction pursuant to NASDAQ’s MarketPlace rules.

Recent Management and Board Changes

On May 27, 2003, the Company appointed Lawrence R. Moreau to its Board of Directors and Audit Committee Chair, filling a vacancy created by a previously disclosed director resignation. Joseph L. Varraveto, resigned as Chief Financial Officer of the Company effective August 19, 2003. The Company has conducted a search for a new Chief Financial Officer and expects to announce a replacement in the near future.

Business Overview

         The businesses owned and operated by eUniverse comprise one of the most compelling collections of online enterprises doing business on and through the Internet today. From its start as an online retailer of music and movies in April 1999, eUniverse has quickly diversified and grown into a premier, predominantly online network of interactive entertainment, electronic commerce and publishing, and direct to consumer marketing. At the core of the Company’s holdings is its entertainment network and its electronic newsletter portfolio. eUniverse’s “content” offerings, commonly referred to as the eUniverse network of websites (the “eUniverse Network”), attract on average 15 million to 20 million visitors per month.⁽¹⁾ During fiscal year 2003, the eUniverse Network has generally ranked among the top 15 most visited destinations on the Internet, and the Company communicates on a daily basis with many millions of subscribers to the Company’s portfolio of electronic newsletters. eUniverse’s reach on the Internet has, for the past two years, fueled the growth of the Company’s products and services business segment, which includes (i) online services in the areas of dating, health fitness and dieting, self-help and well-being, and third-party marketing and advertising campaign development, and (ii) electronic commerce in the areas of consumer electronics, collectibles, inkjet printer supplies and peripherals, herbal health products and supplements, electronic books, downloadable applications, and other impulse merchandise. eUniverse also maintains a strong and growing presence in the online computer gaming market with premier properties in the league, ladder and tournament and pay-to-play skill-based game spaces. More recently, the Company has pursued offline, direct to consumer initiatives with a telemarketing center and two joint ventures to market and sell fitness products. The Company constantly evaluates and refines its existing businesses and searches for opportunities to deepen and broaden its holdings through internal development and external acquisition.

⁽¹⁾ Source: Nielsen//Net Ratings, April 2002 through March 2003.

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Highlights in the Development of the Business

         The genesis of eUniverse occurred in April 1999 through a series of transactions colloquially referred to as a reverse merger into a publicly traded shell (the “Reorganization”). The Reorganization culminated in eUniverse, Inc. (f/k/a Motorcycle Centers of America, Inc., a non-operating Nevada corporation whose shares were publicly traded on the OTC Bulletin Board) becoming the parent and sole shareholder of CDUniverse, Inc., a Connecticut corporation engaged in the business of selling music CD’s and movie videos and DVD’s via the Internet. eUniverse thereby became a publicly traded company whose historical results of operations were those of CDUniverse. Simultaneously with the Reorganization, the Company consummated a financing of roughly $6.5 million placed with approximately forty Series A Preferred Stock investors, among whom Lehman Brothers was the largest. In April, 2000, eUniverse moved to the NASDAQ SmallCap Market and continued to trade under the symbol EUNI. In December 2002, the Company changed its domicile and became a Delaware corporation.

         During the Company’s first fiscal year, fiscal year 2000, the Company acquired a series of online gaming companies (including Cases Ladder, Inc.) and entertainment content properties (including Funone.com and Justsaywow.com), thus adding the beginnings of the Company’s other two principal components of its current operations, content and gaming.

         During fiscal year 2001, the Company continued to acquire entertainment content websites (including Send4fun.com, Debsfunpages.com and Funnygreetings.com) and to build its core entertainment network audience. Early in its fiscal year 2001, the Company also launched what has become its flagship entertainment property, Flowgo.com. By April 2001, Flowgo had become one of the most frequented entertainment websites on the Internet. With the acquisition and introduction of these and other entertainment websites, the eUniverse Network quickly ascended into the upper echelons of the Internet’s most trafficked destinations. Also in its fiscal year 2001 (in October of 2000), the Company divested itself of the music and movie retail products segment of its business (i.e., CDUniverse and its related e-commerce properties). The Company received $1 million in exchange for the sale of the intangible and tangible assets of the business to CLBL, Inc. Additionally, over the next six months, the company received $0.5 million from CLBL for advertising on eUniverse websites.

         As the Company entered its fiscal year 2002, and with the divestment of CDUniverse, the Company’s revenue was derived almost exclusively from paid third-party advertising on the eUniverse Network. By June 2002, eUniverse had become the most frequented entertainment network on the Internet. The Company then embarked on a strategy of diversifying its revenue streams and developing longer, higher yielding relationships with its user base. As part of this strategy, in the first quarter of its fiscal year 2002 the Company launched its online dating website CupidJunction.com, representing the beginning of the build-out of the Company’s products and services business segment. Over the course of the year, the Company added seven additional product and/or service offerings consisting of a combination of internally developed and acquired properties.

         Also during its fiscal year 2002, the Company substantially augmented its E-mail newsletter portfolio by acquiring the various publications distributed under the IntelligentX and InfoBeat brand names. In conjunction with its acquisition of InfoBeat, the Company raised approximately $5 million in a private placement of Series B Convertible Preferred Stock with an affiliate of Sony Music Entertainment, Inc.

         Early in its fiscal year 2003, the Company began leveraging its expertise in developing and distributing online advertising campaigns by signing deals with various major media and consumer product companies to promote their properties, artists and products on the eUniverse Network. Also during fiscal year 2003, and in an effort to gain broader consumer reach for the Company’s products and services, the Company launched Performance Marketing Group (“PMG”). PMG’s primary objective is to generate sales of the Company’s various offerings on networks and websites beyond the eUniverse Network.

         In September 2002, the Company continued its effort to broaden its consumer reach by acquiring certain assets of ResponseBase LLC. ResponseBase is an on-line marketing company that manages over 30 million permission-based E-mail records to which it markets and sells its own proprietary products and services as well as those of third parties. The transaction also provided the Company with additional management talent and incremental distribution and product development opportunities.

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         Also during September 2002, the Company signed a multi-year agreement with Microsoft Corporation relating to its skilled gaming and gaming download offerings. The joint offerings went live in the fourth quarter of fiscal year 2003.

Description of the Business

         The Company’s businesses are generally divided into two categories or types: (1) Media and Advertising and (2) Products and Services. In fiscal year 2003, the Company’s revenue was generated from a combination of paid third-party advertising on the eUniverse Network and from sales of the Company’s portfolio of products and services.

Media and Advertising

         The eUniverse Network. The eUniverse Network constitutes one of the most visited destinations on the Internet, offering fun and compelling interactive entertainment that people use to communicate and connect. The eUniverse Network attracts between 15 to 20 million monthly visitors, with Flowgo.com, one of the largest entertainment websites, being the Company’s most popular
website.⁽¹⁾ Network websites offer thousands of pages of funny pictures, jokes, animations, greetings, parodies, poems, stories, quizzes, polls and games. The nature of the content ranges from the edgy and satirical comedy found on MadBlast.com, to the lighthearted funpages and humor of GotLaughs.com, to the inspirational stories and pages of BlessTheDay.com, to the mind, body and spirit self-evaluation aids at SelfNetwork.com, to the fun and easy to play games at GameRival.com. The variety of offerings renders the Network content akin to television programming, with different shows and channels geared toward different audiences and tastes and with regularly updated, fresh and relevant content. Visitors to the eUniverse Network are encouraged to share the content they experience with family and friends by clicking a link at the bottom of each content Web page and using what the Company refers to as the Flowgo Referral System. The Flowgo Referral System is an internally developed tool that enables users to conveniently E-mail links to the content they view to up to ten other people at a time. Visitors to Network websites are also encouraged to sign up to website mailing lists in order to receive updates about new content and the daily picks of Network webmasters.

         Newsletter Portfolio. The Company distributes content via electronic mail everyday to many millions of subscribers to its Network Web site and topical newsletter subscription lists. eUniverse’s E-mail newsletters are received by over 50 million unique subscribers each month. A majority of the newsletters are E-mailed daily. The Company has over 50 newsletters in its portfolio, covering specific topics such as sports, technology, entertainment, business and finance. A large number of these newsletters are vehicles for delivering content from the numerous websites that make up the eUniverse Network. Some of the Company’s more popular newsletters are IntelligentX, with two daily publications, and InfoBeat, with four daily publications, both providing factual news delivery and other fare similar to that found in traditional newspapers or magazines. These two newsletter groups have a combined subscriber base of over 5 million.

         eUniverse derives its content from a variety of sources and relationships, but the vast majority of its content is produced internally by the Company’s webmasters, programmers and graphic artists. The Web publishing side of eUniverse’s business has enabled the Company to attract a large and diverse audience and to amass a considerable database of subscriber and viewer information. This audience and ability to communicate effectively with potential customers has proved an attractive proposition to third-party advertisers. The Company’s audience includes strong reach into some of the most lucrative demographic segments of the Internet population. eUniverse reaches over 4 to 10 million adult women every month, which amounts to approximately 1 in 6 adult women (18 or older) on the Web. This demographic is believed to control a high percentage of household spending. The eUniverse Network is also one of the top five websites visited by adults over age 55. This demographic group has more leisure time and greater buying power in the aggregate than most other standard demographic groups. The eUniverse Network is also one of the top six websites for teens and one of the top fifteen websites for males over the age of 18.⁽²⁾ In short, the eUniverse Network and newsletter portfolio present one of the most fertile opportunities available online for customer acquisition. Perhaps more importantly, the Company’s access to a large online audience affords the Company a considerable competitive advantage with respect to its ability to test the marketability of new products and services and to generate sales of the Company’s existing products and services at low customer acquisition costs.

⁽¹⁾ Source: Nielsen//NetRatings March 2003.
⁽²⁾ Source: Nielsen//NetRatings April 2002 to March 2003.

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                   In addition to selling advertising space in its Web and E-mail inventory, the Company also employs a team that, using eUniverse’s unique approach to online marketing, conceives and develops Internet advertising campaigns on behalf of third-party clients. In this regard, the Company fills the creative function of a traditional advertising agency in addition to providing the media in which the ads are run. Clients for the Company’s advertising services have included various television, motion picture and consumer product companies such as CBS, Fox and USA Network in television, Disney, TriStar Pictures and Warner Brothers in film, and Chevrolet, Gatorade and Budweiser in consumer products.

Products and Services

                   During the past two fiscal years, the Company has been following a strategy to diversify its revenue streams and develop a deeper relationship with its user base, thereby increasing the lifetime value of the customers with whom it is in contact. The introduction of the Products and Services segment in fiscal year 2002 was a first step in this effort. The Company offers and sells a variety of products and services, the selection of which is a function of the Company’s core competencies, the consumer tastes and demands of the Company’s user demographic, and the mediums through which the Company reaches consumers. The Company’s e-commerce properties were visited by over 5 million unique visitors in March 2003, a number which would place eUniverse’s shopping traffic, on an aggregated basis, 10^th in Nielsen//Netratings “Multi-Category Commerce” ranking. As of the end of fiscal year 2003, the Company had processed credit card transactions for approximately 1.1 million unique credit card paying customers since the beginning of the Company’s build-out of its Products and Services business segment in early fiscal year 2002.

                   Electronic Commerce. The Company sells an eclectic collection of products and services through its various e-commerce websites. These products, services and websites include the following: online dating at CupidJunction.com; health, fitness and dieting resources; self-awareness resources for mind, body and spirit at Colorgenics.com; inkjet printer supplies and peripherals at premiumink.com and allyoucanink.com; collectibles such as commemorative coins, Olympic berets, and other memorabilia and impulse merchandise at PerfectCollectibles.com; herbal and all-natural ingestible and topical products at IncreaseYourHealth.com and FemaleAdvantage.com; downloadable animated desktop mates at CrazyMates.com; and electronic books, scooters, housewares and other niche products at CoolOnlineProducts.com. The Company continuously tests and sources new product and service offerings to determine their marketability on the Internet.

                   The diversity of products and services in which the Company traffics bears some similarity to what one might find on Home Shopping Network or QVC, but as applied to the Internet. As with television direct to consumer sales, the Company’s selection and marketing of products and services on the Internet is largely a function of competition for advertising media. Only certain products and services yield a rate of return that enables payment of competitive rates for advertising, hence the eclectic nature of the Company’s product and service portfolio. eUniverse believes it has competitive advantages in this space from (i) the ability of the Company to test and sell product and service offerings on its own Network at comparatively low cost, (ii) the Company’s expertise in developing marketing campaigns and creating incremental revenue opportunities from initial transactions and customer contact, and (iii) the Company’s ability and expertise, through its PMG group, in purchasing Internet advertising media outside of its own Network, including in large quantities at discounted rates. These factors result in a higher likelihood that the Company will be able to source and create new product and service offerings that are viable on the Internet as compared to smaller or more focused online retailers and providers.

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                   Online Gaming. The Company’s Products and Services segment includes its growing presence in the online gaming market. The Company owns and operates two of the premier properties in their respective online gaming categories, Cases Ladder and SkillJam. These properties, combined with the Company’s other gaming related properties, have over 7 million registered users. The online gaming market has become one of the hottest and fastest growing areas of Internet commerce. Online gaming revenue is projected to increase at a rate of 138% between 2000 and 2005, and online gaming revenue is projected to exceed $5.5 billion by 2005.⁽¹⁾ Researchers predict that there will be 114 million online gamers by 2006, and the total number of online games played will reflect a six-fold increase over current activity levels.⁽²⁾

                   Cases Ladder is the leader in Internet gaming ladders, leagues and tournaments for online multiplayer games. At the heart of the online gaming movement is the core desire to play against other people and, for many, to compete more broadly and see how they rank against the best players in the world. Cases Ladder provides that opportunity with the most advanced leagues available for online gamers. Cases Ladder leagues are set up for hundreds of Internet playable games, and can be created and co-branded specifically for online gaming services and game developers. Cases Ladder offers both free and premium membership programs to mass-market game players and operates the largest collection of online ladders, leagues and tournaments for its extremely loyal and active gaming community.

                   SkillJam is the premier destination for cash prize skill game play. SkillJam offers nearly 100 fun games including favorites like Trivia Challenge, Diamond Mine, Pool, MahJong Solitaire, and more. Users select the games they would like to play and compete for fun, prizes, and cash. SkillJam offers two types of tournaments:

•  Limited Tournaments - These tournaments end when the entrant limit is reached. For example, a 3-person tournament ends after the third player has joined; and

•  Progressive Tournaments - These tournaments have an unlimited number of participants and end at a pre-set time. The more participants, the bigger the prize.

                   Tournament winners receive a congratulatory winner notification E-mail with cash prizes automatically deposited into their SkillJam account. These funds can be used as entry fees for other tournaments, saved in a user account, or cashed out. SkillJam also offers an array of community-building features such as Special Tournaments, Challenge Matches, Message Boards, and more. SkillJam’s operating process and proprietary software ensure that the players’ competitive gaming environment remains fair. In addition to its skill specific rating system, SkillJam employs a sophisticated fraudulent game activity detection system.

                   Both Cases Ladder and Skilljam operate on proprietary technology platforms that are customizable turnkey solutions for third-parties (such as gaming websites, Web portals and game publishers) wishing to offer leagues, ladders and tournaments or cash prize skill-game contests to their users. Skilljam, for instance, has an agreement to provide the platform and power the play-for-cash skill-games available on Zone.com, MSN’s exclusive games channel. Cases Ladder and SkillJam are, in this regard, destinations as well as salable applications and thus have multi-faceted revenue generating capacity.

Offline and Multimedia Initiatives

                   In addition to expanding the outlets for the Company’s products and services beyond the eUniverse Network through the online media buying activities of PMG, the Company began in fiscal year 2003 to use various offline media, such as radio, television and print, to market its products and services. Also, in August 2002, the Company purchased a telemarketing center in Montclair, California, from which it principally markets its own products and services and, to a more limited extent, those of third parties as well. In September, 2002, the Company entered into two joint ventures with Michael Casey Enterprises to produce television infomercials for two home fitness products.⁽³⁾ The Company continues to examine and evaluate ways in which to expand the Company’s product and service offerings and the marketing and distribution channels through which they flow.

⁽¹⁾ research firm Datamonitor.
⁽²⁾ research group DFC Intelligence.
⁽³⁾ In February 2003, the Company sold its interest in one of the joint ventures for $358,000.

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Revenue Generation

                   By the close of its fiscal year 2002, the Company had increased its revenue by approximately 117% from the prior fiscal year. Approximately 34% of overall revenue was generated from the Products and Services segment. During fiscal year 2003, the Company’s revenue increased by approximately 100% for the second consecutive year with approximately 70% of overall revenue from non-advertising sources. The Company believes that this trend in the source of the revenue should continue into the future with a majority of future growth coming from non-advertising related sources. The Company does not have any customers that represent more than 10% of its overall revenue.

         Media and Advertising Revenue. The Company generates advertising revenue through the sale of its inventory of ad space on the eUniverse Network websites and in E-mail newsletters. The Company’s inventory of ad space allows for various forms of Web-based advertisements including the following:

•  banners and buttons, which are ads that appear across the top, bottom or elsewhere on a Web page and which part of the page, but are enclosed within an identifiable boundary to separate them from the principal Web page content;

•  pop-up and pop-under advertisements, which are ads that open as a separate window on top of or beneath the Web page being viewed and which can be closed without closing the principal content page;

•  interstitial advertisements, which are ads that appear on a screen or in a media player while the principal content being viewed is loading;

•  superstitial advertisements, which are ads that seamlessly appear and disappear while a visitor is viewing a Web page and which are typically animated and geometrically variable; and

•  E-mail advertisements, which can be text ads with hyperlinks to a website or, if in html format, can include most of the above types of ads.

         Many of the above types of Web-based ads are served in rich media format, meaning they are animated and often accompanied by sound.

         The Company’s advertising deals with third parties are generally structured as sponsorship, impression-based or performance-based arrangements. Sponsorship ad deals are flat fee arrangements for placement of an advertiser’s name, logos or other branding as the sponsor of a website (or section of a website), newsletter, particular piece of content, or particular promotion. Sponsorship arrangements differ from impression or performance based arrangements in that appearance of the advertisements in the placement location is constant for an agreed upon period of time. Impression-based arrangements, on the other hand, are negotiated as a rate per the number of times an advertisement is shown, usually measured as cost per thousand impressions (“CPM”). In a CPM scenario, an advertiser purchases a certain number of advertising impressions, which the Company delivers on agreed upon schedules, formats and locations.

         The vast majority of the Company’s advertising revenue is generated from performance-based arrangements, measured in terms of cost per click (“CPC”) or cost per acquisition (“CPA”). Performance-based ad deals are result oriented, meaning that the advertiser pays the Web publisher only if the Internet user performs an agreed upon activity. The required activity can be as simple as clicking on the ad (i.e., a CPC arrangement) or could require that the user link to the advertisers’ website and provide information, sign up or make a purchase. Over the past couple years, the Company has become an expert in working with its advertisers to deliver online campaigns that lead to the conversion of viewers into customers. In an online advertising market that has increasingly placed a premium on results-oriented advertising, this has been an essential ingredient of the Company’s strategy and success.

         Products and Services Revenue. The Company continues to manage a shift in its revenue base from third-party paid advertising to its portfolio products, services and on-line gaming offerings. During fiscal year 2003, over two-thirds of the Company’s revenues were sales related to products, services and gaming, as compared to a one-third contribution in fiscal year 2002. The Company believes the strategy to grow its portfolio products, services and gaming properties will provide it with enhanced growth potential through higher and longer-term revenue yields. Additionally, revenue streams of this nature are expected to provide the company with greater visibility of future sales.

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         The Company’s revenue from its products and services segment is generated from sales of merchandise, subscriptions and activity-based fees. Sales of merchandise make up the vast majority of the Company’s products and services revenue, with revenue generated from the sale of a diverse assortment of products (including inkjet printer supplies and peripherals, consumer electronics, collectibles and other impulse merchandise, and herbal and all-natural ingestible and topical products), and consummated through continuity type consumer relationships. An example of the Company’s continuity type merchandise sales is found at the Company’s IncreaseYourHealth website, where users are offered a free, no risk trial of apple cider vinegar pills, a popular all-natural weight loss supplement, which converts into a monthly shipment of the product. Similarly, the Company’s subscription-type offerings, such as to its fitness and health and dating websites, represent the sort of steady and predictable streams of revenue toward which the Company continues to migrate. The Company also expects that websites charging activity-based fees, such as the Company’s pay-to-play skill gaming website SkillJam.com, will play an increasingly larger role in the Company’s revenue mix.

         Traditionally, spending in the advertising sector and general retail sector increases during the latter part of each calendar year, in line with the holiday shopping season. Accordingly, the Company’s revenue from advertising and products and services may be significantly higher during its third fiscal quarter than in other quarters throughout the year.

Corporate Organization

                   The Company has moved toward, and is in the process of refining, a corporate structure with eUniverse, Inc. as the parent holding company of, and service provider to, its various operating subsidiaries and joint ventures. Currently, the Company has 11 operating subsidiary entities and two joint ventures with certain services and functions performed at the parent level including accounting and finance, human resources, legal and technology. Recently, and in connection with its recent operational reorganization (see Recent Events above), the Company has begun a corporate restructuring to simplify and consolidate its corporate structure.

Expansion

                   eUniverse currently offers products and services across several categories including health and wellness, lifestyle and impulse merchandising. The Company intends to continue to expand its products and services portfolio by adding additional complementary products and services to its existing offerings. This expansion will be driven from organic development within the Company, acquisitions of other companies and businesses and through the development of strategic relationships. The Company will also continue to explore marketing channels beyond the Internet including television, radio and print. The Company intends to invest in the infrastructure and resources necessary to accommodate the scaling requirements of these expansion plans.

                   The Company is actively augmenting and improving the content and functionality of its current websites and related offerings. The core content and newsletter offerings are considered key components of the revenue generating capabilities of the Company and are continuously refreshed in an effort to retain users and enhance yield. New content offerings are expected to come from internal development as well as third-party licensing arrangements. The Company may also expand its content through selective acquisitions that attract desired demographics, and that cater to the specific communities of interest on the eUniverse Network.

Domain Names, Patents and Trademarks

                   The Company’s domain name portfolio constitutes important intellectual property of the Company that is essential to its business. There are currently 622 domain names registered to the Company. Also important to eUniverse’s business are its trademarks and service marks. eUniverse currently has 27 registered trademarks and service marks and 14 applications for trademarks and service marks filed with the US Patent and Trademark Office (“USPTO”). The Company currently has one patent application filed with the USPTO. eUniverse believes that it presently has, or is capable of acquiring, ownership and control of the intellectual property rights, which are necessary to conduct its operations, and to carry out its strategic plans.

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Operations and Technology

                   The Company’s primary operating facilities are located in Los Angeles, California. The Company’s senior management team and several core operations, marketing, product development and administrative support are combined in the same facility. Certain of the company’s customer care and content development operations are undertaken at various locations throughout the United States and in India.

                   eUniverse maintains a technology center at the Company’s primary facility, supported by in-house technical staff. This staff monitors the Company’s network of websites 24 hours a day, 7 days a week. The Company’s computer hardware to support its network and other Internet activities is housed at the co-location facility of a Tier 1 service provider. Additionally, the Company maintains a software development center, with in-house software engineers.

                   eUniverse has developed certain proprietary technologies and systems that provide for reliable online entertainment and commerce in a secure and easy-to-use format. Using a combination of proprietary solutions and licensed technologies, the Company has deployed systems for online content dissemination, online transaction processing, customer service, market analysis and electronic data interchange. Chief among the company’s proprietary systems is the E-mail transmission and reporting technology. All of the Company’s E-mail is transmitted and tracked via this proprietary system. The Company’s E-mail system can send the appropriate type of E-mail to specific domains based on information generated from previous E-mail campaigns. Additionally, eUniverse has built a content delivery system that enables its users to freely transmit greeting cards and other content to their friends and family. The content delivery system has a full-featured ad tracking subsystem that allows eUniverse to monitor usage of the system. Finally, the Company has built a full-featured ad distribution system capable of meeting the dynamic ad creative, ad reporting and ad tracking needs of the business. This system allows the company to use many different types of ad creative from pop-ups to dynamic flash creative.

                   eUniverse’s websites are based on a Microsoft platform. The Company’s on-site network operations center is connected via a secure digital transmission link to its primary Internet service provider, AT&T Corporation. This service is provided under a three-year contract expiring in January 2005.

Marketing and Sales

                   The Company markets its own products and services, and those of third-party advertisers, using various direct marketing tools and techniques available across its advertising inventory. The company maintains an internal sales force to obtain and maintain third-party advertising relationships as well as market and sell its own proprietary products and services. This team, internally referred to as the CPA Team, continuously sources, tests and monitors advertising campaigns using the Company’s online advertising inventory. The CPA Team acts as a gatekeeper of sorts to the Company’s valuable advertising inventory by ensuring that only the highest yielding campaigns available at any particular time occupy inventory.

                   In addition to the CPA Team, in August of 2002, the Company announced the launch of PMG, an online marketing entity whose mission is primarily to broaden the reach for the Company’s products and services by placing them in online advertising media outside the eUniverse Network of websites and publications, and secondarily to offer the methods, tools and unique marketing services of the Company to third-parties seeking to promote their products and services online. PMG carries out its primary mission in two ways. First, PMG employs a team of media buyers that purchase large quantities of online advertising inventory from third parties in which to market the Company’s products and services. Second, PMG has created and operates an automated system called Partner2Profit (“P2P”) that provides Web publishers the ability to promote eUniverse’s best of breed products and services to their own audience. P2P is a turnkey solution with an automated, online sign-up process that affords Web publishers access to the same highly effective campaigns that eUniverse has used to successfully monetize its own audience. Users of the P2P service can retrieve ad creatives available on the P2P website to deliver to their audiences, for which they receive a commission for any sales resulting from the ads shown. The P2P system has proved an effective revenue generating service for hundreds of smaller Web publishers as well as an effective tool for marketing the Company’s products and services beyond its own network.

                   The company intends to continue investing in the marketing and sales teams of its various products and services offerings, including expansion beyond the online market. Additionally, the Company considers customer care to be a vital component of customer acquisition and retention. Accordingly, eUniverse intends to invest in the enhancement of its customer care function.

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Competition

                   The market for online multi-channel offerings, which includes information, entertainment, community, commerce and activity based experiences is rapidly evolving and intensely competitive. The past three years has seen an extremely soft advertising market, with ad budgets still down from those that existed in the late 1990’s and 2000. Accordingly, a few of the leading Internet websites have started to develop business models with a broader base of revenue streams, similar to eUniverse. The most notable of these competitive companies are AOL Time Warner and Yahoo. The Company believes it differentiates itself from these competitors through its origins as a multi-channel entertainment and destination network, as opposed to being more of a pass-through portal. Accordingly, eUniverse users are more accustomed to interacting with the content and offerings on the network of websites. Additionally, the company believes its various offerings are superior to, or at least competitive with, other similar competitive products and services.

                   Other direct competition is from advertising networks such as ValueClick, Advertising.com, Sportsline.com, and Traffix, as well as more focused information providers such as Overture and Google. In addition, the Company also faces competition from traditional offline media such as print, radio and television for a share of advertisers’ budgets. We expect the advertising market to remain intensely competitive for the foreseeable future, and barriers to entry are not prohibitive, thus new and existing competitors may expand their offerings at a relatively low cost.

                   Some of our current competitors have larger user bases, longer operating histories, higher brand recognition, and greater financial resources than eUniverse. As we expand the scope of our offerings, we may have to compete with a larger number of Internet websites as well as media companies. In addition, as the Internet becomes increasingly ubiquitous, larger, more well-financed or well-established entities may expand into, acquire, invest or continue to consolidate, thus increasing the competitive pressures that eUniverse faces.

Employees

                   As of March 31, 2003, there were 302 full-time employees, including 160 in marketing and sales, 40 in product development, 59 in technology and 43 in finance, human resources, legal and administration.

Website Access to SEC Reports

                   The Company’s Internet website can be found at http://www.eUniverse.com. Information contained on the Company’s Internet website is not part of this report. The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the Section 16 filings of its officers, directors, and shareholders beneficially owning 10% or more of the Company’s common stock are available on the Company’s website, free of charge, as soon as reasonably practicable after such reports are filed with or furnished to the SEC. Alternatively, you may access these reports at the SEC’s Internet website: http://www.sec.gov.

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Risk Factors

Trading in our common stock has been halted and may not be resumed. NASDAQ may delist our securities.

                   On May 6, 2003, in response to the announcement of our intent to restate our quarterly financial statements for fiscal year 2003, NASDAQ halted trading in our common stock due to our inability to provide the market place with sufficient current financial information. On June 13, 2003, we received a NASDAQ Staff Determination stating that our common stock was subject to delisting from The NASDAQ SmallCap Market (the “SmallCap Market”) due to the NASDAQ Staff’s inability to assess the Company’s current financial position and its ability to sustain compliance with NASDAQ’s continued listing requirements. On July 2, 2003, we received notice of an additional listing deficiency from NASDAQ indicating that the Company was not in compliance with the filing requirement for continued listing due to our failure to timely file our Annual Report on Form 10-K. Subsequently, on August 15, 2003, the Company filed a Report on Form 12b-25 with the Securities and Exchange Commission as a result of its failure to timely file its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003. The Company currently anticipates it will file this Form 10-Q in September 2003. We have appealed the NASDAQ Staff’s determination to delist the Company’s securities to the Listing Qualifications Hearings Panel (the “Panel”). On July 31, 2003, in an oral hearing before the Panel, we presented our plan for providing current financial information about the Company to the market place and complying with the NASDAQ filing requirements. The Panel has not yet made determination on our appeal and there has been no indication from the NASDAQ Staff as to whether the halt in trading of our stock will be lifted. The Company can provide no assurance that the Panel will grant our request for continued listing or that the trading in our stock on the SmallCap Market will resume.

                   NASDAQ also has various quantitative listing requirements for a company to remain listed on the NASDAQ SmallCap Market. These criteria, which undergo periodic NASDAQ review, include, among other things, (i) at least $35 million in market capitalization, $2.5 million in stockholders’ equity, or $500 thousand in net income in an issuer’s last fiscal year or two of its last three fiscal years; (ii) a $1.00 minimum bid price; (iii) two market makers; (iv) 300 round lot shareholders; and (v) 500 thousand publicly held shares with a market value of $1 million (excluding shares held by officers, directors and persons owning 10% or more of the company’s issued and outstanding shares). Although we were in compliance with these quantitative listing requirements as of March 31, 2003, there can be no assurance that we will remain in compliance with these requirements in the future.                   

                    If we do not resume trading on the SmallCap Market, or if our common stock is delisted, trading in our common stock, if any, would be conducted in the over-the-counter market on the OTC Bulletin Board established for companies that do not meet the listing requirements of the SmallCap Market or in what is commonly referred to as the “pink sheets.” Transitioning to the over-the-counter market or the “pink sheets” could damage our general business reputation and would impair our ability to raise additional funds. This would further adversely affect our stock price. Furthermore, if our shares are delisted and are traded on the over-the-counter bulletin board or the “pink sheets,” their value would be negatively affected because stocks which trade on the over-the-counter bulletin board or the “pink sheets” tend to be less liquid and trade with larger variations between the bid and ask price than stocks on the SmallCap Market. Accordingly, either of the foregoing events could have a material adverse effect on our business, financial condition and operating results.

Litigation and regulatory proceedings regarding the restatement of our consolidated financial statements could seriously harm our business.

                   As previously disclosed by the Company in its current report on Form 8-K filed June 20, 2003, since May 9, 2003, eight purported shareholder class action lawsuits, which are substantially similar, have been filed against the Company and several current and former officers and/or employees of the Company in the United States District Court for the Central District of California. In addition, three purported shareholder derivative actions, which are similar, have been filed against various current and former directors, officers, and/or employees of the Company, one of which was recently filed in the United States District Court for the Central District of California, and two of which were filed in the Superior Court of California for the County of Los Angeles. The Company expects that the purported shareholder class action lawsuits filed in the United States District Court for the Central District of California (collectively, the “Federal Court Cases)”, and any additional similar actions, will be consolidated into one action, and that the purported shareholder derivative actions filed in the Superior Court of California for the County of Los Angeles (collectively, the “State Court Actions”), and any additional similar actions filed in that Court, will similarly be coordinated before one judge. All of the lawsuits, which arise out of the Company’s previously disclosed Restatement, include varying allegations of, among other things, false and misleading statements regarding the Company’s business prospects and financial condition and performance, sales of Company stock by one officer and one former employee of the Company, and breach of fiduciary duty. The Company intends to vigorously defend itself in the Federal Court Cases and to address the State Court Actions as appropriate. Defending against existing and potential securities and class action litigation relating to the Restatement will likely require significant attention and resources of management and, regardless of the outcome, result in significant legal expenses. If our defenses were ultimately unsuccessful, or if we were unable to achieve a favorable settlement, we could be liable for large damage awards that could seriously harm our business and results of operations.

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                   In addition, the SEC has commenced an informal inquiry regarding the circumstances leading up to the Restatement. Responding to any such review could require significant diversion of management’s attention and resources in the future. For example, if the SEC elects to pursue an enforcement action, the defense against this type of action could be costly and require additional management resources. If we are unsuccessful in defending against this or other investigations or proceedings, we may face civil or criminal penalties or fines that would seriously harm our business and results of operations.

Failure or circumvention of our controls or procedures could seriously harm our business.

                   In response to the Company’s announcement that it intended to restate its quarterly financial statements for the fiscal year ended March 31, 2003, both management and the Audit Committee of the Board of Directors undertook a review of the Company’s accounting records, policies, practices and procedures. During the course of this review, and during the course of the audit of the Company’s financial statements for the year ended March 31, 2003, various deficiencies in the Company’s internal control were identified. As described above, we have taken a number of steps to improve our internal controls and procedures. Additionally, management is undertaking a number of initiatives to further enhance our internal controls and procedures. However, we can provide no assurance that these actions or any other actions we may take will be successful. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. A failure of our controls and procedures to detect error or fraud could seriously harm our business and results of operations.

We are controlled by our management, preferred stockholders, and members of our Board of Directors whose interest may differ from those of our other stockholders.

                   As of March 31, 2003, our executive officers, preferred stockholders holding a 5% or greater beneficial ownership in our securities, and members of our Board of Directors will beneficially own approximately 56% of our common stock on an as-converted basis. As a result, our executive officers, preferred stockholders, and directors will be able to influence the outcome of matters requiring a stockholder vote, including the election of directors, the issuance of new securities and the approval of significant transactions, thereby controlling our affairs and our management. The interests of our executive officers, preferred stockholders, and directors may conflict with or not be the same as the interests of our other stockholders and, through control of the Board of Directors, the executive officers, preferred stockholders and directors may delay, defer or prevent a change in control of our company, or make some transactions more difficult or impossible. Examples of potentially conflicting transactions, include the issuance of additional preferred securities, proxy contests, tender offers, mergers or other purchases of common stock that could give you the opportunity to realize a premium over the then-prevailing market price of our common stock.

We may issue securities with rights superior to those of the common stock, which could materially limit the ownership rights of existing stockholders.

                   We may issue additional preferred stock at such time or times and for such consideration as the Board of Directors may determine. Each series is required to be so designated as to distinguish the shares thereof from the shares of all other series. The Board of Directors is expressly authorized, subject to the limitations prescribed by law and the provisions of our Certificate of Incorporation, to provide for the issuance of all or any shares of preferred stock, in one or more series, each with such designations, preferences, voting powers (or no voting powers), relative, participating, optional or other special rights and privileges and such qualifications, limitations or restrictions thereof as are determined by the Board of Directors.

                   In July 2003, the Company entered into certain agreements, and executed a non-binding term sheet with respect to certain contemplated agreements, with VP Alpha Holding IV, L.L.C. ("VPVP"), an affiliate of VantagePoint Venture Partnership, that may result in the issuance of a new series of preferred stock with certain rights, preferences and privileges that would be senior to the rights, preferences and privileges of the Company's common stock. Further information with respect to the agreements and contemplated agreements with VPVP is set forth above in "Business - Recent Events - Additional Financing."

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                   In addition, our Certificate of Incorporation authorizes blank check preferred stock. Our Board of Directors can set the voting, redemption, conversion and other rights relating to the preferred stock and can issue the stock in either a private or public transaction. The issuance of any preferred stock may have the effect of delaying or preventing a change in control of eUniverse without further stockholder action and may adversely affect the rights and powers, including voting rights of the holders of our common stock, rights to receive dividends and rights to payments upon liquidation. In certain circumstances, the issuance of preferred stock could depress the market price of our common stock, and could encourage persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our Board of Directors rather than pursue non-negotiated takeover attempts.

We have many potentially dilutive securities outstanding.

                   As of March 31, 2003, we had 7,601,810 options and 127,244 warrants to purchase our common stock outstanding.

                   As of March 31, 2003, we had 356,500 shares of our Series A 6% Convertible Preferred stock outstanding (the “Series A”). The Series A shares may be converted, at any time, into the Company’s common stock at the then-applicable conversion rate. The shares of Series A have a liquidation preference of $3.60 per share, which increases at a rate of 6% per annum. Each share of Series A may be converted to common stock at a rate of one share of common stock for each $3.60 of liquidation preference. The liquidation preference was $4.58 as of April 14, 2003. Because of the 6% accretion factor, each share of Series A may be converted into greater than one share of common stock. Prior to any conversion, the conversion price is adjusted to account for any increase or decrease in the number of outstanding shares of common stock by stock split, stock dividend, or other similar event. The conversion price is also subject to a weighted average adjustment to reduce dilution in the event that we issue additional equity securities (other than those reserved as employee shares pursuant to any employee stock option plan) at a purchase price less than the applicable conversion price described above.

                   As of March 31, 2003, we had 1,923,077 shares of our Series B Convertible Preferred Stock outstanding (the “Series B”). The Series B may be converted, at any time, into our common stock at the then applicable conversion rate at the election of the holders of at least a majority of the outstanding Series B. The Series B has a liquidation preference of $2.60 per share. Each share of Series B may be converted to common stock at an initial rate of one share of common stock for each $2.60 of liquidation preference. Prior to any conversion, the conversion price is adjusted to account for any increase or decrease in the number of outstanding shares of common stock by stock split, stock dividend, or other similar event. The conversion price per share of Series B may be adjusted downward if we issue additional equity securities (other than certain excluded stock), without consideration or for consideration per share less than the then-current conversion price (initially $2.60 per share).

                   In July 2003, the Company entered into certain agreements, and executed a non-binding term sheet with respect to certain contemplated agreements, with VP Alpha Holdings IV, L.L.C. (“VPVP”), an affiliate of VantagePoint Venture Partners, that may result in the issuance of a new series of preferred stock with certain rights, preferences and privileges that would be senior to the rights, preferances and privileges of the Company’s common stock. Further information with respect to the agreements and contemplated agreements with VPVP is set forth above in “Business - Recent Events - Additional Financing.”

                   The issuance of common stock upon the exercise of our outstanding options and warrants, or the conversion of the Series A, Series B, or any newly issued Series of preferred stock, will cause dilution to existing shareholders and could adversely affect the market price of our common stock.

If we are unable to use new technologies effectively or adapt our websites, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards, customers may not visit our network of websites, which could result in a decrease in our revenues.

                   To remain competitive, we must continue to enhance and improve the responsiveness, functionality, features of our websites, and develop new features to meet customer needs. The Internet is characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions, and the emergence of new industry standards and practices that could render our existing network and websites, technology and systems obsolete. Our success will depend, in part, on our ability to license leading technologies useful in our business, enhance our existing services, develop new services and technology that address the needs of our customers, and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

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If we are unable to continue to develop compelling entertainment and other content for our network of websites and electronic newsletters, the Company’s traffic, subscriber and user base may be reduced and our revenues could decrease.

         The online business market is new, rapidly evolving and intensely competitive, and eUniverse expects that competition will further intensify in the future. Similarly, the competition for website traffic and subscribers, as well as advertising revenues, both on Internet websites and in more traditional media, is intense. Barriers to entry are currently minimal, and current and new competitors can launch new websites and electronic newsletters at a relatively low cost. The primary competitive factors in providing entertainment and multi-channel products and services via the Internet are name recognition, variety of value-added offerings, ease of use, price, quality of service, availability of customer support and technical expertise. Our prospects for achieving our business objectives will depend heavily upon our ability to continuously provide high quality, entertaining content, along with user-friendly website features, and value-added Internet products and services. If we fail to continue to attract a high volume of traffic for our websites or a broad subscriber base, revenues could decrease and our business, results of operations and financial condition may be materially adversely affected.

We depend on strategic relationships with our partners.

         We expect to generate significant commerce and advertising revenues from strategic relationships with certain outside companies. However, there can be no assurance that our existing relationships will be maintained through their initial terms or that additional third-party alliances will be available to the Company on acceptable commercial terms, or at all. The inability to enter into new or to maintain any one or more of our existing, strategic alliances could result in decreased third-party paid advertising and product and service sales revenue. Even if we are able to maintain our strategic alliances, there can be no assurance that these alliances will be successful or that our infrastructure of hardware and software will be sufficient to handle any potential increased traffic or sales volume resulting from these alliances.

Some of our sponsorship arrangements may not generate anticipated revenues.

         Advertising revenues are partly generated by sponsored services and placements by third parties in our online media properties. We receive sponsorship fees or a portion of transaction revenues in return for user impressions to be provided by us. Consequently, we are exposed to potential financial risks if: sponsors do not renew the arrangement or do so at a lower rate; the shared revenue is lower than expected; fees are adjusted to reflect performance; or we are obligated to provide additional services to supplement lower than anticipated performance. Additionally, any material reduction of our user base may directly reflect upon these sponsorship arrangements and adversely effect revenues.

Our success depends on retaining our current key personnel and attracting additional key personnel.

         The company is dependent on the services of key personnel, including our senior management, vice presidents, and business unit managers. Due to the specialized knowledge of these individuals, as it relates to eUniverse and our operations, if they were to leave the employ of the Company, we could have difficulty hiring qualified individuals to replace the personnel in a timely manner. Consequently, operations and productivity surrounding the vacated position may be impaired and cause an adverse effect on operating results. In addition, our success depends on our continuing ability to attract, hire, train and retain a selected number of highly skilled managerial, technical, sales, marketing and customer support personnel, particularly in the areas of content development, product development, website design, and sales and marketing. Competition for qualified personnel is intense, and our ability to retain key employees, or to attract or retain other highly qualified personnel, may be harder given recent adverse changes in our business.

We may not be able to continue to grow through acquisitions of other companies and we may not manage the integration of acquired companies successfully.

         A significant portion of our future growth and profitability may depend in part upon our ability to identify companies that are suitable acquisition candidates, to acquire those companies upon appropriate terms, and to

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effectively integrate and expand their operations within our infrastructure. We may not be able to identify additional candidates that are suitable for acquisition or to consummate desired acquisitions on favorable terms. Acquisitions involve a number of special risks: the diversion of management’s attention to the assimilation of the operations and personnel of the acquired companies, adverse short-term effects on our operating results, and the potential inability to integrate financial and management reporting systems. A significant portion of eUniverse’s capital resources could be used for these acquisitions. Accordingly, we may require additional debt or equity financing for future acquisitions, which may not be available on terms favorable to us, if at all. Moreover, we may not be able to successfully integrate an acquired business into its business or to operate an acquired business profitably. It could have a material adverse effect on our business if we are not able to identify appropriate acquisition candidates or integrate and expand the operations of acquired companies without excessive costs, delays or other adverse developments.

If we do not effectively manage our growth, our business will be harmed.

         Even after giving effect to our recent reduction in headcount, the scope of our operations and our workforce has expanded significantly over a relatively short period of time. This growth requires significant time and resources of senior management, and may distract from other business initiatives. If we are unable to effectively manage this growth, then our earnings could be adversely affected. In addition, we rely on the effectiveness of our financial reporting and data systems, which have become increasingly complex due to rapid expansion and diversification. Management of our business is dependent on the information from these systems, and if we do not adapt to the rapid changes in the business, then our business could be adversely effected.

Our previous acquisitions and any future acquisitions may require us to incur significant charges for goodwill and intangible assets.

         We have adopted the Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” In light of the SFAS 142 adoption, we are required to review our amortizable intangible assets for impairment when events or changes in conditions may prevent the Company from recovering the carrying value. Furthermore, goodwill is required to be tested for impairment at least once per fiscal year. If our stock price and market capitalization decline, we may be required to record a material charge to earnings in our financial statements during the period in which we analyze our intangible assets and goodwill for impairment. Furthermore, the future cash flows associated with our various properties may decline due to changes in market conditions or technology, thereby requiring an impairment assessment of any intangible assets and goodwill associated with the property.

         In fiscal year 2003, we analyzed goodwill for impairment at the Company level. As a result of the ongoing reorganization of our reporting structure, we anticipate that, in the future, we will have sufficiently discrete financial information to conduct a goodwill impairment analysis at the reporting unit level. This change may affect the amounts recorded for goodwill impairment in future periods.

If we are unable to protect our trademarks and other proprietary rights, our reputation and brand could be impaired, and we could lose customers.

         We regard our trademarks, trade secrets and similar intellectual property as valuable to our business, and rely on trademark and copyright law, trade secret protection and confidentiality or license agreements with our employees, partners and others to protect our proprietary rights. There can be no assurance that the steps taken by us will be adequate to prevent misappropriation or infringement of our proprietary property. We have some of our trademarks or service marks registered with the United States Patent and Trademark Office, and we are currently applying for registration of a number of its trademarks and service marks. Completion of our applications for these trademarks may not be successful. See “Business - Domain Names, Patents, and Trademarks”, above.

If we are unable to protect our domain names, our reputation and brand could be impaired, and we could lose customers.

         We own numerous Internet domain names. See “Business - Domain Names, Patents and Trademarks”, above. National and international Internet regulatory bodies generally regulate the registration of domain names. The regulation of domain names in the United States and in other countries is subject to change. 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 or maintain the domain names referenced in the Domain Names section or comparable domain names in all the countries in which we conduct business, which could harm our business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear and still evolving. Therefore, 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.

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As we provide more audio and video content, particularly music, we may be required to spend significant amounts of money on content acquisition and content broadcasts.

         The majority of our content is derived internally or licensed to us by third parties. However, we have been providing increasing amounts of audio and video content to our uses, particularly the broadcast of music. In order to broadcast music through our online properties, we are required to pay a royalty on the music we broadcast. The revenue we receive due to the broadcast of the audio and video content may not justify the costs of providing such services to our customers.

We have a limited operating history and compete in new and rapidly evolving markets. These facts make it difficult to evaluate our future prospects based on historical operating results.

         eUniverse commenced in April 1999, and we have a limited operating history upon which an evaluation of eUniverse and our prospects can be based. In addition, we have repositioned our service and product offerings to adjust to evolving customer requirements and competitive pressures. Our prospects for financial success must be considered in light of the risks, expenses and difficulties frequently encountered by companies in new, unproven and rapidly evolving markets, such as the Internet market. To address these risks, we must, among other things, expand our customer base, respond effectively to competitive developments, continue to attract, retain and motivate qualified employees, and continue to upgrade our technologies. If we are not successful in further developing and expanding our entertainment content, product and services businesses, and other related business opportunities, our ability to maintain and increase profitability may not be achieved and our market price may decline.

We may need to raise additional capital. This capital may not be available on acceptable terms, if at all.

         Given the recent significant changes in our business and results of operations, the fluctuation in cash and cash equivalents balances and anticipated cash flow may be greater than presently anticipated. In addition, we expect to incur significant non-recurring expenses associated with the Restatement and the implementation of internal controls and other corporate goverance initiatives required by the Sarbanes-Oxley Act of 2002, as well as significant expenses in connection with the Restatement-related litigation. In the event we are unable to reach an agreement with VPVP for additional financing (see “Business—Recent Events—Additional Financing,” above), we may need to raise additional funds, and we cannot be certain that we will be able to obtain additional debt or equity financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, grow our business, or meet unanticipated cash requirements, which could seriously harm our business.

Our quarterly and long-term operating results are volatile and difficult to predict.

         Due to the nature of our business, our future operating results may fluctuate. If we are unable to meet the expectations of investors and public market analysts, the market price of our common stock may decrease. We expect to experience fluctuations in future quarterly and long-term operating results that may be caused by a variety of factors, many of which are outside our control. Factors that may affect our operating results include, without limitation:

• our ability to maintain or increase our current level of e-commerce merchandise sales:

• our ability to retain existing users, attract new users at a steady rate and maintain user satisfaction:

• the announcement or introduction of new or enhanced content, websites, products and services, and strategic partnerships by us and our competitors;

• seasonality of advertising sales as this revenue component is still material to our overall revenue mix;

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• the level of use of the Internet and increasing consumer acceptance of the Internet for entertainment and the purchase of consumer products, services and activity based offerings;

• our ability to upgrade and develop our systems and infrastructure in a timely and effective manner;

• the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure and the implementation of marketing programs, key agreements and strategic partnerships, and general economic conditions and economic conditions specific to the Internet.

More individuals are utilizing non-PC devices to access the Internet and we may not be successful in adapting our services to these new devices.

         Devices other than personal computers, such as personal digital assistants, cellular telephones, and television set-top devices, are expected to increase dramatically in the coming years. Our services are designed for presentation on graphic rich devices such as the personal computer. The decreased functionality and lower resolution of the new technologies available to consumers may make it difficult for us to adapt our services in a compelling manner. Consequently, we may face adverse financial effects and operational changes that effect earnings, in order to adapt our services to these new devices. It is difficult to predict with certainty what effect these devices will have on our earnings potential, and significant resources may be required in the future to leverage our online presence in this new format.

We depend on the acceptance and growth of the Internet and the Internet Infrastructure.

         Our market, users of the global computer network known as the Internet, is new and rapidly evolving. Our future results and growth may not be realized and our business could suffer if the use of the Internet does not continue to increase. Internet usage 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 service;

• changes in government regulation of the Internet; and,

• changes in communications technology

         If Internet usage grows, the Internet infrastructure might not be able to support the demands placed on it by this growth or its performance and reliability may decline. In addition, future outages and other interruptions occurring throughout the Internet could lead to decreased use of our network of websites and harm our business.

We may face litigation for information retrieved from the Internet.

         We could be sued for information retrieved from the Internet. Due to the fact that material may be downloaded from websites and may be subsequently distributed to others, there is a potential that claims will be made against eUniverse under legal theories, such as defamation, negligence, copyright or trademark infringement or other theories based on the nature and content of the material. These claims have been brought, and sometimes successfully pressed, against online services in the past. In addition, we could be exposed to liability with respect to the material that may be accessible through its products, services, and websites, including claims asserting that, by providing hypertext links to websites operated by third parties, we are liable for wrongful actions by those third parties through the websites. Although we carry general liability insurance, our insurance may not cover potential claims of this type, or the level of coverage may not be adequate to fully protect eUniverse against all liability that may be imposed. Any costs or imposition of liability or legal defense expenses that are not covered by insurance or in excess of insurance coverage could reduce our working capital and have a material adverse effect on its business, results of operations and financial condition. Also, the legal effectiveness of our terms and conditions of use is uncertain. Except as disclosed elsewhere herein, management is currently not aware of any claims that can be expected to have a material adverse impact on our financial condition or our ability to conduct our business.

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We may become subject to government regulation and legal uncertainties that could reduce demand for our products and services or increase the cost of doing business.

         Government regulation and legal uncertainties could increase our costs and risks of doing business on the Internet. There are currently few laws or regulations that specifically regulate communications or commerce on the Internet. Moreover, it may take years to determine the extent to which existing laws relating to issues such as property ownership, libel, taxation and personal privacy are applicable to the Internet. The applications of existing laws, or the adoption of new laws and regulations in the future, that address issues such as user privacy, pricing, taxation and the characteristics and quality of products and services, could create uncertainty in the Internet marketplace. Such uncertainty could reduce demand for our services or increase the cost of doing business due to increased costs of litigation or increased service delivery costs.

If the delivery of Internet advertising on the Web, or the delivery of our E-mail messages, are limited or blocked, demand for our products and services may decline.     

         Our business may be adversely affected by the adoption by computer users of technologies that harm the performance of our products and services. For example, computer users may use software designed to filter or prevent the delivery of Internet advertising or deploy Internet browsers set to block the use of cookies. We cannot assure you that the number of computer users who employ these or other similar technologies will not increase, thereby diminishing the efficacy of our products and services. In the case that one or more of these technologies becomes widely adopted by computer users, demand for our products and services would decline.

         We also depend on our ability to deliver E-mails over the Internet through Internet service providers and private networks. Internet service providers are able to block messages from reaching their users and we do not have, nor are we required to have, agreements with any Internet service providers to deliver E-mails to their customers. As a result, we could experience periodic temporary blockages of our delivery of E-mails to their customers, which would limit the effectiveness of our E-mail marketing. Some Internet service providers also use proprietary technologies to handle and deliver E-mail. If Internet service providers materially limit or block the delivery of our E-mails, or if our technology fails to be compatible with these Internet service providers’ E-mail technologies, then our business, results of operations or financial condition could be materially and adversely affected. In addition, the effectiveness of E-mail marketing may decrease as a result of increased consumer resistance to E-mail marketing in general.

We may be not able to keep pace with rapid technological changes in the Internet industry, which could cause us to lose customers and revenue.

         Rapid technological developments, evolving industry standards and user demands, and frequent new product introductions and enhancements characterize the market for Internet products and services. These market characteristics are exacerbated by the emerging nature of the market and the fact that many companies are expected to introduce new Internet products and services in the near future. Our future success will depend on our ability to continually improve our content offerings and products and services. In addition, the widespread adoption of developing multimedia-enabling technologies could require fundamental and costly changes in our technology and could fundamentally affect the nature, viability and measurability of Internet-based advertising and direct marketing, which may harm our business.

Our operations could be significantly hindered by the occurrence of a natural disaster or other catastrophic event.

         Significant portions of our operations are located in California, which is susceptible to earthquakes and forest fires. In addition, our operations are susceptible to outages due to “rolling black-outs”, fire, floods, telecommunication failures, break-ins, and other natural disasters. We have multiple website capacity to minimize disruption to our services; however, not all services provided by the Company are supported by such redundancy. Despite our implementation of network security measures, our services may become vulnerable to new computer viruses and similar disruptions from unauthorized tampering with our computer systems or personal computers for individuals.

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Our business and future operating results are subject to a wide range of uncertainties arising out of the continuing threat of terrorist attacks.

         The United States has been the target of terrorist attacks in the past and remains the target of armed hostilities both in the United States and abroad. These attacks result in global instabilities in the financial markets, which may in turn contribute to increased volatility in the stock prices of United States publicly traded companies, such as eUniverse. Furthermore, these attacks may lead to economic instability in the United States, which could adversely affect our revenue.

ITEM 2.   FACILITIES

         eUniverse currently leases approximately 42,500 square feet of office space in two separate facilities in Los Angeles, California for its headquarters staff, including technical, sales and marketing, business development and administrative functions. The Company leased approximately 25,000 square feet in April 2002, as part of a facilities expansion plan designed to accommodate the Company’s current and future growth. In January 2003, the Company leased an additional 7,500 square feet to accommodate further growth. The lease term for the recently obtained space runs through February 2006, with initial monthly rental rates of approximately $45 and $17 thousand, respectively. These lease arrangements include an annual 3% escalation clause. The remaining 10,000 square feet of space in Los Angeles is under lease at approximately $18 thousand per month through December 30, 2004. The Company intends to sub-lease some or all of this space.

         The Company leased approximately 5,000 square feet of office space in August 2002, for its Call Center in Montclair, California. The lease with respect to this facility expires on July 31, 2004, with an initial monthly rental rate of approximately $4 thousand. This lease arrangement includes an annual 5% escalation clause.

         The Company leases approximately 300 square feet of office space for its marketing and sales staff in New York at a monthly cost of $2 thousand, on a month-to-month basis.

         The Company leased approximately 2,000 square feet of office space in February 2003 for its Cases Ladder subsidiary in Mount Vernon, Washington. The lease with respect to this facility expires on January 31, 2005 with an initial monthly rental rate of $2 thousand. This lease arrangement includes an annual 3% escalation clause, and it may be renewed at the end of the current lease term.

         On March 26, 2003, the Company entered into a six month lease beginning on April 15, 2003 with an initial monthly rental rate of $10 thousand which was subsequently extended to 18 months, for 13,500 square feet of warehouse space to be used for inventory and order fulfillment. This lease arrangement includes an annual 3% escalation clause.

         Management of the Company believes that the current available facilities are adequate to accommodate the needs of the business, and that suitable additional space will be available to accommodate growth in operations.

ITEM 3.   LEGAL PROCEEDINGS

         As previously disclosed, on July 6, 2001, Adolph Komorsky Investments, Inc. (“AKI”), an Illinois corporation with its principal place of business in Tarrytown, New York, filed a complaint against the Company in the Supreme Court of the State of New York, County of Westchester. AKI alleged that the Company breached a consulting agreement with AKI by failing and refusing to pay AKI cash and warrant consideration called for under the agreement. On or about March 25, 2003, the Company and AKI entered into a Settlement Agreement pursuant to which (i) the Company agreed to pay AKI an undisclosed sum of cash, (ii) the parties released each other from all claims and liabilities arising out of the subject matter of the AKI litigation, and (iii) AKI agreed to dismiss the lawsuit with prejudice.

         As previously disclosed, on October 17, 2002, the Company filed a complaint in the Superior Court of Los Angeles, California, against Jody Henderson, the former owner and proprietor of the Company’s interactive entertainment website known as FunnyGreetings (the “California Action”). The Company is seeking an order from the Court declaring the validity and enforceability of, and the Company’s compliance with, an amendment to the acquisition agreement pursuant to which the Company purchased FunnyGreetings from Mr. Henderson in September

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of 2000. The terms of the amendment, which was executed by the parties in July of 2001, resulted in, among other things, an $800 thousand reduction in the minimum purchase price to be paid by the Company to Mr. Henderson for the FunnyGreetings business. The Company filed the lawsuit due to Mr. Henderson’s allegations that (i) the Company breached the purchase agreement by not accounting for all, and/or by undermining, sources of revenue from the Company’s operation of the FunnyGreetings website thereby adversely affecting amounts due to Mr. Henderson under the purchase agreement, and (ii) the amendment to the purchase agreement was the result of economic duress and is unenforceable. In January of 2003, the Company was served with a lawsuit filed by Mr. Henderson in the Circuit Court of Fayette County, Kentucky, which includes claims based on the above allegations (the “Kentucky Action”). On January 9, 2003, the Company removed the Kentucky Action to the United States District Court for the Eastern District of Kentucky. On August 21, 2003, the Company and Mr. Henderson entered into a settlement agreement pursuant to which the Company agreed to pay Mr. Henderson $365,000 of the remaining obligation, the parties released all claims against each other and agreed to dismiss the lawsuits with prejudice.

         On February 14, 2003, Symantec Corporation, a Delaware corporation with its principal place of business in Cupertino, California (“Symantec”), filed a complaint in the United States District Court for the Central District of California naming the Company, e-Commerce Transactions, LLC (“ECT,” a wholly owned subsidiary of the Company), and two of the Company’s executive officers as defendants (collectively the “eUniverse Defendants”). Symantec alleges claims of trademark and copyright infringement, and related state and common law claims, related to ECT’s marketing and sale of Norton Anti-virus software products. The eUniverse Defendants have filed an answer to Symantec’s complaint denying Symantec’s allegations and asserting various affirmative defenses. This matter is in the early stages of discovery with a trial date set for December 16, 2003. The Company believes that ECT’s sales of Norton software products did not infringe Symantec’s rights and that the claims and allegations of Symantec are without merit. The eUniverse Defendants intend to vigorously defend themselves in this matter. To the extent Symantec’s claims are meritorious, the Company believes it has claims for reimbursement and indemnity against the suppliers from whom ECT purchased the subject software.

         On May 13, 2003, SoftwareOnline.com, Inc., a Washington corporation with its principal place of business in King County, Washington (“SoftwareOnline”), filed a complaint against the Company in the United States District Court for the Western District of Washington at Seattle. The Company had previously entered into a nondisclosure agreement and letter of intent with SoftwareOnline in anticipation of a potential acquisition of SoftwareOnline by eUniverse. SoftwareOnline alleges, inter alia, breach of the nondisclosure agreement and misappropriation of trade secrets and trade dress related to the Company’s online marketing and sales of downloadable software. SoftwareOnline seeks injunctive relief, actual damages in an amount to be proven at trial, and punitive damages in the amount of $10 thousand. On June 27, 2003, the Company filed an answer denying SoftwareOnline’s allegations and asserting various defenses. The Company disputes SoftwareOnline’s claims and allegations, believes that they are without merit and intends to vigorously defend itself in this action.

         On January 31, 2003, Arcade Planet, Inc. (“Arcade Planet”), a California corporation, filed a patent infringement complaint against the Company in the United States District Court for the District of Nevada. The Complaint filed by Arcade Planet alleges that online skill-based gaming services offered by the Company on certain of its websites infringe a patent held by Arcade Planet and entitled the “918 Patent.” On April 9, 2003, the Company filed an answer denying Arcade Planet’s allegations and seeking declaratory judgment from the Court to the effect that (i) the Company has not and does not infringe the 918 Patent and (ii) the claims of the 918 Patent are invalid and unenforceable. On July 18, 2003, the court stayed this action until the United States Patent and Trademark Office reexamines a substantial new question of patentability affecting certain claims in question underlying the 918 Patent. The Company disputes Arcade Planet’s claims, believes that they are without merit, and will vigorously defend itself in this matter.

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         On May 13, 2003, Bridgeport Laboratories, LLC d/b/a YourFreeVitamins.com (“Bridgeport”), a Florida limited liability company, filed a complaint against the Company in the Superior Court of Los Angeles, California. Bridgeport alleges that the Company owes unpaid amounts due under a marketing agreement of approximately $153 thousand, although plaintiff seeks compensatory damages of in excess of $600 thousand. On April 1, 2003 the Company filed a verified answer to Bridgeport’s complaint denying Bridgeport’s allegations and filed a cross-complaint for breach of the marketing agreement and is seeking damages of in excess of $500 thousand. The Company disputes Bridgeport’s claims, believes that they are without merit, and will vigorously defend itself and prosecute its cross-claims in this matter.

         As previously disclosed by the Company in its current report on Form 8-K filed June 20, 2003, since May 9, 2003, eight purported shareholder class action lawsuits, which are substantially similar, have been filed against the Company and several current and former officers and/or employees of the Company in the United States District Court for the Central District of California. In addition, three purported shareholder derivative actions, which are similar, have been filed against various current and former directors, officers, and/or employees of the Company, one of which was recently filed in the United States District Court for the Central District of California, and two of which were filed in the Superior Court of California for the County of Los Angeles. The Company expects that the purported shareholder class action lawsuits filed in the United States District Court for the Central District of California (collectively, the “Federal Court Cases)”, and any additional similar actions, will be consolidated into one action, and that the purported shareholder derivative actions filed in the Superior Court of California for the County of Los Angeles (collectively, the “State Court Actions”), and any additional similar actions filed in that Court, will similarly be coordinated before one judge. All of the lawsuits, which arise out of the Company’s previously disclosed Restatement, include varying allegations of, among other things, false and misleading statements regarding the Company’s business prospects and financial condition and performance, sales of Company stock by one officer and one former employee of the Company, and breach of fiduciary duty. The Company intends to vigorously defend itself in the Federal Court Cases and to address the State Court Actions as appropriate. Defending against existing and potential securities and class action litigation relating to the Restatement will likely require significant attention and resources of management and, regardless of the outcome, result in significant legal expenses. If our defenses were ultimately unsuccessful, or if we were unable to achieve a favorable settlement, we could be liable for large damage awards that could seriously harm our business and results of operations.

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

         No matters were submitted during the fourth quarter of the fiscal year 2003 to a vote of the Company’s security holders, through the solicitation of proxies or otherwise.

PART II

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

Market Information

         As of July 31, 2003 there were 26,562,239 shares of the Company’s common stock outstanding, which were held by approximately 3,000 shareholders of record.

         From April 20, 2000 to July 14, 2003, our common stock has been listed on the NASDAQ Small Cap Market under the symbol EUNI. From July 15, 2003 to present our common stock is listed under the symbol EUNIE due to the failure to timely file our fiscal year 2003 Annual Report on Form 10-K. From April 30, 1999 to April 19, 2000, the common stock of eUniverse was traded on the OTC Electronic Bulletin Board under the symbol EUNI. On May 6, 2003, NASDAQ halted trading in our common stock, and trading has remained halted to the date of the filing of this Annual Report on Form 10-K. On May 5, 2003, the last day of trading in the shares of our common stock, the price per share of our common stock was $3.62.

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         The following table sets forth the range of low and high sales prices reported by NASDAQ SmallCap Market for our Class A common stock for the periods indicated.

Quarterly Period Ending	Low		High
March 31, 2003	$	4.23	$	7.30
December 31, 2002	$	2.07	$	6.23
September 30, 2002	$	2.67	$	6.15
June 30, 2002	$	3.79	$	6.78
March 31, 2002	$	4.14	$	8.26
December 31, 2001	$	2.03	$	6.60
September 30, 2001	$	2.14	$	3.80
June 30, 2001	$	1.44	$	3.40

Dividends

         To date, eUniverse has paid no cash dividends, and has no intention to pay cash dividends on its common stock in the foreseeable future. Our present policy is to retain earnings, if any, to finance future growth.

Recent Sales of Unregistered Securities

         On January 9, 2003, the Company issued 97,201 shares of its common stock incident to partial, net issuance exercise of a warrant to purchase 305,000 shares of Company common stock at an exercise price of $2.10 per share originally issued to a consultant of the Company on January 2, 2001.

         On January 21, 2003, the Company issued 4,225 shares of its common stock incident to net issuance exercise of a warrant to purchase 6,000 shares of Company common stock at an exercise price of $2.00 per share originally issued to a Series A Preferred shareholder of the Company on January 31, 2001.

         On January 21, 2003, the Company issued 1,778 shares of its common stock incident to net issuance exercise of a warrant to purchase 2,400 shares of Company common stock at an exercise price of $1.75 per share originally issued to a Series A Preferred shareholder of the Company on October 22, 2001.

         On February 3, 2003, the Company issued 1,250 shares of its common stock incident to exercise of a warrant to purchase 1,250 shares of Company common stock at an exercise price of $1.75 per share originally issued to a Series A Preferred shareholder of the Company on October 22, 2001.

         On February 10, 2003, the Company issued 64,010 shares of its common stock incident to net issuance exercise of a warrant to purchase 80,000 shares of Company common stock at an exercise price of $1.25 per share originally issued to a consultant of the Company on April 4, 2001.

         On February 12, 2003, the Company issued 437 shares of its common stock incident to net issuance exercise of a warrant to purchase 600 shares of Company common stock at an exercise price of $1.75 per share originally issued to a consultant of the Company on October 22, 2001.

         On February 27, 2003, the Company issued a total of 280,984 shares of its common stock incident to net issuance exercise of warrants to purchase 410,000 shares of Company common stock at an exercise price of $1.00 per share originally issued to two investors in the Company on September 25, 2001.

         On February 28, 2003, the Company issued 116,192 shares of its common stock incident to net issuance exercise of a warrant to purchase 150,000 shares of Company common stock at an exercise price of $1.25 per share originally issued to an investor in the Company on April 4, 2001.

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         On March 10, 2003, the Company issued 372,432 shares of its common stock incident to net issuance exercise of a warrant to purchase 671,865 shares of Company common stock at an exercise price of $2.74 per share originally issued to a consultant of the Company on April 14, 1999.

         On March 31, 2003, the Company issued 1,563 shares of its common stock incident to exercise of a warrant to purchase 1,563 shares of Company common stock at an exercise price of $2.00 per share originally issued to a Series A Preferred shareholder of the Company on March 27, 2001.

         The foregoing sales of common stock were made in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D promulgated thereunder for transactions not involving a public offering. No underwriters were engaged in connection with the foregoing sales of securities. These sales were made without general solicitation or advertising. Each purchaser was an accredited investor or a sophisticated investor with access to all relevant information necessary to evaluate the investment who represented to the Company that the shares were being acquired for investment.

ITEM 6.   SELECTED FINANCIAL DATA

         The following selected financial data are derived from our audited financial statements presented as of March 31, 2003, 2002, 2001, 2000 and 1999. The results presented for the year ended March 31, 1999 are those of CD Universe, Inc., the financial predecessor of eUniverse. The historical results are not necessarily indicative of results to be expected for any future period. The data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes to the financial statements included elsewhere in this Form 10-K.

eUNIVERSE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

	Years Ended March 31,
	2003(1)			2002(1)			2001(1)			2000			1999
													CD Universe
Revenues	$	65,742		$	33,196		$	15,668		$	1,842		$	—
Cost of sales		17,264			5,837			—			154			—
Gross profit		48,478			27,359			15,668			1,688			—
Operating expenses:
Marketing and sales		25,149			6,638			9,906			1,441			—
Product development		11,500			5,986			3,827			1,140			—
General and administrative		10,759			8,091			4,145			5,128			—
Amortization of other intangible assets		1,141			508			3,521			17			—
Stock-based compensation		7			—			263			581			—
Impairment of goodwill and other intangible assets		130			—			14,474			—			—
Total operating expenses		48,686			21,223			36,136			8,307			—
Operating income (loss)		(208	)		6,136			(20,468	)		(6,619	)		—
Nonoperating income (expense):
Interest expense and other financing costs, net		(590	)		(525	)		(6,333	)		61			—
Repurchase of stock options		(452	)		—			—			—			—
Loss allocated to minority interest		—			—			—			4			—
Gain on extinguishment of debt		1,266			—			—			—			—
Other gains and (losses)		365			(231	)		(321	)		—			—
Income (loss) from continuing operations before income taxes		381			5,380			(27,122	)		(6,554	)		—
Income tax expense		(63	)		—			—			—			—
Income (loss) from continuing operations		318			5,380			(27,122	)		(6,554	)		—
Discontinued operations:
Income (loss) from operations of           discontinued segment (net of applicable           income taxes of $0)		235			285			(13,917	)		(4,514	)		(407	)
Net income (loss)		553			5,665			(41,039	)		(11,068	)		(407	)
Accretion of preferred stock liquidation             preference		77			205			—			—			—
Income (loss) available to common            shares	$	476		$	5,460		$	(41,039	)	$	(11,068	)	$	(407	)
Continuing operations earnings (loss) per             common share	$	0.01		$	0.26		$	(1.50	)	$	(0.42	)		NA
Discontinued operations earnings (loss) per common share		0.01			0.01			(0.77	)		(0.29	)		NA
Basic earnings (loss) per common share	$	0.02		$	0.27		$	(2.27	)	$	(0.71	)		NA
Diluted earnings (loss) per common share	$	0.02		$	0.21		$	NA		$	NA			NA
Basic weighted average common shares outstanding		24,474,156			21,040,374			18,094,670			15,765,108			NA
Diluted earnings per share outstanding		30,411,356			27,539,459			NA			NA			NA

BALANCE SHEET DATA

	March 31,
	2003	2002	2001		2000
Cash and cash equivalents	4,663	8,008	219		2,323
Working capital (deficit)	1,590	4,196	(6,569	)	(787	)
Total assets	39,929	34,578	11,879		37,778
Total shareholders’ equity (deficit)	23,436	20,676	(1,558	)	30,739
Long-term obligations	3,206	3,028	3,041		—

(1) Certain fees paid to third parties for media space, license agreements, and ad revenue-sharing arrangements, which had previously been included in cost of goods sold, are reflected in marketing and sales expenses. In addition, credit card fees, which had previously been included in general and administrative expense, have been reclassified and appear in cost of goods sold.

         Following is a recap of the reclassifications for the years ended March 31 (in thousands):

	2002						2001
	As Previously Reported		Reclassification		As Classified		As Previously Reported		Reclassification		As Classified
Cost of Sales	$	6,921	$	(1,084)	$	5,837	$	1,606	$	(1,606)	$	—
Operating Expenses:
Marketing and Sales		5,554		1,084		6,638		8,300		1,606		9,906
General and Administration		—		—		—		4,756		(611)		4,145
Amortization		—		—		—		2,910		611		3,521

For the year ended March 31, 2000, $1,397 was reclassed from Amortization of goodwill and other intangible assets to General and Administrative expenses.

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

         In addition to historical information, the following discussion and analysis of management contains forward-looking statements. These forward-looking statements, including those with respect to expected operating results for 2004, involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the results of any acquisitions we may complete, and those risks and uncertainties discussed in the section of this Form 10-K entitled “Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. eUniverse undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this document as well as in other documents we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K to be filed by us in fiscal year 2004.

         The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes that appear elsewhere in this report.

Recent Events

         The Company has determined the need to restate its consolidated financial statements for the first three fiscal quarters of fiscal year 2003, ended June 30, September 30, and December 31, 2002, respectively. Further information with respect to the Company’s restated quarterly financial statements is presented in “Business – Recent Events – Restatement”, “Item 14 – Controls and Procedures,” and in Note 2 and Note 21 of Notes to Consolidated Financial Statements. As a result of the Company’s announcement of its intent to restate its quarterly financial statements, NASDAQ halted trading in the Company’s common stock and initiated delisting proceedings. In addition, the Company contacted the Securities and Exchange Commission to notify it of the Company’s restatement and the SEC staff initiated an informal inquiry into the matter. Further information with respect to the NASDAQ and SEC matters is provided above in “Business – Recent Events – NASDAQ Trading Halt, NASDAQ Delisting Proceedings, and SEC Investigation.” In response to the identification of various deficiencies leading to the Company’s restatement of its quarterly financial statements, the Company has implemented a number of enhancements and taken certain remedial actions designed to improve the Company’s accounting and financial reporting procedures and controls. Further information with respect to these efforts is set forth above in “Business – Recent Events – Enhancements to Accounting and Financial Reporting Procedures and Controls.”

Overview

         The Company’s businesses are generally divided into two segments: (1) Products and Services and (2) Media and Advertising. In fiscal year 2003, the Company’s revenue was generated from a combination of sales of the Company’s portfolio of products, services and gaming offerings, and from paid third-party advertising on the eUniverse Network of websites and electronic newsletters.

         Products and Services.   The Company generates revenue from the Products and Services segment primarily through the sale of merchandise over the Internet, subscriptions to the Company’s websites, and through activity-based fees. Sales of merchandise make up the majority of the Company’s Products and Services revenue, with revenue generated from the sale of a diverse collection of products, including, among others: inkjet printer supplies and peripherals; consumer electronics; collectibles and other impulse merchandise; and herbal and all-natural ingestible and topical cosmetic products. The Company’s subscription-type offerings include websites for online gaming, and health, fitness, and dieting. The Company collects activity-based fees on websites such as the Company’s pay-to-play skilled gaming website, SkillJam.com, and the Company’s dating website, CupidJunction, where users purchase credits to initiate contact with potential matches.

         Media and Advertising.   In the Media and Advertising segment, the Company offers a variety of advertising opportunities, including advertisements on its websites, in its electronic newsletters, and through other online media. The Company’s inventory of ad space allows for various forms of web-based advertisements, including: banner and button ads; pop-up and pop-under adds; interstitial ads which appear on a screen while the principal content being viewed is loading; and E-mail advertisements. The Company’s advertising transactions with third parties are generally structured as sponsorship, impression-based or performance-based arrangements. Sponsorship ad deals are flat fee arrangements for placement of an advertiser’s name, logos or other branding as the sponsor of a website,

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an electronic newsletter, a particular piece of content, or a particular promotion. In impression-based arrangements, an advertiser purchases a certain number of advertising impressions, which the Company delivers on agreed-upon schedules, and in agreed-upon formats and/or locations, at a negotiated rate per the number of times an advertisement is shown. Performance-based arrangements are measured in terms of a cost-per-click or cost-per-action. Performance-based ad transactions are result oriented, meaning that the advertiser pays the web publisher only if the Internet user performs an agreed-upon activity. The required activity can vary from clicking on the ad (i.e., a cost-per-click arrangement) or could require that the user link to the advertisers’ website and provide information, execute a sign-up, or make a purchase.

Critical Accounting Policies

         The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments: legal contingencies; other contingencies; goodwill and intangible asset impairment; revenue recognition; allowance for doubtful accounts; business combinations; allowance for excess and obsolete inventory; income taxes; and stock-based compensation.

Legal contingencies

         We are currently involved in legal proceedings, certain of which are discussed elsewhere in this Form 10-K. We record liabilities related to pending litigation when an unfavorable outcome is probable and we can reasonably estimate the amount of loss. We have not recorded liabilities for certain pending litigation because of the uncertainties related to assessing both the amount and the probable outcome of those claims. As additional information becomes available, we continually assess the potential liability related to each pending litigation. While we currently believe that the liabilities recorded on our balance sheet are sufficient to cover pending litigation for which an unfavorable outcome is probable and the amount of loss can be reasonably estimated, the outcome of litigation is inherently uncertain, and there can be no assurance that such estimates will be accurate or that, in the future, additional reserves will not be required.

Other contingencies

        In the normal course of business, the Company maintains liabilities related to its estimations of payments due to third parties under music and intellectual property royalty agreements, estimations of discretionary bonuses to be paid to employees and estimations of payments due under revenue sharing arrangements with affiliates and partners. At the balance sheet date, the Company uses the best information available to determine a range of possible liabilities, the probability of paying such amounts and accrues its best estimate of the liabilities.

Goodwill and intangible asset impairment

         We adopted Statement of Financial Accounting Standards No. 142-Goodwill and Other Intangible Assets (SFAS 142) on April 1, 2001. Under SFAS 142, goodwill and other intangible assets with indefinite useful lives are no longer amortized, but are tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value amount. Events or circumstances which could trigger an impairment review include a significant adverse change in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, or significant negative industry or economic trends.

         Our principal consideration in determining impairment includes the strategic benefit to the Company of the particular assets as measured by undiscounted current and future operating income of the specified group of assets and expected undiscounted cash flows. Should impairment be identified, a loss would be reported to the extent that the carrying value of the asset exceeds the fair value as determined by discounted future cash flows.

         In accordance with SFAS No. 142, we performed an annual evaluation of goodwill and other intangible asset impairment during the fourth quarter of fiscal 2003 and concluded that, at that time, there was impairment of intangibles of approximately $130 thousand. Any future impairment losses could have a material adverse impact on our financial condition and results of operations.

In fiscal year 2003, the Company analyzed goodwill for impairment at the Company level. As a result of the ongoing reorganization of the Company's reporting structure, the Company anticipates that, in the future, it will have sufficiently discrete financial information to conduct a goodwill impairment analysis at the reporting unit level. This change may affect the amounts recorded for goodwill impairment in future periods.

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Revenue Recognition

         In accordance with generally accepted accounting principles (“GAAP”) in the United States, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectibility of the resulting receivable is reasonably assured. Noted below are brief descriptions of the product or service revenues that the Company recognizes in the financial statements contained herein.

         Advertising Revenue. Advertising revenue is derived from the sale of banner and button advertisements, pop-up and other Web-based advertising, and sponsorships of E-mail newsletters or parts of our Websites. We recognize revenue from the sale of our banner and button advertisements, pop-up and other Web-based advertising in the period in which the advertisements are delivered. The arrangements are evidenced either by an insertion order or contract that stipulates the types of advertising to be delivered and pricing. Under certain arrangements, we charge fees to merchants based on the number of users who click on an advertisement or text link to visit websites of our merchant partners, which we refer to as a “click-through”. For a click-through the arrangement is evidenced by a contract that stipulates the click-through fee. The fee becomes fixed and determinable upon delivery of the click-through and these revenues are recognized in the period in which the click-through is delivered to the merchant. Revenues relating to E-mail newsletters are derived from delivering advertisements to E-mail lists for advertisers and websites. Agreements are primarily short-term and revenues are recognized as services are delivered provided that we have no significant remaining obligations and collection of the resulting receivable is probable. In certain arrangements, we sell banner advertising, click-through programs, and E-mail newsletter or Web site sponsorships to customers as part of a bundled arrangement. For these arrangements, we allocate revenue to each deliverable based on the relative fair value of each deliverable. Revenue is recognized in these arrangements as we deliver on our obligation.

         Shared revenue arrangements. Revenues earned from our advertising services can also be based upon a percentage of revenue earned from the advertisement. In accordance with Emerging Issues Task Force (EITF) 99-19, we recognize revenues shared with third-party network partners and E-mail list owners on a net basis.

         Memberships and subscriptions to Internet websites. Revenues for memberships and subscriptions to our Internet websites and services are recognized ratably as earned over the term of the membership or subscription. Upon commencement of the membership or subscription, we record deferred revenue for the fee charged. This deferred revenue is then recognized ratably over the period of the arrangement. Service revenue also includes fees from the sale of non-refundable dating credits, which are recognized in the period the consumer uses the dating credit. Dating credits are utilized to establish contact with other individuals that are members of the Relationship Exchange.

         Electronic commerce. Electronic commerce transactions include, but are not limited to, sales of laser and inkjet printer supplies, consumer electronics, collectibles and other consumer products. For these transactions, we recognize revenue upon shipment of the products. Revenue includes shipping and handling charges. Fulfillment for these products is handled internally, or outsourced to an independent third-party.

         Contemporaneous sales and purchases. We occasionally enter into a transaction where we are purchasing a product or service from a vendor and at the same time we are negotiating a contract for the sale of advertising or other services to the vendor. These concurrent transactions are accounted for under Accounting Principles Board (APB) Opinion No. 29, —Accounting for Non-monetary Transactions, as interpreted by Emerging Issues Task Force (EITF) 01-02, —Interpretations of APB Opinion No. 29 and EITF 99-17—Accounting for Advertising Barter Transactions. Generally, these transactions are recorded at the lower of the estimated fair value of the product or service received, or the estimated fair value of the advertisements given, with the difference recorded as an advance or prepaid expense.

         Sales returns and advertising credits. We maintain allowances for estimated sales returns by our customers. In determining the estimate of product sales that will be returned, we analyze historical returns, current economic trends, changes in customer demand and acceptance of our products, known returns we have not received and other assumptions. Similarly, we record reductions to revenue for the estimated future credits to our advertising customers in the event that delivered advertisements do not meet contractual specifications. Should the actual amount of sales returns or advertising credits differ from our estimates, adjustments to the associated allowances may be required.

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Allowance for doubtful accounts

         We maintain an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider: (i) the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable; (iv) our historical provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customer’s industry as well as general economic conditions, among other factors.

Business combinations

         The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, which established accounting and reporting standards for business combinations and requires that all business combinations be accounted for by the purchase method. Under the purchase method of accounting, the cost, including transaction costs, is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

         The judgments made in determining the estimated fair values and expected useful lives assigned to each class of assets and liabilities acquired can significantly impact net income. For example, different classes of assets will have useful lives that differ. Consequently, to the extent a longer-lived asset is ascribed greater value under the purchase method than a shorter-lived asset, there may be less amortization recorded in a given period.

         Determining the fair value of certain assets and liabilities acquired is subjective in nature and often involves the use of significant estimates and assumptions. We use a one-year period following the consummation of acquisitions to finalize estimates of the fair values of assets and liabilities acquired. Two areas, in particular, that require significant judgment are estimating the fair values and related useful lives of identifiable intangible assets. While there are a number of different methods used in estimating the value of acquired intangibles, there are two approaches primarily used: the discounted cash flow and market comparison approaches. Some of the more significant estimates and assumptions inherent in the two approaches include: projected future cash flows (including timing); discount rate reflecting the risk inherent in the future cash flows; perpetual growth rate; determination of appropriate market comparables; and the determination of whether a premium or a discount should be applied to comparables. Most of the foregoing assumptions are made based on available historical information.

Excess and obsolete inventory

         The Company records inventory at cost, which is not in excess of market, however quantities on hand, and the values of such, are reviewed periodically for excess and obsolete product. Consequently, we maintain an allowance for excess and obsolete inventory to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of the sale of inventory, including assessing the probability of sale and the current market demand for each product. If actual market conditions for our products differ from those projected by management, and our estimates prove to be inaccurate, additional write downs or adjustments to cost of sales may be required.

Income taxes

         The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We then assess the likelihood that our deferred tax assets will be recovered from

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future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, or increase or decrease this allowance in a period, we increase or decrease our income tax provision in our statement of operations. If any of our estimates of our prior period taxable income or loss prove to be incorrect, material differences could impact the amount and timing of income tax benefits or payments for any period.

Stock-Based Compensation

         In December 2002, the FASB issued SFAS No. 148 – Accounting for Stock-Based Compensation – Transition and Disclosure. This statement amends SFAS No. 123 – Accounting for Stock-Based Compensation, providing alternative methods of voluntarily transitioning to the fair market value based method of accounting for stock based employee compensation. FAS 148 also requires disclosure of the method used to account for stock-based employee compensation and the effect of the method in both the annual and interim financial statements. The provisions of this statement related to transition methods are effective for fiscal years ending after December 15, 2002, while provisions related to disclosure requirements are effective in financial reports for interim periods beginning after December 31, 2002.

         The Company elected to continue to account for stock-based compensation plans using the intrinsic value-based method of accounting prescribed by APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under the provisions of APB No. 25, compensation expense is measured at the grant date for the difference between the fair value of the stock and the exercise price.

Recent Accounting Pronouncements

         In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45, (“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”).  The Interpretation elaborates on the disclosures to be made by sellers or guarantors of products and services, as well as those entities guaranteeing the financial performance of others.  The Interpretation further clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee.  The initial recognition and initial measurement provisions of this Interpretation are effective on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for financial statements of periods ending after December 15, 2002.  The Company believes that its disclosures with regards to these matters are adequate. 

         In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123.  This Statement amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, it amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The adoption of this standard has not resulted in an impact to results of operations or financial position of the Company as the Company continues to follow the intrinsic value method to account for stock-based employee compensation.  The additional disclosure requirements of this Statement have been adopted. 

        In January 2003, the FASB issued Interpretation No. 46 (“Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51”).  The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.  Management does not believe the Interpretation will have a material impact on the financial statements. 

         In April 2003, FASB issued SFAS No. 149 (“Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities”).  SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.  In addition, all provisions of this Statement should be applied prospectively.  This Statement amends SFAS 133 for decisions made (1) as part of the Derivatives Implementation Group process that effectively required amendments to Statement 133, (2) in connection with other Board projects dealing with financial instruments, and (3) in connection with implementation issues raised in relation to the application of the definition of a derivative.  Management does not believe the adoption of SFAS 149 will have material impact on the financial statements. 

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Business Transactions and Developments

         In August 2002, the Company launched Performance Marketing Group, LLC (“PMG”), an online direct marketing company specializing in designing, planning, implementing and optimizing advertising campaigns for online publishers. The Company expects PMG to contribute to increased revenues and profitability through the purchase and optimization of media campaigns and expects to expand its activities in fiscal year 2004.

         In September 2002, the Company acquired certain assets of ResponseBase, LLC, a California-based online marketing company. ResponseBase is focused on creating online direct response campaigns to promote products and services. In addition, ResponseBase provides e-mail marketing to help companies more effectively reach their customer base and currently manages a database of approximately 30 million permission-based E-mail records. The Company acquired the assets of ResponseBase for $3.3 million, with additional payments due on an earn-out basis subject to the achievement of certain performance goals for the two-year period October 2002 through September 2004.

         In September 2002, the Company entered into two joint ventures with Michael Casey Enterprises, LLC, a California company, in the form of Abdominal King, LLC, a Delaware company, and Yogabol, LLC, a Delaware company, to produce television infomercials and thereby market and distribute certain home fitness products. The Company received a 51% interest in the two newly formed entities for a cash investment of approximately $1.4 million intended to support initial production and marketing costs. In February 2003, the Company sold its interest in Abdominal King, LLC, for $0.4 million, recognizing a gain of approximately $0.1 million.

         In March 2003, the Company announced the launch of a new proprietary, pay-to-play skilled gaming platform powered by its SkillJam division. In addition, SkillJam signed an exclusive two-part agreement with Zone.com, MSN’s games channel, to provide the platform for the play-for-cash skill-games and game-billing services available on MSN’s Zone.com. As part of the multi-year agreement, the SkillJam platform will be promoted across MSN’s Zone.com and will be the exclusive provider of games to Zone.com’s Cash Games section. The Company expects the agreement to provide a new incremental revenue stream in its paid online gaming offerings.

         In July 2003, the Company announced that it had initiated, and largely completed, significant steps to streamline the Company’s operating structure. The Company closed four of its under-performing operating business lines, UltraConversions, FitnessHeaven, MegaLottoClub and FamilyCareAdvantage, and consolidated certain core properties. In addition, the Company reduced headcount by approximately 20%, to 241 employees as of August 8, 2003. The Company expects these actions will result in annual savings of more than $6 million and should simplify the Company’s financial reporting and operational structure.

         In July 2003, the Company received $2 million of debt financing from VP Alpha Holdings IV, L.L.C. (“VPVP”) an affiliate of VantagePoint Venture Partners. The debt financing consisted of a $2 million, eight % secured note (the “VPVP Note”) which is due on the first to occur of (i) the maturity of a noted held by 550 Digital Media Ventures, Inc., a wholly- owned subsidiary of Sony Music Entertainment (currently due March 31, 2005), (ii) the closing of a preferred stock investment by VPVP, at which point the VPVP Note would be applied toward the purchase price, (iii) March 31, 2005 and (iv) the closing by the Company of a debt or equity financing in excess of $2.5 million with a party other than VPVP.

         Concurrently with the debt financing, the Company and VPVP entered into a term sheet relating to a second phase of financing that would consist of an up to $10 million preferred stock investment by VPVP in eUniverse and the provision of an additional $20 million dollar “line of credit” to be used in future merger and acquisition transactions. The terms of the second phase of the financing as set forth in the term sheet are non-binding. The term sheet contemplates that VPVP would purchase up to $10 million shares of a newly authorized series of preferred stock. The purchase price of the shares is expected to be $1.50 per share. The VPVP Note would be credited towards the purchase price. Upon the closing of the sale of the preferred stock to VPVP, the term sheet contemplates that VPVP would provide the Company with a line of credit of up to $20 million for making acquisitions and entering into strategic business development ventures. VPVP would have discretion over eUniverse’s use of the line of credit, the detailed terms of which are to be negotiated. Additional information with respect to the contemplated financing agreements with VPVP is set forth above in “Business – Recent Events – Additional Financing.”

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Results of Operations

         The following table sets forth the principal line items from our consolidated statements of operations.

	Years Ended March 31,									% Change		% Change
	2003			2002			2001			2002 to 2003		2001 to 2002
	(In thousands)
Revenues:
Media and Advertising	$	23,067		$	21,859		$	15,330		5.5	%	42.6	%
Products and Services		42,675			11,337			338		276.4		*
Consolidated		65,742			33,196			15,668		98.1		111.9
Cost of sales:
Media and Advertising		—			—			—		*		*
Products and Services		17,264			5,837			—		195.8		*
Consolidated		17,264			5,837			—		195.8		*
Operating expenses:
Marketing and sales		25,149			6,638			9,906		278.9		(33.0	)
Product development		11,500			5,986			3,827		92.1		56.4
General and administrative		10,759			8,091			4,145		33.0		95.2
Amortization of other intangible assets		1,141			508			3,521		124.6		(85.6	)
Stock-based compensation		7			—			263		*		(100.0	)
Impairment of goodwill and other intangible assets		130			—			14,474		*		(100.0	)
Consolidated		48,686			21,223			36,136		129.4		(41.3	)
Non-operating income (expense):
Interest and other financing costs, net		(590	)		(525	)		(6,333	)	12.5		(91.7	)
Repurchase of stock options		(452	)		—			—		*		*
Gain on extinguishment of debt		1,266			—			—		*		*
Other gains and (losses)		365			(231	)		(321	)	*		(28.0	)
Income (loss) from continuing operations before
income taxes		381			5,380			(27,122	)	(92.9	)	*
Income tax expense		(63	)		—			—		*		*
Income (loss) from continuing operations		318			5,380			(27,122	)	*		*
Income (loss) from discontinued operations		235			285			(13,917	)	*		*
Net income (loss)	$	553		$	5,665		$	(41,039	)	*		*

*Not Meaningful

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Revenue

Fiscal Year 2003 Compared to Fiscal Year 2002

         For the year ended March 31, 2003 (“fiscal year 2003”), revenue increased $32.5 million, or 98%, to $65.7 million, up from $33.2 million for the year ended March 31, 2002 (“fiscal year 2002”). The growth in revenue was primarily attributable to the sharp growth in the Products and Services segment, which produced revenue of $42.7 million for fiscal year 2003, up $31.4 million from $11.3 million in revenue in fiscal year 2002. Media and Advertising revenue also contributed slightly to the overall growth in revenue, increasing to $23.1 million in fiscal year 2003, or $1.2 million, up from $21.9 million in fiscal year 2002.

         Products and Services segment. For fiscal year 2003, revenue in the Products and Services segment increased by $31.4 million, or 276%, to $42.7 million, from revenue of $11.3 million in fiscal year 2002. Substantially all of this growth was attributable to the dramatic increase in the segment’s e-commerce transactions, resulting from the Company’s acquisition of ResponseBase in September 2002 and from internal growth and expansion. In the third fiscal quarter of 2003, the Company experienced a high rate of product returns as a result of delayed order fulfillment during the December holiday season. However, the Company expects to improve its order fulfillment performance during the holiday season of fiscal year 2004. Subscription and activity-based fee revenues also grew in fiscal year 2003, contributing to overall revenue growth in the segment, although e-commerce transactions remain the predominant source of segment revenue. The Company expects to continue to invest in this segment throughout fiscal year 2004 by periodically introducing new products and services, and providing innovations and upgrades to existing offerings.

         Media and Advertising segment. Revenue from the Media and Advertising segment was $23.1 million in fiscal year 2003, an increase of $1.2 million, or 6%, from revenue of $21.9 million in fiscal year 2002. The increase was due primarily to an increase in available advertising space from newly launched and acquired websites. However, further growth was dampened by a significant decrease in e-mail advertising revenue during the fourth quarter of fiscal year 2003, and by the allocation of a greater percentage of available advertising inventory to promote the Company’s own proprietary products and services.

         For fiscal year 2003, approximately 35% of the Company’s revenue was derived from the Media and Advertising segment, with 65% of revenue coming from the Products and Services segment. For fiscal year 2002, approximately 66% of the Company’s revenue was derived from the Media and Advertising segment, with the remaining 34% of revenue coming from the Products and Services segment, which was launched in June 2001. Management of the Company believes that this trend will continue with Products and Services segment revenue continuing as the dominant revenue driver of the Company.

         On occasion, the Company will enter into barter or non-cash advertising transactions where the Company exchanges advertising on its websites for similarly valued online advertising or other services. The Company typically uses barter transactions to test prospective media and advertising purchases or sales campaigns, with the anticipation of additional advertising business. In fiscal year 2003, the barter value of these transactions was $0.9 million, or 1.4% of revenue. In fiscal year 2002, the Company had $0.6 million or 1.9% of revenue, in barter transactions.

Fiscal Year 2002 Compared to Fiscal Year 2001

         For the year ended March 31, 2002, revenue increased by $17.5 million, or 112%, to $33.2 million, up from $15.7 million for year ended March 31, 2001 (“fiscal year 2001”). The increase was due primarily to the introduction of the Products and Services segment which contributed approximately 63% of the overall increase in revenues. Revenue in the Products and Service segment was $11.3 million in fiscal year 2002, compared to revenue of $0.3 million in fiscal year 2001. The Products and Services segment was launched in fiscal year 2002 with the introduction of the Company’s dating website Cupid Junction, and several other product and service offerings. A majority of the revenue generated from this segment in fiscal year 2002 was from the sale of impulse merchandise and activity-based fee services (e.g., dating). Revenue from Media and Advertising increased 43% to $21.9 million in fiscal year 2002, up $6.6 million from $15.3 million in fiscal year 2001, due primarily to an increase in available advertising space from newly launched and acquired websites, and an increase in the overall yield from available advertising inventory. During fiscal year 2001, all of the Company’s revenue from continuing operations was derived from paid, third-party advertising.

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         Revenue also included certain barter and non-cash transactions. The barter value was $0.6 million, or 1.9% of total revenue, for the year ending March 31, 2002. The Company had $0.5 million in barter transactions, or 3.2% of total revenue, in fiscal year 2001.

Cost of Sales

Fiscal Year 2003 Compared to Fiscal Year 2002

         Cost of sales are associated with the Products and Services segment and consist primarily of the cost of products for the Company’s electronic commerce offerings, certain license arrangements, shipping costs, and credit card merchant fees. During fiscal year 2003, cost of sales increased to $17.3 million, or 26% of revenues, up from $5.8 million or 18% of revenues, in fiscal year 2002. The increase was primarily due to the greater volume of product sales during fiscal year 2003. Product costs generally range from 10% to 45% of the product sold, and a change in the product mix in fiscal year 2003 partially offset the general increase in cost of sales relating to volume. Shipping costs in fiscal year 2003 rose as a result of the increased volume of product shipments. Credit card merchant fees remained relatively constant as a percentage of e-commerce transactions for fiscal year 2003. Cost of sales as a percentage of product sales may vary due to changes in unit product costs over time. However, the Company expects cost of sales to continue to increase as a percentage of overall revenues of the Company as the Products and Services segment continues its growth, relative to the Media and Advertising segment.

         Within the Products and Services segment, the Company currently uses a single supplier and fulfillment provider for its entire inkjet cartridge inventory, creating a concentration of risk in the Company’s inkjet cartridge business. However, additional sources for inkjet cartridge supply have entered the market which the Company believes helps to mitigate this risk.

Fiscal Year 2002 Compared to Fiscal Year 2001

         During fiscal year 2002, cost of sales increased to $5.8 million from zero in the prior period as a result of the introduction of the Products and Services segment in June 2001.

Marketing and Sales

Fiscal Year 2003 Compared to Fiscal Year 2002

         Marketing and sales costs include expenses associated with marketing and selling the Company’s own products and services as well as the Company’s Media and Advertising services. The costs consist primarily of: certain fees paid to third parties for media space, license agreements and ad shared-revenue arrangements, which we refer to as affiliate spending; promotional and advertising costs; personnel costs, commissions, agency and consulting fees; and allocated overhead costs such as computer systems and facilities. The Company also has a direct sales force that sells our inventory of advertisements to advertisers and advertising agencies.

         Marketing and sales costs increased to $25.1 million, or 38% of revenue, for fiscal year 2003, from $6.6 million, or 20% of revenue for fiscal year 2002. The $18.5 million increase in fiscal year 2003 was primarily due to a significant increase in ad affiliate spending to market the Company's own products and services and to support revenue generated by the Media and Advertising segment. Growth in salary expense as a result of additional staffing for fiscal year 2003, an increase in bad debt expense primarily attributable one division, an increase in consulting services, and an increase in allocated facility expense attributable to higher rent at a new location, also contributed to the increase in marketing and sales expenses in fiscal year 2003.

         We plan to concentrate our direct sales, marketing and customer care teams during fiscal year 2004 in an effort to increase customer retention and drive new revenue growth. The Company’s core strategy is to develop a longer-term

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relationship with its customers and enhance the lifetime value of each relationship. The Company expects that marketing and sales costs will increase in absolute terms but should decline as a percentage of overall revenue.

Fiscal Year 2002 Compared to Fiscal Year 2001

         Marketing and sales costs decreased by $3.3 million to $6.6 million, or 20% of total revenues, for fiscal year 2002, from $9.9 million, or 63% of total revenues, for fiscal year 2001. The $3.3 million decrease was primarily due to the restructuring of certain website development revenue-sharing contracts that were completed during the fourth quarter of fiscal year 2001, which significantly reduced the commission payouts to content creators. Slight decreases in consulting and other service and facility expense also contributed to the overall decrease in marketing and sales costs, which was partially offset by increases in advertising and promotion expense, and payroll and related costs.

Product Development

Fiscal Year 2003 Compared to Fiscal Year 2002

         Product development costs consists of payroll and related expenses for: developing and maintaining the Company’s websites; developing and maintaining key proprietary technology; and developing proprietary products and services. Product and development costs increased to $11.5 million, or 17% of revenues, for fiscal year 2003, from $6.0 million, or 18% of total revenues, for fiscal year 2002. The $5.5 million increase is primarily a result of growth in salaries, consulting fees, facility expense and Internet expenses due to our continued rapid expansion in network traffic, website development and product and service development. Management anticipates that product development costs will decrease in absolute terms in fiscal year 2004 due to a decrease in Internet costs based on the negotiation of bandwidth contracts, and the transfer of portions of content development to India.

Fiscal Year 2002 Compared to Fiscal Year 2001

         Product development costs increased to $6 million, or 18% of total revenues, for fiscal year 2002, from $3.8 million, or 24% of total revenues, for fiscal 2001. The $2.2 million increase was primarily a result of growth in salaries and related Internet expenses due to the Company’s expansion in network traffic, website development and product and service development.

General and Administrative

Fiscal Year 2003 Compared to Fiscal Year 2002

         General and administrative expenses consist of: payroll and related costs for executive, finance, legal, human resources and administrative personnel; recruiting and professional fees; depreciation; and other general corporate expenses. General and administrative costs increased to $10.8 million, amounting to 16% of revenues, for fiscal year 2003, from $8.1 million, or 24% of revenues, for fiscal year 2002. The $2.7 million increase was due primarily to growth in the number of management, legal and finance personnel, expansion of facilities and computer systems, and an increase in accounting services to support the growth of our operations and infrastructure.

         As a percent of revenues, general and administrative expense has decreased to 16% in fiscal year 2003, from 24% in fiscal year 2002, and 26% in fiscal year 2001. However, for fiscal 2004, the Company anticipates that general and administrative costs will increase as a percentage of revenues, as the business incurs nonrecurring expenses associated with the restatement of the first three fiscal quarters of fiscal year 2003 and the implementation of controls and other corporate governance initiatives required by the Sarbanes-Oxley Act of 2002, as well as expenses in connection with the Restatement-related litigation.

Fiscal Year 2002 Compared to Fiscal Year 2001

         General and administrative costs increased to $8.1 million, or 24% of total revenues, for fiscal year 2002, from $4.1 million, or 26% of total revenues, for fiscal year 2001. The $4 million increase was due primarily to growth in management, legal and finance personnel and associated expenses to support the growth in the Company’s operations and infrastructure.

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Amortization of Other Intangible Assets; Impairment of Goodwill and Other Intangible Assets

         In fiscal year 2003, amortization of intangibles amounted to $1.1 million, inclusive of a change from indefinite life to a definite life of 7 years for intangible assets associated with the Flowgo Network.

         In fiscal year 2003, based on the discounted cash flow method, the Company recognized an impairment of intangible assets of $0.1 million relating to the acquisition of Pokemon Village, Just Pigs and Dustcloud. Based on an analysis completed on March 31, 2003, there was no impairment of goodwill for fiscal year 2003.

         In fiscal year 2003, the Company analyzed goodwill for impairment at the Company level. As a result of the ongoing reorganization of the Company’s reporting structure, the Company anticipates that, in the future, it will have sufficiently discrete financial information to conduct a goodwill impairment analysis at the reporting unit level. This change may affect the amounts recorded for goodwill impairment in future periods.

         The Company adopted SFAS 141 and SFAS 142 effective April 1, 2001 and accordingly, there was a substantially reduced cost of $0.5 million associated with amortization of certain identifiable intangibles in fiscal year 2002. The Company did not recognize any impairment of goodwill or other intangible assets in fiscal year 2002.

         Amortization of goodwill and acquisition-related intangible assets for fiscal year 2001 of $3.5 million reflected the costs related to stock acquisitions of CD Universe, Cases Ladder, Gamer’s Alliance, Big Network, Pokemon Village, Falcon Ventures, and the asset acquisitions on Justsaywow, Funone and Dustcloud. Costs associated with impairment of goodwill and other intangibles amounted to $14.5 million for fiscal year 2001. During the fourth quarter of fiscal year 2001, the Company ceased operations of the Big Network and recognized impairment in the book value of goodwill attributable to Cases Ladder.

Stock-Based Compensation

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

         There was negligible cost associated with stock compensation for fiscal year 2003 and none in fiscal year 2002, as compared to $0.3 million for fiscal year 2001. The expenses for fiscal year 2001 were attributable to performance bonuses in connection with the acquisitions of JustSayWow, Funpageland and Pokemon Village.

Non-Operating Income (expense)

         In fiscal year 2003, the Company recognized a gain of $1.3 million on the extinguishment of debt. This was partially offset by interest expense and other financing costs of $0.6 million relating to the Company’s short and long-term debt obligations, and expense relating to the repurchase of stock options amounted to $0.5 million, resulting from the Company’s repurchase of approximately 900,000 stock options in fiscal year 2003. Other gains for fiscal year 2003 amounted to $0.4 million, reflecting the aggregation of a number of smaller items.

         In fiscal year 2002, the Company recognized expense of $0.5 million associated with the Company’s short and long-term debt obligations and other losses in the amount of $0.2 million.

         During fiscal year 2001, financing expenses totaled approximately $6.3 million, relating to the issuance of warrants in connection with certain financing transactions. In fiscal year 2001, the Company also recognized other losses of approximately $0.3 million.

Income Taxes

         The Company has recorded a provision for income taxes for the year ended March 31, 2003 in the amount of $63 thousand.

         The Company has net operating losses carried-forward since inception. Utilization of the Company’s net operating loss carry forwards, which begin to expire in 2020, may be subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended. Due to uncertainties regarding reliability of the deferred tax assets, the Company has provided a valuation allowance on the deferred tax asset in an amount necessary to reduce the net deferred tax asset to zero.

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Net Income (Loss) from Continuing Operations

         For fiscal year 2003, the Company reported net income from continuing operations of $0.3 million compared to net income from continuing operations of $5.4 million for fiscal 2002, a drop in net income of $5.1 million. The Company’s dramatic growth in fiscal year 2003 presented the Company with a number of challenges. The integration of ResponseBase into the Company’s existing operations required significant attention and resources, as did the internal growth and expansion of the Company’s e-commerce activities. In addition, the increased overhead required to support additional products and certain instances of inefficient media spending contributed to the reduction in net income from continuing operations.

         In fiscal year 2002, the Company reported net income from continuing operations of $5.4 million compared a net loss from continuing operations of $27.1 million in fiscal year 2001. The Company attributed its improved operating results in fiscal year 2002 primarily to its streamlined operating structure, greater yields from its third-party advertising segment, and the introduction of its Products and Services segment. In addition, fiscal year 2001 had been negatively impacted by a significant write down of goodwill and other intangible assets, interest and financing expenses, and amortization of intangible assets.

Net Income (Loss) from Discontinued Operations

         For fiscal years 2003 and 2002, the net income from discontinued operations of $0.2 million and $0.3 million, respectively, is due primarily to the favorable settlement of certain liabilities related to previously discontinued operations.

         In fiscal year 2001, the loss from discontinued operations amounted to $13.9 million. During the third quarter of fiscal 2001, eUniverse disposed of the tangible and intangible assets of its subsidiary, CD Universe, for $1 million to CLBL, Inc., a company owned by Charles Beilman, formerly a director and officer of eUniverse. eUniverse received an additional $0.5 million from CLBL for the purchase of advertising on the Company’s websites over a period of six months following the sale. A loss on the disposal of the segment of $9.9 million, principally consisting of a loss on disposal of intangible assets relating to CD Universe, was recognized during the third quarter of fiscal year 2001. Additional losses for the period of $4.0 million were incurred during the first three quarters of the fiscal year.

Liquidity and Capital Resources

         Net cash provided by operating activities was approximately $2.5 million for the year ended March 31, 2003 (“fiscal year 2003”), compared to $7.2 million of net cash provided by operating activities for the year ended March 31, 2002 (“fiscal year 2002”). The decrease in net cash provided by operating activities in fiscal year 2003 as compared to fiscal year 2002 resulted primarily from increased cash operating expenses associated with the Company’s growth during the period. Net cash provided by operating activities for fiscal year 2003 consists primarily of net income combined with non-cash expenses for depreciation and amortization, impairment of goodwill and other intangibles, allowance for doubtful accounts, and stock and warrants granted to outside consultants and affiliates, offset by a non-cash gain from the extinguishment of debt and income from discontinued operations. Net cash provided by operating activities for fiscal year 2002 consists primarily of net income and non-cash expenses for depreciation and amortization, allowance for doubtful accounts, stock and warrants granted to outside consultants and affiliates, and non-cash financing related costs.

         Net cash used by investing activities in fiscal year 2003 was approximately $7.4 million, compared to $3.2 million of net cash used by investing activities in fiscal year 2002. Net cash used by investing activities in fiscal year 2003 is primarily attributable to the Company’s acquisition of ResponseBase LLC, and purchases of fixed and intangible assets, including additional computer equipment and related infrastructure. Net cash used by investing activities in fiscal year 2002 was primarily attributable to purchases of fixed and intangible assets, including various websites, customer lists and domain names.

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         Net cash provided by financing activities in fiscal year 2003 was $1.5 million, compared to $3.8 million of net cash provided by financing activities in fiscal year 2002. Net cash provided by financing activities in fiscal year 2003 was primarily attributable to proceeds from sale and lease back transactions and proceeds from the exercise of stock options, offset, in part, by the repayment of capital lease obligations and the repayment of long-term notes. Net cash provided by financing activities in the fiscal year 2002 was primarily attributable to proceeds from the sale of Series B Preferred shares to 550 Digital Media and proceeds from the issuance of long-term notes, offset, in part, by the repayment of short and long-term notes.

         As of March 31, 2003, we had approximately $4.7 million in cash and cash equivalents and $3.3 million in restricted cash, (current and long-term) for total cash of $8 million, and approximately $1.6 million in working capital. As of March 31, 2002, we had approximately $8 million of cash and cash equivalents, and approximately $4.2 million in working capital. The decrease in working capital in fiscal year 2003 is the result of an increase in restricted cash, inventory, accounts payable, leases payable, and accrued expenses, and a decrease in current notes. In addition, the acquisition of ResponseBase required significant funds, as no additional debt was obtained to finance the transaction.

         In March 2003, Sony Music Entertainment (“SME”) and the Company agreed on certain modifications to SME’s investment in eUniverse through its affiliate, 550 Digital Media Ventures. Under the terms of the agreement, the maturity date of SME’s then existing loan to the Company of approximately $2.3 million dollars (the “Sony Note”) was extended for two years, until March 31, 2005. In addition, the agreement provided for subordination of SME’s security interest in the assets of eUniverse to a revolving, working capital line of credit, although the Company does not have any specific plans with regard to securing such a facility.

         In July 2003, the Company received $2 million of debt financing from VP Alpha Holdings IV, L.L.C. (“VPVP”) an affiliate of VantagePoint Venture Partners. The debt financing consisted of a $2 million, 8% secured note (the “VPVP Note”) which is due on the first to occur of (i) the maturity of the Sony Note (currently due March 31, 2005), (ii) the closing of the preferred stock investment by VPVP, at which point the VPVP Note would be applied toward the purchase price, (iii) March 31, 2005 and (iv) the closing by the Company of a debt or equity financing in excess of $2.5 million with a party other than VPVP.

         Concurrently with the debt financing, the Company and VPVP entered into a non-binding term sheet relating to a second phase of financing that would consist of an up to $10 million preferred stock investment by VPVP in eUniverse, and the provision of an additional $20 million dollar “line of credit” to be used in future merger and acquisition transactions. The term sheet contemplates that VPVP would purchase up to $10 million shares of a newly authorized series of preferred stock. The purchase price of the shares is expected to be $1.50 per share. The VPVP Note would be credited towards the purchase price. Upon the closing of the sale of the preferred stock to VPVP, the term sheet contemplates that VPVP would provide the Company with a line of credit of up to $20 million for making acquisitions and entering into strategic business development ventures. VPVP would have discretion over eUniverse’s use of the line of credit, the detailed terms of which are to be negotiated. The terms of the second phase of the financing as set forth in the term sheet are non-binding. Further information with respect to the agreements and contemplated agreements with VPVP are set forth above in “Business—Recent Events—Additional Financing.”

         In fiscal year 2004, the Company expects to continue to invest in the infrastructure of the Company, and in certain strategic initiatives, to support the Company’s continued growth and expansion. In addition, the Company expects to incur significant non-recurring expenses associated with the restatement of the Company’s financial statements for the first three fiscal quarters of fiscal year 2003, and the implementation of internal controls and other corporate governance initiatives required by the Sarbanes-Oxley Act of 2002, as well as significant expenses in connection with the Restatement-related litigation. Recently, the Company has experienced changes in its business and results of operations, and fluctuations in its cash flows. The Company expects that in fiscal year 2004 it will need to supplement the net cash provided by the Company’s operations with additional debt or equity financing, so that it may continue to invest in the Company’s expansion while providing for the Company’s other cash requirements. The Company expects that the proposed additional financing from VPVP, together with a reduction in a certificate of deposit held as collateral on a capital lease, will provide sufficient funds for additional investment throughout fiscal year 2004. However, in the event we are unable to reach an agreement with VPVP for additional financing, we may need to raise additional funds, and we cannot be certain that we will be able to obtain additional debt or equity financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, grow our business, or meet unanticipated cash requirements, which could seriously harm our business.

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         At March 31, 2003, the Company had no off-balance sheet financing arrangements or undisclosed liabilities related to special purpose, related party, or unconsolidated entities.

Contractual Obligations

         We have an outstanding note payable with an affiliate, as well as various non-affiliated notes payables, maturing at various dates through March 2005. We lease facilities and equipment under various capital and operating lease agreements with various terms and conditions, expiring at various dates through March 2008.

Our material contractual obligations at March 31, 2003 are as follow (in thousands):

	Payments Due by Period
	Total Amounts Committed		Less than 1 year		1-3 years		4-5 years		After 5 years
Contractual Obligations
8% Convertible Note payable for acquisition of Deb’s Fun Pages	$	287	$	287	$	—	$	—	$	—
8% Convertible Note payable for acquisition of Fun Page Land		113		113		—		—		—
Note payable for acquisition of Funnygreetings.com		454		454		—		—		—
Note payable with interest accruing at prime plus 2% (Sony)		2,290		—		2,290		—		—
Note payable with effective rate of 9.7% (SFX Entertainment, Inc.)		606		606		—		—		—
Capital lease obligations		1,615		1,178		430		7		—
Operating lease obligations		2,930		1,174		1,756		—		—
Total contractual obligations	$	8,295	$	3,812	$	4,476	$	7	$	—

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk represents the potential loss that may impact our financial position, results of operations or cash flows due to adverse changes in the financial markets. We are exposed to market risk from changes in the base of our variable rate debt.

         eUniverse places its cash and cash equivalents in banks with high quality standards. Cash investments consist of high quality overnight investments that bear immaterial exposure to interest rate fluctuations.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Financial statements required pursuant to this item are included in Part IV, Item 16 of this Form 10-K and are presented beginning on page F-1. The supplementary financial information required by this item is included under the subsection entitled Quarterly Results of Operations/Supplementary Financial Information, beginning on page F-28.

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

         On April 28, 2003 eUniverse, Inc., by and through the Audit Committee of the Company’s Board of Directors, engaged Moss Adams LLP as independent auditor, replacing Merdinger, Fruchter, Rosen & Company, P.C. (“MFR&C”).

         MFR&C’s reports on eUniverse, Inc.’s financial statements for the past two years did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

         During eUniverse, Inc.’s two most recent fiscal years and through the date of MFR&C’s dismissal, there were no disagreements with MFR&C on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to MFR&C’s satisfaction, would have caused MFR&C to make reference to the subject matter in connection with its report of the financial statements for such years; and there were no reportable events as defined in item 304(a)(1)(v) of Regulation S-K.

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PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Name	Age	Positions and Offices with eUniverse
Brad D. Greenspan (1) (2)	30	Chairman of the Board of Directors and Chief Executive Officer
Brett C. Brewer (1) (2)	31	President and Director
Joseph L. Varraveto(3)	41	Executive Vice President and Chief Financial Officer
Adam Goldenberg	22	Chief Operating Officer
Christopher S. Lipp	31	Senior Vice President and General Counsel
Daniel L. Mosher (1) (4)	30	Director
Lawrence R. Moreau (4) (5)	60	Director
Thomas Gewecke(1) (4)	34	Director
Jeffrey Lapin (6)	47	Director

(1)  Member of the Compensation Committee.

(2)  Member of the Executive Committee. The Company’s Board of Directors dissolved the Executive Committee on August 9, 2002.

(3)  Resigned effective August 19, 2003.

(4)  Member of the Audit Committee.

(5)  Appointed on May 27, 2003.

(6)  Resigned effective May 8, 2003.

         Brad D. Greenspan has served as Chairman of the Board of Directors since April 14, 1999 and Chief Executive Officer since August 29, 2000. Mr. Greenspan is a member of eUniverse’s Compensation Committee. In 1997, he founded Palisades Capital, Inc., a private Beverly Hills merchant bank, and served as its President until March 1999. Mr. Greenspan received a B.A. degree in political science from the University of California at Los Angeles in 1997.

         Brett C. Brewer has served as President and Director since August 29, 2000. Mr. Brewer is a member of eUniverse’s Compensation Committee. He joined the Company in April 1999 and was named Vice President of its e-Commerce Division in December 1999 and elected President of CD Universe, Inc., a subsidiary of eUniverse, in July 2000. Prior to joining eUniverse, Mr. Brewer helped run the Southern California Retail Sales Division of CB Richard Ellis between October 1996 and December 1998. Mr. Brewer received a B.A. degree in business/economics from the University of California at Los Angeles.

          Joseph L. Varraveto served as Executive Vice President and Chief Financial Officer from January 2, 2001 until his resignation effective August 19, 2003. Prior to joining eUniverse, Mr. Varraveto served as President and Chief Operating Officer of ememories.com. Prior to that, he served as acting Chief Financial Officer of AIR4LESS.com, a leisure travel Web site. Prior to entering the online world, Mr. Varraveto worked for PepsiCo's Frito Lay International Snack Foods Division for more than six years serving in a variety of management positions, including Vice President, Finance prior to leaving the Company in 1999. He also spent nine years at PriceWaterhouse Coopers working on corporate acquisitions, reorganizations, public offerings and debt offerings. Mr. Varraveto received a B.A. degree in business economics from the University of California at Santa Barbara.

         Adam Goldenberg has served as Chief Operating Officer since October 26, 2001. In 1997, Mr. Goldenberg founded Gamer’s Alliance, Inc., an online entertainment portal, and served as its President until it was acquired by eUniverse in April 1999. Mr. Goldenberg served as Vice President, Strategic Planning of eUniverse from April 1999 to October 2001. eUniverse has benefited greatly from Mr. Goldenberg’s six years of experience in Internet marketing, product development and management.

         Christopher S. Lipp has served as Senior Vice President and General Counsel since October 26, 2001, Vice President, General Counsel since May 1, 2001, Secretary since March 30, 2000 and Vice President, Business and Legal Affairs since January 11, 2000. Prior to joining eUniverse, Mr. Lipp was employed as an attorney in the

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Intellectual Property Group of Pillsbury Madison & Sutro LLP at Los Angeles, California. He has been a member of the California State Bar since 1997. Mr. Lipp received his J.D. from the University of Southern California Law School and a B.A. degree in government and sociology from Georgetown University.

         Daniel L. Mosher has served as Director since April 17, 2000. Mr. Mosher is a member of eUniverse’s Compensation and Audit Committees. He is employed as Director of Corporate Development of Verisign, Inc. Prior to that, Mr. Mosher was employed by Webvan Group, Inc. from May 1999 to May 2001, most recently as Director, Business Development. From January 1998 to May 1999, Mr. Mosher served in the Mergers and Acquisitions Department of Morgan Stanley Dean Witter Technology Group, an investment banking firm. From February 1996 to January 1998, he held several positions in the Corporate Finance Group of Arthur Andersen, focused on technology private placements. Mr. Mosher holds a B.S. degree in business administration from the University of California at Berkeley.

         Thomas Gewecke has served as Director and a member of the Audit and Compensation Committees since October 23, 2001. Mr. Gewecke has been employed as Executive Vice President of 550 Digital Media Ventures Inc., a subsidiary of Sony Broadband Entertainment Inc. He has also served as Senior Vice President, New Technology and Business Development for Sony Music Entertainment Inc. where he is responsible for helping develop new digital products and strategy, since November 1999. Prior to joining Sony, Mr. Gewecke held various positions at PC World Communications, a subsidiary of International Data Group, from 1991 to 1999. Mr. Gewecke co-founded PC World Online in 1992, and served as Publisher of the PC World Online Services Group, a network of leading high technology Web and E-mail products, from 1995 to 1999. Mr. Gewecke co-created a new media course for the UC Berkeley Graduate School of Journalism Master’s Degree Program in 1995, and taught in the program through 1998. Mr. Gewecke received a B. A. degree in Social Studies from Harvard in 1991.

         Lawrence R. Moreau has served as Director and member of the Audit Committee since June 20, 2003. Mr. Moreau is the Chairman of Stone Mountain Financial Systems, Inc., a private company providing online payment solutions primarily to Internet related retail merchants. Previously, Mr. Moreau founded and served as Chief Executive Officer of Moreau and Company, Inc., a financial consulting firm, and Moreau Capital Corporation, a National Association of Securities Dealers registered investment-banking firm, which specialized in private and public securities offerings. Prior to founding Moreau Capital, Mr. Moreau was a financial principal and on the Board of Directors of H. J. Meyers & Company, a New York Stock Exchange investment banking firm. Previous to his investment-banking career, Mr. Moreau was a Vice President and Special Assistant to the President of Pacific Enterprises, a multi-billion dollar diversified holding company. Prior to joining Pacific Enterprises, Mr. Moreau worked for Touche Ross & Co. (now Deloitte & Touche) for eleven years planning and managing audits of companies in a wide variety of industries. Prior to beginning his professional career, Mr. Moreau served as a commissioned officer in the United States Army during the Vietnam War. Mr. Moreau holds a Bachelor of Arts in Accounting and a Master’s Degree in Accounting Science from the University of Illinois, Champaign/Urbana. Mr. Moreau was licensed as a Financial Principal and an Operations Principal with the NASD. Mr. Moreau was also an Associate Member of the NYSE and a member of the Securities and Exchange Commission practice section of the American Institute of Certified Public Accountants. For seven years, Mr. Moreau was a member of the Board of Directors of the Los Angeles Venture Capital Association and served as its Chairman for two years.

         Each director of eUniverse serves for a one-year term until the next Annual Meeting of Shareholders and until his successor has been duly elected. Each officer of eUniverse serves at the pleasure of the Board of Directors.

Agreements Concerning the Election of Directors

         Pursuant to the Company’s Certificate of Designation of Series B Convertible Preferred Stock, which gives the holders of Series B Preferred Stock (currently 550 Digital Media Ventures, Inc.) voting as a class the right to elect one, and, depending on the size of the Company’s Board of Directors, up to three Directors. Thomas Gewecke was elected to the Board of Directors on October 19, 2001.

Compliance with Section 16(a) of the Exchange Act

         Section 16(a) of the Securities Exchange Act of 1934, as amended (Section 16(a)) requires eUniverse’s executive officers, directors, and persons who own more than 10% of a registered class of eUniverse’s equity securities (10% Stockholders) to file reports of ownership on a Form 3 and changes in ownership on a Form 4 or a Form 5 with the SEC.

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         Based solely on its review of the copies of such forms received by eUniverse, or written representations from certain reporting persons, eUniverse believes that during fiscal year 2003 its executive officers, directors and 10% Stockholders complied with all applicable Section 16(a) filing requirements, except that a Form 4 required to be filed by Joseph L. Varraveto (who was an executive officer of eUniverse during fiscal year 2003) and the Form 5’s required to be filed by Thomas Gewecke and Jeffrey C. Lapin (each of whom was a director of eUniverse during fiscal year 2003) were inadvertently filed late.

ITEM 11.   EXECUTIVE COMPENSATION

         The table below summarizes the compensation paid or awarded during the last three fiscal years to our Chief Executive Officer and our four other most highly compensated Executive Officers for services rendered to eUniverse in all capacities. These executives are referred to as the Named Executive Officers elsewhere in this Form 10-K.

SUMMARY COMPENSATION TABLE

SUMMARY COMPENSATION TABLE (in thousands)
								LONG–TERM COMPENSATION
	ANNUAL COMPENSATION							AWARDS		PAYOUTS
NAME AND PRINCIPAL POSITION	FISCAL YEAR		SALARY ($)	BONUS ($)		OTHER ANNUAL COMPENSATION ($)		RESTRICTED STOCK AWARD ($)	SECURITIES UNDERLYING OPTIONS #	LTIP PAYOUTS ($)	ALL OTHER ($)
Brad D. Greenspan	2003		192	43	(1)	55	(2)	—	—	—	—
Chairman of the Board	2002		178	95		—		—	800	—	—
and Chief Executive Officer	2001		100	—		50	(3)	—	—	—	—
Brett C. Brewer	2003		174	33	(1)	55	(4)	—	—	—	—
President and Director	2002		132	99		—		—	500	—	—
	2001		105	—		—		—	750	—	—
Joseph L. Varraveto	2003		181	30		—		—	60	—	—
Executive Vice President	2002		160	60		—		—	50	—	—
and Chief Financial Officer	2001	(5)	38	—		—		—	350	—	—
Adam Goldenberg	2003		156	132	(6)	62	(8)	—	—	—	—
Chief Operating Officer	2002		124	109		—		—	675	—	—
	2001	(7)	96	—		—		—	175	—	—
Chris Lipp	2003		151	18	(1)	60	(9)	—	—	—	—
Senior Vice President	2002		135	38		—		—	150	—	—
and General Counsel and     Secretary	2001	(10)	91	—		—		—	150	—	—

(1) The recipients of these bonuses each have agreed to promptly repay the value of their respective bonus to the Company in cash, stock or a combination thereof.

(2)  On July 12, 2002, in connection with the Company’s cancellation of approximately 900,000 total options, the Company paid $55,000 to Mr. Greenspan in exchange for the cancellation of 340,000 options.

(3)  Represents consulting fees paid to Mr. Greenspan prior to his appointment as Chief Executive Officer of eUniverse on August 29, 2000.

(4)  On July 12, 2002, in connection with the Company’s cancellation of approximately 900,000 total options, the Company paid $55,000 to Mr. Brewer in exchange for the cancellation of 75,000 options.

(5)  Mr. Varraveto was appointed as Executive Vice President and Chief Financial Officer of eUniverse on January 2, 2001. Mr. Varraveto resigned effective as of August 19, 2003.

(6)  The recipient of this bonus has indicated to the Company his intent to return to the Company the value of that portion of the bonus which would not have been paid based upon the restated financial statements of the Company for the fiscal year 2003, and is currently in discussion with the Company about the manner of effecting such repayments.

(7)  Mr. Goldenberg was promoted to Chief Operating Officer in October 2001.

(8)  On July 12, 2002, in connection with the Company’s cancellation of approximately 900,000 total options, the Company paid $62,334 to Mr. Goldenberg in exchange for the cancellation of 85,000 options.

(9)On July 12, 2002, in connection with the Company’s cancellation of approximately 900,000 total options, the Company paid $60,000 to Mr. Lipp in exchange for the cancellation of 100,000 options.

(10)Mr. Lipp was appointed Secretary on March 30, 2000, was promoted to General Counsel on May 1, 2001, and promoted to Senior Vice President, General Counsel on October 26, 2001.

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OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

Name and Principal Position	Number of Securities Underlying Options Granted	% of Total Options Granted to Employees in Fiscal Year		Exercise Price $/Share	Expiration Date	Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Options Term 5%                 10%
Brad D. Greenspan
Chairman of the Board of Directors and
Chief Executive Officer	—	—		$   —	—	$          —	$         —
Brett C. Brewer
President and Director	—	—		—	—	—	—
Joseph L. Varraveto
Executive Vice President and Chief
Financial Officer	60,000	10	%	$5.10	July 9, 2012	192,442	487,685
Adam Goldenberg
Chief Operating Officer	—	—		—	—	—	—
Christopher S. Lipp
Senior Vice President and General
Counsel	—	—		—	—	—	—

One-third of the options vest and are exercisable one year from the date of grant. Thereafter, one-eighth of the remaining options vest and are exercisable each three months thereafter until all optioned shares are vested.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES/SAR VALUES

	Number of shares acquired	Value	Number of securities underlying unexercised options/SAR’s at fiscal year-end		Value of unexercised in-the-money options/SAR’s at fiscal year-end
Name	exercise	Realized	Exercisable	Unexercisable	Exercisable	Unexercisable
Brad D. Greenspan	—	$            —	666,667	113,333	$1,560,001	$311,999
Brett C. Brewer	—	—	916,667	333,333	2,363,751	936,249
Joseph L. Varraveto	—	—	262,500	197,500	752,792	395,708
Adam Goldenberg	—	—	510,417	339,583	1,478,751	939,249
Chris Lipp	87,500	289,198	112,500	100,000	263,250	280,875

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Director Compensation

                Compensation of the Company’s Directors is determined by resolution of the Board in accordance with the Company’s Bylaws. Directors of eUniverse who are also employees or officers of the Company do not receive any compensation specifically related to their activities as directors, other than reimbursement for expenses incurred in connection with their attendance at Board meetings.

                On April 17, 2000, Daniel L. Mosher, for his first year of service as a non-employee director, received an option to purchase 63,750 shares of the Company’s common stock at market price, which option vested on December 8, 2000, one year after the date that he became a director. On January 22, 2001, for his second year of service as a non-employee director, Mr. Mosher received an option to purchase 25,000 shares of the Company’s common stock at market price, which option vested on January 22, 2002 and expires ten years after the date of grant (or sooner in the event Mr. Mosher’s relationship with the Company terminates). In July of 2002, Mr. Mosher was paid $51 thousand for cancellation of this option in connection with the Company’s cancellation of approximately 900,000 total options held by various Company stock option holders. On October 23, 2002, Mr. Mosher, for his continued service as a non-employee director, received an option to purchase 37,500 shares of the Company’s common stock at market price, a portion of which option vested on the date of the grant with the remainder vesting on the date of the Company’s next annual meeting of shareholders, and which option expires ten years after the date of grant (or sooner in the event Mr. Mosher’s relationship with the Company terminates). On June 25, 2003, the Company’s Board of Directors agreed, in recognition of Mr. Mosher’s service on the Audit Committee and the recently increased demands of such service, to pay Mr. Mosher $5,000 per month for the months of June, July and August 2003.

                On December 3, 2001, Thomas Gewecke, for his first year of service as a non-employee director, received an option to purchase 25,000 shares of the Company’s common stock at market price, which option vested on October 23, 2002, and which expires ten years after the date of grant (or sooner in the event Mr. Gewecke’s relationship with the Company terminates). On October 23, 2002, Mr. Gewecke, for his second year of service as a non-employee director, received an option to purchase 25,000 shares of the Company’s common stock at market price, which option vests on the date of the Company’s next annual meeting of shareholders, and which option expires ten years after the date of grant (or sooner in the event Mr. Gewecke’s relationship with the Company terminates).

                Lawrence Moreau receives as compensation for his service on the Board and as Chairman of the Audit Committee of the Board, $9,250 per month.

                For each board meeting they attend, non-employee directors are reimbursed for their expenses incurred in connection with their attendance at the meeting.

Employment Agreements

                The Company currently has no employment agreements with any of its officers or Directors.

Compensation Committee Interlocks and Insider Participation

                 No member of the Board of Directors or the Compensation Committee serves as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving as a member of eUniverse’s Board of Directors or Compensation Committee. During eUniverse’s fiscal year ending on March 31, 2003, the members of the Compensation Committee were Brad D. Greenspan, Brett C. Brewer, Daniel L. Mosher, Jeffrey C. Lapin and Thomas Gewecke. Mr. Greenspan is the Company’s Chief Executive Officer. Mr. Brewer is the Company’s President.

                 Notwithstanding anything to the contrary set forth in any of eUniverse’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might affect future filings, including this Form 10-K, the Compensation Committee Report on Executive Compensation set forth below, and the Stock Performance Graph set forth on page 49 in accordance with Securities Exchange Commission requirements, shall not be incorporated by reference into any such filings.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

General

                 The Compensation Committee of eUniverse’s Board of Directors makes decisions as to certain compensation of eUniverse’s executive officers.

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Compensation Policies

                 eUniverse’s philosophy is to tightly link executive compensation to corporate performance and returns to stockholders. A significant portion of executive compensation is dependent upon the Company’s success in meeting one or more specified goals and to the potential appreciation of the eUniverse common stock. Thus, a significant portion of an executive’s compensation is at risk. The goals of the compensation program are to attract and retain exceptional executive talent, to motivate these executives to achieve the Company’s business goals, to link executive and stockholders interests through equity-based plans, and to recognize individual contributions as well as overall business results.

                 Each year the Compensation Committee conducts a review of the Company’s executive compensation program. This review often includes data supplied by independent third party compensation consultants and is used to realign the Company’s compensation programs to other comparable rapidly growing companies in the technology space. The key elements of eUniverse’s executive compensation are generally base salary, bonus, stock options and benefits. The Compensation Committee’s policies with respect to each of the elements are discussed below. While the elements of compensation are considered separately, the Compensation Committee also takes into account the complete compensation package provided by eUniverse to the individual executive.

Base Salary

                   Base salaries for executive officers are determined by evaluating the responsibilities of the position and the experience of the individual, and by reference to the competitive marketplace for pertinent executive talent, including a comparison to base salaries for comparable positions at companies of similar size, complexity and within the same sector. Base salary adjustments are determined annually by evaluating the financial performance and, where appropriate, certain non-financial performance measures, of eUniverse, and the performance of each executive officer.

Bonus

                 The Company’s executive officers are generally eligible for annual and other cash bonuses. At the beginning of each fiscal year, the Compensation Committee establishes both quarterly and annual individual and corporate performance objectives. For fiscal year 2003, the targets were based upon achieving certain profitability goals. A target amount payable was also established for each executive officer eligible for a particular bonus. The Compensation Committee also considers individual non-financial performance measures in determining bonuses. For fiscal 2003, the bonus structure was modified to enable an executive officer to achieve a higher bonus than the targeted amount should the performance goals be exceeded by a certain percentage.

Stock Awards Plan

                 The purpose of the eUniverse Stock Awards Plan is to provide an additional incentive to Company employees to work to maximize stockholder value. To this end, the Compensation Committee grants to key executives stock options under the Company’s 1999 Stock Awards Plan (the 1999 Plan) which generally vest (i.e., become exercisable) over a three-year period following the date of grant as follows: 33 1/3% on the first anniversary; and 1/12 each quarter thereafter. During the fourth quarter of fiscal 2003, the stock vesting period was revised to four years from the date of grant with 25% vesting on the first anniversary and 1/12 each quarter thereafter. Options under the 1999 Plan are granted at the current market price, have a term of ten years from the date of grant, and, subject to the above vesting restrictions, may be exercised at any time during such term. The stockholders at the 2001 Annual Meeting approved the 1999 Plan, which is administered by the Compensation Committee. See table entitled Option Grants in Last Fiscal Year, on page 46, summarizing options granted to each Named Executive Officer and vesting terms for each grant.

Benefits

                 The benefits available to executive officers are the same as those afforded to all full-time employees, including medical, dental, death, disability coverage and a 401(k) plan.

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Chief Executive Officer Compensation

                 The Board of Directors determined the components of Mr. Greenspan’s fiscal year 2003 compensation as follows:

                 Base Salary. Mr. Greenspan’s base salary of $185 thousand was increased to $215 thousand as of January 2, 2003 to reflect changes in market conditions and complexities in the business and for performance for the previous twelve-month period. Additionally, Mr. Greenspan was awarded a bonus of $45 thousand for fiscal year 2003 for achieving certain operating objectives, primarily relating to revenue growth and profitability during the first two quarters of the fiscal year. As of June 16, 2003, Mr. Greenspan voluntarily decided to cut his salary by twenty percent, to $172,000, as a reflection of the Company’s restated quarterly financial results and lower than anticipated full fiscal year results. In addition, Mr. Greenspan has agreed to repay the value of his $42,500 bonus to the Company in the form of cash, stock or some combination thereof.

                 Additional Compensation. On July 12, 2002, in connection with the Company’s cancellation of approximately 900,000 options, the Company paid $55 thousand to Mr. Greenspan in exchange for the cancellation of 340,000 options.

                 Stock Awards Plan. Mr. Greenspan was not awarded any stock options during fiscal 2003.

                 Benefits.   Mr. Greenspan was provided benefits under eUniverse’s medical, dental, death, disability coverage, and employee stock purchase and 401(k) plans consistent with those provided to other full-time employees.

PERFORMANCE GRAPH

                 The following graph compares the yearly percentage change in eUniverse’s cumulative total shareholder return on the Company’s common stock to the cumulative total return of the NASDAQ Composite Index and a peer group of Internet stocks for the three years ended April 15, 2003. The peer group selected by Company consists of AOL, CNET Networks, Valueclick, Findwhat and Yahoo. The graph assumes that the value of the investment in the Company’s common stock and the comparison index was $100 on April 15, 2000 and assumes the reinvestment of dividends. The Company has never declared a dividend on its common stock. The stock price performance depicted in the graph below is not necessarily indicative of future price performance.

The common stock of eUniverse, Inc. began publicly trading on the NASDAQ Small Cap Market on April 15, 2000 under the symbol EUNI. From April 1999 to March 2000 shares of eUniverse, Inc. were publicly traded on the OTC Bulletin Board.

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ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

                 The following table sets forth certain information as of July 31, 2003 with respect to the beneficial ownership of the Company’s voting securities by the following individuals or groups: (a) each person who is known by eUniverse to own beneficially more than 5% of the Company’s common stock, including our preferred stock on an as-converted basis, (b) each Director of eUniverse, (c) each Named Executive Officer (as defined above under the caption Executive Compensation) of eUniverse, and (d) all executive officers and Directors of eUniverse as a group.

Name of Beneficial Owner	Shares Beneficially Owned (1)		Percentage Beneficially Owned (2)
Brad D. Greenspan	8,191,000	(3)	28.7	%
Brett C. Brewer	1,164,750	(4)	4.1	%
Joseph L. Varraveto	376,937	(5)	1.3	%
Adam Goldenberg	736,808	(6)	2.6	%
Chris Lipp	165,536	(7)	*
Thomas Gewecke	50,000	(8)	*
Daniel L. Mosher	65,000	(9)	*
Lawrence R. Moreau	—		—
550 Digital Media Ventures, Inc. (“550 DMV”)	5,289,231	(10)	18.5	%
VP Alpha Holdings IV, L.L.C.	4,800,000	(11)	16.8	%
Directors and executive officers as a Group	10,750,031		37.6	%

* less than 1%

(1)   Unless otherwise noted, all of the shares shown are held by individuals or entities possessing sole voting and investment power with respect to the shares. Shares not outstanding but deemed beneficially owned by virtue of the right of a person to acquire them within 60 days, whether by the exercise of options or warrants or the conversion of shares of preferred stock into shares of common stock, are deemed outstanding in determining the number of shares beneficially owned by the person or group. We are treating our preferred stock and common stock as one class of voting securities because the holders of our preferred stock have the right to vote their shares with the common stock on an as-converted basis.

(2)   The Percentage Beneficially Owned is calculated by dividing the Number of Shares Beneficially Owned by the total outstanding shares of common stock and preferred stock on an as-converted basis including shares beneficially owned by the person with respect to whom the percentage is calculated.

(3)   Includes 350,000 shares represented by options exercisable within 60 days.

(4)   Includes 968,750 shares represented by options exercisable within 60 days.

(5)   Includes 349,167 shares represented by options exercisable within 60 days.

(6)   Includes 647,917 shares represented by options exercisable within 60 days.

(7)   Includes 162,500 shares represented by options exercisable within 60 days.

(8)   Includes 50,000 shares represented by options exercisable within 60 days. Excludes attribution of beneficial ownership of shares owned by 550 DMV to Thomas Gewecke, an executive officer of DMV, who serves as a Director pursuant to 550 DMV’s right of appointment, but who disclaims such beneficial ownership.

50

(9)   Includes 62,500 shares of Represented by options exercisable within 60 days.

(10) Includes 1,923,077 shares of Series B Preferred Stock on an as-converted basis. Also includes 3,050,000 common shares and
        1,750,000 Series B Preferred shares which are subject to an option granted to VP Alpha Holdings IV, L.L.C., as noted below
        and as more fully described in “Business—Recent Events—Additional Financing.”

(11) Represents an option to purchase 3,050,000 common shares and 1,750,000 Series B Preferred shares from 550 DMV. See
        “Business—Recent Events—Additional Financing” for more information.

      The number of shares to be issued upon the exercise of outstanding options and warrants, and the number of shares remaining available for future issuance under the Company’s equity compensation plan at March 31, 2003 were as follows (in thousands, except per share data):

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted - average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plan approved by security holders (1)	7,602	$3.15	1,398
Equity compensation plan not approved by security holders (2)	127	$3.40	—
Total	7,729		1,398

(1) The Company has reserved an aggregate of 9,000,000 shares of common stock for issuance under the Company’s 1999 Stock
      Award Plan. See Note 15 of Notes to Consolidated Financial Statements for a narrative description of the plan.
(2) The Company has granted certain warrants in connection with professional services at exercise prices ranging from $1.75 to $5.03
      and with terms ranging from 1 to 4 years.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  It is the Company’s policy that the Company’s directors and executive officers must avoid any activity that is or has the appearance of being adverse to, or competitive with, the interests of the Company, or that interferes with the proper performance of their duties, responsibilities or loyalty to the Company. Each director and executive officer is obliged to inform the Board when confronted with any situation that may be perceived as a conflict of interest, even if the person does not believe that the situation would violate the Company’s guidelines. If in a particular circumstance it is concluded that there is, or may be a perceived, conflict of interest, the Board will instruct the Company’s legal department to work with the relevant business parties to determine if there is a conflict of interest. Any waivers to these conflict rules with regard to a director or executive officer require the prior approval of the disinterested directors.

                  In March 2003, Sony Music Entertainment (“SME”) and the Company agreed on certain modifications to SME’s investment in eUniverse through its 550 Digital Media Ventures, Inc. affiliate. Under the terms of the agreement, the maturity date of SME’s then existing loan to the Company of approximately $2.3 million (the “Sony Note”) was extended two years, until March 31, 2005, and eUniverse agreed not to exercise its right, triggered by the Company’s achievement of certain EBITDA milestones, to convert SME’s Series B Preferred Stock into common stock of the Company. The Company has also agreed to make available to SME limited marketing and advertising services to promote Sony Music recording artist releases or other products and services of SME or its affiliates. Finally, the agreement provided for subordination of SME’s security interest in the assets of eUniverse to a revolving, working capital line of credit, although the Company does not have any specific plans with regard to securing such a facility. The Sony Note was originally issued in September of 2000 in connection with a marketing agreement between the Company and two Internet publishing affiliates of SME. The loan was amended and restated

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in connection with SME’s investment in the Company in October of 2001, as more fully described in the Company’s filing on Form 8-K on November 7, 2001.

         In July 2003, the Company received $2 million of debt financing from VP Alpha Holdings IV, L.L.C. (“VPVP”) an affiliate of VantagePoint Venture Partners. The debt financing consisted of a $2 million, 8% secured note (the “VPVP Note”) which is due on the first to occur of (i) the maturity of a note held by 550 Digital Media Ventures, Inc. (“550 DMV”) a wholly-owned subsidiary of Sony Music Entertainment (currently due March 31, 2005), (ii) the closing of the preferred stock investment by VPVP, at which point the VPVP Note would be applied toward the purchase price, (iii) March 31, 2005 and (iv) the closing by the Company of a debt or equity financing in excess of $2.5 million with a party other than VPVP.

         Concurrently with the debt financing, the Company and VPVP entered into a term sheet relating to a second phase of financing that would consist of an up to $10 million preferred stock investment by VPVP in eUniverse and the provision of an additional $20 million dollar “line of credit” to be used in future merger and acquisition transactions. The terms of the second phase of the financing as set forth in the term sheet are non-binding. The term sheet contemplates that VPVP would purchase up to $10 million shares of a newly authorized series of preferred stock, as more fully described below. The purchase price of the shares is expected to be $1.50 per share. The VPVP Note would be credited towards the purchase price. Upon the closing of the sale of the preferred stock to VPVP, the term sheet contemplates that VPVP would provide the Company with a line of credit of up to $20 million for making acquisitions and entering into strategic business development ventures. VPVP would have discretion over eUniverse’s use of the line of credit, the detailed terms of which are to be negotiated.

         Also in connection with the debt financing, VPVP purchased from 550 DMV, a wholly owned subsidiary of Sony Music Entertainment, $0.5 million of an approximately $2.3 million note held by 550 DMV (the “Sony Note”) and an option (the “Option”) to purchase up to 3,050,000 shares of the Company’s Common Stock and up to 1,750,000 shares of the Company’s Series B Convertible Preferred Stock held by 550 DMV for a purchase price of $1.10 per share, with the price subject to adjustment under certain conditions. If the Option is exercised for all the shares subject to it, 550 DMV and any assignee of its remaining Series B shares will, in future votes, vote in the same manner as VPVP with respect to the Series B shares purchased pursuant to the Option. Any and all rights that 550 DMV has associated with the Common Stock and the Series B including but not limited to registration rights, voting rights, preemptive rights, liquidation preference, or otherwise, will be deemed transferred (to the extent transferable) to VPVP upon its exercise of the Option and the payment of the related purchase price. In addition, 550 DMV has agreed that it will vote as a stockholder in favor of any investment and loan transaction between the Company and VPVP resulting in an additional investment in the Company by VPVP of not less than $5 million at a price of at least $1.00 per share (if an equity transaction), as approved by the Board of Directors of the Company. In connection with consummation of any such transaction, 550 DMV will be deemed to have waived any anti-dilution protection and any pre-emptive rights and rights of first refusal that 550 DMV may have in connection with its securities holdings in the Company. Pursuant to the debt financing agreements, eUniverse and VPVP agreed that in the event that VPVP does not exercise the Option within 120 days of its grant, that VPVP may, within 10 days after the expiration of such 120-day period, transfer the Option to eUniverse in exchange for a warrant (the “Warrant”) to purchase 200,000 shares of the Company’s Series C Convertible Preferred Stock.

         In connection with the above-referenced transactions, eUniverse agreed that it will create a new series of preferred stock if (i) VPVP exercises the Option, and/or (ii) the Company and VPVP agree to consummate the preferred stock financing described above. The Company currently expects that the new series of preferred stock will be designated Series C Convertible Preferred Stock (the “Series C”) and will be created by board resolution in accordance with the Company’s certificate of incorporation. If the Series C is so created, VPVP would purchase Series C in the second phase of financing, VPVP would receive the right to exchange any shares of Series B acquired pursuant to the Option for Series C and the Warrant (if issued) would be exercisable into Series C.

         As currently contemplated, the Series C would be substantially similar to the Company’s Series B, subject to the following differences, among others, (a) the Series C would be entitled to an 8% cumulative dividend payable in additional shares of Series C; (b) the conversion price would be $1.50; (c) the Series C would be convertible into common stock at VPVP’s election and upon other events to be negotiated between the Company and VPVP and acceptable to VPVP. If the Option has been exercised in full the Series C would also have additional rights as follows: (a) the Series C would have the right to elect a number of the members of the Company’s Board of Directors identical to the current rights of the Series B to elect members of the Board of Directors, as 550 DMV would be required to vote in the same manner as VPVP, such board members would constitute both the Series B and Series C board representatives and (b) so long as VPVP or any of its affiliates owns at least 1,442,308 shares of Series C or Common Stock (as adjusted for any stock split, combination, reorganization, reclassification, stock dividend, stock distribution or similar event), the Company would not, without the affirmative consent or  vote of at least two-thirds of the Board of Directors (i) enter into an agreement for or consummate, a Corporate Transaction (as defined in the Series B Certificate of Designations), (ii) enter into transactions which result in or require the Company to issue shares of its capital stock in excess of 5% (in any one transaction) or 12.5% (in the aggregate) of the Company’s then-current market capitalization, (iii) increase or decrease the number of authorized shares of capital stock, (iv) directly or indirectly declare or pay any dividend or make any other distribution in respect thereof, or purchase, redeem, repurchase or otherwise acquire any shares of capital stock of the Company or any subsidiary, other than as specified in the Series B Certificate of Designations, or (v) increase or decrease the size of the Company’s Board of Directors. In the event the agreement reached with VPVP with respect to the second phase of financing would require the Company to issue securities in an amount equal or greater than 20% or more of the Company’s common stock or voting power outstanding before the issuance, the Company may need to seek shareholder approval of the transaction pursuant to NASDAQ’s MarketPlace rules.

                  Each of Brad D. Greenspan, Brett C. Brewer, and Chris Lipp, executive officers of the Company, have entered into an agreement with the Company in which each has agreed to promptly repay the value of certain compensatory bonuses received during fiscal year 2003, in the amount of $43 thousand, $33 thousand, and $18 thousand, respectively. Repayment of the bonus awards will be in the form of cash, the common stock of the Company, or a combination thereof, with the value of the stock to be determined based on the average closing price of the stock, or if such price is unavailable, the average of the bid and asked price, for the ten-day period ending on the thirtieth day after active trading in the Company’s common stock has resumed. If the common stock of the Company is not actively traded for at least 30 days within the 120 day period following the date of these agreements, then the value of the common stock will be determined by an independent appraiser appointed by the Board of Directors of the Company. Adam Goldenberg, Chief Operating Officer, has indicated to the Company his intent to repay to the Company the value of that portion of the $132 thousand compensatory bonus he received during fiscal year 2003 which would not have been paid based upon the restated financial statements of the Company for the fiscal year 2003, and is currently in discussion with the Company about the manner of effecting such repayment.

                  The Company has not engaged in any other transactions, or series of similar transactions, since the beginning of fiscal year 2003, or any currently proposed transaction, or series of similar transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $60 thousand and in which any of the Company’s directors, executive officers, beneficial owners of more than 5% of the Company’s common stock, or members of their immediate family had, or will have, a direct or indirect material interest.

ITEM 14.   CONTROLS AND PROCEDURES

Overview

                  On May 6, 2003, the Company announced its intent to restate its previously reported quarterly financial results for the fiscal year ended March 31, 2003 because of accounting errors it had identified in the Company’s financial statements (the “Restatement”).

                  As a result of the discovery of the accounting errors, management initiated an internal review of its accounting records and its accounting policies and procedures. In an effort to identify the extent of the accounting errors, and to identify any deficiencies in the Company’s system of controls, management significantly expanded its accounting and finance staff and retained an outside accounting firm to assist in the process. In addition to the foregoing, the Company’s Board of Directors directed the Audit Committee of the Board of Directors to explore the facts and circumstances giving rise to the Restatement as well as to evaluate the Company’s accounting practices, policies and procedures. To assist with the Audit Committee review, the Audit Committee engaged the law firm of Foley & Lardner.

                  During management’s and the Audit Committee reviews of the Company’s accounting records and procedures, and during the audit of the Company’s financial statements for the year ended March 31, 2003, various deficiencies in the Company’s internal controls were identified. The Company believes such deficiencies were attributable to the following broad factors: insufficient supervision and oversight of the Company’s accounting systems and personnel; a poorly designed, non-integrated accounting system; the rapid growth in the Company’s business operations during the course of fiscal year 2003; difficulties in absorbing and integrating the acquisition of a sizable e-commerce company, ResponseBase LLC, during the third and fourth quarters of fiscal year 2003; the loss of critical personnel; and limited human resources in the Company’s accounting and financial reporting function with which to respond to the Company’s increased business scale and growing complexity.

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                  In response to the matters identified by management’s and the Audit Committee’s reviews, the Company has implemented a number of remedial and other actions designed to improve its accounting and financial reporting procedures and controls. Actions designed to broadly strengthen the functioning and oversight of the accounting function have included:

• a significant expansion of the resources of the accounting and financial reporting department, nearly doubling the staff size and replacing all pre-existing accounting personnel with individuals of greater experience and expertise;

• the replacement of the leadership of the department with a new controller who has experience with the challenges of system and business scaling;

• the appointment of Lawrence Moreau, to the Company’s Board of Directors and to serve as the Audit Committee Chair; and

• the search for a new Chief Financial Officer to fill the vacancy resulting from the departure of Joseph Varraveto, who resigned effective August 19, 2003.

The Company has also implemented or strengthened specific internal controls, including:

• the segregation of accounting duties;

• monthly reconciliation of all material balance sheet accounts;

• reorganizing and upgrading its accounting systems and processes, to include hard monthly closes, hard period cutoffs, and the storing of backup data;

• requiring enhanced levels of authorization for transactions;

• strictly limiting access to various accounting modules;

• improving the processing of transactional documentation;

• augmenting cash management controls;

• enhancing inventory controls;

• redesigning the sales order process;

• creation of a single database and balance sheet for ease of period-end reconciliation by management; and

• creation of a process for documenting accounting policies and procedures at the time of implementation.

                  Finally, the Company has adopted and is continuing to implement a new integrated financial reporting system that is more appropriate to the size and complexity of the Company’s current business operations.

                  In addition to the foregoing changes, the Company expects to retain an experienced consulting firm to advise the Company on further enhancements to its internal and operational controls based on the COSO framework. The Company also expects to be an early adopter of the internal control attestation requirements of the Sarbanes-Oxley Act of 2002.

                  Pending full implementation of an integrated financial reporting system, the Company has adopted certain supplemental control measures to ensure that the financial statements and other financial information included in the reports it files with the Securities and Exchange Commission, for periods ending subsequent to the date hereof, fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented. The Company expects that full implementation of its integrated financial reporting system will render these supplemental control measures redundant.

Evaluation of Disclosure Controls and Procedures

                  Our management, including our Chief Executive Officer and our Principal Financial Officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

53

                  The Company has evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” for purposes of filing this report under the Securities Exchange Act of 1934, as amended (the “controls evaluation”). This evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and our Principal Financial Officer. As part of their controls evaluation, the Chief Executive Officer and Principal Financial Officer considered the results to date of the Audit Committee review undertaken at the direction of the Board of Directors of the matters leading to the Restatement.

                  Based in part on the foregoing, the Company’s Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this report, March 31, 2003, our disclosure controls and procedures were not effective to ensure that information the Company is required to disclose in the reports that it files with the Securities and Exchange Commission was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. As a result, in connection with the audit of the Company’s financial statements for the fiscal year ended March, 31, 2003, the Company reconstructed its books and records for fiscal year 2003, and the Company's independent auditors conducted substantive audit procedures.

However, based upon an evaluation conducted prior to the filing of this report, on August 20, 2003, including an evaluation of the supplemental controls and the other changes to the Company’s organization and controls implemented to date, the Company’s Chief Executive Officer and Principal Financial Officer have concluded that, as of August 20, 2003, the Company’s disclosure controls and procedures are effective to ensure that information the Company is required to disclose in the reports that it files with the Securities and Exchange Commission, for periods ending subsequent to the date hereof, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The foregoing does not apply to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2003, which the Company anticipates it will file in September 2003.

Changes to Internal Control Over Financial Reporting

The changes to the Company’s internal controls identified above are intended, and have been undertaken by the Company, to enhance the effectiveness of the Company’s internal control procedures. These steps constitute significant changes in internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis, and will take further action as appropriate.

ITEM 15.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees.  Fees for audit services rendered during the fiscal years ended March 31, 2003 and 2002, were approximately $708,000 and $111,000 respectively, including fees associated with the annual audit, the reviews of our quarterly reports on Form 10-Q, fees related to filings with the Securities and Exchange Commission (“SEC”) and consultations on accounting issues and the application of new accounting pronouncements.

                  Audit-Related Fees.  There were no fees for audit-related services for 2003 and 2002.

                 Tax Fees.  Fees for tax services rendered during the fiscal years ended March 31, 2003 and 2002 were approximately $10,000 and $9,000 respectively, relating to compliance fees for preparation of tax returns, assistance with tax planning strategies and tax examination assistance.

                  All Other Fees.  Audit fees rendered in relations to due diligence on a potential acquisition was approximately $96,000 for the fiscal year ended March 31, 2003. There were no other fees for the fiscal year ended March 31, 2002.

                  The Audit Committee has the sole authority to pre-approve all audit and non-audit services provided by the independent auditors to the Company and acts to assure that the independent auditors are not engaged to perform specific non-audit services proscribed by law or regulation.

54

PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

1. Financial Statements

                   The consolidated financial statements contained herein begin at page F-1 and end at F-29.

2. Financial Statement Schedules.

                  Schedule II - Valuation and qualifying accounts.                   

                  Schedules not included herein are omitted because they are inapplicable or not required or because the required information is given in the consolidated financial statements and notes thereto.

                   Separate financial statements of 50% or less owned subsidiaries accounted for by the equity method are not summarized herein and have been omitted because, in the aggregate, they would not constitute a significant subsidiary.

3. Exhibits.

   
        The Exhibits listed on the accompanying index to exhibits immediately following the signatures to this Form 10-K are filed as a part of, or incorporated by reference into, this Form 10-K.

(b) Reports on Form 8-K:

                   On January 9, 2003, the Company filed a Report on Form 8-K with the Securities and Exchange Commission, announcing that eUniverse, Inc., a Nevada Corporation, (the Company’s predecessor, had completed a statutory merger with eUniverse, in a Delaware Corporation, for the purpose of changing the Company’s state of incorporation from Nevada to Delaware.

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SIGNATURES

                   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on August 22, 2003.

eUNIVERSE, INC.

By      /s/  BRAD D. GREENSPAN Brad D. Greenspan
Chairman of the Board of Directors
Chief Executive Officer

By      /s/  MICHAEL J. MINCIELI Michael J. Mincieli
Vice President, Corporate Controller
(Principal financial officer and
Principal accounting officer)

Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has been signed on August 22, 2003 by the following persons on behalf of the Registrant in the capacities indicated.
By	/s/  BRAD D. GREENSPAN Brad D. Greenspan Chairman of the Board of Directors (Principal executive officer)

By      /s/  BRETT C. BREWER Brett C. Brewer
Director

By      /s/  DANIEL L. MOSHER Daniel L. Mosher
Director

By      /s/  THOMAS GEWECKE Thomas Gewecke
Director

By      /s/  LAWRENCE R. MOREAU Lawrence R. Moreau
Director

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INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
eUniverse, Inc. and Subsidiaries

                   We have audited the accompanying consolidated balance sheet of eUniverse, Inc. and Subsidiaries as of March 31, 2003, and the related consolidated statement of operations, shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

                   In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of eUniverse, Inc. and Subsidiaries as of March 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

                   Our audit referred to above included an audit of the March 31, 2003 information included in the financial statement schedule listed under item 16 (a) (2). In our opinion, this portion of the financial statement schedule presents fairly, in all material respects, the 2003 information set forth therein when considered in relation to the 2003 financial statements taken as a whole.

MOSS ADAMS LLP

Los Angeles, California
August 15, 2003
(Except for footnote 20 as to which the date is August 21, 2003.)

F-1

INDEPENDENT AUDITORS’ REPORT

TO THE BOARD OF DIRECTORS
eUniverse, Inc.

We have audited the accompanying consolidated balance sheet of eUniverse, Inc. and Subsidiaries as of March 31, 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended March 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted 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 eUniverse, Inc. and Subsidiaries as of March 31, 2002, and the consolidated results of their operations and their cash flows for each of the two years in the period ended March 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

Our audit referred to above included an audit of the financial statement schedule listed under item 16(a)(2). In our opinion, this financial statement schedule presents fairly, in all material respects, in relation to the financial statements taken as a whole, the information required to be stated therein.

MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants

New York, New York
June 14, 2002

F-2

eUniverse, Inc. and Subsidiaries

Consolidated Balance Sheets
(In thousands, except share and per share data)

	March 31,
	2003			2002
Assets
Current assets:
Cash and cash equivalents	$	4,663		$	8,008
Restricted cash		1,842			—
Accounts receivable, net of allowances for doubtful accounts of $1,179 and $452		4,985			5,023
Inventories, net of obsolescence reserve of $362 and $0		1,610			—
Prepaid expenses		1,673			1,488
Deferred charges and other		104			551
Total current assets		14,877			15,070
Property and equipment, net of accumulated depreciation and amortization		3,229			2,293
Other assets:
Goodwill		15,487			12,298
Other intangible assets, net of accumulated amortization		4,447			4,577
Deferred charges		24			197
Deposits and other		1,865			143
Total assets	$	39,929		$	34,578
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	3,216		$	2,254
Accrued expenses		6,266			4,153
Deferred revenue		1,126			1,034
Income taxes payable		41			—
Current portion of long-term debt		1,460			3,405
Current portion of capitalized lease obligations		1,178			28
Total current liabilities		13,287			10,874
Long-term debt, less current portion		2,290			3,028
Accrued interest		479			—
Capitalized lease obligations, less current portion		437			—
Total liabilities		16,493			13,902
Shareholders’ equity:
Preferred stock, $0.10 par value; 40,000,000 shares authorized; 2,279,577 and 2,872,665 shares issued and outstanding		229			288
Common stock, $0.001 par value; 250,000,000 shares authorized; 26,302,722 and 23,542,219 shares issued and outstanding		26			23
Additional paid-in capital		71,029			68,766
Accumulated deficit		(47,812	)		(48,365	)
Treasury stock		(36	)		(36	)
Total shareholders’ equity		23,436			20,676
Total liabilities and shareholders’ equity	$	39,929		$	34,578

See Notes to Consolidated Financial Statements

F-3

eUniverse, Inc. and Subsidiaries

Consolidated Statements of Operations
(In thousands, except share and per share data)

	Years ended March 31,
	2003			2002			2001
Revenues	$	65,742		$	33,196		$	15,668
Cost of sales		17,264			5,837			—
Gross profit		48,478			27,359			15,668
Operating expenses:
Marketing and sales		25,149			6,638			9,906
Product development		11,500			5,986			3,827
General and administrative		10,759			8,091			4,145
Amortization of other intangible assets		1,141			508			3,521
Stock-based compensation		7			—			263
Impairment of goodwill and other intangible assets		130			—			14,474
Total operating expenses		48,686			21,223			36,136
Operating income (loss)		(208	)		6,136			(20,468	)
Non-operating income (expense):
Interest expense and other financing costs, net		(590	)		(525	)		(6,333	)
Repurchase of stock options		(452	)		—			—
Gain on extinguishment of debt		1,266			—			—
Other gains and (losses)		365			(231	)		(321	)
Income (loss) from continuing operations before income taxes		381			5,380			(27,122	)
Income tax expense		(63	)		—			—
Income (loss) from continuing operations		318			5,380			(27,122	)
Discontinued operations:
Gain (loss) from discontinued operations		235			285			(13,917	)
Net income (loss)	$	553		$	5,665		$	(41,039	)
Accretion of preferred stock liquidation preference		77			205			—
Income (loss) available to common shares	$	476		$	5,460		$	(41,039	)
Continuing operations earnings (loss) per common share	$	0.01		$	0.26		$	(1.50	)
Discontinued operations earnings (loss) per common share		0.01			0.01			(0.77	)
Basic earnings (loss) per common share	$	0.02		$	0.27		$	(2.27	)
Diluted earnings (loss) per common share	$	0.02		$	0.21		$	NA
Basic weighted average common shares outstanding		24,474,156			21,040,374			18,094,670
Diluted weighted average shares outstanding		30,411,356			27,539,459			NA

See Notes to Consolidated Financial Statements

F-4

eUNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (DEFICIT)

For the periods from April 1, 2000 through March 31, 2002
(In thousands, except share data)

	Preferred Stock					Common Stock
	Shares		Par Value			Shares			Par Value		Treasury Stock			Paid-in Capital			Accumulated Deficit			Total
Balance at March 31, 2000	1,795,024		$	180			17,630,422		$	18	$	—		$	41,609		$	(11,068	)	$	30,739
Conversion of preferred to common stock	(340,452	)		(34	)		481,068			1		—			558			—			525
Cost of offering stock conversion	—			—			—			—		—			(524	)		—			(524	)
Additional shares issued for acquisitions	—			—			326,960			—		—			1,343			—			1,343
Shares issued to employees as compensation expense	—			—			98,274			—		—			513			—			513
Less: deferred stock compensation cost	—			—			—			—		—			(139	)		—			(139	)
Shares issued in connection with services performed	—			—			161,127			—		—			361			—			361
Shares issued in connection with financing activities	—			—			100,000			—		—			263			—			263
Shares issued in connection with assets purchased	—			—			19,651			—		—			38			—			38
New shares to be issued to Isosceles	—			—			—			—		—			(213	)		—			(213	)
Cost of offering warrants issued to preferred shareholders	—			—			—			—		—			(180	)		—			(180	)
Reversal of re-priced employee options	—			—			—			—		—			(207	)		—			(207	)
Options issued to websites for right of first refusal	—			—			—			—		—			71			—			71
Warrants issued in connection with financing activities	—			—			—			—		—			5,769			—			5,769
Warrants issued in connection with services to be performed	—			—			—			—		—			830			—			830
Options issued in connection with services performed	—			—			—			—		—			292			—			292
Net loss for the year ended March 31, 2001	—			—			—			—		—			—			(41,039	)		(41,039	)
Balance at March 31, 2001	1,454,572			146			18,817,502			19		—			50,384			(52,107	)		(1,558	)
Additional shares issued in acquisitions	—			—			125,971			—		—			597			—			597
Shares issued to the employee of Funpageland.com as compensation expense	—			—			7,992			—		—			25			—			25
Shares issued to the employee of Send4Fun.com as compensation expense	—			—			17,000			—		—			44			—			44
Conversion of preferred to common stock	(504,984	)		(50	)		952,397			1		—			421			—			372
Cost of offering of stock conversion	—			—			—			—		—			(372	)		—			(372	)
Exercise of consultant options	—			—			66,980			—		—			—			—			—
Exercise of employee options	—			—			25,000			—		—			86			—			86
Exercise of warrants	—			—			128,223			—		—			—			—			—
Frank Westall shares cancelled in payment of note	—			—			—			—		(34	)		—			—			(34	)
Frank Westall shares reissued in connection with note	—			—			—			—		6			—			—			6
Ed Hilts shares cancelled in payment of note	—			—			—			—		(8	)		—			—			(8	)
New common stock issued for InfoBeat	—			—			3,058,461			3		—			9,937			—			9,940
New common stock issued for Sony warrant redemption	—			—			307,693			—		—			1,000			—			1,000
Cancellation of Sony warrants	—			—			—			—		—			(1,000	)		—			(1,000	)
New preferred stock issued in connection with the Sony transaction	1,923,077			192			—			—		—			4,808			—			5,000
Beneficial conversion of Sony preferred stock issued below market	—			—			—			—		—			1,923			(1,923)			—
New warrants issued to preferred shareholders in connection with Sony transaction	—			—			—			—		—			110			—			110
New warrants issued in connection with services to be performed	—			—			—			—		—			376			—			376
Options granted to consultant	—			—			—			—		—			85			—			85
New warrants issued to G. and R. Whitten	—			—			—			—		—			25			—			25
Big Network settlement	—			—			50,000			—		—			105			—			105
New shares to be issued to Isosceles	—			—			85,000			—		—			212			—			212
Take 2 settlement agreement	—			—			(100,000	)		—		—			—			—			—
Net income for the year ended March 31, 2002	—			—			—			—		—			—			5,665			5,665
Balance as of March 31, 2002	2,872,665		$	288			23,542,219		$	23	$	(36	)	$	68,766		$	(48,365	)	$	20,676

See Notes to Consolidated Financial Statements

F-5

eUNIVERSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (DEFICIT)

For the period from April 1, 2002 through March 31, 2003
(In thousands, except share data)

	Preferred Stock					Common Stock				Treasury Stock			Additional Paid-in Capital		Accumulated Deficit
	Shares		Par Value			Shares		Par Value										Total
Balance as of March 31, 2002	2,872,665		$	288			23,542,219	$	23	$	(36	)	$	68,766	$	(48,365	)	$	20,676
Issuance of common stock upon exercise of stock options	—			—			698,827		1		—			1,692		—			1,693
Issuance of common stock upon employee stock purchase plan	—			—			4,903		—		—			63		—			63
Issuance of common stock upon redemption of warrants	—			—			1,129,822		1		—			—		—			1
Stock issued upon conversion of preferred stock	(593,088	)		(59	)		710,429		1		—			58		—			—
Stock issued upon conversion of a note	—			—			216,522		—		—			450		—			450
Net income for the year ended March 31, 2003	—			—			—		—		—			—		553			553
Balance as of March 31, 2003	2,279,577		$	229			26,302,722	$	26	$	(36	)	$	71,029	$	(47,812	)	$	23,436

See Notes to Consolidated Financial Statements

F-6

eUniverse, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(In thousands)

	Years Ended March 31,
	2003			2002			2001
Operating activities
Net income (loss)	$	553		$	5,665		$	(41,039	)
Adjustment to reconcile net income (loss) to net cash provided (used) by operations:
Depreciation		1,344			300			243
Amortization of intangible assets		1,141			508			3,521
Impairment of goodwill		130			—			14,474
(Income) loss from discontinued operations		(235	)		—			9,871
Gain from extinguishment of debt		(1,266	)		—			—
Allowance for doubtful accounts		953			424			461
Non-cash employee compensation		—			—			263
Loss on write-off of investment		—			20			321
Amortization of variable stock options issued to employees		—			—			(207	)
Amortization of note payable discount		72			—			—
Stock and warrants granted to outside consultants and affiliates		620			517			397
Non-cash financing related costs		—			129			5,764
Changes in current assets		(4,546	)		(3,453	)		(80	)
Changes in current liabilities		3,704			2,522			(1,976	)
Changes in other		59			545			105
Net cash provided (used) by operating activities		2,529			7,177			(7,882	)
Investing activities
Acquisition of ResponseBase LLC		(2,733	)		—			—
Proceeds through sale of assets		—			—			1,000
Deposits and other		(1,470	)		—			(257	)
Purchases of fixed assets		(2,280	)		(1,673	)		(464	)
Purchases of intangible assets		(911	)		(1,502	)		(114	)
Net cash provided (used) by investing activities		(7,394	)		(3,175	)		165
Financing activities
Financing costs		207			—			—
Proceeds from sale and leaseback transactions		1,283			—			—
Repayment of capital leases		(882	)		—			—
Repayment of advances from officer		—			34			—
Proceeds from short-term notes		—			—			5,326
Repayment of short-term notes		—			(3,039	)		(1,614	)
Proceeds from long-term notes		—			2,263			1,816
Repayment of long-term notes		(845	)		(471	)		—
Proceeds from issuance of preferred stock		—			5,000			—
Proceeds from exercise of stock options		1,757			—			85
Net cash provided by financing activities		1,520			3,787			5,613
Change in cash and cash equivalents		(3,345	)		7,789			(2,104	)
Cash and cash equivalents, beginning of period		8,008			219			2,323
Cash and cash equivalents, end of period	$	4,663		$	8,008		$	219
Cash paid during the year for:
Interest	$	430		$	232		$	220
Income taxes	$	22		$	—		$	—
NON-CASH FINANCING AND INVESTING ACTIVITIES
Stock issued in connection with acquisitions	$	—		$	10,537		$	1,718
Amortization in variable stock options issued to employees		—			—			(207	)
Shares issued as settlement agreement		—			213			(213	)
Shares returned to treasury in payment of amounts due from employees		—			(36	)		—
Stock issued to employees		—			25			—
Fair value of warrants issued		—			—			6,600
Shares issued in connection with services performed		—			221			695
Shares issued in connection with assets purchased		—			—			38
Warrants issued in connection with services performed and to be performed		—			401			292
Warrants issued to preferred shareholders		—			110			—
Stock issued on conversion of note		450			—			—
Equipment acquired under capital lease		1,023			—			—
Reduction of purchase price of acquired asset and related liability		200			—			—

See Notes to Consolidated Financial Statements

F-7

eUNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION AND LINE OF BUSINESS

               eUniverse, Inc. (the “Company”) is a Delaware Corporation engaged in developing and operating a network of websites providing entertainment-oriented content and certain proprietary products and services. During the reporting period, the Company had two primary reporting segments: Media and Advertising and Products and Services. Prior to fiscal 2002, the Company engaged in sales of audio compact disks, videotapes (VHS), and digital video disks (DVD), over the Internet. This business line was discontinued in October 2000 and is presented as Discontinued Operations in these financial statements. The Company conducts operations from facilities located in Los Angeles, CA; Montclair, CA; New York, NY and Mount Vernon, WA.

               The financial statements presented herein include the accounts of eUniverse, Inc. and its subsidiaries. The Company’s active operating subsidiaries include Better Herbal Living, Interactive Properties, Relationship Marketing Services, LLC, Cases Ladder, Inc. and Responsebase, LLC. Additionally, the Company has 13 non-operating or inactive legal subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

2.  RESTATEMENT

               On May 6, 2003, the Company announced its intent to restate its previously reported quarterly financial results for the fiscal year ended March 31, 2003 because of accounting errors it had identified in the Company’s financial statements (the “Restatement”). As a result of the discovery of the accounting errors, management and the Audit Committee initiated an internal review of its accounting records and its accounting policies and procedures. In an effort to identify the extent of the accounting errors, and to identify any deficiencies in the Company’s system of internal controls that gave rise to the errors, management significantly expanded its accounting and finance staff and retained an outside accounting firm to assist in the process. In addition to the foregoing, the Company’s Board of Directors directed the Audit Committee of the Board to explore the facts and circumstances giving rise to the Restatement as well as to evaluate the Company’s accounting practices, policies and procedures (the “Audit Committee review”). During management’s and the Audit Committee reviews of the Company’s accounting records and procedures, and during the audit of the Company’s financial statements for the year ended March 31, 2003, a variety of deficiencies in the Company’s internal controls were identified. The Company believes such deficiencies were attributable to the following broad factors: insufficient supervision and oversight of the Company’s accounting systems and personnel; a poorly designed, non-integrated accounting system; the rapid growth in the Company’s business operations during the course of fiscal year 2003; difficulties in absorbing and integrating the acquisition of a sizable e-commerce company, ResponseBase, during the third and fourth quarters of fiscal year 2003; the loss of critical personnel; and, limited human resources in the Company’s accounting and financial reporting function with which to respond to the Company’s increased business scale and growing complexity. The resulting breakdowns in the control structure led to many of the accounting errors, which are quantified in unaudited Note 21 to these financial statements. Further information with respect to the nature of the restatement adjustments is presented in “Business-Recent Events-Restatement” and “Item 14-Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2003.

3.   ACCOUNTING POLICIES

Accounting principles

               The financial statements and accompanying notes are prepared in accordance with Generally Accepted Accounting Principles, as applied in the United States of America.

Business combinations

               The Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, Business Combinations (SFAS 141), which established accounting and reporting standards for business combinations and requires that all business combinations be accounted for by the purchase method. Under the purchase method of accounting, the cost, including transaction costs, is allocated to the underlying net assets of the business acquired, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

F-8

               The judgments made in determining the estimated fair values and expected useful lives assigned to each class of assets and liabilities acquired can significantly impact net income. For example, different classes of assets will have useful lives that differ. Consequently, to the extent a longer-lived asset is ascribed greater value under the purchase method than a shorter-lived asset, there may be less amortization recorded in a given period.

               Determining the fair value of certain assets and liabilities acquired is subjective in nature and often involves the use of significant estimates and assumptions. We use a one-year period following the consummation of acquisitions to finalize estimates of the fair values of assets and liabilities acquired. Two areas in particular that require significant judgment are estimating the fair values and related useful lives of identifiable intangible assets. While there are a number of different methods used in estimating the value of acquired intangibles, the two primarily approaches used are the discounted cash flow method and market comparison method. Some of the more significant estimates and assumptions inherent in the two approaches include: projected future cash flows (including timing); discount rate reflecting the risk inherent in the future cash flows; perpetual growth rate; determination of appropriate market comparables; and the determination of whether a premium or a discount should be applied to comparables. Most of the foregoing assumptions are made based on available historical information.

Principles of consolidation

               The financial statements include the accounts of eUniverse, Inc. and its subsidiaries (“eUniverse”). Inter-company transactions and balances have been eliminated. Equity investments and investments in joint ventures in which eUniverse owns at least 20% of the voting securities are accounted for using the equity method, except for investments in which the Company is not able to exercise significant influence over the investee, in which case, the cost method of accounting is used. Investments in which the Company owns in excess of 50% are consolidated for financial reporting purposes.

Estimates and assumptions

               Preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues, and expenses during the reported period. Examples of significant estimates used in preparing the accompanying financial statements include; potential impairment of goodwill and other intangibles, revenue recognition; the potential outcome of the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns; determining reserves for allowances in accounts receivable, inventories and sales returns. Actual results and outcomes may differ from these estimates and assumptions.

Other contingencies

        In the normal course of business, the Company maintains liabilities related to its estimations of payments due to third parties under music and intellectual property royalty agreements, estimations of discretionary bonuses to be paid to employees and estimations of payments due under revenue sharing arrangements with affiliates and partners. At the balance sheet date, the Company uses the best information available to determine a range of possible liabilities, the probability of paying such amounts and accrues its best estimate of the liabilities.

Revenue recognition

               Subscription revenues are recognized over the period that services are provided. Advertising, commerce content and other revenues are recognized as the services are performed or when the goods are delivered. Additionally, the Company derives revenue from the sale of non-refundable memberships and sponsorships that are recognized ratably. Deferred revenue consists primarily of prepaid commerce and advertising, and monthly and annual prepaid subscription revenues billed in advance.

               Media and Advertising. The Company recognizes revenue upon fulfillment and delivery of customer’s advertising. The Company generates advertising revenues based on 1) delivered quantities of advertising medium, 2) action by the recipient of the message (i.e. click-throughs or sign-ups), or 3) upon revenue generation by the Company’s customer. Revenues are recorded when delivery has occurred, the sales price is determinable and collection is probable.

               Barter transactions are recorded at the lower of the estimated fair value of advertisements received or the estimated fair value of the advertisements given with the difference recorded as an advance or prepaid, and an equivalent expense is recorded in cost of sales. During the years ended March 31, 2003, 2002 and 2001 the Company recorded $888,000, $645,000, and $499,000 as bartered advertising revenue, respectively.

               The Company has entered into advertising affiliate agreements under which advertising payments are guaranteed to the affiliates in return for obtaining the exclusive right by the Company to sell sponsorships on the affiliates’ websites. An affiliate is defined as a third-party advertising company, which uses available internet advertising inventory to market our products and services in exchange for a revenue share. Sponsorship is defined by these agreements as advertising such as banners, buttons and pop-up windows of third parties on the affiliates’ websites. In accordance with Emerging Issue Task Force No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent,” the revenues derived from affiliates are reported gross of the payment to affiliates while payments from affiliates are reported on a net basis. The fees payable to the affiliates are expensed as a cost of advertising revenue in the period that such revenue is earned.

F-9

               Products and Services. Product revenue is generated from the sale of products such as laser and inkjet printer supplies, cameras, health and beauty products, pharmaceuticals and other assorted products. For these transactions, the Company recognizes revenue upon shipment of its products. Product revenue includes shipping and handling charges. Fulfillment for these products is handled internally, or outsourced to an independent third-party.

               Service revenue includes fees from the sale of non-refundable memberships and sponsorships that are recognized ratably as earned. Service revenue also includes fees from the sale of nonrefundable dating credits, which are recognized at the time of use.

               Discontinued Operations - The Company recognized revenue upon shipment of its products. Revenue included shipping and handling charges. The Company also maintained a partner program whereby partners provided links on their websites that brought customers to the CD Universe website. Revenue generated from these linked websites was recognized upon shipment of the products. The partner received a commission of 5% to 15% of sales of the Company’s products that originated from the website, recognized as a selling expense concurrent with the sale.

Royalty Payments

               The Company had agreements to share revenue with individuals independent of the Company. The Company was required to pay royalties for the use of computer games based on a percentage of advertising revenue generated from the Company’s usage of the games on its websites. As the Company generated advertising revenue, a corresponding liability was accrued and was recorded as a cost of revenue. In addition, the Company pays royalties for music played from our content websites, and for sales of our fitness products (see Note 13 – “Accrued Expenses”).

Shipping and Handling

The Company accounts for shipping and handling fees charged to customers as a component of sales revenue, and shipping and handling costs as a component of cost of sales. Amounts included in revenue and cost of sales were $3.2 million and $3 million for the year ended 2003. Shipping and handling costs for the fiscal years ended 2002 and 2001 were not significant.

Comparative periods

               Classifications within financial statements for periods prior to March 31, 2003, have been reclassified to conform to the current period presentation concerning the presentation of results from discontinued operations, and for certain reclassifications related to the current period balance sheet and statement of operations. These reclassifications had no material impact on the results of operations, earnings (loss) per share, or significant year-to-year comparisons.

Following is a recap of the reclassifications for the years ended March 31, (in thousands):

	2002						2001
	As Previously Reported		Reclassification		As Reclassified		As Previously Reported		Reclassification		As Reclassified
Cost of Sales	$	6,921	$	(1,084)	$	5,837	$	1,606	$	(1,606)	$	—
Operating Expenses:
Marketing and Sales		5,554		1,084		6,638		8,300		1,606		9,906
General and Administration		—		—		—		4,756		(611)		4,145
Amortization		—		—		—		2,910		611		3,521

Concentration of credit risk

               The Company holds its cash in what it believes to be credit-worthy financial institutions; however, cash balances may exceed FDIC insured levels at various times during the year. Concentrations of credit risk with respect to accounts receivable are believed to be limited due to the number, diversification and character of the obligors and the Company’s credit evaluation process. Typically, the Company has not required customers to provide collateral for such obligations.

Cash and cash equivalents

               The Company considers all highly-liquid investments with maturities of three months or less when acquired to be cash equivalents.

Restricted cash and deposits

              At March 31, 2003 the Company has $1.8 million of funds held by the bank as a reserve against any possible chargebacks/returns on credit card transactions related to customer disputes, that are not offset against the Company’s daily sales deposit activity. This amount is reflected as restricted cash. The Company has $1.5 million in certificates of deposit which collateralize certain operating and capital lease obligations. This amount is classified as a long-term deposit on the accompanying balance sheet.

Allowance for Doubtful Accounts

The Company provides for doubtful accounts receivable by applying a 50% reserve for all accounts receivable outstanding over 60 days based upon historical experience, and a specific reserve is maintained for accounts with a high likelihood of becoming uncollectible. Bad debt expense was $953,000, $424,000, $461,000 for the years ended March 31, 2003, 2002 and 2001, respectively.

Inventory

               Inventory is stated at the lower of cost (determined using the first-in, first-out method) or market value. As of March 31, 2003, inventory consists of finished goods.

F-10

Deferred charges

               Deferred charges consist of the unamortized fair value of warrants or options issued principally in connection with the securing of financing and investor relations services. The deferred charges are amortized over service periods generally ranging from one to three years.

Property and equipment

               Property and equipment is stated at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, or terms of the related capital lease agreements. Maintenance and repairs are charged to expense as incurred. Estimated useful lives are as follows:

Leasehold improvements	Life of the lease
Computer equipment	5 years
Telephone equipment	5 years
Computer software	5 years
Furniture, fixtures and other	10 years

Goodwill and Other Intangible assets

               Intangible assets consist of goodwill, websites, customer lists, and domain names. Costs incurred for internally generated intangible assets are expensed as incurred. Effective April 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 141. - Business Combinations (SFAS 141) and Statement of Financial Accounting Standards No. 142. – Goodwill and Other Intangibles (SFAS 142). Websites, customer lists and certain domain names are being amortized on a straight-line basis over a period ranging from three to seven years. Indefinite lived intangibles are periodically assessed to determine the appropriateness of the indefinite lives. Effective April 1, 2002, the Company began amortizing certain intangibles that previously had been classified as having indefinite lives and therefore were not amortized (See Note 6).

               The Company periodically reviews the carrying value of acquired intangible assets, including goodwill, to determine whether impairment may exist. SFAS 142 requires that goodwill and certain intangible assets be assessed for impairment using fair value measurement techniques. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For intangible assets subject to amortization, to the extent the fair value of the intangible asset determined based upon the estimated future cash inflows on a discounted basis attributable to the asset, less estimated future cash outflows on a discounted basis, are less than the carrying amount, an impairment loss is recognized. The determination of impairment of goodwill and other intangible assets requires significant judgment and estimates.

               In fiscal year  2003, the Company analyzed goodwill for impairment at the Company level. As a result of the ongoing reorganization of the Company's reporting structure, the Company anticipates that, in the future, it will have sufficiently discrete financial information to conduct a goodwill impairment analysis at the reporting unit level. This change may affect the amounts recorded for goodwill impairment in future periods.

F-11

Long-lived assets

               Long-lived assets such as property and equipment and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the assets. Long-lived assets to be disposed of are reported at the lower of carrying amount, or fair value less cost to sell. Effective April 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).

Organization costs

               In accordance with American Institute of Certified Public Accountants’ Statement of Position 98-5 “Reporting on the Costs of Start-Up Activities”, the Company expenses, as incurred, costs related to organizational and start-up activities.

Income taxes

               Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amounts of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed by Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Income taxes are further explained in Note 10.

Fair value of financial instruments

               The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the relatively short maturity of these instruments. Long term debt carrying values approximate fair value as the debt was negotiated at available market rates or interest imputed at available market rates for notes with unstated interest.

Comprehensive income

               There are no items of other comprehensive income (loss) for the years ended March 31, 2003, 2002, and 2001.

Stock-based compensation

               At March 31, 2003, the Company has a stock-based employee compensation plan, which is more fully described in Note 15. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations.  The Company elected to continue to account for stock-based compensation plans using the intrinsic value-based method of accounting prescribed by APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under the provisions of APB No. 25, compensation expense is measured at the grant date for the difference between the fair value of the stock and the exercise price.

               The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of FASB Statement No. 123”. SFAS 148 amends Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures both in annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

              The following table illustrates the effect on net income (loss) and earnings (loss) per share as if the Company had applied the fair value recognition provisions of SFAS 148 to stock-based employee compensation for the years ended March 31, (In thousands, except per share data):

F-12

	2003			2002			2001
Net income (loss) applicable to common stockholders
As reported	$	476		$	5,460		$	(41,039	)
Less total stock-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects	(4,092		)	(3,781		)	(4,518		)
Pro forma net income (loss)	$	(3,616	)	$	1,679		$	(45,557	)

Net income (loss) per share applicable to common stockholders
Basic – as reported	$	0.02		$	0.27	$	(2.27	)
Basic – pro forma	$	(0.15	)	$	0.08	$	(2.52	)
Diluted – as reported	$	0.02		$	0.21	$	NA
Diluted – pro forma	$	(0.15	)	$	0.06	$	NA

Advertising costs

              Advertising costs, except for costs associated with direct-response advertising, are charged to operations when incurred. The costs of direct-response advertising, if any, are capitalized and amortized over the period during which future benefits are expected to be received. The Company capitalized direct-response advertising of $179,000 in fiscal year 2003, related to its Body Dome infomercial.

Earnings per share

              Basic earnings per share is computed as net income less accretion of the Series A redeemable convertible preferred stock divided by the weighted average number of outstanding common shares during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect. As of March 31, 2003, securities convertible into 1,362,000 shares of common stock have been excluded from the computation of diluted earning per share because their effect is currently anti-dilutive.

4.  DISCONTINUED OPERATIONS

              In September 2000, the Company decided to discontinue the music and movie retail products segment of its business and the segment’s related e-commerce sites. This segment consisted of the sale of CD’s, DVD’s and videotapes, and computer games. The sale of the assets relating to this segment was consummated on October 10, 2000. The assets were sold to CLBL, Inc. a Connecticut corporation owned by a significant shareholder of the Company. The proceeds from the sale consisted solely of a note receivable from the purchaser in the amount of $1,000,000.

              The revenue from the discontinued operations for the twelve months ended March 31, 2001 was $4,382,634. Major assets disposed consist of the following approximate values (in thousands): Net goodwill, $9,576; net customer list, $167; net domain names, $108; net fixed assets, $610; merchandise inventory $350; and prepaid expenses of $65.

              As a result of this discontinuance, the consolidated financial statements of eUniverse, Inc. and the related notes to the consolidated financial statements and supplemental data have been restated to reflect the results of operations and assets of this segment as a discontinued operation in accordance with generally accepted accounting principles. The loss on disposal was approximately, $9.9 million. This loss provided for reserves necessary to write down assets disposed of to their estimated net realizable values.

5.  BUSINESS COMBINATIONS

              On August 29, 2002, the Company entered into a joint venture with VintaCOM Media Group Inc., an Alberta, Canada company to form Relationship Exchange Company, LLC (REC), a Nova Scotia, Canada Company for the purpose of expanding the Internet dating businesses of both parties. VintaCOM has agreed to license certain intellectual property and provide hosting and technical services to REC in exchange for a 51% share of REC. The Company received the remaining 49% of REC. Unanimous approval of both parties is required over corporate governance matters, and the Company has influence over all operating decisions affecting the joint venture. The Company will report its share of REC profits and losses and its investment in REC using the equity method of accounting. No significant monetary investment was made by the Company in the formation of REC, and no significant profits or losses have been reported to date.

F-13

              On September 3, 2002, the Company acquired certain assets of ResponseBase LLC for $3.3 million. ResponseBase is a Santa Monica, CA online marketing company that manages approximately 30 million permission-based e-mail records, and adds proven talent to the existing eUniverse team. Furthermore, ResponseBase will add incremental distribution and product development opportunities. Additional payments will be made on an earn-out basis subject to the achievement of certain performance goals for the two-year period October 2002-September 2004. Net profits generated by this business unit have resulted in an earn-out and bonus amounting to approximately $1.3 million as of March 31, 2003. Of the $1.3 million earn-out; approximately $638,000 has been paid as of March 31, 2003, the remaining approximate balance of $662 thousand has been accrued.

              On September 17, 2002, the Company entered into two joint ventures with Michael Casey Enterprises, LLC, a California company, to form Abdominal King, LLC, a Delaware company, and Yogabol, LLC, a Delaware company to distribute certain fitness products. The Company received a 51% interest and substantial control over corporate governance and daily operations in both Companies. In February 2003, eUniverse sold its interest in Abdominal King, LLC, inclusive of the infomercial and the remaining inventory, to Invention Channel for approximately $358,000 resulting in a gain on sale of approximately $108,000. In Yogabol, LLC, the Company made a cash investment, to cover marketing and product costs through March 31, 2003, of approximately $1 million. During the year ended March 31, 2003, Yogabol recorded losses of approximately $220,000. Since, the Company’s joint venture partner has made no substantial investment in the joint venture, the Company has absorbed the entire loss for financial reporting purposes.

Pro Forma Information

The operations of the acquired entities have been included in the statements of operations from the dates of acquisition. Pro forma information as if the foregoing acquisitions had occurred at the beginning of the period presented is as follows (in thousands except per share data):

	Pro Forma Year Ending March 31, 2003		Pro Forma Year Ending March 31, 2002
Revenue	$	69,176	$	33,681
Net income		1,565		2,730
Income per weighted average common share		0.06		0.13
Income per diluted share		0.05		0.10

6.  AMORTIZATION AND IMPAIRMENT OF INTANGIBLE ASSETS

              The net carrying value of goodwill and other intangibles recorded through acquisitions was approximately $19,934,000 as of March 31, 2003 and $16,875,000 as of March 31, 2002. Effective April 1, 2001, the Company adopted SFAS 141 and SFAS 142. Upon adoption of these standards, the Company ceased amortization of goodwill which is being assessed periodically for impairment. Prior to adoption, goodwill was amortized on the straight-line basis over periods of five to ten years. The Company amortizes the fair value of other intangible assets over a period of three to seven years depending upon management’s estimate of the economic life of the specific intangible. In prior years, the Company maintained certain indefinite lived intangible assets which were not amortized for financial reporting purposes. Effective April 1, 2002, the Company reassessed the indefinite lived features of these intangible and has determined those intangibles to have finite lives. Accordingly, the Company has accounted for these intangibles prospectively as a change in accounting estimate and recorded a charge to operations of $210,000 related to such change.

F-14

              The Company has assessed the value of its goodwill and other intangibles as of March 31, 2003 and determined whether an impairment in value exists by comparing the carrying value in accordance with applicable accounting standards. Fair value was determined based upon discounted cash flows models, and verified for reasonableness through recent equity transactions, market value of the Company’s common stock, and through market comparison of similar companies. However, as a result of this review, in 2003 the intangibles related to Pokemon Village and Dustcloud were written-off with an impairment charge of $130,000, the pre-impairment carrying value as of March 31, 2001. At March 31, 2003, 2002, and 2001, the Company determined no other impairment of goodwill existed.

              Other Intangibles consist primarily of the cost of website domain names and customer lists acquired (in thousands):

	March 31,
	2003			2002
Customer lists	$	2,243		$	1,393
Domain names		1,700			1,500
Licence agreements		315			315
Websites		1,210			1,378
Other		766			640
		6,234			5,226
Less: accumulated amortization		(1,787	)		(649	)
Other intangibles, net	$	4,447		$	4,577

              The intangible assets categorized above, valued at the lesser of historical cost or current fair value based on management’s judgment, are being amortized on the straight-line basis over the period of three to seven years. Amortization expense for goodwill and intangible assets for the years ending March 31, 2003, 2002 and 2001 was approximately $1,141,000, $508,000 and $3,521,000 respectively.

F-15

Amortization expense for existing amortizable intangibles for future years ending March 31 is as follows (in thousands):

2004	$	1,314
2005		1,217
2006		966
2007		483
2008		266
Thereafter		201
Total	$	4,447

7.   PROPERTY AND EQUIPMENT

Property and equipment, at cost, consist of the following (in thousands):

	March 31,
	2003			2002
Furniture and fixtures	$	75		$	27
Computers and equipment		1,958			2,568
Equipment under capital lease		2,353			—
Leasehold improvements		9			—
Purchased software		620			262
		5,015			2,857
Less: accumulated depreciation		(1,786	)		(564	)
	$	3,229		$	2,293

Depreciation expense for the years ended March 31, 2003, 2002, and 2001 was $1,344,000, $300,000 and $243,000, respectively.

F-16

Equipment Under Capital Leases

             The following is a schedule of minimum payments under capitalized leases and the present value of future minimum rentals for future years ending March 31 (in thousands):

2004	$	1,275
2005		435
2006		4
2007		4
2008		4
Total minimum lease payments		1,722
Less: Amounts representing interest		(107	)
Present value of net minimum lease payments		1,615
Less: Current portion of obligations under capital leases		(1,178	)
Long-term obligations under capital leases	$	437

             Equipment with a cost basis of $2,353,000, is collateral for the obligations under capital leases. Depreciation on equipment under capital leases is provided for on a straight-line basis, as defined in Note 3 – “Accounting Policies,” or over the life of the related lease term. For equipment under capital leases, current year depreciation was approximately $842,000, and there is accumulated depreciation of $851,000. During the fiscal year 2003, the Company entered into several sale-leaseback transactions for computer equipment. Under the terms of the agreements, the Company, as lessee, is required to maintain the equipment and provide public liability insurance coverage in the minimum amount of $1 million. As additional security relating to the sale-leaseback of equipment from Transamerica Equipment Financial Services, the Company is required to maintain an irrevocable, standby letter of credit in the amount of 75% of the original leased equipment cost (75% of $1,100,000, or $825,000) for the first twelve months of the lease term, and in the amount of 37.5% of the original leased equipment cost (37.5% of $1,100,000, or $413,000) for the remaining twelve months of the lease term.

F-17

eUNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8.  PREPAID EXPENSES

             Prepaid expenses consist of the short-term portion of the fair value of warrants or options issued or cash payments made in advance for marketing or other services to be rendered as follows (in thousands):

	March 31,
	2003		2002
Bank fees	$	60	$	—
Co-marketing agreement shares		—		327
eGames earnout advance		300		300
Marketing expenses		235		107
Investment banking expenses		—		23
Investor relations expenses		—		10
Licensing agreements		397		242
Insurance, advances & other		306		142
Inventory purchases		332		337
Rent		43		—
Total	$	1,673	$	1,488

9.  DEFERRED CHARGES

             Deferred charges consist of the short-term portion of the unamortized fair value of warrants or options issued principally in connection with the securing of financing and investor relations services. All such options and warrants have been valued using the Black-Scholes method option-pricing model (see also Note 15 - Warrants)(in thousands):

	March 31,
	2003			2002
Warrants granted for services	$	128		$	748
Less: Non-current portion		(24	)		(197	)
	$	104		$	551

10.  INCOME TAXES

F-18

         Discussion of the Company’s tax provision for fiscal year 2003 and the change in the deferred tax asset position is contained below.

         The component of the provision for income taxes for the years ended March 31 are as follows (in thousands):

	2003			2002		2001
Pre-tax income (loss)	$	616		$	5,665	$	(41,039	)
Provision for taxes:
Federal:
Current	$	10		$	—	$	—
Deferred		—			—		—
State:
Current		—			—		—
Deferred		53			—		—
Provision for income taxes	$	63		$	—	$	—
Effective Tax Rate		10.2	%		—		—

         The Company’s fiscal year 2003 effective tax rate is computed as follows (in thousands):

	Amount			Percentage of pre-tax income
Federal Statutory Tax Rate	$	209			34.0	%
State Tax		36			5.8
Stock option compensation		(728	)		(118.2	)
Meals & entertainment		6			1.0
Valuation allowance		518			84.1
Other, principally AMT rate		22			3.5
Provision for Income Taxes	$	63			10.2	%

F-19

         As of March 31, 2003, federal and state net operating loss carry forwards amount to $19,589,000 and $5,888,000, respectively. Unused NOL’s expire between 2020 and 2021. Furthermore since the State of California has temporarily suspended usage of NOL carry forwards for the next two years, the Company will not be able to utilize state NOL carry forwards until fiscal year 2005. The Company has decided to maintain a full valuation allowance for Federal and state tax purposes against deferred tax assets, as realization will be beyond the 12-month time horizon the Company is using for valuation purposes. The Company will reassess this deferred tax asset and the need for reserves throughout the fiscal year 2004.

F-20

As of March 31, deferred tax assets and liabilities consist of the following (in thousands):

	2003			2002
Deferred tax assets, current
Accrued expenses and accounts receivable	$	859		$	—
Deferred tax assets (liabilities), non-current
Property, equipment and intangible assets		(2,230	)		136
Stock compensation		—			287
Financing charges		2,456			2,290
Net operating loss carry forwards and other		9,564			5,887
		9,790			8,600
		10,649			8,600
Less: valuation allowance		(10,649	)		(8,600	)
Net deferred tax assets	$	—		$	—

11. SHORT-TERM NOTES PAYABLE

Notes payable consist of the following at March 31 (in thousands):

	2003			2002
Notes payable:
550 Digital Media Ventures - Affiliate (Sony)(1)	$	—		$	2,290
Deb’s Fun Pages		287			—
FunBug		—			80
Funny Greetings		505			394
FunPageLand		113
Saggi Capital (2)		—			450
SFX Entertainment, Inc. (3)		606			313
		1,511			3,527
Less: Discount on FunnyGreetings Note		(51	)		(122	)
	$	1,460		$	3,405

(1) The New Technology Holdings note was restructured as part of the Sony financing. The amount of $2,290,000 is now a long-term liability to 550 Digital Media Ventures that comes due March 31, 2005.

(2) On August 13, 2001, Saggi Capital purchased the $450,000 note from Videogame Partners. The note, which accrued interest at 8%, was converted to common stock on June 12, 2002.

(3) The payment terms of this note have been extended until December 31, 2003 from August 26, 2002. The note is collateralized by 2,600,000 shares of the Company’s common stock. Principal and interest payments are quarterly over the life of the note with an effective interest rate of 9.7%.

F-21

eUNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12.   LONG-TERM NOTES PAYABLE

         Long-term notes payable consist of the following at March 31 (in thousands):

	2003		2002
Long-term notes payable:
550 Digital Media Ventures - Affiliate (Sony)(1)	$	2,290	$	—
Deb’s Fun Pages (2)		—		287
FunBug		—		120
FunnyGreetings (3)		—		353
FunPageLand (2)		—		113
JustSayWow (4)		—		951
Send4Fun (4)		—		712
SFX Entertainment, Inc.		—		492
Total	$	2,290	$	3,028

(1) The New Technology Holdings note was restructured as part of the Sony financing. The amount of $2,290,000 is now a long-term liability to 550 Digital Media Ventures that comes due March 31, 2005. The note is convertible to common or preferred stock subject to certain conditions and is collateralized by a blanket lien on the assets of the Company. The note accrues interest at the prime rate, as expressed by the Wall Street Journal (4.25% at March 31, 2003), plus 2%. Interest accrues, is not paid and represents the entire interest accrual of $479,000 at March 31, 2003. Subsequent to year-end, the holder sold a portion of this note. (See note 20)

(2) As of March 1, 2001 the Company entered into settlements of amounts due pursuant to agreements and promissory notes with certain existing employees that, as listed above, had developed Web sites and related content for the Company. Current obligations were settled by entering into promissory notes having a term of 30 months, with the entire principal due on September 1, 2003. Interest accrues at 8% with payments of interest only payable at different dates over the lives of the various notes through September 2003. The note holders have the right at any time to convert the unpaid balance of the note into shares of unregistered, restricted common shares of the Company at $6 per share.

(3) In July 2001, the Company amended its agreement with an employee for the purchase of Funnygreetings.com. Under the original agreement, the Company was obligated to pay $2 million for the assets of Funnygreetings.com; however, the amount was renegotiated and reduced by $800,000. Refer to Note 14—The Henderson legal proceedings.

(4) Refer to Note 19 for discussion of gain on extinguishment of debt.

F-22

13.   ACCRUED EXPENSES

         Accrued expenses at March 31, consist of the following (in thousands):

	2003		2002
Professional services	$	270	$	757
Acquisition payments		93		398
Compensation	1,348		869
Credit card processing fees	195		—
Affiliate payments	791		212
Marketing	70		58
Interest	496		486
Partner fees	187		—
Royalties	661		487
Inventory	689		—
Sales tax	268		5
Sales returns	666		240
Settlement payable	391		—
Other	620		641
Total	$	6,745	$	4,153
Less: Non-current portion
Accrued interest on Sony note payable	(479)		—
Total	$	6,266	$	4,153

14.   COMMITMENTS AND CONTINGENCIES

Leases

         The Company leases various facilities under non-cancelable operating lease agreements that expire within the next four years. Minimum lease payments under these non-cancelable operating leases for future years ending March 31 are as follows (in thousands):

2004	$	1,174
2005		1,042
2006		714
2007		—
2008		—
Total	$	2,930

         Rent expense from continuing operations for the years ending March 31, 2003, 2002 and 2001 was $913,000, $551,000, and $346,000, respectively.

Legal Proceedings

         As previously disclosed, on July 6, 2001, Adolph Komorsky Investments, Inc. (“AKI”), an Illinois corporation with its principal place of business in Tarrytown, New York, filed a complaint against the Company in the Supreme Court of the State of New York, County of Westchester. AKI alleged that the Company breached a consulting agreement with AKI by failing and refusing to pay AKI cash and warrant consideration called for under the agreement. On or about March 25, 2003, the Company and AKI entered into a Settlement Agreement pursuant to which (i) the Company agreed to pay AKI an undisclosed sum of cash, (ii) the parties released each other from all claims and liabilities arising out of the subject matter of the AKI litigation, and (iii) AKI agreed to dismiss the lawsuit with prejudice.

As previously disclosed, on October 17, 2002, the Company filed a complaint in the Superior Court of Los Angeles, California, against Jody Henderson, the former owner and proprietor of the Company’s interactive entertainment website known as FunnyGreetings (the “California Action”). The Company is seeking an order from the Court declaring the validity and enforceability of, and the Company’s compliance with, an amendment to the acquisition agreement pursuant to which the Company purchased FunnyGreetings from Mr. Henderson in September of 2000. The terms of the amendment, which was executed by the parties in July of 2001, resulted in, among other things, an $800 thousand reduction in the minimum purchase price to be paid by the Company to Mr. Henderson for the FunnyGreetings business. The Company filed the lawsuit due to Mr. Henderson’s allegations that (i) the Company breached the purchase agreement by not accounting for all, and/or by undermining, sources of revenue from the Company’s operation of the FunnyGreetings website thereby adversely affecting amounts due to Mr. Henderson under the purchase agreement, and (ii) the amendment to the purchase agreement was the result of economic duress and is unenforceable. In January of 2003, the Company was served with a lawsuit filed by Mr. Henderson in the Circuit Court of Fayette County, Kentucky, which includes claims based on the above allegations (the “Kentucky Action”). On January 9, 2003, the Company removed the Kentucky Action to the United States District Court for the Eastern District of Kentucky. On August 21, 2003, the Company and Mr. Henderson entered into a settlement agreement pursuant to which the Company agreed to pay Mr. Henderson $365,000 of the remaining obligation, the parties released all claims against each other and agreed to dismiss the lawsuits with prejudice.

         On February 14, 2003, Symantec Corporation, a Delaware corporation with its principal place of business in Cupertino, California (“Symantec”), filed a complaint in the United States District Court for the Central District of California naming the Company, e-Commerce Transactions, LLC (“ECT,” a wholly owned subsidiary of the Company), and two of the Company’s executive officers as defendants (collectively the “eUniverse Defendants”). Symantec alleges claims of trademark and copyright infringement, and related state and common law claims, related to ECT’s marketing and sale of Norton Anti-virus software products. The eUniverse Defendants have filed an answer to Symantec’s complaint denying Symantec’s allegations and asserting various affirmative defenses. This matter is in the early stages of discovery with a trial date set for December 16, 2003. The Company believes that ECT’s sales of Norton software products did not infringe Symantec’s rights and that the claims and allegations of Symantec are without merit. The eUniverse Defendants intend to vigorously defend themselves in this matter. To the extent Symantec’s claims are meritorious, the Company believes it has claims for reimbursement and indemnity against the suppliers from whom ECT purchased the subject software.

         On May 13, 2003, SoftwareOnline.com, Inc., a Washington corporation with its principal place of business in King County, Washington (“SoftwareOnline”), filed a complaint against the Company in the United States District Court for the Western District of Washington at Seattle. The Company had previously entered into a nondisclosure agreement and letter of intent with SoftwareOnline in anticipation of a potential acquisition of SoftwareOnline by eUniverse. SoftwareOnline alleges, inter alia, breach of the nondisclosure agreement and misappropriation of trade secrets and trade dress related to the Company’s online marketing and sales of downloadable software. SoftwareOnline seeks injunctive relief, actual damages in an amount to be proven at trial, and punitive damages in the amount of $10 thousand. On June 27, 2003, the Company filed an answer denying SoftwareOnline’s allegations and asserting various defenses. The Company disputes SoftwareOnline’s claims and allegations, believes that they are without merit and intends to vigorously defend itself in this action.

         On January 31, 2003, Arcade Planet, Inc. (“Arcade Planet”), a California corporation, filed a patent infringement complaint against the Company in the United States District Court for the District of Nevada. The Complaint filed by Arcade Planet alleges that online skill-based gaming services offered by the Company on certain of its websites infringe a patent held by Arcade Planet and entitled the “918 Patent.” On April 9, 2003, the Company filed an answer denying Arcade Planet’s allegations and seeking declaratory judgment from the Court to the effect that (i) the Company has not and does not infringe the 918 Patent and (ii) the claims of the 918 Patent are invalid and unenforceable. On July 18, 2003, the court stayed this action until the United States Patent and Trademark Office reexamines a substantial new question of patentability affecting certain claims in question underlying the 918 Patent. The Company disputes Arcade Planet’s claims, believes that they are without merit, and will vigorously defend itself in this matter.

         On May 13, 2003, Bridgeport Laboratories, LLC d/b/a YourFreeVitamins.com (“Bridgeport”), a Florida limited liability company, filed a complaint against the Company in the Superior Court of Los Angeles, California. Bridgeport alleges that the Company owes unpaid amounts due under a marketing agreement of approximately $153 thousand, although plaintiff seeks compensatory damages of in excess of $600 thousand. On April 1, 2003 the Company filed a verified answer to Bridgeport’s complaint denying Bridgeport’s allegations and filed a cross-complaint for breach of the marketing agreement and is seeking damages of in excess of $500 thousand. The Company disputes Bridgeport’s claims, believes that they are without merit, and will vigorously defend itself and prosecute its cross-claims in this matter.

         As previously disclosed by the Company in its current report on Form 8-K filed June 20, 2003, since May 9, 2003, eight purported shareholder class action lawsuits, which are substantially similar, have been filed against the Company and several current and former officers and/or employees of the Company in the United States District Court for the Central District of California. In addition, three purported shareholder derivative actions, which are similar, have been filed against various current and former directors, officers, and/or employees of the Company, one of which was recently filed in the United States District Court for the Central District of California, and two of which were filed in the Superior Court of California for the County of Los Angeles. The Company expects that the purported shareholder class action lawsuits filed in the United States District Court for the Central District of California (collectively, the “Federal Court Cases)”, and any additional similar actions, will be consolidated into one action, and that the purported shareholder derivative actions filed in the Superior Court of California for the County of Los Angeles (collectively, the “State Court Actions”), and any additional similar actions filed in that Court, will similarly be coordinated before one judge. All of the lawsuits, which arise out of the Company’s previously disclosed Restatement, include varying allegations of, among other things, false and misleading statements regarding the Company’s business prospects and financial condition and performance, sales of Company stock by one officer and one former employee of the Company, and breach of fiduciary duty. The Company intends to vigorously defend itself in the Federal Court Cases and to address the State Court Actions as appropriate. Defending against existing and potential securities and class action litigation relating to the Restatement will likely require significant attention and resources of management and, regardless of the outcome, result in significant legal expenses. If our defenses were ultimately unsuccessful, or if we were unable to achieve a favorable settlement, we could be liable for large damage awards that could seriously harm our business and results of operations.

15.   EQUITY COMPENSATION PLANS

STOCK COMPENSATION

         For the year ended March 31, 2003, an expense of $7,000 for stock-based compensation has been recorded to reflect the 15% reduction in the stock price for shares purchased by employees under the Employee Stock Purchase Plan (“ESPP”). For the year ended March 31, 2001, an expense of $263,000 for stock-based compensation has been recorded to reflect the value of additional shares to be issued related to the website performance of Funone.com, JustSayWow.com, funpageland.com and PokemonVillage.com.

F-23

The Company's 2003, 2002, and 2001 fair value calculation for proforma purposes (see Note 3) was made using the Black-Scholes option-pricing model with the following assumptions:

	2003			2002			2001
Weighed average fair value of options granted	$	2.82		$	3.16		$	2.34
Expected volatility	86		%	87%-122		%		71%-135	%
Risk free interest rate	3.86		%	5.75		%		5.7%-6.4	%
Expected lives	5 years			3 years				3 years
Dividend rate	—			—				—

PROFIT SHARING PLAN:

              During the years ended March 31, 2003 and 2002, the Company maintained an agreement with Equitable Life Assurance Society of the United States to provide its employees with a Profit Sharing (401K) Plan ("401k Plan"). The 401k Plan provides for matching contribution by the Company of 100% of the first 3% of gross salary contribution by the employees plus an additional 50% of the next 2%. For the years ended March 31, 2003 and 2002, the Company’s matching contribution expenses were approximately $144,000 and $111,000, respectively. All contributions to the Plan are 100% vested at all times.

STOCK OPTIONS:

              Under the Company’s 1999 Stock Award Plan ("Plan"), stock options may be granted to officers, directors, employees and consultants. An aggregate of 9,000,000 shares of common stock have been reserved for issuance under the Plan. Typically, options granted under the plan which generally vest ratably over 3 years with 1/3 vesting after the first 12 months and the remaining vesting in equal increments quarterly over the remaining two years. For the years ended March 31, 2003, 2002, and 2001 the plan’s activities were as follows (in thousands):

The following is a summary of stock option activity for the years ended March 31 (in thousands, except per share data):

	2003				2002				2001
	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Number of shares under stock options:
Outstanding at beginning of year	8,707		$	3.16	6,694		$	4.15	4,038		$	5.39
Granted	570			4.06	3,525			2.28	5,354			3.17
Exercised	(699	)		6.01	(108	)		2.14	—			—
Forfeited	(51	)		3.97	—			—	—			—
Cancelled	(925	)		6.00	(1,404	)		3.47	(2,698	)		5.95
Outstanding at end of year	7,602			3.25	8,707			3.16	6,694			4.15
Available to grant at end of year	1,398				293				2,306
Exercisable at end of year	2,601				3,033				1,789

The following table summarizes information about stock options outstanding at March 31, 2003:

	Options Outstanding		Options Exercisable
Price Range	Number	Weighted Average Exercise Price	Number	Weighted Average Exercise Price
$5.10-7.00	1,510	$5.99	461	$6.73
3.03-5.00	336	4.00	17	3.30
2.00-3.00	5,756	2.48	2,123	2.36
	7,602		2,601

The Company uses the intrinsic value method (APB Opinion 25) to account for its stock options granted to officers, directors, and employees. Under this method, compensation expense is recorded over the vesting period based on the difference between the exercise price and quoted market price on the date the options are granted. Since the Company has granted all its stock options at an exercise price equal to or above the quoted market value on the measurement date, no compensation expense related to grants of stock options to employees has been recorded.

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

F-24

WARRANTS:

              The Company has granted warrants to purchase common stock in connection with debt issuance and professional services. Stock purchase warrant activity is summarized as follows:

	Number of Shares			Exercise Price
Outstanding at March 31, 2000	1,026,677		$	2.74 - 10.00
Granted	2,575,813		$	1.00  -   6.00
Exercised	(80,000	)	$	6.00
Cancelled	(422,344	)	$	4.75  -   6.00
Forfeited	—
Outstanding at March 31, 2001	3,100,146		$	1.00  -   7.00
Granted	911,806		$	1.00  -   2.50
Exercised	—			—
Cancelled	(1,932,051	)	$	1.00  -   7.00
Forfeited	—			—
Outstanding at March 31, 2002	2,079,901		$	1.00  -   4.50
Granted	10,000		$	5.10
Exercised	(1,959,458	)	$	1.00  -   4.50
Cancelled	—			—
Forfeited	(3,199	)	$	2.00
Outstanding at March 31, 2003	127,244		$	1.75 - $5.03
Warrants exercisable at 3-31-2003	127,244		$	1.75 - $5.03

F-25

eUNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

              During the quarter ended December 31, 2001, in conjunction with the Sony investment, the Company cancelled 1,101,260 warrants originally issued to New Technology Holdings in September 2000 at exercise prices ranging from $4.50 to $6.00. Also, the Company issued warrants for 93,056 shares of the Company’s common stock at an exercise price of $1.75 to Preferred Series A shareholders. The warrants have been valued at $110,073 in the financial statements using the Black-Scholes option-pricing model with a risk free interest rate of 5.75%, a volatility of 100.1% with no expected dividend yield and a life of 24 months. The warrants became exercisable on January 9, 2003 and expire on January 9, 2005.

16.  PREFERRED STOCK

SERIES A

              On April 14, 1999 the Company sold 1,795,024 shares of its Series A 6% Convertible Preferred Stock in a private offering pursuant to Regulation D of the Securities Act of 1933 for the aggregate price of $6,462,086. Pursuant to the Second Amended and Restated Certificate of Designation of the Company’s Series A Preferred Stock filed on January 9, 2002, holders of the Company’s Series A Preferred Stock have the right to convert such stock into shares of the Company’s common stock at any time after July 9, 2002 at a one-to-one ratio.

              The shares of preferred stock have a liquidation preference of $3.60 per share, which increases at a rate of 6% per annum. Each share of preferred stock may be converted to common stock at a rate of one share of common stock for each $3.60 of liquidation preference. Due to the 6% accretion factor, each share of preferred stock may be converted into greater than one share of common stock. Prior to any conversion, the conversion price is adjusted to account for any increase or decrease in the number of outstanding shares of common stock by stock split, stock dividend, or other similar event.

              As of March 31, 2003, preferred shareholders had converted a total of 593,088 shares of preferred stock into 710,429 shares of common stock.

              The Company does not pay dividends on the preferred stock and the holders of such stock are not entitled to receive any dividends thereon. In the event of the liquidation or dissolution of the Company, the holders of the preferred stock will be entitled to receive the liquidation preference amount described above prior and in preference to any distribution to the holders of the common stock and any other class of stock which has been designated as junior in rank to the preferred stock.

              At any time after one year from the effective date of a registration statement registering the common stock issued or to be issued upon conversion of the preferred stock, if the closing bid price per share of the Company’s common stock is equal to or greater than $16.00, the Company, at its option, may either automatically convert the preferred stock to common stock or redeem the preferred stock for cash in an amount per share equal to $3.60 plus accretion thereon at a rate of 6% per year.

F-26

eUNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SERIES B

              On July 13, 2001, the Company entered into a Stock Purchase Agreement by which 550 Digital Media Ventures Inc. (DMV), an affiliate of Sony Broadband Entertainment Inc. agreed to invest $5 million in the Company in exchange for issuance by the Company of shares of Series B Preferred, at a purchase price of $2.60 per share. The investment by DMV simultaneously involved the acquisition of Infobeat by the Company from an affiliate of Sony Broadband Entertainment and the conversion of 1,101,260 warrants in exchange for 307,693 shares of Universe common stock valued at $1 million. Although the conversion price of the preferred stock was less than the current fair market value of the stock at the date of the transactions, the Company believes there was no beneficial conversion feature related to the preferred stock as the fair value of the warrants exchanged by DMV exceeded the fair value of the common stock to which the warrants were converted. The Company has disclosed the transaction and its potential dilution to current shareholders in the Consolidated Statement of Stockholder’s Equity as a reclassification from retained earnings to additional paid in capital.

              The holders of the Series B Preferred are entitled to participate pro rata in any dividends paid on the Company’s common stock on an as-if-converted basis. In addition, the holders of the Series B Preferred are entitled to receive noncumulative dividends in preference to any dividend on the Company’s common stock of $0.208 per annum, when, as and if declared by the Board. In the event of any liquidation or winding up of the Company, the holders of the Series B Preferred shall be entitled to liquidating distributions up to the aggregate original issue price of the Series B Preferred plus any accrued but unpaid dividends and then to participate pro rata with common shareholders on an as-converted basis following payment of the liquidation preference of the Series A Preferred holders. A merger, acquisition, sale of voting control or sale of substantially all of the assets of the Company in which the shareholders of the Company do not own a majority of the outstanding shares of the surviving corporation shall be deemed to be a liquidation.

              The Series B Preferred may be converted, at any time, into the Company’s common stock at the then applicable conversion rate at the election of the holders of at least a majority of the outstanding Series B Preferred. The initial conversion rate shall be 1:1, subject to a weighted average adjustment (based on all outstanding shares of the Company’s preferred stock and common stock) to reduce dilution in the event that the Company issues additional equity securities (other than the shares reserved as employee shares pursuant to any employee stock option plan) at a purchase price less than the applicable conversion price. The conversion price is also subject to proportional adjustment for stock splits, stock dividends, recapitalization and the like. The Company has the right to convert the Series B Preferred into shares of the Company’s common stock within 60 days of the public filing of its Form 10-Q or 10-K report, as applicable, evidencing the Company’s achievement of four consecutive post-closing quarters of operating profits equal to or greater than $750,000 for each applicable quarter.

              Each share of Series B Preferred has a number of votes equal to the number of shares of the Company’s common stock then issuable upon conversion of such share of Series B Preferred. Additionally, the holders of Series B Preferred are entitled to designate at least one and not more than three members of the Board, depending on the size of the Board. Certain material transactions by the Company shall require two-thirds consent of the Board, until such time as the Investor no longer owns at least 75% of its original Series B Preferred shares. The Company also granted preemptive rights to the Investor to participate in any private sales of equity by the Company on the same terms as offered to other investors.

              Further information has been previously disclosed in the definitive proxy dated September 27, 2001.

              Refer to Note 20 for subsequent event related to the Series B preferred stock.

17.  SEGMENT DISCLOSURES

              Based on the criteria established by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company currently operates in two principal business segments globally. The Company does not allocate any operating expenses other than direct cost of sales to its Products and Services segment, as management does not use this information to measure the performance of the operating segment. Management does not believe that allocating these expenses is material in evaluating the segment’s performance.

F-27

eUNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

              Summarized information by segment as excerpted from the internal management reports is as follows (in thousands):

			Years Ended March 31,
			2003		2002		2001
Revenues:
	Media and Advertising		$	23,067	$	21,859	$	15,330
	Products and Services			42,675		11,337		338
		Total revenues	$	65,742	$	33,196	$	15,668
Gross Profit:
	Media and Advertising		$	23,067	$	21,298
	Products and Services			25,411		6,061
		Total gross profit	$	48,478	$	27,359

18.  MAJOR CONCENTRATIONS

              During the fiscal year ended March 31, 2003, no customers exceeded 3% of net sales or 10% of segment net sales. In the Media and Advertising segment, the top 10 customers for the year make up approximately 37% of net sales, and the two largest customers each represent 5% of net sales. In the Products and Services segment, none of the customers amount to a material portion of revenues.

              During the fiscal year ended March 31, 2002, no customers exceeded 8% of net sales or 11% of segment net sales. In the Media and Advertising segment, the top 10 customers for the year make up approximately 57% of net sales, and the five largest customers each represent more than 5% of net sales. In the Products and Services segment, none of the customers amount to a material portion of revenues.

             Within the Products and Services segment, the Company currently uses a single supplier and fulfillment provider for its entire inkjet cartridge inventory, creating a concentration of risk in the Company’s inkjet cartridge business. However, additional sources for inkjet cartridge supply have entered the market which the Company believes helps to mitigate this risk.

19.  RELATED PARTY TRANSACTIONS

              In prior years, the Company entered into several purchase transactions under which it acquired intellectual property from employees. Consideration paid in these acquisitions included cash, debt and stock with repurchase rights. Subsequently, the employees and the Company entered into a dispute over the use of the database of customer names acquired. During 2003, under a global settlement, the Company guaranteed a payment of $1.9 million for the settlement of the debt obligations through the exercise of the repurchase right on the stock issued in the acquisition. The Company arranged for third-party sales of the stock, paid $403,000 in cash to settle the matter and recorded a gain on extinguishments of debt in the amount of approximately $1,266,000.

              From time to time, the Company has entered into other purchase acquisitions with employees to acquire intangible assets. These transactions generally result in the issuance of debt and the existence of contingent payments. Refer to Notes 11 and 12.

              The Company has entered into marketing agreements with Sony and Sony’s related affiliates. See Note 16 for a discussion of the relationship with Sony. The value of the marketing agreement is not significant to the Company.

20.  SUBSEQUENT EVENTS

              In response to the Company’s restatement announcement on May 6, 2003, NASDAQ halted trading of the Company’s common stock and trading has remain halted through the date of this filing. On June 13, 2003, the Company received a NASDAQ Staff Determination stating that its common stock was subject to delisting from The NASDAQ SmallCap Market (the “SmallCap Market”) due to the NASDAQ Staff’s inability to assess the Company’s current financial position and the Company’s ability to sustain compliance with NASDAQ’s continued listing requirements. On July 2, 2003, the Company received notice of an additional listing deficiency from NASDAQ indicating that the Company was not in compliance with the filing requirement for continued listing due to the Company’s failure to timely file its Annual Report on Form 10-K. Subsequently, on August 15, 2003, the Company filed a Report on Form 12b-25 with the Securities and Exchange Commission as a result of its failure to timely file its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003. The Company currently anticipates it will file this Form 10-Q in September 2003. The Company has appealed the NASDAQ Staff’s determination to delist the Company’s securities to a Listing Qualifications Hearings Panel (the “Panel”). On July 31, 2003, in an oral hearing before the Panel, the Company presented its plan for providing current financial information to the market place and regaining compliance with NASDAQ filing requirements. The Panel has not yet made a determination on the Company’s appeal and there has been no indication from the NASDAQ Staff as to whether the halt in trading of the Company’s common stock will be lifted.

              On July 15, 2003, 550 DMV and VP Alpha Holdings IV, L.L.C. (“VP Alpha LLC”) entered into an option agreement relating to an option that may be exercised within the ensuing 60 days by VP Alpha LLC to purchase shares of common stock and shares of the Company’s Series B Convertible Preferred Stock, par value $0.10 per share (the “Series B Stock”), in each case from 550 DMV. The consideration paid for the Option was the assignment to VP Alpha LLC of $500,000 of existing debt of the Company to 550 DMV, the grantor of the Option. In conjunction with the transaction with DMV, VP Alpha LLC invested $2,000,000 into the Company in the form of a note payable, and signed a term sheet under which VP Alpha LLC may provide $10 million of financing in the form of preferred stock and a $20 million acquisition line-of-credit.

             On August 21, 2003, the Company and Mr. Henderson entered into a settlement agreement pursuant to which the Company agreed to pay Mr. Henderson $365,000 of the remaining obligation, the parties released all claims against each other and agreed to dismiss the lawsuits with prejudice. The Company will record a $140,000 gain on extinguishment of debt due to this settlement.

21.  QUARTERLY RESULTS OF OPERATIONS/SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

         The following table presents certain unaudited consolidated quarterly results of operations for the years ended March 31, 2003 and March 31, 2002. This information is unaudited but reflects all adjustments that are, in the opinion of the management, necessary for a fair presentation of the consolidated results of operations. These adjustments, consisting of normal recurring adjustments and accruals, were made on a basis consistent with the annual audited financial statements and generally accepted accounting principles. The unaudited consolidated quarterly data should be read in conjunction with audited financial statements and notes to such statements presented elsewhere in this report. The results of operations for any quarter are not necessarily indicative of the results for any future period. See “Business—Recent Events—Restatement” and “Item 14-Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, and Note 2 of Notes to Consolidated Financial Statements, above, for a description of the nature of the restatement adjustments.

F-28

eUniverse Inc.
Quarterly Results of Operations/Supplementary Financial Information
(In thousands, except share and per share data)
(Unaudited)

BALANCE SHEET DATA:

	June 30, 2002				September 30, 2002				December 31, 2002
	As reported		As restated		As reported		As restated		As reported		As restated
Total assets	$	36,144	$	34,873	$	37,369	$	35,816	$	42,786	$	39,337
Total liabilities		12,455		12,023		11,660		12,625		13,336		15,889
Total shareholders’ equity		23,689		22,850		25,709		23,191		29,450		23,448

STATEMENT OF OPERATIONS DATA:

	Three-Month Period Ended June 30, 2002					Three-Month Period Ended September 30, 2002						Six-Month Period Ended September 30, 2002
	As reported and reclassified			As restated		As reported and reclassified			As restated			As reported and reclassified			As restated
Revenues	$	11,412		$	10,782	$	12,487		$	10,988		$	23,899		$	21,770
Gross profit		8,812			8,618		10,271			9,351			19,083			17,969
Income (loss) from continuing operations		2,534			2,070		2,107			(175	)		4,641			1,895
Net (loss) from discontinued operations		(41	)		—		(105	)		—			(146	)		—
Net income (loss)		2,493			2,074		2,002			(177	)		4,495			1,897
Weighted average common shares basic		23,609,260			23,609,260		24,261,229			24,261,229			23,912,971			23,912,971
Weighted average common shares diluted		32,199,797			32,199,797		28,210,251			28,210,251			28,240,154			28,240,154
Continuing operations earnings (loss) per common share		0.11			0.09		0.09			(0.01	)		0.19			0.08
Discontinued operations earnings (loss) per common share		—			—		(0.01	)		—			—			—
Basic earnings (loss) per common share		0.11			0.09		0.08			(0.01	)		0.19			0.08
Diluted earnings (loss) per common share		0.08			0.06		0.07			(0.01	)		0.16			0.07

F-29

	Three-Month Period Ended December 31, 2002					Nine-Month Period Ended December 31, 2002
	As reported and reclassified		As restated			As reported and reclassified			As restated		Three- Month Period Ended March 31, 2003			Total Year Ended March 31, 2003
Revenues		25,823		21,959			49,722			43,729		22,013			65,742
Gross profit		19,093		15,129			38,176			33,098		15,380			48,478
Income (loss) from continuing operations		3,264		(489	)		7,905			1,406		(1,088	)		318
Net income (loss) from discontinued operations		—		235			(146	)		235		—			235
Net income (loss)		3,264		(250	)		7,759			1,647		(1,094	)		553
Weighted average common shares basic		24,600,496		24,600,496			24,142,979			24,142,979		25,480,154			24,474,156
Weighted average commom shares diluted		32,044,909		32,044,909			30,711,660			30,711,660		31,417,354			30,411,356
Continuing operations income (loss) per common share		0.13		(0.02	)		0.33			0.06		(0.04	)		0.01
Discontinued operations income (loss) per common share		—		0.01			(0.01	)		0.01		—			0.01
Basic income (loss) per common share		0.13		(0.01	)		0.32			0.07		(0.04	)		0.02
Diluted income (loss) per common share		0.10		(0.01	)		0.25			0.06		(0.03)			0.02

	Three-Month Period Ended June 30, 2001	Three-Month Period Ended September 30, 2001		Three-Month Period Ended December 31, 2001	Three-Month Period Ended March 31, 2002
Revenues	5,050	6,703		10,128	11,315
Gross profit	4,845	5,815		7,618	7,998
Income (loss) from continuing operations	395	923		1,903	2,159
Net (loss) from discontinued operations	—	(71	)	106	250
Net income (loss)	395	852		2,009	2,409
Weighted average common shares basic	18,933,000	19,274,000		22,515,000	23,468,000
Weighted average common shares diluted	21,315,000	21,870,000		30,071,000	29,759,000
Continuing operations earnings (loss) per common share	0.02	0.05		0.08	0.09
Discontinued operations earnings (loss) per common share	—	—		—	0.01
Basic earnings (loss) per commonshare	0.02	0.04		0.09	0.10
Diluted earnings (loss) per common share	0.02	0.04		0.07	0.08

F-30

eUNIVERSE, INC. AND SUBSIDIARIES

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(UNAUDITED)
(In thousands)

Description	Balance at Beg of Period	Additions through Acquisitions	Additions Charged to Cost and Expenses		Deductions		Balance at end of period
Allowance for doubtful accounts (accounts receivable):
Year ended March 31, 2003	$452	$—	$  953		$  (226	)	$1,179
Year ended March 31, 2002	123	—	424		(95	)	452
Year ended March 31, 2001	78	—	461		(416	)	123
Reserve for obsolescence (inventory):
Year ended March 31, 2003	$  —	$—	$  362		$              —		$     362
Year ended March 31, 2002	—	—	—		—		—
Year ended March 31, 2001	—	—	—		—		—
Reserve for sales returns (accrued liabilities):
Year ended March 31, 2003	$240	$—	$6,093	*	$(5,667	)	$    666
Year ended March 31, 2002	—	—	—		—		—
Year ended March 31, 2001	—	—	—		—		—

(*) Charged to revenue

INDEX TO EXHIBITS

Exhibit Number		Exhibit Title/Description
2.01	—	Agreement and Plan of Merger by and between eUniverse, Inc., a Nevada corporation, and eUniverse, Inc., a Delaware corporation, dated October 31, 2002.(14)
3.01	—	Certificate of Incorporation of eUniverse, dated October 31, 2002.(14)
3.02	—	Certificate of Designation of Series A 6% Convertible Preferred Stock of eUniverse, Inc., dated October 31, 2002.(14)
3.03	—	Certificate of Designation of Series B Convertible Preferred Stock of eUniverse, Inc., dated October 31, 2002.(14)
3.04	—	Bylaws of eUniverse, dated October 31, 2002.(14)
10.01	—	Stock Purchase Agreement by and between Palisades Capital, Inc. and Charles Beilman, dated as of October 1, 1998 (the “Stock Purchase Agreement”).(1)
10.02	—	Amendment to Stock Purchase Agreement, dated December 29, 1998.(1)
10.03	—	Amendment No. 2 to Stock Purchase Agreement, dated February 11, 1999.(1)
10.04	—	Amendment No. 3 to Stock Purchase Agreement, dated as of March, 1999.(1)
10.05	—	Amendment Number 4 to Stock Purchase Agreement, dated as of June 9, 1999.(1)
10.06	—	Agreement and Plan of Reorganization by and among Motorcycle Centers of America, Inc., Entertainment Universe, Inc. and the principal officers of Entertainment Universe, Inc., dated April 9, 1999.(1)
10.07	—	Entertainment Universe, Inc. Regulation D Subscription Agreement, dated as of April, 1999.(1)
10.08	—	Entertainment Universe, Inc. Registration Rights Agreement, dated as of April 1999.(1)
10.09	—	Assignment and Assumption Agreement by and between Entertainment Universe, Inc. and Motorcycle Centers of America, Inc., dated as of April 14, 1999.(1)
10.10	—	Stock Purchase Agreement by and among Motorcycle Centers of America, Inc. and the shareholders of Case’s Ladder, Inc., dated as of April 21, 1999.(1)
10.13	—	Letter agreement between Entertainment Universe, Inc. and E.P. Opportunity Fund, L.L.C. regarding appointment of a director of Entertainment Universe, Inc., dated April 6, 1999.(1)
10.14	—	Agreement and Plan of Reorganization by and among eUniverse, Inc., Gamer’s Alliance, Inc., and Larry N. Pevnick and Robin T. Pevnick, Ten Ent., and Stan Goldenberg and Andrea R. Goldenberg, Ten Ent., dated as of the 1st day of July, 1999.(5)
10.14.1	—	Second Amendment to Agreement and Plan of Reorganization by and among eUniverse, Inc., Gamer’s Alliance, Inc., and Larry N. Pevnick and Robin T. Pevnick, Ten Ent., and Stan Goldenberg and Andrea R. Goldenberg, Ten Ent., dated as of the 12th day of November, 1999.(1)
10.15	—	Engagement Letter by and among Gerard Klauer Mattison & Co., Inc. by Entertainment Universe, Inc. and Brad Greenspan, dated February 24, 1999.(5)
10.16	—	Indemnification Agreement by Entertainment Universe, Inc. and Brad Greenspan in favor of Gerard Klauer Mattison & Co., Inc., dated February 24, 1999.(5)
10.17	—	eUniverse, Inc. 1999 Stock Awards Plan.(5)
10.18	—	eUniverse, Inc. Common Stock Purchase Warrant to Gerard Klauer Mattison & Co., Inc., dated April 14, 1999.(1)
10.19	—	Asset Purchase Agreement by and between eUniverse, Inc. and Scott Smith d/b/a Pokemonvillage.com and Quake City Gaming Network, dated as of February 1, 2000.(2)
10.20	—	Letter Agreement by and between eUniverse, Inc. and Christian Walter d/b/a Justsaywow.com dated February 20, 2000.(3)

10.21	—	Agreement by and between eUniverse, Inc. and Take-Two Interactive Software, Inc., dated as of March 16, 2000, providing for account marketing services.(4)
10.22	—	Agreement by and between eUniverse, Inc. and Take-Two Interactive Software, Inc., dated as of March 16, 2000, providing for programming services.(4)
10.23	—	Letter agreement by and among eUniverse, Inc. and Erik MacKinnon and Dan Barnes d/b/a Dustcloud Media, dated March 29, 2000.(5)
10.24	—	Asset Purchase Agreement by and between CD Universe, Inc. and CLBL, Inc., dated as of October 3, 2000.(6)
10.25	—	Letter agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc. and Charles Beilman, dated October 30, 2000.(7)
10.25.01	—	First Amendment to letter agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc. and Charles Beilman, dated November 6, 2000.(7)
10.26	—	Side letter agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc. and Brad D. Greenspan (with respect to Sections 2 and 4 only), dated October 30, 2000.(7)
10.26.01	—	First Amendment to Side Letter Agreement by and among eUniverse, Inc., Take-Two Interactive Software, Inc. and Brad D. Greenspan, dated November 6, 2000.(7)
10.27	—	Stock Purchase Agreement by and between eUniverse, Inc. and 550 Digital Media Ventures, Inc., dated as of July 13, 2001.(9)
10.28	—	Share Purchase Agreement by and among eUniverse, Inc., Indimi, L.L.C., Indimi, Inc., 550 Digital Media Ventures, Inc. and Sony Music Entertainment, Inc., dated as of July 13, 2000.(9)
10.29	—	Registration Rights Agreement by and between eUniverse, Inc. and 550 Digital Media Ventures Inc., dated as of October 23, 2001.(10)
10.30	—	Letter agreement by and between eUniverse, Inc. and 550 Digital Media Ventures Inc., dated as of October 23, 2001, regarding amendment of that certain Secured Note and Warrant Purchase Agreement dated September 6, 2000.(10)
10.31	—	eUniverse, Inc. Common Stock Purchase Warrant issued to Nicholas Agriogianis, dated April 4, 2001.(11)
10.32	—	eUniverse, Inc. Common Stock Purchase Warrant issued to Marci Zaroff, dated April 4, 2001.(11)
10.33	—	eUniverse, Inc. Common Stock Purchase Warrant issued to Saggi Capital Corp., dated September 25, 2001.(11)
10.34	—	eUniverse, Inc. Common Stock Purchase Warrant issued to Bridge Ventures, Inc., dated September 25, 2001.(11)
10.35	—	eUniverse, Inc. Common Stock Purchase Warrant issued to Nicholas Agriogianis, dated September 25, 2001.(11)
10.36	—	eUniverse, Inc. Common Stock Purchase Warrant issued to Marci Zaroff, dated September 25, 2001.(11)
10.37	—	Form of Warrant issued to certain eUniverse, Inc. Series A Preferred Stockholders as of October 22, 2001.(12)
10.38	—	eUniverse, Inc. Common Stock Purchase Warrant issued to Eisenberg Partners LLC, dated April 30, 2002.(13)
10.39	—	eUniverse, Inc. 2002 Employee Stock Purchase Plan.(15)
10.40	—	Asset Purchase Agreement, by and among ResponseBase, LLC, Internet Products Group, LLC, TTMM, L.P., Robert G. Rosen, Christopher DeWolfe, Tom Anderson, Pamela Schwilk, Mazen Araabi, Joshua Berman and Aber Whitcomb, dated September 4, 2002.*
10.41	—	Security Agreement, by and between eUniverse, Inc. and New Technology Holdings Inc. (predecessor in interest to 550 Digital Media Ventures, Inc.), dated September 6, 2001.*
10.42	—	Second Amended and Restated Secured Convertible Promissory Note dated July 15, 2003, in the principal amount of $1,789,764.*
10.43	—	Second Amended and Restated Secured Convertible Promissory Note dated July 15, 2003, in the principal amount of $500,000.*
10.44	—	Term Sheet #1, by and among eUniverse, Inc., 550 Digital Media Ventures, Inc. and VP Alpha Holdings IV, L.L.C., dated July 1, 2003.*
10.45	—	Term Sheet #2, by and between eUniverse, Inc. and VP Alpha Holdings IV, L.L.C., dated July 1, 2003.*
10.46	—	Secured Note Purchase Agreement, by and between eUniverse, Inc. and

		VP Alpha Holdings IV, L.L.C., dated July 15, 2003.*
10.47	—	Form of eUniverse, Inc. Series B Preferred Stock Purchase Warrant to be issued to VP Alpha Holdings IV, L.L.C.*
10.48	—	Option Agreement, by and among eUniverse, Inc., 550 Digital Media Ventures, Inc. and VP Alpha Holdings IV, L.L.C., dated July 15, 2003.*
10.49	—	Security Agreement, by and between eUniverse, Inc. and VP Alpha Holdings IV, L.L.C., dated July 15, 2003.*
10.50	—	Bonus Repayment Agreement, by and between eUniverse, Inc. and Brad D. Greenspan, dated August 21, 2003.*
10.51	—	Bonus Repayment Agreement, by and between eUniverse, Inc. and Brett C. Brewer, dated August 21, 2003.*
10.52	—	Bonus Repayment Agreement, by and between eUniverse, Inc. and Chris Lipp, dated August 21, 2003.*
16.01	—	Letter regarding Change in Certifying Accountant.(16)
21.01	—	Subsidiaries of eUniverse, Inc.*
23.01	—	Consent of Merdinger, Fruchter, Rosen & Corso, PC.*
23.02	—	Consent of Moss Adams LLP.*
31.1	—	Certification of the Chief Executive Officer and the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	—	Certification of the Chief Executive Officer and the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith

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

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

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

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

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

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

(7) Incorporated by reference to eUniverse’s Form 10-Q filed on November 14, 2000.

(8) Incorporated by reference to eUniverse’s Form S-3 filed on December 8, 2000.

(9) Incorporated by reference to eUniverse’s Form 10-K filed on July 16, 2001.

(10) Incorporated by reference to eUniverse’s Form 8-K filed on November 7, 2001.

(11) Incorporated by reference to eUniverse’s Form 10-Q filed on November 14, 2001.

(12) Incorporated by reference to eUniverse’s Form 10-Q filed on February 14, 2002.

(13) Incorporated by reference to eUniverse’s Form 10-Q filed on August 14, 2002.

(14) Incorporated by reference to eUniverse’s Form 8-K filed on January 9, 2003.

(15) Incorporated by reference to eUniverse’s Proxy Statement on Schedule 14A filed on October 10, 2002.

(16) Incorporated by reference to eUniverse’s Form 8-K filed on May 5, 2003.

EX-10.40

Exhibit 10.40

ASSET PURCHASE AGREEMENT

dated as of September 4, 2002

by and among

eUniverse, Inc.,

a Nevada corporation

and

ResponseBase, LLC,

a California limited liability company

Internet Products Group, LLC,

a Delaware limited liability company

TTMM, L.P.,

a California limited partnership

Robert G. Rosen

Christopher DeWolfe

Tom Anderson

Pamela Schwilk

Mazen Araabi

Joshua Berman

And

Aber Whitcomb

TABLE OF CONTENTS

		Page
ARTICLE 1    SALE OF ASSETS AND CLOSING		1
1.1	Assets	1
1.2	Liabilities	5
1.3	Purchase Price; Allocation; Contingent Consideration; Performance Payout; Adjustments; Shortfalls; Earn-Out; Net Income; Target Representative	6
1.4	Closing	7
1.5	Prorations	8
1.6	Further Assurances; Post-Closing Cooperation	8
ARTICLE 2    REPRESENTATIONS AND WARRANTIES OF TARGET		10
2.1	Organization of Target and Target Members	10
2.2	Authority	10
2.3	No Conflicts	10
2.4	No Consents	11
2.5	Financial Statements	11
2.6	Absence of Changes	11
2.7	Taxes	12
2.8	Legal Proceedings	13
2.9	Legal Compliance	13
2.10	ERISA Matters	13
2.11	Title to Assets; Business	14
2.12	Intellectual Property Rights	14
2.13	Contracts	17
2.14	Insurance	18
2.15	Affiliate Transactions	18
2.16	Labor Relations	18
2.17	Environmental Matters	20
2.18	Debt Instruments	20
2.21	Employee Agreements	21
2.22	Brokers	23
2.23	Full Disclosure	23
ARTICLE 3    REPRESENTATIONS AND WARRANTIES OF PURCHASER		25
3.1	Organization	25
3.2	Authority	25
3.3	No Consents	25
3.4	Brokers	25
ARTICLE 4    SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS		38
4.1	Survival of Representations, Warranties and Agreements	38
ARTICLE 5    INDEMNIFICATION		38

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TABLE OF CONTENTS

(continued)

		Page
5.1	Indemnification by Target and Target Members	38
5.2	Indemnification by Purchaser	39
5.3	Notice and Defense of Third-Party Claims	40
ARTICLE 6    DEFINITIONS		44
6.1	Definitions	44
ARTICLE 7    MISCELLANEOUS		52
7.1	Notices	52
7.2	Representation by Counsel	53
7.3	Entire Agreement	53
7.4	Expenses	54
7.5	Attorneys’ Fees	54
7.6	Public Announcements	54
7.7	Confidentiality	54
7.8	Waiver and Amendment	55
7.9	Successors and Assigns	55
7.10	Dispute Resolution	55
7.11	Merger of Documents	55
7.12	Incorporation of Schedules	55
7.13	Headings	55
7.14	Interpretation	56
7.15	Cooperation	56
7.16	Governing Law	56
7.17	Counterparts	56

EXHIBITS
Exhibit A—Escrow Agreement	A-1
Exhibit B—General Assignment and Bill of Sale	B-1
Exhibit C—Assumption Agreement	C-1
Exhibit D—Covenant Not to Compete	D-1
Exhibit E—General Release	E-1

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This ASSET PURCHASE AGREEMENT dated as of September 4, 2002 (the “Closing Date”) is made and entered into by and among eUniverse, Inc., a Nevada corporation (“Purchaser”), ResponseBase, LLC, a California limited liability company (“ResponseBase”), Internet Products Group, LLC, a Delaware limited liability company (“IPG”) (ResponseBase and IPG each a “Target” and, collectively, “Targets”), TTMM, L.P., a California limited partnership (“TTMM”), Robert G. Rosen (“Rosen”), Christopher DeWolfe (“DeWolfe”), Tom Anderson (“Anderson”), Pamela Schwilk (“Schwilk”), Mazen Araabi (“Araabi”), Joshua Berman (“Berman”) and Aber Whitcomb (“Whitcomb”) (TTMM, Rosen, DeWolfe, Anderson, Schwilk, Araabi, Berman and Whitcomb, collectively, “Target Members”). Capitalized terms not otherwise defined herein have the meanings set forth in Section 6.1.

WHEREAS, Targets’ business is to acquire, develop, operate, manage and otherwise deal with customer data lists that will ultimately be provided by Targets for a fee, (the “Business”); and

WHEREAS, Targets desire to sell, transfer and assign to Purchaser, and Purchaser desires to purchase and acquire from Targets, certain of the assets of Targets relating to the operation of the Business, and in connection therewith, Purchaser has agreed to assume certain of the liabilities of Targets relating to the Business, all on the terms set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

SALE OF ASSETS AND CLOSING

1.1 Assets. (a) Assets Transferred. On the terms and subject to the conditions set forth in this Agreement, Targets will sell, transfer, convey, assign and deliver to Purchaser, and Purchaser will purchase and pay for, at the Closing, free and clear of all Liens other than Permitted Liens, all of Targets’ right, title and interest in, to and under the following Assets and Properties of Targets used or held for use in connection with the Business, as the same shall exist on the Closing Date (collectively, the “Assets”):

(i) Tangible Personal Property. All furniture, fixtures, equipment, machinery and other tangible personal property used or held for use in the conduct of the Business at the locations at which the Business is conducted or at customers’ premises on consignment, or otherwise used or held for use by Targets in the conduct of the Business (including but not limited to the items listed in Section 1.1(a)(i) of the Disclosure Schedule), including any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person (the “Tangible Personal Property”);

(ii) Business Contracts. All Contracts to which any Target is a party and which are utilized in the conduct of the Business, including without limitation Contracts relating to suppliers, sales representatives, distributors, purchase orders,

marketing arrangements and manufacturing arrangements (the “Business Contracts”);

(iii) Merchant Accounts and Prepaid Expenses. All Merchant Accounts (including cash reserves maintained therein) and prepaid expenses relating to the Business, all as listed in Schedule 1.1(a)(iii);

(iv) Intangible Personal Property. All Intellectual Property used or held for use in the conduct of the Business (including Targets’ goodwill therein) and all rights, privileges, claims, causes of action and options relating or pertaining to the Business or the Assets, including but not limited to the items listed in Section 1.1(a)(iv) of the Disclosure Schedule (the “Intangible Personal Property”);

(v) Licenses. All Licenses (including applications therefor) utilized in the conduct of the Business, including but not limited to the Licenses listed in Section 1.1(a)(v) of the Disclosure Schedule (the “Business Licenses”);

(vi) Books and Records. All Books and Records used or held for use in the conduct of the Business or otherwise relating to the Assets (except that, Targets may retain copies of such Books and Records for their records), other than the minute books, equity transfer books and corporate seal of Targets (the “Business Books and Records”); and

(vii) Other Assets and Properties. All other Assets and Properties of Target used or held for use in connection with the Business (the “Other Assets”).

The parties understand and agree that (i) the Purchaser (A) will have the full financial benefit of the revenues generated through all Merchant Accounts transferred to the Purchaser under Section 1.1(a)(iii) above, which are all of the Merchant Accounts currently used in the Business, free from any claim by the Targets and the Target Members except to the extent such revenues impact the Contingent Consideration, Performance Payment and Earn-Out Payment obligations described in Sections 1.3(c), (d) and (g) below, and (B) will bear the full financial burden of all merchandise return obligations with respect to sales through such Merchant Accounts under Section 1.2(a)(ii) below, without recourse against the Targets or the Target Members; and (ii) that no party has made or is making any representation or warranty hereunder as to the expected level of such revenues or returns.

(b) Excluded Assets. Notwithstanding anything in this Agreement to the contrary, the following Assets and Properties of Targets (the “Excluded Assets”) shall be excluded from and shall not constitute Assets:

(i) Cash. Cash, commercial paper, certificates of deposit and other bank deposits, treasury bills and other cash equivalents;

(ii) Accounts Receivable. All trade accounts receivable and all notes, bonds and other evidences of Indebtedness of and rights to receive payments arising out of sales occurring in the conduct of the Business and any security

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agreements related thereto, including any rights of Targets with respect to any third party collection procedures or any other Actions or Proceedings which have been commenced in connection therewith (the “Accounts Receivable”);

(iii) Life Insurance. Life insurance policies of officers and other employees of Targets;

(iv) Employee Benefit Plans. All assets owned or held by any Benefit Plans;

(v) Business Contracts. The Business Contracts described in Section 1.2(b)(v) of the Disclosure Schedule;

(vi) Certain Records. The minute books, equity transfer books and corporate seal of Targets;

(vii) Litigation Claims. Any rights (including indemnification) and claims and recoveries under litigation of any Target against third parties arising out of or relating to events prior to the Closing Date;

(viii) Excluded Obligations. The rights and obligations of Targets in, to and under all Contracts of any nature which expressly are not assumed by Purchaser pursuant to Section 1.2(b); and

(ix) Targets’ rights under this Agreement. The rights of Targets in, to and under this Agreement.

1.2 Liabilities. (a) Assumed Liabilities. In connection with the sale, transfer, conveyance, assignment and delivery of the Assets pursuant to this Agreement, on the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser will assume and agree to pay, perform and discharge when due the following obligations of Targets arising in connection with the operation of the Business, as the same shall exist on the Closing Date (the “Assumed Liabilities”), and no others:

(i) Obligations under Contracts and Licenses. All obligations of each Target under the Business Contracts and Business Licenses arising and to be performed on or after the Closing Date, and excluding any such obligations arising or to be performed prior to the Closing Date;

(ii) Merchant Account Returns. All merchandise return obligations of each Target with respect to the Merchant Accounts; and

(b) Retained Liabilities. Except for the Assumed Liabilities, Purchaser shall not assume by virtue of this Agreement or the transactions contemplated hereby, and shall have no liability for, any Liabilities of Targets (including, without limitation, those related to the Business) of any kind, character or description whatsoever (the “Retained Liabilities”). Targets

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shall discharge in a timely manner or shall make adequate provision for all of the Retained Liabilities, provided that Targets shall have the ability to contest, in good faith, any such claim of liability asserted in respect thereof by any Person other than Purchaser and its Affiliates.

1.3 Purchase Price; Allocation; Contingent Consideration; Performance Payment; Adjustments; Shortfalls; Earn-Out; Net Income; Target Representative.

(a) Purchase Price. The aggregate purchase price (the “Purchase Price”) for the Assets is the sum of (i)(i) Three Million Dollars ($3,000,000.00) payable in immediately available United States funds at the Closing in the manner provided in Section 1.4 (the “Base Price”), (ii) the Contingent Consideration, (iii) the Performance Payments, and (iv) the Earn-Out Payments (the latter three defined below and collectively referred to as the “Contingent Price”). At the Closing, Purchaser shall pay the Base Price to Targets. All amounts payable to Targets at the Closing shall be paid via wire transfer of immediately available funds to the account or accounts of Targets as set forth on Exhibit 1.4. The portion of the Base Price and Contingent Price to be paid to each Target has been agreed upon and furnished to Purchaser by Targets and is set forth on Exhibit 1.4.

(b) Allocation. The Base Price shall be reasonably allocated among the Assets in proportion to their respective fair market values, but not in excess thereof, based on the mutual agreement of Purchaser, Targets and Target Members as set forth in Schedule 1.3 and any remaining amount shall be allocated to “going concern/goodwill” of the Business. Each party hereto agrees (i) that any such allocation shall be consistent with the requirements of Section 1060 of the Code and the regulations thereunder, (ii) to complete jointly and to file separately Form 8594 with its Federal income Tax Return consistent with such allocation for the tax year in which the Closing Date occurs, (iii) that no party will take a position on any income, transfer or gains Tax Return, before any Governmental or Regulatory Authority charged with the collection of any such Tax or in any judicial proceeding, that is in any manner inconsistent with the terms of any such allocation without the consent of the other party and (iv) such allocation shall be consistent with the allocation of the Purchase Price reflected in Schedule 1.3.

(c) Contingent Consideration. The Purchaser shall pay the lesser of: (i) the Net Profits for the period beginning the day after the Closing Date and ending September 30, 2002 (the “Contingent Period”) and (ii) Three Hundred Thousand Dollars ($300,000.00) multiplied by the fraction obtained from dividing the number of days in the Contingent Period by thirty (30) (the “Contingent Consideration”) to Targets via wire transfer in immediately available funds to the account or accounts of Targets as set forth on Exhibit 1.4. The Contingent Consideration shall be paid, if at all, on the earlier of: (i) December 1, 2002 and (ii) the receipt by Purchaser, in cash, of the Net Profits generated during the Contingent Period, provided that in no event shall any portion of the Contingent Consideration subject to a pending Net Income Dispute Notice be payable prior to the final determination of Net Profits for the Contingent Period in accordance with Section 1.3(h), provided further that if a Net Income Dispute Payment is pending all undisputed portions of the Contingent Consideration shall nonetheless be paid when due. At the Closing, One Hundred Thousand Dollars ($100,000.00) deposit against any amount otherwise payable as Contingent Consideration shall be delivered by Purchaser by wire transfer of immediately available funds to U.S. Bank, as escrow agent (the “Escrow Agent”), under an escrow agreement to be entered into on the Closing Date by Targets, Purchaser and the

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Escrow Agent, substantially in the form of Exhibit A hereto (the “Escrow Agreement”). During the Contingent Period, Purchaser shall operate the Business in substantially the same manner as it was operated immediately prior to the Closing.

(d) Performance Payment. Purchaser shall pay to ResponseBase certain performance payments (each, a “Performance Payment”) in the manner and the amounts set forth below, contingent upon Purchaser’s operation of the Business achieving certain Net Income thresholds (each, a “Threshold”), as described herein, during the two year period beginning on October 1, 2002, and ending on September 30, 2004 (the “Performance Period”). The Performance Payment, with respect to each Threshold, shall be paid to ResponseBase as follows:

(i) Two Hundred Fifty Thousand Dollars ($250,000.00) if Net Income is equal to or greater than $1.59 million during the first six months of the Performance Period;

(ii) Three Hundred Fifty Thousand Dollars ($350,000.00) if Net Income is equal to or greater than $2.16 million during months seven through twelve, inclusive, of the Performance Period;

(iii) Four Hundred Thousand Dollars ($400,000.00) if Net Income is equal to or greater than $3.28 million during months thirteen through eighteen, inclusive, of the Performance Period; and

(iv) Five Hundred Thousand Dollars ($500,000.00) if Net Income is equal to or greater than $3.28 million during months nineteen through twenty four, inclusive, of the Performance Period.

Notwithstanding anything to the contrary contained herein, in the event that both DeWolfe and Berman cease to be employed by Purchaser at any time during the Performance Period, Purchaser’s Performance Payment obligations for the current and remaining portions of the Performance Period shall cease entirely; provided, however, that the obligation of Purchaser to make Performance Payments shall not cease in the event that (i) DeWolfe and Berman are terminated by Purchaser for any reason other than “Cause,” becoming “Disabled” or death, or (ii) DeWolfe and Berman terminate their employment for “Good Reason.” The terms Cause, Disabled and Good Reason, as used herein, shall have the same meaning as set forth in the employment agreement of even date herewith entered into by and between DeWolfe and Purchaser.

(e) Adjustments. Each Performance Payment, to the extent it becomes due, shall be paid within sixty (60) days from the end of the relevant period, provided that in no event shall any portion of the Performance Payment subject to a pending Net Income Dispute Notice be payable prior to the final determination of Net Profits in accordance with Section 1.3(h), provided further, that if a Net Income Dispute Payment is pending all undisputed portions of the Performance Payment shall nonetheless by paid when due. Each Performance Payment shall be adjusted as follows:

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(i) If Net Income equals less than 90% of the applicable Threshold, then no corresponding Performance Payment shall be made.

(ii) If Net Income is greater than or equal to 90% but less than 100% of the applicable Threshold, then the corresponding Performance Payment shall be reduced by 50%.

(iii) If Adjusted Net Income is greater than 115% but less than or equal to 125% of any Threshold, then the corresponding Performance Payment shall be increased by an amount equal to the Adjusted Net Income minus such Threshold multiplied by 25% (each, a “25% Adjustment”).

(iv) If Adjusted Net Income is greater than 125% of any Threshold, then the corresponding Performance Payment shall be increased by an amount equal to the Adjusted Net Income minus such Threshold multiplied by 33% (each, a “33% Adjustment”).

(f) Shortfalls. If Net Income during any six month portion(s) of the Performance Period set forth in clauses (i) through (iv) of 1.3(d), is greater than the corresponding Threshold(s) by an amount which exceeds the aggregate amount of all prior Shortfalls, Purchaser shall pay to ResponseBase an amount equal to the difference between (i) the Performance Payment corresponding to the portion of the Performance Period in which each such Shortfall occurred and (ii) any portion of each such Performance Payment (s) previously paid to ResponseBase (a “Shortfall Makeup Payment”). For purposes of determining whether a Shortfall Makeup Payment is due, Net Income in excess of the applicable Threshold from multiple periods may be aggregated, provided, however, that Net Income earned during any period with respect to which a 25% Adjustment or a 33% Adjustment was paid shall not be included in determining the amount of such excess (i.e. only Net Income from periods where Net Income was greater than 100% of the applicable Threshold and Adjusted Net Income was less than 115% of the applicable Threshold shall be included).

(g) Earn-Out. As additional consideration for the transfer of the Assets by Targets to Purchaser, Purchaser shall pay to ResponseBase certain payments (each, an “Earn-Out Payment”) based on quarterly Net Income for the two year period beginning October 1, 2002, and ending September 30, 2004 (the “Earn-Out Period”). Unless a Net Income Dispute Notice is pending, each Earn-Out Payment shall be made within thirty (30) days from the end of each fiscal quarter of the Earn-Out Period and in accordance with the procedures set forth in Section 1.3(h) below, provided that in the event a Net Income Dispute Payment is pending all undisputed portions of any Earn-Out Payment shall nonetheless by paid when due. The Earn-Out Payments, with respect to each fiscal quarter of the Earn-Out Period, shall be paid to ResponseBase as follows:

(i) thirty percent (30%) of the quarterly Net Income for the first four quarters of the Earn-Out Period;

(ii) twenty percent (20%) of the quarterly Net Income for the remaining four quarters of the Earn-Out Period.

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Notwithstanding anything to the contrary contained herein, in the event that DeWolfe ceases to be employed by Purchaser for any reason other than terminated without “cause” by Purchaser, the Earn-Out Payment for the corresponding fiscal quarter of the Earn-Out Period (the “Related Earn-Out Payment”) shall be decreased by an amount equal to the Related Earn-Out Payment minus the Related Earn-Out Payment multiplied by the fraction obtained from dividing the number of full calendar months remaining in such fiscal quarter by three (3). All remaining Earn-Out Payments shall be decreased by fifty percent (50%). The term “cause”, as used herein, shall have the same meaning as set forth in the employment agreement of even date herewith, entered into by and between DeWolfe and Purchaser.

(h) Net Income. In no event later than twenty one (21) days immediately following (i) each period set forth in Section 1.3(d)(i)-(iv) and (ii) each fiscal quarter during the Earn-Out Period, as described in Section 1.3(g), Purchaser shall have prepared and delivered to ResponseBase a statement of the Purchaser’s calculation of Net Income for the applicable period (a “Determination Statement”). If, (x) after the parties are unable to mutually agree upon such calculation of Net Income, or (y) after receiving the Determination Statement and prior to ten (10) days immediately following the receipt of such statement, ResponseBase notifies the Purchaser in writing (a “Net Income Dispute Notice”) that it disputes the amount of Net Income as calculated by Purchaser (and in such Net Income Dispute Notice states the nature of the dispute in reasonable detail, including, without limitation, ResponseBase’s determination of the value of each of the disputed amounts or other items), and if ResponseBase and Purchaser are unable to resolve such dispute within three (3) days after receipt of the Net Income Dispute Notice by the Purchaser, they shall submit the dispute to a nationally recognized independent accounting firm mutually agreeable to them, which firm shall not have had a material relationship with Targets, Target Members or Purchaser, or any of their respective affiliates, within four (4) years preceding the appointment of such firm (the “Adjustment Arbitrator”). The Adjustment Arbitrator shall be instructed to arbitrate the disputed Adjustments or item(s), as applicable, and determine the Net Income for the applicable period within ten (10) days from the date such Adjustment Arbitrator is selected. If ResponseBase and Purchaser cannot agree on the selection of the independent accounting firm to act as the Adjustment Arbitrator, they shall request the CPR Institute for Dispute Resolution (formerly Center for Public Resources) to appoint such a firm and such appointment shall be conclusive and binding on the parties. In determining Net Income, the Adjustment Arbitrator (i) shall be bound by the provisions of this Section and (ii) may not assign a value to any adjustment or item greater than the greatest value for such adjustment or item claimed by ResponseBase or Purchaser (as applicable) or less than the smallest value for such adjustment or item claimed by ResponseBase or Purchaser (as applicable). The resolution of disputes by the Adjustment Arbitrator shall be set forth in writing and shall be conclusive and binding on the parties, and the determination of Net Income shall become final upon the date of such resolution, and may be entered as a final judgment in any court of proper jurisdiction. Whether any dispute is resolved by agreement between ResponseBase and Purchaser or by the Adjustment Arbitrator, changes to the Determination Statement shall be made hereunder only for items as to which ResponseBase has taken exception as provided herein. The fees and expenses of the Adjustment Arbitrator, if required hereunder, shall be apportioned between Targets and Purchaser to reflect the relative differences between the position asserted by ResponseBase and Purchaser with respect to each disputed adjustment or item referred to the Adjustment Arbitrator, and the resolution reached by such Adjustment

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Arbitrator with the party that is further from such resolution bearing a proportionately greater share of such fees and expenses.

(i) Target Representative.

(i) Authorization of the Target Representative. Christopher DeWolfe (the “Target Representative”) (and each successor appointed in accordance with Section 1.3(i)(iii) below) hereby is appointed, authorized and empowered to act, on behalf of each Target Member, in connection with, and to facilitate the consummation of the transactions, and in connection with the activities to be performed on the Targets behalf under this Agreement, for the purposes and with the powers and authority set forth in this Section 1.3(i), which will include the power and authority:

(A) to execute and deliver such amendments, waivers and consents in connection with this Agreement and the transactions contemplated hereby as the Target Representative, in its reasonable discretion, may deem necessary or desirable to give effect to the intentions of this Agreement;

(B) as the Target Representative of the Target Members, to enforce and protect the Target Members’ rights and interests arising out of or under or in any manner relating to this Agreement (including in connection with any claims related to the transactions contemplated hereby), including, without limitation, Section 1.3(h) of this Agreement, and, in connection therewith, to (i) assert any claim or institute any action, (ii) investigate, defend, contest or litigate any action, initiated by any Indemnified Party, or any other person, against the Target Members, and receive process on behalf of each Target Member in any such action and compromise or settle on such terms as the Target Representative will determine to be appropriate, give receipts, releases and discharges on behalf of all or any Target Members with respect to any such action, (iii) file any proofs, debts, claims and petitions as the Target Representative may deem advisable or necessary, (iv) settle or compromise any claims related to the transactions contemplated hereby, (v) assume, on each Target Member’s behalf, the defense of any claims related to the transactions contemplated hereby, and (vi) file and prosecute appeals from any decision, judgment or award rendered in any of the foregoing actions, it being understood that the Target Representative will not have any obligation to take any such actions, and will not have liability for any failure to take any such action;

(C) to refrain from enforcing any right of any Target Member and/or of the Target Representative arising out of or under or in any manner relating to this Agreement; and

(D) to make, execute, acknowledge and deliver all such contracts, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and other writings, and, in general, to do any and all things and to take any and all action that the Target Representative, in its sole and absolute discretion, may consider necessary or proper or convenient in connection with or to carry out the activities described in Sections 1.3(h) & (i).

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Notwithstanding anything to the contrary contained in this Section 1.3(i), the Target Representative shall only be authorized to act on behalf of the Target Members upon the dissolution, liquidation and winding up of ResponseBase.

The grant of authority provided for in this Section 1.3(i)(i): (i) is coupled with an interest and is being granted, in part, as an inducement to the Purchaser, the Target Members and Targets to enter into this Agreement and will be irrevocable and survive the death, incompetency, bankruptcy or liquidation of any Target Member and will be binding on any successor thereto.

(ii) Compensation; Exculpation; Indemnity. The Target Representative will not be entitled to any fee, commission or other compensation for the performance of its service hereunder, but will be entitled to the payment by Target Members of all of its out-of-pocket expenses incurred as Target Representative. In dealing with this Agreement and any instruments, agreements or documents relating thereto, and in exercising or failing to exercise all or any of the powers conferred upon the Target Representative hereunder or thereunder, (i) the Target Representative will not assume any, and will incur no, liability whatsoever to any Target Member because of any error in judgment or other act or omission performed or omitted hereunder or in connection with this Agreement or INCLUDING BECAUSE OF THE TARGET REPRESENTATIVE’S OWN NEGLIGENCE; and (ii) the Target Representative will be entitled to rely on the advice of counsel, public accountants or other independent experts experienced in the matter at issue, and any error in judgment or other act or omission of the Target Representative pursuant to such advice will not subject the Target Representative to liability to Purchaser, the Targets or any other person.

(iii) Removal and Replacement of Target Representative; Successor Target Representative; Action by Target Representative. If the Target Representative is unable or unavailable to perform its duties hereunder, within three business days of such date, a Target Representative, will be appointed by the Target Members who hold (or held, as applicable) a majority of the membership interests of ResponseBase immediately prior to the Closing Date (“Majority Interest”). Any Target Representative may be removed at any time by a written notice delivered by the Target Members who held Majority Interest, to the Target Representative, the other Target Members and the Purchaser. No Target Representative may be removed until the Target Members who held Majority Interest have replaced such Target Representative by written notice delivered to the Target Members and Purchaser. If any successor Target Representative is appointed under this Section 1.3(i)(iii), such appointment will be effective upon delivery of written notice thereof executed by the Target Members who held Majority Interest to each of the Target Representative, the other Target Members and Purchaser. Any successor Target Representative will have all of the authority and responsibilities conferred upon or delegated to a Target Representative pursuant to this Section 1.3(i).

(iv) Reliance. Purchaser may conclusively and absolutely rely, without inquiry, and until the receipt of written notice of a change of the Target Representative under Section 1.3(i)(iii), may continue to rely, without inquiry, upon the action of the Target Representative as the action of each Target Member in all matters referred to in Section 1.3(i).

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1.4 Closing. At the Closing, (a) each Target will assign and transfer to Purchaser good and valid title in and to the Assets (free and clear of all Liens, other than Permitted Liens) by delivery of (i) a General Assignment and Bill of Sale substantially in the form of Exhibit B hereto (the “General Assignment”), duly executed by each Target and (ii) such other good and sufficient instruments of conveyance, assignment and transfer (the “Assignment Instruments”), in form and substance reasonably acceptable to Purchaser’s counsel, as shall be effective to vest in Purchaser good and valid title to the Assets free and clear of any Liens and (b) Purchaser will assume from each Target the due payment, performance and discharge of the Assumed Liabilities by delivery of (i) an Assumption Agreement substantially in the form of Exhibit C hereto (the “Assumption Agreement”), duly executed by Purchaser, and (ii) such other good and sufficient instruments of assumption, in form and substance reasonably acceptable to Targets’ counsel, as shall be effective to cause Purchaser to assume the Assumed Liabilities as and to the extent provided in Section 1.2(a) (the “Assumption Instruments”). At the Closing, there shall also be delivered (a) by each Target and Target Members to Purchaser the Operative Agreements and (b) to Targets and Purchaser the opinions, certificates and other contracts, documents and instruments as Targets may reasonably request. At the Closing Purchaser shall (a) pay the Base Price to Targets via wire transfer of immediately available funds to the account or accounts of Targets as set forth on Exhibit 1.4 in accordance with Section 1.3(a) and (b) pay One Hundred Thousand Dollars ($100,000.00) of the Contingent Consideration to Targets via wire transfer of immediately available funds to the Escrow Agent in accordance with Section 1.3(c) and the Escrow Agreement.

1.5 Prorations. Prorations relating to the Assets and the ownership and operation of the Business shall be made as of the Closing Date, and are set forth in Section 1.5 of the Disclosure Schedule, with Target transferring such Assets hereunder liable to the extent such items relate to any time period prior to the Closing Date and Purchaser liable to the extent such items relate to periods beginning with and subsequent to the Closing Date. Except as otherwise agreed by the Parties, the net amount of all such prorations shall be settled and paid on the Closing Date.

1.6 Further Assurances; Post-Closing Cooperation. At any time or from time to time after the Closing, at Purchaser’s request and without further consideration, each Target and Target Member shall execute and deliver to Purchaser such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as Purchaser may reasonably deem necessary or desirable in order more effectively to transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to, all of the Assets. At any time or from time to time after the Closing, at ResponseBase’s request and without further consideration, Purchaser shall execute and deliver to Targets such other instruments of assumption and take such other actions as ResponseBase may reasonably deem necessary more effectively to provide for the assumption by Purchaser of the Assumed Liabilities. Without limiting the foregoing, Purchaser shall execute and deliver to Targets such other instruments, and take such other actions, as may be reasonably requested to induce the release of DeWolfe from any guarantees with respect to the Merchant Accounts, provided that Purchaser shall not be required pay any amounts not provided for or anticipated under this Agreement. In the event that DeWolfe remains a guarantor on any of the Merchant Accounts after the Closing Date, Purchaser agrees to indemnify DeWolfe for, and hold DeWolfe harmless

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from, any expenses and obligations arising from such guarantee to the extent such expenses or obligations result from Purchaser’s use of the Merchant Account after the Closing Date.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF TARGET

2.1 Organization of Targets and Target Members.

(a) Each Target and Target Member hereby represents and warrants, jointly and severally, to Purchaser that (i) ResponseBase is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of California, and has full power and authority to conduct the Business as and to the extent now conducted and to own, use and lease the Assets; and (ii) Schedule 2.1(a) of the Disclosure Schedule sets forth, immediately prior to the Closing, the holders of record of, and their respective percentage interests in, the membership units of ResponseBase.

(b) Each of IPG and ResponseBase hereby represents and warrants to Purchaser that (i) IPG is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly qualified to do business in California, and has full power and authority to conduct the Business as and to the extent now conducted and to own, use and lease the Assets; and (ii) Schedule 2.1(b) of the Disclosure Schedule sets forth, immediately prior to the Closing, the holders of record of, and their respective percentage interests in, the membership units of IPG.

(c) TTMM hereby represents and warrants to Purchaser that (i) TTMM is a limited partnership duly organized, validly existing and in good standing under the Laws of the State of California; (ii) Schedule 2.1(c) of the Disclosure Schedule sets forth, immediately prior to the Closing, the partners of record, and their respective partnership interests, in TTMM.

2.2 Authority.

(a) Each Target and Target Member hereby represents and warrants, jointly and severally, to Purchaser that (i) this Agreement, the Operative Agreements and the other agreements contemplated hereby to be executed by ResponseBase pursuant hereto have been duly executed and delivered by ResponseBase, and constitute valid and binding obligations of ResponseBase enforceable against it in accordance with their terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by general equitable principles; (ii) ResponseBase has full power and authority to execute and deliver and perform its obligations under this Agreement, the Operative Agreements and the other agreements contemplated herein to be executed by it; and (iii) the execution and delivery by ResponseBase of this Agreement do not, and the execution and delivery by ResponseBase of the Operative Agreements to which it is a party, the performance by ResponseBase of its obligations under this Agreement and the Operative Agreements and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Certificate of Formation or Operating Agreement of ResponseBase.

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(b) ResponseBase and IPG hereby represents and warrants to Purchaser that (i) this Agreement, the Operative Agreements and the other agreements contemplated hereby to be executed by IPG pursuant hereto have been duly executed and delivered by IPG, and constitute valid and binding obligations of IPG enforceable against it in accordance with their terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by general equitable principles; (ii) IPG has full power and authority to execute and deliver and perform its obligations under this Agreement, the Operative Agreements and the other agreements contemplated herein to be executed by it; and (iii) the execution and delivery by IPG of this Agreement do not, and the execution and delivery by IPG of the Operative Agreements to which it is a party, the performance by IPG of its obligations under this Agreement and the Operative Agreements and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Certificate of Formation or Operating Agreement of IPG.

(c) TTMM hereby represents and warrants to Purchaser that (i) this Agreement, the Operative Agreements and the other agreements contemplated hereby to be executed by TTMM pursuant hereto have been duly executed and delivered by TTMM, and constitute valid and binding obligations of TTMM enforceable against it in accordance with their terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by general equitable principles; (ii) TTMM has full power and authority to execute and deliver and perform its obligations under this Agreement, the Operative Agreements and the other agreements contemplated herein to be executed by it; and (iii) the execution and delivery by TTMM of this Agreement do not, and the execution and delivery by TTMM of the Operative Agreements to which it is a party, the performance by TTMM of its obligations under this Agreement and the Operative Agreements and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Certificate of Limited Partnership or Partnership Agreement of TTMM.

(d) Each Target Member, excluding TTMM, hereby represents and warrants, severally, to Purchaser that (i) this Agreement, the Operative Agreements and the other agreements contemplated hereby to be executed by each Target Member pursuant hereto have been duly executed and delivered by each Target Member, and constitute valid and binding obligations of each Target Member enforceable against him or her in accordance with their terms; and (ii) each Target Member has full power and authority to execute and deliver and perform his or her obligations under this Agreement, the Operative Agreements and the other agreements contemplated herein to be executed by him or her.

Each Target and Target Member hereby represents and warrants, jointly and severally, to Purchaser as follows:

2.3 No Conflicts. The execution and delivery by each Target and Target Member of this Agreement do not, and the execution and delivery by each Target and Target Member of the Operative Agreements to which each is a party, the performance by each Target

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and Target Member of their respective obligations under this Agreement and the Operative Agreements and the consummation of the transactions contemplated hereby and thereby will not:

(a) subject to obtaining the consents, approvals and actions, making the filings and giving the notices disclosed in Schedule 2.4, conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to any Target Member or Target or any of their respective Assets and Properties; or

(b) (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require any Target to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, or (iv) result in the creation or imposition of any Lien upon any Target or any of its Assets and Properties under, any Contract or License to which such Target is a party or by which any of its Assets and Properties are bound.

2.4 No Consents. Except as set forth on Schedule 2.4, no permit, consent, approval, novation, authorization or other order of or filing with any Governmental Entity or any other Person is required in connection with the execution, delivery and consummation of this Agreement and the other agreements contemplated hereby to be executed by Targets or any other Person (other than Purchaser), including the Operative Agreements, or the actions of Targets or Target Members contemplated hereby, or to permit Purchaser to continue to conduct the Business as it is currently conducted immediately following the purchase of the Assets by Purchaser pursuant hereto.

2.5 Brokers. No Target has Liability, directly or indirectly, to pay any fees, commissions or other amounts to any of Targets’ members, officers or employees in connection with this Agreement or the transactions contemplated hereby or in connection with any sale of all or substantially all of the assets of either Target. No Target has Liability, directly or indirectly, to pay any fees, commissions or other amounts to any broker, finder or agent with respect to this Agreement or the transactions contemplated hereby or in connection with any sale of all or substantially all of the assets of either Target. Each Target and Target Members agree to indemnify and hold harmless Purchaser for any such Liability.

Each Target and Target Member (excluding Rosen and TTMM) hereby represents and warrants, jointly and severally, to Purchaser as follows:

2.6 Financial Statements. Attached hereto as Schedule 2.6 are the following financial statements: (i) the unaudited balance sheets and the related unaudited consolidated statements of income and changes in stockholders’ equity and cash flow as of and for the fiscal year ended December 31, 2001 (the “Most Recent Fiscal Year End”) for each Target and (ii) the unaudited balance sheets and the related unaudited consolidated statements of income and changes in stockholders’ equity and cash flow as of, and up to the month ended July 31, 2002 for each Target. Targets shall promptly provide their monthly unaudited financial statement (including in each case, year-to-date results) to Purchaser for each month ending after July 31, 2002 and prior to the Closing Date (such financial statements, together with those described in

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the previous sentence are referred to collectively herein as the “Target Financial Statements”). Target Financial Statements (including the notes thereto) present fairly the financial condition of each Target as of such date and the results of operations of each Target for such period, are accurate and complete in all material respects, and are consistent with the books and records of each Target in all material respects (which books and records are accurate and complete); provided, however, that the Financial Statements do not contain all footnotes required under GAAP and the unaudited interim financial statements are subject to normal recurring year-end adjustments. No Target has liabilities that are not reflected in the Target Financial Statements or set forth on a schedule to this Agreement except those incurred in the ordinary course of business after the date of the most recent monthly financial statements and disclosed to Purchaser.

2.7 Absence of Changes. Except as set forth on Schedule 2.7 hereto, there has not been any Material Adverse Change with respect to either Target, the Business or the Assets since July 31, 2002.

2.8 Taxes. (i) Each Target has filed all Tax Returns that it was required to file (Tax Returns the filing date of which has been validly extended shall not be considered due until the expiration of such extension), which Tax Returns were correct and complete in all material respects, copies of which have been delivered to Purchaser, (ii) all Taxes owed by Targets (whether or not shown on any Tax Return) have been paid and (iii) no claim has ever been made by an authority in a jurisdiction where Targets do not file Tax Returns that Targets are or may be subject to taxation by that jurisdiction. There are no Liens on any of the Assets that arose in connection with any failure (or alleged failure) to pay any Tax, and to the Knowledge of either Target, no basis exists for the imposition of any such Liens. Targets do not expect any authority to assess any additional Taxes with respect to Targets for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of Targets. Each Target has delivered to Purchaser true, correct and complete copies of all income Tax Returns filed, examination reports and statements of deficiencies assessed against or agreed to by each Target. There is no outstanding audit or examination concerning any Tax Liability of either Target. Each Target has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, member or other Person. Neither Target has waived nor extended any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. Targets are satisfied as to, and have each relied solely upon its respective tax advisors with respect to, the incidents of taxation which will or may result from the transactions contemplated by this Agreement.

2.9 Legal Proceedings. Except as set forth on Schedule 2.9 hereto, (A) there is no suit, action, hearing, claim, audit or litigation, or legal, administrative, arbitration or other proceeding pending or, to the Knowledge of either Target, threatened, nor to the Knowledge of either Target, any investigation pending or threatened against or affecting, the Business, Targets or any of the Assets, before any Governmental Entity which would have a Material Adverse Effect on either Target, the Business or the Assets or that would reasonably be expected to materially adversely affect the ability of either Target or any Target Member to consummate the transactions contemplated hereby and (B) there is no judgment, decree, injunction, ruling, award, charge, order or writ of any Governmental Entity or other Person outstanding against, binding upon or involving either Target, the Business or the Assets or any directors or officers of either

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Target in their capacity as such. Each Target owns policies of casualty, liability or other forms of insurance which provide coverages in amount and scope sufficient to cover every claim, action, cause of action, suit, proceeding, litigation, arbitration or investigation arising out of, related to, or in connection with those matters listed on Schedule 2.9 hereto. Neither Targets nor any of their directors, officers or employees is currently charged with or is currently under investigation with respect to, any violation of any provision of any Legal Rule in respect of the Business.

2.10 Legal Compliance. Except as set forth in Section 2.10 of the Disclosure Schedule, to the Knowledge of Targets, each Target is, and at all times has been, in compliance with all Legal Rules applicable to it. To the Knowledge of Targets, Targets have all permits, certificates, licenses, approvals and other authorizations required in connection with the operation of the Business, all of which are valid and effective. Schedule 1.1(a)(v) contains a true and complete list of all material Licenses used or held for use in the Business (and all pending applications for any such Licenses), setting forth the grantor, the grantee, the function and the expiration and renewal date of each.

2.11 ERISA Matters. Purchaser will incur no liability with respect to, or on account of, and each Target will retain any liability for, and on account of, any employee benefit plan of such Target, any of its Affiliates (other than Target Members who are retaining such liabilities) or any predecessor employer of any employee, including, but not limited to, liabilities either Target may have to such employees under all employee benefit schemes, incentive compensation plans, bonus plans, pension and retirement plans, vacation, profit-sharing plans (including any profit-sharing plan with a cash-or-deferred arrangement) share purchase and option plans, savings and similar plans, medical, dental, travel, accident, life, disability and other insurance and other plans or arrangements, whether written or oral and whether “qualified” or “non-qualified,” or to any employee as a result of termination of employment by either Target as contemplated by this Agreement. Neither Target has, with respect to any employee, maintained or contributed to, or been obligated or required to contribute to, any retirement or pension plan or any employee benefit plan. Each Target has complied with all of its obligations (including obligations to make contributions) in respect of the pension funds of which its employees are members, there is no outstanding liability of either Target or any of its respective Affiliates to any such funds and all such funds are fully funded to meet all potential claims for benefits by any and all such employees and any former employee.

2.12 Title to Assets; Real Property; Business. Except as set forth on Schedule 2.12, as of the date hereof, Targets own all right, title and interest in, and have good title to or a valid leasehold interest in, all of the Assets listed as being owned by Targets in the Schedules of Assets attached hereto, free and clear of any and all Liens. Targets have a valid and subsisting leasehold estate in and the right to quiet enjoyment of the real properties subject to the Real Property Leases for the full term thereof. Each Real Property Lease is a legal, valid and binding agreement, enforceable in accordance with its terms, of each Target, and to the Knowledge of Targets, and of each other Person that is a party thereto, and there is no, nor has either Target received any notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) thereunder. Neither Target owes any brokerage commissions with respect to any such leased space. Each Target has delivered to Purchaser prior to the execution of this Agreement true and complete copies of all Real Property Leases (including any

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amendments and renewal letters). Neither Target owns of record or beneficially, any right, title or interest in any real property (including without limitation any easement, license or right-of-way) or any asset consisting of realty, including appurtenances, improvements or fixtures, and neither Target has previously owned, any right, title or interest in any real property other than leasehold interests pursuant to the Real Property Leases and those leases set forth on Schedule 2.12. Schedule 2.12 sets forth a list and description of all real property leased or subleased to either Target. The sale of the Assets by Targets to Purchaser pursuant to this Agreement will effectively convey to Purchaser all or substantially all of the assets (excluding the Excluded Assets) required to operate the Business and all of the tangible and intangible property used by Targets (whether owned, leased or held under license by either Target, by any of either Target’s Affiliates or Associates or by others) in connection with the conduct of the Business as heretofore conducted by Targets.

2.13 Intellectual Property Rights. Targets have interests in or use only the Intellectual Property disclosed in Section 1.1(a)(iv) of the Disclosure Schedule in connection with the conduct of the Business, each of which Targets either have all right, title and interest in or a valid and binding rights under Contract to use. No other Intellectual Property is used or necessary in the conduct of the Business. Except as disclosed in Section 2.13 of the Disclosure Schedule, (i) Targets have the exclusive right to use the Intellectual Property disclosed in Section 1.1(a)(iv) of the Disclosure Schedule, (ii) all registrations with and applications to Governmental or Regulatory Authorities in respect of such Intellectual Property are valid and in full force and effect and are not subject to the payment of any Taxes or maintenance fees or the taking of any other actions by either Target to maintain their validity or effectiveness, (iii) there are no restrictions on the direct or indirect transfer of any Contract, or any interest therein, held by either Target in respect of such Intellectual Property, (iv) each Target has taken reasonable security measures to protect the secrecy, confidentiality and value of its trade secrets in respect of the Business, (v) neither Target is, nor has it received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default) under any Contract to use such Intellectual Property and (vi) to the Knowledge of either Target, no such Intellectual Property is being infringed by any other Person. Neither Target has received notice that either Target is infringing any Intellectual Property of any other Person in connection with the conduct of the Business, no claim is pending or, to the Knowledge of either Target, has been made to such effect that has not been resolved and, to the Knowledge of either Target, neither Target is infringing any Intellectual Property of any other Person in connection with the conduct of the Business.

2.14 Contracts. Schedule 2.14 hereto lists all contracts and other agreements, whether written or oral, to which either Target is currently a party or, to the Knowledge of either Target, under which either Target has or may acquire rights with a reasonable value of more than $50,000 or may become subject to any Liability or obligation in excess of $25,000. A copy of each of such contracts that is written has been delivered to Purchaser. Except as set forth on Schedule 2.14, with respect to each such agreement: (A) the agreement is valid, binding, enforceable and in full force and effect, (B) the agreement will continue to be valid, binding, enforceable and in full force and effect on identical terms following consummation of the transactions contemplated hereby, (C) neither Target is in breach or default and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification or acceleration under the agreement and, to the Knowledge of either

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Target, no other party is in breach or default and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification or acceleration under the agreement, and (D) neither Target has, and to the Knowledge of either Target, no other party has repudiated any provision of the agreement.

2.15 Insurance. Section 2.15 of the Disclosure Schedule contains a true and complete list (including the names and addresses of the insurers, the names of the Persons to whom such Policies have been issued, the expiration dates thereof, the annual premiums and payment terms thereof, whether it is a “claims made” or an “occurrence” policy and a brief description of the interests insured thereby) of all liability, property, workers’ compensation and other insurance policies currently in effect that insure the Business, the Employees or the Assets. Each such insurance policy is valid and binding and in full force and effect, no premiums due thereunder have not been paid and neither Target has received any notice of cancellation or termination in respect of any such policy or is in default thereunder. To the Knowledge of either Target, such insurance policies are placed with financially sound and reputable insurers. Neither of the Targets nor the Person to whom such policy has been issued has received notice that any insurer under any policy referred to in this Section is denying liability with respect to a claim thereunder or defending under a reservation of rights clause.

2.16 Affiliate Transactions. No officer, director, Affiliate or Associate of either Target or any Associate of any such officer, director or Affiliate provides or causes to be provided any assets, services or facilities used or held for use in connection with the Business, and the Business does not provide or cause to be provided any assets, services or facilities to any such officer, director, Affiliate or Associate.

2.17 Labor Relations. There has not been, there is not presently pending or existing, and to Knowledge of either Target, there is not threatened any strike, slowdown, picketing, work stoppage, or employee grievance process, organizational activity, or other labor or employment dispute against or affecting either Target or any of the Assets. To the Knowledge of either Target, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees by either Target, and no such action is contemplated by either Target. To the knowledge of either Target, each Target has complied in all respects with all Legal Rules relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. To the Knowledge of Targets, neither Target is liable for the payment of any compensation, damages, taxes, fines, penalties, nor other amounts, however designated, for failure to comply with any of the foregoing Legal Rules.

2.18 Environmental Matters. The present and former activities of either Target on all real property owned, leased or subleased by either Target complies in all material respects with all applicable Environmental Laws.

2.19 Debt Instruments. Schedule 2.19 hereto lists all debentures, notes, mortgages, indentures, guarantees, capitalized leases or other instruments under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed, in each case to which either Target is currently a party, has or may acquire rights or may become

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subject to any Liability or obligation or by which it or any of Targets’ Assets and Properties is bound. Except as set forth on Schedule 2.19, neither Target is a guarantor or otherwise liable for any Liability of any other Person. None of the Liabilities of the Business or of either Target incurred in connection with the conduct of the Business is guaranteed by or subject to a similar contingent obligation of any other Person. Each Target has delivered to Purchaser true and complete copies of all instruments listed on Schedule 2.19.

2.20 Employee Agreements. Schedule 2.20 sets forth a full and complete list of all employees of each Target as of the date hereof, specifying their names, job designations and their dates of hire. Except as set forth on Schedule 2.20, all employees of either Target are “at will” employees who may be terminated without cause. All employees, consultants, officers, directors and members of each Target that have had access to the Assets are parties to a written agreement (a “Confidentiality Agreement”), under which each such person or entity (i) is obligated to disclose and transfer to each Target, without the receipt by such person of any additional value therefor (other than normal salary or fees for consulting services), all inventions, developments and discoveries which, during the period of employment with or performance of services for such Target, he or she makes or conceives of either solely or jointly with others, that relate to any subject matter with which his or her work for such Target may be concerned, or relate to or are connected with the Business, products or projects of such Target, or involve the use of the time, material or facilities of such Target, and (ii) is obligated to maintain the confidentiality of proprietary information of such Target. Except for the Confidentiality Agreements, there are no written or oral contracts of employment between either Target and any Employee. It is currently not necessary nor will it be necessary for either Target to utilize in the Business any inventions of any of such persons or entities (or people it currently intends to hire) made or owned prior to their employment by or affiliation with such Target, nor is it or will it be necessary to utilize any other assets or rights of any such persons or entities (or people it currently intends to hire) made or owned prior to their employment with or engagement by such Target, in violation of any registered patents, trade names, trademarks or copyrights or any other limitations or restrictions to which any such persons or entity is a party or to which any of such assets or rights may be subject. To either Target’s Knowledge, none of Targets’ employees, consultants, officers, directors or shareholders that has had knowledge or access to information relating to the Assets has taken, removed or made use of any proprietary documentation, manuals, products, materials, or any other tangible item from his or her previous employer which has resulted in either Target’s access to or use of such proprietary items included in the Assets, and neither Target will gain access to or make use of any such proprietary items in the Business, except to the extent that any such activities would not have a Material Adverse Effect on either Target, the Assets or the Business. Neither Target is a party to a collective bargaining agreement with any trade union, neither Target’s employees are members of a trade union certified as a bargaining agent with Targets and no proceedings to implement any such collective bargaining agreement or certifications are pending. Neither Target has any policy providing for severance payments to terminated employees. There are no policies or agreements of either Target with respect to payments upon any change in control of either Target.

2.21 Full Disclosure. Any and all information furnished to Purchaser by or on behalf of either Target or Target Members, any of their Affiliates or any of their respective agents in writing pursuant to this Agreement and any information contained in the Schedules referred to in this Agreement, at any time prior to the Closing Date, does not and will not contain

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any untrue statement of a material fact and does not and will not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement is made, not misleading.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Targets as follows:

3.1 Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, and has full corporate power and authority to own and/or lease all of its properties and assets, and to carry on its business as now being conducted.

3.2 Authority. This Agreement, the Operative Agreements and the other agreements contemplated hereby to be executed by the Purchaser pursuant hereto have been duly executed and delivered by Purchaser, and constitute valid and binding obligations of Purchaser enforceable against it in accordance with their terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by general equitable principles. The Purchaser has full power and authority to execute and deliver and perform its obligations under this Agreement, the Operative Agreements and the other agreements contemplated herein to be executed by it. The execution and delivery by Purchaser of this Agreement do not, and the execution and delivery by Purchaser of the Operative Agreements to which it is a party, the performance by Purchaser of its obligations under this Agreement and the Operative Agreements and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Certificate of Incorporation or Bylaws of Purchaser.

3.3 No Consents. Except as set forth on Schedule 3.3, no permit, consent, approval, novation, authorization or other order of or filing with any Governmental Entity or any other Person is required in connection with the execution, delivery and consummation of this Agreement and the other agreements contemplated hereby to be executed by Purchaser, or the actions of the Purchaser contemplated hereby.

3.4 Brokers. Purchaser has no Liability, directly or indirectly, to pay any fees, commissions or other amounts to any broker, finder or agent with respect to this Agreement or the transactions contemplated hereby or in connection with any purchase of all or substantially all of the assets of Targets.

ARTICLE 4

SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS

4.1 Survival of Representations, Warranties and Agreements. Each of the representations, warranties and agreements of each of Purchaser, Target and Target Members contained in this Agreement (including those made in the Exhibits and Schedules hereto) and any

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other document or certificate delivered pursuant to this Agreement shall survive the Closing but shall expire Eighteen (18) months following the Closing Date, unless a specific claim in writing with respect to these matters has been made, or an action at law or in equity has been commenced or filed, before that date. Notwithstanding the foregoing, the representations and warranties set forth in (i) Sections 2.1 through 2.4, inclusive, shall survive indefinitely and (ii) Sections 2.8, 2.11 and 2.18 shall survive for a period equal to the applicable statute of limitations. Nothing in this Section 4.1 shall affect the obligations and indemnities of the Parties with respect to covenants and agreements contained in the Agreement that are permitted to be performed, in whole or in part, after the Closing Date.

ARTICLE 5

INDEMNIFICATION

5.1 Indemnification by Targets.

(a) Representations and Warranties. On and after the Closing Date, to the extent that Targets and Target Members made representations and warranties to Purchaser as set forth in Article 2, each such Target and Target Member shall defend, indemnify and hold harmless Purchaser’s Indemnified Persons and shall reimburse Purchaser’s Indemnified Persons, for, from and against all Losses imposed on or incurred by Purchaser’s Indemnified Persons, directly or indirectly, relating to, resulting from or arising out of (i) any breach of any representation or warranty in any respect, whether or not Purchaser’s Indemnified Persons relied thereon or had knowledge thereof (unless such inaccuracy is disclosed in an Exhibit or Schedule hereto), or (ii) any Retained Liability.

(b) Other Indemnification. On and after the Closing Date, Targets and Target Members, jointly and severally shall defend, indemnify and hold harmless Purchaser, each of its Affiliates and each of their respective Affiliates, officers, directors, employees, agents, successors and assigns (collectively, “Purchaser’s Indemnified Persons”), and shall reimburse Purchaser’s Indemnified Persons, for, from and against all Losses imposed on or incurred by Purchaser’s Indemnified Persons, directly or indirectly, relating to, resulting from or arising out of any breach or nonfulfillment of any covenant, agreement or other obligation of any Target or Target Members under this Agreement, any Schedule or Exhibit hereto, or any certificate or other document delivered or to be delivered pursuant hereto or relating to, resulting from or arising out of any Retained Liability.

(c) Liability Amounts. Target and Target Members shall not have any liability under this Section 5.1 unless and until the aggregate amount of all Losses of Purchaser’s Indemnified Persons exceeds $75,000 (the “Target Minimum Amount”), at which point Target and Target Members shall be liable for all such Losses over the Target Minimum Amount and up to the Target Maximum Amount. For purposes hereof, the “Target Maximum Amount” shall mean the Purchase Price paid Targets and Target Members under Section 1.3 hereof; provided, however, Target Maximum Amount for Losses directly or indirectly relating to, resulting from or arising out of a breach of the representations and warranties contained in Section 2.6 (Financial Statements), Section 2.7 (Absence of Changes), Section 2.8 (Taxes), Section 2.9 (Legal Proceedings), Section 2.10 (Legal Compliance), Section 2.11 (ERISA Matters), Section 2.12

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(Title to Assets; Real Property; Business), Section 2.13 (Intellectual Property Rights), Section 2.14 (Contracts), Section 2.15 (Insurance), Section 2.16 (Affiliate Transactions), Section 2.17 (Labor Relations), Section 2.18 (Environmental Matters), Section 2.19 (Debt Instruments), Section 2.20 (Employee Agreements) and Section 2.21 (Full Disclosure) shall equal the Purchase Price minus $1,500,000.00. Notwithstanding anything else contained herein, the Target Minimum Amount and the Target Maximum Amount shall not apply to any Retained Liabilities, with respect to which Targets and Target Members shall be liable for the entire amount and which shall not count against the Target Maximum Amount or Target Minimum Amount.

5.2 Indemnification by Purchaser. On and after the Closing Date, Purchaser shall defend, indemnify and hold harmless Targets, Target Members and each of their Affiliates, officers, employees, agents, successors and assigns (Targets and such other Persons, collectively “Target Indemnified Persons”) and shall reimburse Target Indemnified Persons for, from and against all Losses imposed on or incurred by Target Indemnified Persons, directly or indirectly, relating to, resulting from or arising out of any inaccuracy in any representation or warranty in any respect, whether or not Target Indemnified Persons relied thereon or had knowledge thereof (unless such inaccuracy is disclosed in an Exhibit or Schedule hereto), or any breach or nonfulfillment of any covenant, agreement or other obligation of Purchaser under this Agreement, any Schedule or Exhibit hereto or any certificate or other document delivered or to be delivered pursuant hereto. Purchaser shall have no liability under this Section 5.2 until the aggregate amount of all Losses indemnifiable hereunder exceed the Target Minimum Amount, at which time Purchaser shall be liable up to a maximum aggregate amount equal to the Target Maximum Amount.

5.3 Notice and Defense of Third-Party Claims. If any action, claim or proceeding shall be brought or asserted under this Article 5 against an indemnified party or any successor thereto (the “Indemnified Person”) in respect of which indemnity may be sought under this Article 5 from an indemnifying person or any successor thereto (the “Indemnifying Person”), the Indemnified Person shall give prompt written notice of such action or claim to the Indemnifying Person who shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Person and the payment of all expenses; except that any delay or failure to so notify the Indemnifying Person shall relieve the Indemnifying Person of its obligations hereunder only to the extent, if at all, that it is prejudiced by reason of such delay or failure. The Indemnified Person shall have the right to employ separate counsel in any of the foregoing actions, claims or proceedings and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Person unless both the Indemnified Person and the Indemnifying Person are named as parties and the Indemnified Person shall in good faith determine that the representation by the same counsel is inappropriate.

5.4 Purchaser’s Right of Set Off. In the event a Purchaser Indemnified Person incurs a Loss or otherwise becomes entitled to any amounts under this Article 5 (subject to the provisions set forth in Section 5.1 regarding Target’s Minimum Amount), Purchaser shall notify ResponseBase in writing of such Loss or other amount (a “Claim Notice”) specifying in reasonable detail the amount of such Loss or other amount. ResponseBase shall thereafter have ten (10) business days after receipt of such Claim Notice to pay to Purchaser the entire amount of such Loss or other amount. In the event ResponseBase does not pay such amount within that time, Purchaser may set off such Loss or other amount against amounts otherwise payable

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pursuant to the Contingent Payment (including as set-off against amounts in escrow), the Performance Payments or the Earn-Out. The exercise of such right of set-off by Purchaser, whether or not ultimately determined to be justified, shall not constitute a breach of this Agreement or an event of default by Purchaser. Any dispute regarding the propriety of a set-off against the Contingent Payment, the Performance Payments or the Earn-Out shall be resolved in accordance with the provisions of Sections 7.10. If the parties ultimately agree or arbitrator decides that neither Targets nor Target members are liable for all or some portion of the disputed Losses, then Purchaser shall pay to Targets the amount of all such withheld payments (in the proportions set forth on Exhibit 1.4), less the amount of Losses for which Targets and Target Members were found liable. Neither the exercise of nor the failure to exercise such right of set-off shall constitute an election of remedies nor limit Purchaser in any manner in the enforcement of any other remedies that may be available to them.

ARTICLE 6

DEFINITIONS

6.1 Definitions.

(a) Defined Terms. As used in this Agreement, the following defined terms have the meanings indicated below:

“Accounts Receivable” has the meaning ascribed to it in Section 1.1(b)(ii).

“Actions or Proceedings” means any action, suit, proceeding, arbitration or Governmental or Regulatory Authority investigation or audit.

“Adjusted Net Income” means Net Income minus the amount of all prior Shortfalls, plus the amount of all prior Shortfalls (or any portion thereof) previously deducted in the calculation of Adjustable Net Income for a prior portion of the Performance Period.

“Affiliate” means any Person that directly, or indirectly through one of more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by Contract or otherwise and, in any event and without limitation of the previous sentence, any Person owning ten percent (10%) or more of the voting securities of another Person shall be deemed to control that Person.

“Agreement” means this Asset Purchase Agreement and the Exhibits, the Disclosure Schedule and the Schedules hereto, as the same shall be amended from time to time.

“Assets” has the meaning ascribed to it in Section 1.1(a).

“Assets and Properties” of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including

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without limitation cash, cash equivalents, Investment Assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property.

“Assignment Instruments” has the meaning ascribed to it in Section 1.4.

“Associate” means, with respect to any Person, any corporation or other business organization of which such Person is an officer or partner or is the beneficial owner, directly or indirectly, of ten percent (10%) or more of any class of equity securities, any trust or estate in which such Person has a substantial beneficial interest or as to which such Person serves as a trustee or in a similar capacity and any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

“Assumed Liabilities” has the meaning ascribed to it in Section 1.2(a).

“Assumption Agreement” has the meaning ascribed to it in Section 1.4.

“Assumption Instruments” has the meaning ascribed to it in Section 1.4.

“Base Price” has the meaning ascribed to it in Section 1.3(a).

“Benefit Plan” means any Plan established by either Target, or any predecessor or Affiliate of either Target, existing at the Closing Date or prior thereto, to which either Target contributes or has contributed on behalf of any Employee, former Employee or director, or under which any Employee, former Employee or director of either Target or any beneficiary thereof is covered, is eligible for coverage or has benefit rights.

“Books and Records” of any Person means all files, documents, instruments, papers, books and records relating to the business, operations, condition of (financial or other), results of operations and Assets and Properties of such Person, including without limitation financial statements, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans.

“Business” has the meaning ascribed to it in the forepart of this Agreement.

“Business Books and Records” has the meaning ascribed to it in Section 1.1(a)(vi).

“Business Contracts” has the meaning ascribed to it in Section 1.1(a)(ii).

“Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close.

“Business Licenses” has the meaning ascribed to it in Section l.l(a)(v).

“Closing” means the closing of the transactions contemplated by Section 1.4.

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“Closing Date” means September 4, 2002.

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

“Contingent Consideration” has the meaning ascribed to it in Section l.3(c).

“Contract” means any agreement, lease, license, evidence of Indebtedness, mortgage, indenture, security agreement or other contract (whether written or oral).

“Covenant Not to Compete” means any of those certain Covenants Not to Compete between Purchaser and Target and each Target Member to be entered into on the Closing Date, substantially in the form of Exhibit D hereto.

“Disclosure Schedule” means the record delivered to Purchaser by Targets herewith and dated as of the date hereof, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by Targets pursuant to this Agreement.

“Earn-Out” has the meaning ascribed to it in Section l.3(d).

“Employee” means each employee, officer or consultant of Targets engaged primarily in the conduct of the Business.

“Environmental Law” means a Legal Rule pertaining to land use (excluding Legal Rules regarding zoning and building code restrictions), air, soil, surface water, ground–water (including the protection, cleanup, removal, remediation or damage thereof), public or employee health or safety or any other environmental matter, including, without limitation, the following laws as the same have been amended from time to time: (i) Clean Air Act (42 U.S.C. ‘ 7401, et seq.); (ii) Clean Water Act (33 U.S.C. ‘ 1251, et seq.); (iii) Resource Conservation and Recovery Act (42 U.S. C. ‘ 6901, et seq.); (iv) Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. ‘ 9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C. ‘ 300f, et seq.); (vi) Toxic Substances Control Act (15 U.S.C. ‘ 2601, et seq.); (vii) Rivers and Harbors Act (33 U.S.C. ‘ 401, et seq.); (viii) Occupational Safety and Health Act (29 U.S.C. ‘ 651, et seq.); together with all other Legal Rules relating to emissions, discharges, releases or threatened releases of any Hazardous Substance into ambient air, land, surface water, ground­water, personal property or structures, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, discharge or handling of any Hazardous Substance.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

“Escrow Agent” and “Escrow Agreement” have the respective meanings ascribed to them in Section 1.3(c).

“Financial Statement Date” means the last day of the most recent fiscal year of the Business for which Financial Statements are delivered to Purchaser pursuant to Section 2.6.

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“Financial Statements” means the financial statements delivered to Purchaser pursuant to Section 2.6.

“GAAP” means generally accepted accounting principles, consistently applied throughout the specified period.

“General Assignment” has the meaning ascribed to it in Section 1.4.

“Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision.

“Hazardous Substance” means any matter that is labeled or regulated as a pollutant, contaminant, hazardous or toxic substance, material, constituent or waste or pollutant under any Environmental Health and Safety Law or by any Governmental Entity and includes, without limitation, asbestos and asbestos-containing materials and any material or substance that is: (i) designated as a “hazardous substance” pursuant to section 307 of the Federal Water Pollution Control Act, 33 U.S.C. section 1251, et seq. (33 U.S.C. ‘ 1317); (ii) defined as a “hazardous waste” pursuant to section 1004 of the Federal Solid Waste Disposal Act, 42 U.S.C. section 6901, et seq. (42 U.S.C. ‘ 6903); (iii) defined as a “hazardous substance” pursuant to section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. section 9601, et seq. (42 U.S.C. ‘ 9601); or (iv) so designated or defined under any other applicable Legal Rule.

“Indebtedness” of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person.

“Intangible Personal Property” has the meaning ascribed to it in Section 1.1(a)(iv).

“Intellectual Property” means all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, processes, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how and all pending applications for and registrations of patents, trademarks, service marks and copyrights.

“Inventory” has the meaning ascribed to it in Section 1.1(b)(iii).

“Investment Assets” means all debentures, notes and other evidences of Indebtedness, stocks, securities (including rights to purchase and securities convertible into or exchangeable for other securities), interests in joint ventures and general and limited partnerships, mortgage loans and other investment or portfolio assets owned of record or

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beneficially by Targets (other than trade receivables generated in the ordinary course of business of Targets).

“IRS” means the United States Internal Revenue Service.

“Knowledge of Target(s)”, “Known to Target(s)”, “Knowledge of either Target” or “Known to either Target” means the knowledge of any member, officer, or director of either Target or Colin Digiaro, Senior Vice President of Sales.

“Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.

“Legal Rules” means the requirements of all laws, codes, statutes, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations of all Governmental Entities with jurisdiction.

“Liabilities” means all Indebtedness, obligations and other liabilities of a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due).

“Licenses” means all licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similar consents granted or issued by any Governmental or Regulatory Authority.

“Liens” means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing.

“Loss” means any and all damages, fines, fees, penalties, deficiencies, losses and expenses (including without limitation interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment).

“Material Adverse Effect” and “Material Adverse Change,” with respect to Purchaser, on the one hand, or Targets, the Business or the Assets on the other hand, means (i) any effect on, or change in, the business of Purchaser or Targets, the Business or the Assets, as the case may be, that is or that a reasonable person would believe will be materially adverse to the business, operations, prospects, properties, assets or condition (financial or otherwise) of Purchaser, or to Targets, the Business or the Assets, as the case may be; and, in the case of Purchaser, its corporate parents, subsidiaries of corporate parents and subsidiaries taken as a whole, or (ii) an event or circumstance that has or would have a significant likelihood of a material adverse effect on the ability of Purchaser, on the one hand, and any Target Member or either Target, on the other hand, as the case may be, to perform their respective obligations under this Agreement and the agreements contemplated hereby.

“Merchant Account” means any merchant account being transferred from Targets to Purchaser listed in Section 1.1(a)(iii) of the Disclosure Schedule.

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“Merchant Account Guaranties” means those guaranties made by ResponseBase and DeWolfe prior to the Closing with respect to the Merchant Accounts.

“Net Income” means 65% of Net Profits.

“Net Profits” means the income derived from Purchaser’s operation of the Business before interest expense and federal and state taxes determined in accordance with GAAP, excluding the effect of the following items:

(i) the gain or loss from any sale, exchange or other disposition of assets other than in the ordinary course of business;

(ii) any extraordinary gain or loss;

(iii) any expenses directly or indirectly incurred in connection with the transactions contemplated by this Agreement; and

(iv) any proceeds of any life insurance policy.

“Operative Agreements” means, collectively, the General Assignment and the other Assignment Instruments, the Assumption Agreement and the other Assumption Instruments, the Escrow Agreement, the General Release, the Covenants Not to Compete and the employment agreements between Purchaser and DeWolfe and Purchaser and Berman.

“Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

“Other Assets” has the meaning ascribed to it in Section 1.1(a)(vii).

“Permitted Lien” means (i) any Lien for Taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of Law with respect to a Liability that is not yet due or delinquent and (iii) any minor imperfection of title or similar Lien which individually or in the aggregate with other such Liens does not materially impair the value of the property subject to such Lien or the use of such property in the conduct of the Business.

“Person” means any natural person, corporation, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

“Plan” means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen’s compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including, but not limited to, any “employee benefit plan” within the meaning of Section 3(3) of ERISA.

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“Prepaid Expenses” has the meaning ascribed to it in Section 1.1(a)(iii).

“Purchase Price” has the meaning ascribed to it in Section 1.3(a).

“Purchaser” has the meaning ascribed to it in the forepart of this Agreement.

“Real Property Leases” means the leases and subleases of real property as to which Targets are the lessee or sublessee, together with any options to purchase the underlying property and leasehold improvements thereon, and in each case all other rights, subleases, licenses, permits, deposits and profits appurtenant to or related to such leases and subleases. “Representatives” means officers, directors, employees, agents, counsel, accountants, financial advisors, consultants and other representatives.

“Retained Liabilities” has the meaning ascribed to it in Section 1.2(b).

“Shortfall” means, with respect to any portion of the Performance Period, the difference between the corresponding Threshold and Net Income attributable to such portion of the Performance Period.

“Target” has the meaning ascribed to it in the forepart of this Agreement.

“Tangible Personal Property” has the meaning ascribed to it in Section 1.1(a)(i).

“Tax Returns” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Tax” and “Taxes” means any Governmental Entity income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add–on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty, or addition thereto.

(b) Construction of Certain Terms and Phrases. Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the terms “Article” or “Section” refer to the specified Article or Section of this Agreement; and (v) the phrases “ordinary course of business” and “ordinary course of business consistent with past practice” refer to the business and practice of Targets in connection with the Business. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.

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ARTICLE 7

MISCELLANEOUS

7.1 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers:

If to Purchaser, to:

eUniverse, Inc.

6060 Center Drive, 3rd Floor

Los Angeles, CA 90045

Attention: Christopher Lipp, Esq.

Telephone: (310) 215-1001

Telecopier: (310) 258-2757

If to Targets, to:

ResponseBase, LLC

2120 Colorado Boulevard, Suite 300

Santa Monica, CA 90404

Telephone: (310) 586-4063

Telecopier: (310) 586-4088

Attn: Christopher DeWolfe

with a copy to:

V. Joseph Stubbs, Esq.

Akin Gump Strauss Hauer & Feld LLP

2029 Century Park East, Suite 2400

Los Angeles, CA 90067

Telephone: (310) 728-3243

Telecopier: (310) 728-2243

Internet Products Group, LLC

c/o ResponseBase, LLC

10880 Wilshire Boulevard

Los Angeles, CA 90024

Telephone: (310) 586-4063

Telecopier: (310) 586-4088

Attn: Christopher DeWolfe

If to Target Members, to:

TTMM, L.P.

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Robert G. Rosen

Christopher DeWolfe

Tom Anderson

Pamela Schwilk

Joshua Berman

Mazen Araabi

Aber Whitcomb

All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

7.2 Representation by Counsel. Each party hereto represents and agrees with the other, that it has been represented by independent counsel of its own choosing, that it has had the full right and opportunity to consult with such counsel that it availed itself of this right and opportunity, that such party or its authorized officers have carefully read and fully understand this Agreement in its entirety that each is fully aware of the contents thereof and its meaning, intent and legal effect, and that such party or its authorized officer is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence.

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7.3 Entire Agreement. This Agreement (including the Recitals, Schedules and Exhibits hereto) and the other agreements and instruments, the execution and delivery of which are provided for herein, constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and terminates and supersedes any and all prior agreements, arrangements and understandings, both oral and written, among the parties hereto concerning the subject matter hereof.

7.4 Expenses. Subject to Section 7.5 and except as otherwise expressly provided herein, each of Purchaser, Target Members and Targets will pay its own respective costs and expenses in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, but not limited to, attorneys’ fees, accountants’ fees and other professional fees and expenses.

7.5 Attorneys’ Fees. If an arbitration or other legal proceeding is brought to enforce or interpret the provisions of this Agreement or any other agreement or instrument provided for herein or as to the rights or obligations of any party to this Agreement or such other agreement or instrument, the prevailing party in such action shall be entitled to recover as an element of such party’s costs of suit, and not as damages, a reasonable attorney’s fee to be fixed by the court or the arbitrator. The prevailing party shall be the party who is entitled to recover its costs of suit as ordered by the arbitrator, the court or by applicable law or court rules. A party not entitled to recover its costs shall not recover attorney’s fees.

7.6 Public Announcements. At all times at or before the Closing, Targets, Target Members and Purchaser will not issue or make any reports, statements or releases to the public or generally to the employees, customers, suppliers or other Persons to whom Targets sell goods or provides services in connection with the Business or with whom Targets otherwise have significant business relationships in connection with the Business with respect to this Agreement or the transactions contemplated hereby without the consent of the other, which consent shall not be unreasonably withheld. If either party is unable to obtain the approval of its public report, statement or release from the other party and such report, statement or release is, in the opinion of legal counsel to such party, required by Law in order to discharge such party’s disclosure obligations, then such party may make or issue the legally required report, statement or release and promptly furnish the other party with a copy thereof. Targets, Target Members and Purchaser will also obtain the other party’s prior approval of any press release to be issued immediately following the Closing announcing the consummation of the transactions contemplated by this Agreement.

7.7 Confidentiality. Each party hereto will hold, and will use its best efforts to cause its Affiliates, and their respective Representatives to hold, in strict confidence from any Person (other than any such Affiliate or Representative), unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of Governmental or Regulatory Authorities) or by other requirements of Law or (ii) disclosed in an Action or Proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party’s Representatives in connection with this Agreement or the transactions contemplated hereby, except to the extent that such

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documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential; provided that following the Closing the foregoing restrictions will not apply to Purchaser’s use of documents and information concerning the Business, the Assets or the Assumed Liabilities furnished by Targets hereunder. In the event the transactions contemplated hereby are not consummated, upon the request of the other party, each party hereto will, and will cause its Affiliates and their respective Representatives to, promptly redeliver or cause to be redelivered all copies of documents and information furnished by the other party in connection with this Agreement or the transactions contemplated hereby and destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon prepared by the party furnished such documents and information or its Representatives.

7.8 Waiver and Amendment. No waiver, amendment, modification or change of any provision of this Agreement shall be effective unless and until made in writing and signed by Purchaser (by a duly authorized officer other than any former employee or direct or indirect owner of Targets) and Target Members who hold (or held, as applicable) Seventy-Five percent (75%) of the membership interests of ResponseBase immediately prior to the Closing. No waiver, forbearance or failure by any party of its right to enforce any provision of this Agreement shall constitute a waiver or estoppel of such party’s right to enforce any other provision of this Agreement or a continuing waiver by such party of compliance with any provision.

7.9 Successors and Assigns. This Agreement shall not be assigned or assignable by any Target or Target Members without the prior written consent of Purchaser or by Purchaser without the prior written consent of Targets; provided however, that Purchaser may assign its rights hereunder to any Affiliate. Subject to the preceding sentence, each term and provision of this Agreement shall be binding upon and enforceable against and inure to the benefit of any successors or assigns of Purchaser and any successors or assigns of Targets and Target Members. Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the Parties and their respective successors and assigns any rights or remedies under or by reason of this Agreement.

7.10 Dispute Resolution. Any dispute arising out of or relating to this Agreement, or any Exhibit or Schedule hereto or any other agreement or certificate delivered pursuant to this Agreement, the Operative Agreements, including without limitation the Covenants Not to Compete or the transactions contemplated hereby or thereby or the breach, termination or validity hereof or thereof, including any dispute based in whole or in part on tort or other non-contractual principles of law, shall be resolved in the following manner:

(a) Any party may give written notice to the other parties of any dispute which has arisen. Any other party may give written notice within five (5) business days of receipt of the first notice of any additional dispute(s), all to the end that the parties may be reasonably aware of the matters in dispute.

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(b) The parties to such dispute shall use all reasonable efforts to resolve the dispute through direct discussions within thirty (30) days of the first written notice that there is such a dispute.

(c) If no amicable settlement is reached as a result of the procedure in subparagraph (B) hereof, the matter shall be fully and finally resolved by arbitration conducted expeditiously by a single arbitrator in accordance with the Rules for Non-Administered Arbitration of Business Disputes promulgated by the CPR Institute for Dispute Resolution (formerly Center for Public Resources). No arbitrator may serve who, during the three-year period immediately preceding the date the arbitration notice is filed, has had a material personal or financial relationship with any participant to the dispute or any Affiliate of any such participant. The place of arbitration shall be (i) Los Angeles, California or (ii) any other city mutually agreed upon by the Parties. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. 1-16 and judgment upon the award of the arbitrator may be entered by any court having jurisdiction thereof. The arbitrator is not empowered to award damages in excess of compensatory damages, and each party hereto hereby waives any claim it may otherwise have to money damages in excess of direct compensatory damages.

(d) The dispute resolution proceedings contemplated by this provision shall be as confidential and private as permitted by law. To that end, the parties shall not disclose the existence, content or results of any claims hereunder or proceedings conducted in accordance with this provision, and materials submitted in connection with such proceedings shall not be admissible in any other proceeding; provided, however, that this confidentiality provision shall not prevent a petition to vacate or enforce an arbitral award, and shall not bar disclosures required by law. The parties agree that any decision or award resulting from proceedings in accordance with this dispute resolution provision shall have no preclusive effect in any other matter involving third parties.

7.11 Merger of Documents. This Agreement and all agreements and documents contemplated hereby (or by their terms, a part hereof) constitute one agreement and are interdependent upon each other in all respects.

7..12 Incorporation of Schedules. All Exhibits and Schedules hereto are by this reference incorporated herein and made a part hereof for all purposes as if fully set forth herein.

7.13 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof.

7.14 Interpretation. The provisions of this Agreement are intended to be interpreted and construed in a manner so as to make such provisions valid, binding and enforceable. In the event that any provision of this Agreement is determined to be partially or wholly invalid, illegal or unenforceable, then such provision shall be deemed to be modified or restricted to the extent necessary to make such provision valid, binding and enforceable, or, if such provision cannot be modified or restricted in a manner so as to make such provision valid, binding and enforceable, then such provision shall be deemed to be excised from this Agreement and the validity, binding effect and enforceability of the remaining provisions of this Agreement shall not be affected or impaired in any manner. Nothing in this Agreement shall be interpreted

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or construed as creating, expressly or by implication, a partnership, joint venture, agency relationship or employment relationship between the parties hereto or any of their respective officers, directors, agents, employees or representatives.

7.15 Cooperation. Each party hereto shall cooperate with each other party and shall take such further action and shall execute and deliver such further documents as may be necessary or desirable in order to carry out the provisions and purposes of this Agreement.

7.16 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of California applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof.

7.17 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized individual or officer of each party as of the date first above written.

PURCHASER EUNIVERSE, INC.
By:	/s/ Joseph Varraveto
Name: Title:	Joseph Varraveto CFO
TARGETS: RESPONSEBASE, LLC
By:	/s/ Christopher DeWolfe
Name: Title:	Christopher DeWolfe President
INTERNET PRODUCTS GROUP, LLC
By:	ResponseBase, LLC
Its Sole Member

By:	/s/ Christopher DeWolfe
Name: Title:	Christopher DeWolfe President

S-1

TARGET MEMBERS: TTMM, L.P.
By:	IVY CAPITAL PARTNERS, L.P., a California
limited partnership
Its General Partner
By:	WIEDERHORN FAMILY LIMITED PARTNERSHIP, L.P., a
California limited partnership
Its General Partner
By:	/s/ Tiffany Wiederhorn
Name:	Tiffany Wiederhorn
Title:	General Partner
ROBERT G. ROSEN
/s/ Robert Rosen
Robert G. Rosen
CHRISTOPHER DEWOLFE
/s/ Christopher DeWolfe
Christopher DeWolfe
TOM ANDERSON
/s/ Tom Anderson
Tom Anderson

S-2

PAMELA SCHWILK

        /s/  Pamela Schwilk

Pamela Schwilk

MAZEN ARAABI

      /s/  Mazen Araabi

Mazen Araabi

JOSHUA BERMAN

      /s/  Joshua Berman

Joshua Berman

ABER WHITCOMB

        /s/  Aber Whitcomb

Aber Whitcomb

S-3

EX-10.41

EXHIBIT 10.41

SECURITY AGREEMENT

DEBTOR:

Name:	eUniverse, Inc.
	101 North Plains Industrial Road Wallingford, CT 06492

SECURED PARTY:

Name:	New Technology Holdings Inc.
Address:	550 Madison Avenue New York, NY 10022

1. Debtor, in consideration of the agreement of Secured Party to make one or more loans to Debtor pursuant to that certain Note and Warrant Purchase Agreement, of even date herewith, between Debtor and Secured Party (the “Purchase Agreement”), and for other good and sufficient consideration, hereby grants to Secured Party a first priority security interest in all of Debtor’s right, title and interest in and to the following property (except as set forth herein), including without limitation any and all additions, accessions and substitutions thereto or therefor (hereinafter called the “Collateral”):

(a) all tangible personal property, machinery, electrical and electronic components, equipment, fixtures, furniture, office machinery, vehicles, trailers, implements and other tangible personal property of every kind and description, all goods of like kind or type hereafter acquired in substitution or replacement thereof, all additions and accessions thereto and all rents, proceeds and products on or of any of the foregoing, including, without limitation, the rights to insurance proceeds covering the foregoing;

(b) all inventory, including without limitation, all merchandise, raw materials, components, parts, supplies, unfinished goods, work-in-progress, finished products intended for sale, lease or other disposition, and packing and shipping materials of every kind, nature and description, wherever any of the same may be located;

(c) all deposits, cash, cash equivalents and all drafts, checks, certificates of deposit, notes, bills of exchange and other writings which evidence a right to the payment of money;

(d) all insurance policies on which Debtor is named as an insured or additional insured or loss payee and all proceeds which may be derived therefrom;

(e) all “accounts” (as that term is defined in the Uniform Commercial Code as in effect from time to time in the State of New York, the “Uniform Commercial Code”) and/or other rights to payment;

(f) all “general intangibles” (as that term is defined in the Uniform Commercial Code);

(g) all leasehold interests and other rights and interests of Debtor respecting the use or ownership of or title to any real property, including the interests, easements, licenses, all other rights and interests of any kind;

(h) all Debtor’s books and records and all computer software programs relating to the Collateral, wherever located; and

(i) all products, proceeds and income of any of the foregoing and all substitutions and replacement of, and additions and accessions to, any of the foregoing.

to secure payment of the unpaid principal amount of and interest on the Notes (as defined in the Purchase Agreement) and all other obligations and liabilities of Debtor to Secured Party, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Purchase Agreement or this Security Agreement and any other document executed and delivered in connection therewith or herewith and each other obligation and liability, whether direct or indirect, absolute or contingent, due or to become due, or now or hereafter existing, of the Debtor to Secured Parry, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to Secured Party) or otherwise. Specifically excluded from the Collateral are goods covered by any purchase money security interest.

2. Debtor expressly represents, warrants and covenants:

(a) That except for the first priority security interest granted hereby and the permitted liens listed on Schedule A hereto, Debtor is the owner of the Collateral free from any adverse lien, security interest or encumbrances; and that Debtor will defend the Collateral against all claims and demands of all persons at anytime claiming the same or any interest therein.

(b) That Debtor has the full power and authority to enter into this Security Agreement, that this Security Agreement has been duly authorized, executed, and delivered by the Debtor and Debtor’s obligations under this Security Agreement are legal, valid, binding, absolute and unconditional.

(c) That Debtor’s location is as stated above and the Collateral will be kept at that location or at the locations of Debtor’s subsidiaries.

(d) That Debtor will promptly notify Secured Party of any change in the location of the Collateral.

(e) That Debtor will pay all taxes and assessments of every nature which may be levied or assessed against the Collateral.

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(f) That Debtor will not permit or allow any adverse lien, security interest or encumbrance whatsoever upon the Collateral and will not permit the same to be attached or replevined.

(g) That Debtor has used, and will continue to use for the duration of this Security Agreement, consistent standards of quality in its provision of services sold under Debtor’s service marks. Debtor shall use its best efforts to do any and all acts required by Secured Party to ensure Debtor’s compliance with this subparagraph.

(h) That the Collateral is in good condition, and that Secured Party may examine and inspect the Collateral at any time, wherever located. Without limiting the generality of the foregoing, Debtor hereby grants to Secured Party and its employees and agents the right to visit Debtor’s offices from which services are provided under any of Debtor’s service marks, and to inspect the quality control relating thereto at reasonable times during regular business hours.

(i) That Debtor will not do any act, or omit to do any act, whereby Debtor’s service marks or any registration or application appurtenant thereto, may become abandoned, invalidated, unenforceable, avoided, avoidable, or will otherwise diminish in value, and shall notify Secured Party immediately if it knows of any reason or has reason to know of any ground under which this result may occur. Debtor shall take appropriate action at its expense to halt the infringement of Debtor’s service marks and shall properly exercise its duty to control the nature and quality of the goods offered by any licensees in connection therewith.

(j) That Debtor will not use the Collateral in violation of any applicable statutes, regulations or ordinances or rights to any third parties.

(k) That Debtor will keep the Collateral at all times insured against risks of loss or damage by fire, theft and such other casualties as Secured Party may reasonably require, all in such amounts, under such forms of policies, upon such terms, for such periods, and written by such companies or underwriters as Secured Party may approve, losses in all cases to be payable to Secured Party and Debtor as their interest may appear. Secured Party may act as attorney for Debtor in making, adjusting and settling claims under or canceling such insurance and endorsing Debtor’s name on any drafts drawn by insurers of the Collateral.

(l) At any time and from time to time, upon the request of Secured Party, Debtor will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Secured Party may reasonably deem desirable in obtaining the full benefits of this Security Agreement, including, without limitation, the filing of any financing or continuation statement under the Uniform Commercial Code with respect to the liens and security interests granted hereby. Debtor hereby authorizes Secured Party to file any such financing or continuation statement without the signature of Debtor to the extent permitted by applicable law.

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(m) That Debtor hereby indemnifies and holds Secured Party, its officers, directors, employees and shareholders, harmless from and against any claim, suit, loss, damage or expense (including reasonable attorneys’ fees) arising out of this Security Agreement, the Purchase Agreement, or Debtor’s operation of its business from the use of the Collateral.

(n) That Debtor hereby irrevocably appoints Secured Party, and its successors and assigns, Debtor’s true and lawful attorney, with full power (in the name of Debtor or otherwise), after the occurrence and during the continuance of an Event of Default (defined in Section 4 below), to ask, require, demand, receive, compound and give acquittance for any and all moneys, claims and other amounts due and to become due at any time under, or arising out of, the Collateral; to endorse any checks or other instruments or orders in connection therewith; to enforce all Secured Party’s rights hereunder, to enter into all agreements or instruments required to carry out the terms hereof which are required to be performed by Debtor; to execute such other assignments and mortgages of the Collateral as Secured Party may deem to be necessary or advisable. Such power of attorney shall be deemed a power coupled with an interest and, therefore, irrevocable.

3. Until an Event of Default, Debtor may have possession of the Collateral and use it in any lawful manner, and upon an Event of Default, Secured Party shall have the immediate right to the possession of the Collateral.

4. Debtor shall be in default under this Security Agreement upon the happening of any of the following events or conditions (each an “Event of Default”):

(a) default in the payment or performance of any obligation. covenant or liability contained or referred to herein or in any note evidencing the same;

(b) the making or furnishing of any warranty, representation or statement to Secured Party by or on behalf of Debtor which proves to have been false in any material respect when made or furnished;

(c) loss, theft, damage, destruction, sale or encumbrance to or of any of the Collateral, or the making of any levy seizure or attachment thereof or thereon and, if capable of being remedied, such default shall continue unremedied for a period of 30 days;

(d) dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency laws of, by or against Debtor or any guarantor or surety for Debtor.

and Debtor shall give Secured Party immediate notice of the occurrence of any matter referred to in clause (d) of this paragraph.

5. Upon such default and at any time thereafter, Secured Party may declare all obligations secured hereby immediately due and payable and shall have the remedies of a secured party under Article 9 of the Uniform Commercial Code. Secured Party may required

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Debtor to assemble the Collateral and deliver or make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Expenses of taking, holding, preparing for sale, or selling the Collateral or the like shall include Secured Party’s reasonable attorney’s fees and legal expenses.

6. No waiver by Secured Party of any Event of Default shall operate as a waiver of any other Event of Default or of the same Event of Default on a future occasion. The taking of this Security Agreement shall not waive or impair any other security said Secured Party may have or hereafter acquire for the payment of the above indebtedness, nor shall the taking of any such additional security waive or impair this Security Agreement; but said Secured Party may, resort to any security it may have in the order it may deem proper, and notwithstanding any collateral security, Secured Party shall retain its rights of set-off against Debtor.

7. Secured Party’s rights hereunder shall be senior to the rights of any other person except as listed on Schedule A hereto.

8. All rights of Secured Party hereunder shall inure to the benefit of its successors and assigns; and all promises and duties of Debtor shall bind his heirs, executors or administrators or his or its successors or assigns. If there be more than one Debtor, their liabilities hereunder shall be joint and several.

9. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCLUDING CONFLICT OF LAWS PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF LAWS OF ANY OTHER JURISDICTION.

10. This Security Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

[signature page follows]

5

Dated this 6^th day of September, 2000.

Debtor:		Secured Party:
eUNIVERSE, INC.		NEW TECHNOLOGY HOLDINGS INC.
By:	/s/    BRAD GREENSPAN	Title:	/s/    MARK EISENBERG
Name:		Name:	Mark Eisenberg
Title:		Title:

[SIGNATURE PAGE TO SECURITY AGREEMENT]

Schedule A

Permitted Liens

UCC Financing Statements filed with the California Secretary of State under The Big Network, Inc., as debtor, by the following secured parties on the dates indicated:

• Fulfillment Partners & Associates, LLC d/b/a Synergy Capital, filed March 18, 1998.

• Synergy Capital, filed March 18, 1998.

• FirstCorp, filed April 17, 1998.

• FirstCorp, filed April 29, 1998.

• LPI Software Funding Group, Inc., filed July 20, 1998

EX-10.42

EXHIBIT 10.42

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE LAW WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO BORROWER THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.

SECOND AMENDED AND RESTATED

CONVERTIBLE SECURED PROMISSORY NOTE

$1,789,764.00 July 15, 2003 New York, New York

THIS SECOND AMENDED AND RESTATED CONVERTIBLE SECURED PROMISSORY NOTE (the “Second Restated Replacement Note” or “this Note”) is hereby issued by eUniverse, Inc., a Delaware corporation (“Borrower”) to 550 Digital Media Ventures Inc. (f.k.a. New Technology Holdings Inc.) (“Lender”). This Note amends and restates in its entirety that certain Amended and Restated Convertible Secured Promissory Note dated October 23, 2001 (the “First Restated Note”), which First Restated Note amended a certain Secured Promissory Note dated February 14, 2001 (the “Replacement Note”), which Replacement Note replaced the original Secured Promissory Note issued on September 6, 2000 (the “Original Note”).

FOR VALUE RECEIVED, Borrower hereby unconditionally promises to pay on demand to the order of Lender in lawful money of the United States of America and in immediately available funds, the aggregate principal sum of up to $1,789,764.00, or, if less, the aggregate principal amount of the borrowing outstanding (the “Principal Amount”) together with accrued and unpaid interest thereon, in the manner set forth herein. Borrower further agrees to pay interest on the Principal Amount at the rate per annum equal to the rate reported in the Wall Street Journal as the prime rate for major banks plus 2% on the outstanding Principal Amount. Interest shall be calculated from and including the date of the Original Note to but not including the date such Principal Amount has been repaid in full. Interest shall be calculated on the basis of a 365-day or 366-day year, as the case may be, for the actual number of days elapsed and shall be paid together with the outstanding Principal Amount, as provided in Section 1 of this Note.

All borrowings evidenced by this Note and all payments (including those described in Sections 1(b)) and prepayments of the principal hereof and interest hereon and the respective date thereof shall be endorsed by the holder hereof on the grid schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part

hereof (the “Grid”); provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not affect the obligations of Borrower under this Note.

This Note is a portion of that “Second Restated Note” referred to in that certain Letter Agreement by and between the Borrower and the Lender of even date herewith, as the same may from time to time be amended or supplemented (the “Debt Amendment Letter Agreement”).

1. Repayment.

(a) The outstanding Principal Amount and all interest accrued thereon shall be payable on demand, unless Lender has received a written notice from Borrower within 30 days of its delivery of a Demand Notice of Borrower’s intent to convert pursuant to Section 7 below; provided, however, that unless there has been an Event of Default (as defined in the Security Agreement described in Paragraph 2 below) or a Change of Control (as defined below), Lender agrees not to make demand prior to March 31, 2005 and provided, further, that Lender shall provide Borrower with 30 days’ advance written notice of such demand (the “Demand Notice”).

(b) Borrower may at any time and from time to time prepay the Principal Amount, in whole or in part, without premium or penalty.

2. Security Agreement. This Note is entitled to the benefit of that certain Security Agreement, dated as of September 6, 2000, between Lender and Borrower, as and to the extent amended by Debt Amendment Letter Agreement, (as amended, the “Security Agreement”), pursuant to which Lender is granted a first priority security interest in the Collateral (as such term is defined in the Security Agreement). This Note shall be subject to the terms and conditions set forth in such Security Agreement.

3. Place of Payment; Application of Payments. All amounts payable hereunder shall be payable to Lender in United States dollars at such bank account as shall be designated by Lender in the Demand Notice in immediately available funds. Payment on this Note shall be applied first to any expenses of collection, then to accrued interest, and thereafter to the outstanding principal balance hereof.

4. Default. Upon the occurrence of an Event of Default (as defined in the Security Agreement) the unpaid Principal Amount, all unpaid accrued interest thereon and all other amounts owing hereunder may, at the option of Lender, become immediately due and payable to Lender with the effect provided in the Security Agreement.

5. Change of Control. As used herein, the term “Change of Control” means the occurrence of any of the following events:

(a) a sale of all or substantially all of the assets of the Borrower in one transaction or a series of transactions;

(b) the merger or consolidation of Borrower with or into another person under circumstances in which the holders of the voting stock of Borrower immediately prior to such

merger or consolidation, do not own a majority of the voting stock of Borrower or the surviving corporation immediately after such merger or consolidation;

(c) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), after the date of this Note, becomes the “beneficial owner” (as defined in Rules 13-d-3 and 13d-5 under the Exchange Act), directly or indirectly, of voting stock of Borrower entitled to cast more than 30% of the votes entitled to be cast by the holders of the outstanding voting stock of Borrower.

6. Conversion.

(a) Mechanics of Conversion. Within 60 days following receipt of a Demand Notice, Borrower may at its option elect to automatically convert the outstanding Principal Amount and unpaid accrued interest thereon as of such date into shares of the Borrower’s Series B Preferred Stock, $.10 par value per share (the “Series B Preferred Stock”), in accordance with this Section 6. The Borrower shall give at least 15 days prior notice to Lender of the date on which such automatic conversion is to be effectuated (such date, the “Conversion Date”). The number of shares of Series B Preferred Stock (calculated to the nearest 1/100,000th of a share) to which Lender shall be entitled upon such automatic conversion shall be determined by dividing (x) the outstanding Principal Amount and unpaid accrued interest thereon as of the Conversion Date by (y) the lower of (i) the average Closing Price (as defined below) for the twenty (20) trading days immediately prior to the date of this Second Restated Note as set forth above the preamble hereof and (ii) the average Closing Price (as defined below) for the twenty (20) trading days immediately prior to March 31, 2005. “Closing Price” means, the price with respect to the shares of the Borrower’s Common Stock on any day, (i) the last reported sales price, or in the case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on any national securities exchange on which the shares of Common Stock are listed or admitted to trading, or (ii) if the shares of Common Stock are not listed on any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market as furnished by any NYSE member firm selected from time to time by Borrower for that purpose, or (iii) if such prices in the over-the-counter market are not available, the fair market value of such shares. On the Conversion Date, the outstanding Principal Amount and unpaid accrued interest thereon shall be converted automatically into the Series B Preferred Stock without further action by the Lender and whether or not this Note has been surrendered to Borrower or its transfer agent, and Lender shall be deemed to be the shareholder of record as of the Conversion Date with respect to the Series B Preferred Stock. Within fourteen (14) days subsequent to the Conversion Date Lender shall surrender this Note to Borrower or its transfer agent, duly marked cancelled and, in exchange therefor, Lender shall receive from Borrower share certificates evidencing the Series B Preferred Stock in the name or names in which Lender wishes such certificate or certificates for the Series B Preferred Stock to be issued. If within fourteen (14) days of the Conversion Date, Lender is unable to deliver this Note, Lender shall notify Borrower or its transfer agent that such Note has been lost, stolen or destroyed and shall deliver to Borrower an acknowledgement that the obligations evidenced by this Note, shall have been upon the Conversion Date be deemed fully satisfied, and, if requested by Borrower, Lender shall execute an agreement reasonably satisfactory to

Borrower to indemnify Borrower from any loss incurred by it in connection with inability of Lender to deliver such Note.

(b) Issue Taxes. Borrower shall pay any and all stamp, issue and other taxes that may be payable in respect of the issuance or delivery of the Series B Preferred Stock.

(c) In the event that the Company exercises the option to convert this Note pursuant to Section 6(a) after all Series B Preferred Stock held by 550 DMV has been converted into the Company’s common stock, par value $.001 per share (the “Common Stock”), than the outstanding principal and interest of this Note may be converted by the Company into Common Stock at the price per share otherwise applicable to the Series B Preferred Stock.

(d) Reservation of Stock Issuable Upon Conversion. Upon any automatic conversion pursuant to Section 6(a) above, Borrower will take all corporate action as may be necessary to increase its authorized but unissued shares of Series B Preferred Stock or Common Stock, as the case may be, to such number of shares as shall be sufficient to effect the conversion of this Note under Section 6(a) above, including, without limitation, obtaining the requisite stockholder approval of any necessary amendment to Borrower’s certificate of incorporation.

(e) Fractional Shares. No fractional shares shall be issued upon the conversion of this Note into the Series B Preferred Stock or Common Stock, as the case may be. If the conversion would result in the issuance of a fraction of a share of the Series B Preferred Stock or Common Stock, as the case may be, Borrower shall, in lieu of issuing any fractional share, pay Lender who is otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the Conversion Date, with respect to the Series B Preferred Stock, or Common Stock, as the case may be, (in each case as determined in good faith by the Board of Directors of Borrower and agreed to by Lender).

(f) Registration Rights. If the outstanding Principal Amount of and unpaid accrued interest thereon has been converted pursuant to Section 6(a) hereof into Series B Preferred Stock or Common Stock, as the case may be, Borrower shall grant to Lender the same registration rights and other minority shareholder rights granted to other holders of Series B Preferred Stock. If the outstanding Principal Amount and unpaid accrued interest thereon has been converted pursuant to Section 6(a) in to Series B Preferred Stock or Common Stock, as the case may be, Borrower shall ensure that Lender shall receive registration rights and other minority shareholder rights whenever such rights are granted by Borrower to other holders of its securities (such holders, “Other Shareholders”), and the terms of such rights granted to Lender shall, in each case, be equal (including, without limitation, any holding periods) to the terms governing the grant of such registration rights and minority shareholder rights to such Other Shareholders.

7. Waiver. Except as otherwise provided herein, Borrower waives presentment and written demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys’ fees, costs and other expenses. BORROWER WAIVES ITS RIGHTS TO A JURY TRIAL IN CONNECTION WITH ANY CLAIMS ARISING UNDER THIS NOTE TO THE FULLEST

EXTENT PERMITTED BY LAW. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the fullest extent permitted by law.

8. Expenses; Attorney’s Fees; Collection Costs. Borrower agrees that it will pay the reasonable costs and expenses of the parties (including legal and accounting fees) in connection with this Note. Without limiting the foregoing, if there has been an Event of Default by Borrower hereunder, Lender shall be entitled to receive and Borrower agrees to pay all costs of enforcement and collection incurred by Lender, including, without limitation, reasonable attorney’s fees relating thereto.

9. Successors and Assigns; Assignment. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. Borrower may assign this Note to any of its affiliates or the affiliates of Sony Music Entertainment Inc., and such rights may be similarly assigned by such assignee.

10. Further Assurances. Borrower shall, at any time and from time to time, upon the written request of Lender, execute and deliver to Lender such further documents and instruments (including, without limitation, financing statements in connection with Lender’s security interest granted hereby) and do such other acts and things as Lender may reasonably request in order to effectuate fully the purpose and intent of this Note.

11. THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN THE CITY OF NEW YORK, STATE OF NEW YORK, UNITED STATES OF AMERICA. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW (WITHOUT REGARD TO ANY CONFLICTS OF LAW PROVISION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION).

BORROWER
eUNIVERSE, INC.
By:	/s/    BRAD GREENSPAN
Name:	Brad Greenspan
Title:	Chairman/CEO

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CONVERTIBLE

SECURED PROMISSORY NOTE]

Schedule to Secured Promissory Note

TRANSACTIONS

ON

NOTE

Date Amount of Loan Made This Date Amount of
Principal Paid
This Date
Amount of Interest
Owing In Respect
of any Prepayment
of Principal
Outstanding
Principal Balance
This Date
Amount of Interest
Paid on Last Day
of Interest Period
Notation Made By

EX-10.43

EXHIBIT 10.43

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE LAW WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO BORROWER THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.

SECOND AMENDED AND RESTATED

CONVERTIBLE SECURED PROMISSORY NOTE

$500,000.00 July 15, 2003 New York, New York

THIS SECOND AMENDED AND RESTATED CONVERTIBLE SECURED PROMISSORY NOTE (the “Second Restated Note” or “this Note”) is hereby issued by eUniverse, Inc., a Delaware corporation (“Borrower”) to 550 Digital Media Ventures Inc. (f.k.a. New Technology Holdings Inc.) (“Lender”). This Note amends and restates in its entirety that certain Amended and Restated Convertible Secured Promissory Note dated October 23, 2001 (the “First Restated Note”), which First Restated Note amended a certain Secured Promissory Note dated February 14, 2001 (the “Replacement Note”), which Replacement Note replaced the original Secured Promissory Note issued on September 6, 2000 (the “Original Note”).

FOR VALUE RECEIVED, Borrower hereby unconditionally promises to pay on demand to the order of Lender in lawful money of the United States of America and in immediately available funds, the aggregate principal sum of $500,000.00 or, if less, the aggregate principal amount of the borrowings outstanding (the “Principal Amount”) together with accrued and unpaid interest thereon, in the manner set forth herein. Borrower further agrees to pay interest on the Principal Amount at the rate per annum equal to the rate reported in the Wall Street Journal as the prime rate for major banks plus 2% on the outstanding Principal Amount. Interest shall be calculated from and including the date of the Original Note to but not including the date such Principal Amount has been repaid in full. Interest shall be calculated on the basis of a 365-day or 366-day year, as the case may be, for the actual number of days elapsed and shall be paid together with the outstanding Principal Amount, as provided in Section 1 of this Note.

All borrowings evidenced by this Note and all payments (including those described in Sections 1(b)) and prepayments of the principal hereof and interest hereon and the respective date thereof shall be endorsed by the holder hereof on the grid schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part

hereof (the “Grid”); provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not affect the obligations of Borrower under this Note.

This Note is a portion of the “Second Restated Note” referred to in that certain Letter Agreement by and between the Borrower and the Lender of even date herewith, as the same may from time to time be amended or supplemented (the “Debt Amendment Letter Agreement”).

1. Repayment.

(a) The outstanding Principal Amount and all interest accrued thereon shall be payable on demand, unless Lender has received a written notice from Borrower within 30 days of its delivery of a Demand Notice of Borrower’s intent to convert pursuant to Section 7 below; provided, however, that unless there has been an Event of Default (as defined in the Security Agreement described in Paragraph 2 below) or a Change of Control (as defined below), Lender agrees not to make demand prior to March 31, 2005 and provided, further, that Lender shall provide Borrower with 30 days’ advance written notice of such demand (the “Demand Notice”).

(b) Borrower may at any time and from time to time prepay the Principal Amount, in whole or in part, without premium or penalty.

2. Security Agreement. This Note is entitled to the benefit of that certain Security Agreement, dated as of September 6, 2000, between Lender and Borrower, as and to the extent amended by Debt Amendment Letter Agreement, (as amended, the “Security Agreement”), pursuant to which Lender is granted a first priority security interest in the Collateral (as such term is defined in the Security Agreement). This Note shall be subject to the terms and conditions set forth in such Security Agreement.

3. Place of Payment; Application of Payments. All amounts payable hereunder shall be payable to Lender in United States dollars at such bank account as shall be designated by Lender in the Demand Notice in immediately available funds. Payment on this Note shall be applied first to any expenses of collection, then to accrued interest, and thereafter to the outstanding principal balance hereof.

4. Default. Upon the occurrence of an Event of Default (as defined in the Security Agreement) the unpaid Principal Amount, all unpaid accrued interest thereon and all other amounts owing hereunder may, at the option of Lender, become immediately due and payable to Lender with the effect provided in the Security Agreement.

5. Change of Control. As used herein, the term “Change of Control” means the occurrence of any of the following events:

(a) a sale of all or substantially all of the assets of the Borrower in one transaction or a series of transactions;

(b) the merger or consolidation of Borrower with or into another person under circumstances in which the holders of the voting stock of Borrower immediately prior to such

merger or consolidation, do not own a majority of the voting stock of Borrower or the surviving corporation immediately after such merger or consolidation;

(c) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), after the date of this Note, becomes the “beneficial owner” (as defined in Rules 13-d-3 and 13d-5 under the Exchange Act), directly or indirectly, of voting stock of Borrower entitled to cast more than 30% of the votes entitled to be cast by the holders of the outstanding voting stock of Borrower.

6. Conversion.

(a) Mechanics of Conversion. Within 60 days following receipt of a Demand Notice, Borrower may at its option elect to automatically convert the outstanding Principal Amount and unpaid accrued interest thereon as of such date into shares of the Borrower’s Series B Preferred Stock, $.10 par value per share (the “Series B Preferred Stock”), in accordance with this Section 6. The Borrower shall give at least 15 days prior notice to Lender of the date on which such automatic conversion is to be effectuated (such date, the “Conversion Date”). The number of shares of Series B Preferred Stock (calculated to the nearest 1/100,000th of a share) to which Lender shall be entitled upon such automatic conversion shall be determined by dividing (x) the outstanding Principal Amount and unpaid accrued interest thereon as of the Conversion Date by (y) the lower of (i) the average Closing Price (as defined below) for the twenty (20) trading days immediately prior to the date of this Second Restated Note as set forth above the preamble hereof and (ii) the average Closing Price (as defined below) for the twenty (20) trading days immediately prior to March 31, 2005. “Closing Price” means, the price with respect to the shares of the Borrower’s Common Stock on any day, (i) the last reported sales price, or in the case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on any national securities exchange on which the shares of Common Stock are listed or admitted to trading, or (ii) if the shares of Common Stock are not listed on any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market as furnished by any NYSE member firm selected from time to time by Borrower for that purpose, or (iii) if such prices in the over-the-counter market are not available, the fair market value of such shares. On the Conversion Date, the outstanding Principal Amount and unpaid accrued interest thereon shall be converted automatically into the Series B Preferred Stock without further action by the Lender and whether or not this Note has been surrendered to Borrower or its transfer agent, and Lender shall be deemed to be the shareholder of record as of the Conversion Date with respect to the Series B Preferred Stock. Within fourteen (14) days subsequent to the Conversion Date Lender shall surrender this Note to Borrower or its transfer agent, duly marked cancelled and, in exchange therefor, Lender shall receive from Borrower share certificates evidencing the Series B Preferred Stock in the name or names in which Lender wishes such certificate or certificates for the Series B Preferred Stock to be issued. If within fourteen (14) days of the Conversion Date, Lender is unable to deliver this Note, Lender shall notify Borrower or its transfer agent that such Note has been lost, stolen or destroyed and shall deliver to Borrower an acknowledgement that the obligations evidenced by this Note, shall have been upon the Conversion Date be deemed fully satisfied, and, if requested by Borrower, Lender shall execute an agreement reasonably satisfactory to

Borrower to indemnify Borrower from any loss incurred by it in connection with inability of Lender to deliver such Note.

(b) Issue Taxes. Borrower shall pay any and all stamp, issue and other taxes that may be payable in respect of the issuance or delivery of the Series B Preferred Stock.

(c) In the event that the Company exercises the option to convert this Note pursuant to Section 6(a) after all Series B Preferred Stock held by 550 DMV has been converted into the Company’s common stock, par value $.001 per share (the “Common Stock”), than the outstanding principal and interest of this Note may be converted by the Company into Common Stock at the price per share otherwise applicable to the Series B Preferred Stock.

(d) Reservation of Stock Issuable Upon Conversion. Upon any automatic conversion pursuant to Section 6(a) above, Borrower will take all corporate action as may be necessary to increase its authorized but unissued shares of Series B Preferred Stock or Common Stock, as the case may be, to such number of shares as shall be sufficient to effect the conversion of this Note under Section 6(a) above, including, without limitation, obtaining the requisite stockholder approval of any necessary amendment to Borrower’s certificate of incorporation.

(e) Fractional Shares. No fractional shares shall be issued upon the conversion of this Note into the Series B Preferred Stock or Common Stock, as the case may be. If the conversion would result in the issuance of a fraction of a share of the Series B Preferred Stock or Common Stock, as the case may be, Borrower shall, in lieu of issuing any fractional share, pay Lender who is otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the Conversion Date, with respect to the Series B Preferred Stock, or Common Stock, as the case may be, (in each case as determined in good faith by the Board of Directors of Borrower and agreed to by Lender).

(f) Registration Rights. If the outstanding Principal Amount of and unpaid accrued interest thereon has been converted pursuant to Section 6(a) hereof into Series B Preferred Stock or Common Stock, as the case may be, Borrower shall grant to Lender the same registration rights and other minority shareholder rights granted to other holders of Series B Preferred Stock. If the outstanding Principal Amount and unpaid accrued interest thereon has been converted pursuant to Section 6(a) in to Series B Preferred Stock or Common Stock, as the case may be, Borrower shall ensure that Lender shall receive registration rights and other minority shareholder rights whenever such rights are granted by Borrower to other holders of its securities (such holders, “Other Shareholders”), and the terms of such rights granted to Lender shall, in each case, be equal (including, without limitation, any holding periods) to the terms governing the grant of such registration rights and minority shareholder rights to such Other Shareholders.

7. Waiver. Except as otherwise provided herein, Borrower waives presentment and written demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys’ fees, costs and other expenses. BORROWER WAIVES ITS RIGHTS TO A JURY TRIAL IN CONNECTION WITH ANY CLAIMS ARISING UNDER THIS NOTE TO THE FULLEST

EXTENT PERMITTED BY LAW. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the fullest extent permitted by law.

8. Expenses; Attorney’s Fees; Collection Costs. Borrower agrees that it will pay the reasonable costs and expenses of the parties (including legal and accounting fees) in connection with this Note. Without limiting the foregoing, if there has been an Event of Default by Borrower hereunder, Lender shall be entitled to receive and Borrower agrees to pay all costs of enforcement and collection incurred by Lender, including, without limitation, reasonable attorney’s fees relating thereto.

9. Successors and Assigns; Assignment. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. Borrower may assign this Note to any of its affiliates or the affiliates of Sony Music Entertainment Inc., and such rights may be similarly assigned by such assignee.

10. Further Assurances. Borrower shall, at any time and from time to time, upon the written request of Lender, execute and deliver to Lender such further documents and instruments (including, without limitation, financing statements in connection with Lender’s security interest granted hereby) and do such other acts and things as Lender may reasonably request in order to effectuate fully the purpose and intent of this Note.

11. THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN THE CITY OF NEW YORK, STATE OF NEW YORK, UNITED STATES OF AMERICA. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW (WITHOUT REGARD TO ANY CONFLICTS OF LAW PROVISION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION).

BORROWER
eUNIVERSE, INC.
By:	/s/    BRAD GREENSPAN
Name:	Brad Greenspan
Title:	Chairman/CEO

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CONVERTIBLE

SECURED PROMISSORY NOTE]

Schedule to Secured Promissory Note

TRANSACTIONS

ON

NOTE

Date Amount of Loan Made This Date Amount of
Principal Paid This
Date
Amount of Interest
Owing In Respect
of any Prepayment
of Principal
Outstanding
Principal Balance
This Date
Amount of Interest
Paid on Last Day
of Interest Period
Notation Made By

EX-10.44

Exhibit 10.44

Not for Circulation

Confidential & Proprietary

Term Sheet #1—Sony

This term sheet is among eUniverse, Inc. (“Company”), 550 Digital Media Ventures, Inc., a wholly owned subsidiary of Sony Corporation of America (“Sony”), and VP Alpha Holdings IV, L.L.C. (“VPVP”).

Loan: Bridge loan to the Company from VPVP in the amount of $2.0 million (the “Loan”). The principal of the Loan to be due and payable on the earlier of (a) the closing of the PIPE transaction referenced below, in which case the outstanding principal and interest under the Loan shall be applied toward the purchase price in the PIPE transaction, (b) the maturity date of the Company’s existing loan with an affiliate of Sony, (c) two years from the date of the Loan, or (d) the closing of any debt or equity financing by the Company in excess of $2.5 million. $500,000 additional to Sony to purchase $500,000 of its existing promissory note with the Company. Bridge loan is to be secured by a first priority lien on the assets of the Company on a parsi passu basis with the Company’s existing loan from Sony, will be payable interest only at 8% per annum payable quarterly. Form of Loan Agreement to be acceptable to VPVP in its sole discretion and acceptable to the Company in good faith.

Option: Sony to grant VPVP an exclusive option to purchase 4.8 million shares held by Sony, consisting of a pro rata number of Common and Preferred shares held by Sony (the “Option”). The Option shall be for 180 days, exercisable at a price equal to $1.10 per share. In the event that VPVP sells or distributes the Option shares at a price in excess of $3 per share, then Sony shall receive a contingent payment equal to 40% of the amount in excess of $3 per share, subject to a maximum additional payment to Sony of $1.10 per share. The contingent payment shall be in the form of cash if the shares are sold, or in the event of a distribution to VPVP’s limited partners, in the form of Company shares for Sony to sell or hold as it determines. The form of the Option shall contain customary representations, warranties and other terms acceptable to VPVP. Sony will agree to vote in favor of the consummation of the PIPE transaction and related transactions set forth below, as approved by the Board of Directors of the Company. Sony will also waive its anti-dilution rights with respect to the Series B shares if the PIPE transactions is completed. The Company consents to the Option and the transaction contemplated thereunder.

PIPE Transaction: The Company and VPVP plan to enter into a separate term sheet for possible additional investment by VPVP, the terms of which are still being negotiated. In order to qualify as the “PIPE” transaction, the additional investment must be no less than $5million (with possibly greater amounts) and the purchase price per share must be equal to or greater than $1.00

Capitalization: The Company represents and warrants that its outstanding capitalization consists of the following:

Security	Number of Shares on an As Converted to Common Basis
Common1	25,866,812
Series A Preferred	400,000
Series B Preferred3	1,923,077
Warrants	700,000
Vested Options	3,673,277
Unvested Options	1,966,239
Ungranted Options	2,601,301
Total	37,130,706

Definitive Agreements: The Company and Sony will act in good faith to negotiate, complete and enter into a definitive Option Agreement, Loan Agreement, and related closing documents reflecting the terms and conditions hereof as soon as reasonably possible, with a goal of executing the Loan Agreement, Option, and related closing documents within 10 days hereof.

Closing and Closing Conditions: The closing of the Loan Agreement and the other transactions contemplated hereby will be conditioned upon a variety of items for the benefit of VPVP (which may be waived by VPVP in its sole discretion only in a writing signed by VPVP), including but not limited to the following:

(a) The parties shall have negotiated the definitive agreements on terms acceptable to VPVP in its sole discretion.

(b) All representations and warranties of the Company in the definitive agreements shall be true at the signing dates and as of the closing dates.

(c) The Company shall have performed all of its pre-closing covenants contained in the definitive agreements.

(d) VPVP shall have completed its business and legal due diligence and approved the same in its sole discretion.

(e) There shall have been no material adverse change or effect that, individually or when taken together with all other changes or effects, is or could be likely to be materially adverse to the business assets, financial condition, operations, capitalization, or prospects of the Company and its subsidiaries.

The closing of the Loan Agreement shall be subject to applicable customary conditions for the benefit of the Company, but in no event more extensive than the conditions contained in the Company’s loan documents with Sony.

Representations and Warranties: The Company will make representations and warranties in the definitive agreements customary in transactions of this kind including, without limitations, representations regarding due formation, qualification and good standing, organization documents and by-laws, company power

¹ Sony owns 3,366,154 shares of Common Stock and 1,923,077 shares of Series B Preferred Stock. Except for such shares, Sony holds no options, warrants, or rights to acquire any securities of the Company.

³ See footnote 1, above.

-2-

subsidiaries, capitalization, authorization, due issuance, financial statements subsequent developments, no encumbrances, obligations, use of proceeds, assets, litigation, proprietary information, patents, contracts, and commitments. The Company’s representations concerning financial statements, ownership of its intellectual property, compliance with laws and non-infringement of third party intellectual property rights, shall not be qualified by any “knowledge” qualifier.

Due Diligence Period to Invest and Right to Invest: The Company recognizes that VPVP has and will expand considerable resources and time in negotiating definitive agreements with respect to the transactions contemplated herein. Accordingly, following execution of this Term Sheet, the Company and its shareholders, officers, directors and agents and Sony shall negotiate in good faith with VPVP for a period of 10 days (the “Due Diligence Period”), with respect to transactions contemplated hereby. Such negotiations shall reflect the terms set forth in this Term Sheet.The Company recognizes that VPVP has and will expand considerable resources and time in negotiating definitive agreements with respect to the transactions contemplated herein. Accordingly, following execution of this Term Sheet, the Company and its shareholders, officers, directors and agents and Sony shall negotiate in good faith with VPVP for a period of 10 days (the “Due Diligence Period”), with respect to transactions contemplated hereby. Such negotiations shall reflect the terms set forth in this Term Sheet.

For valuable consideration, receipt of which is hereby acknowledged, the Company and Sony agree that VPVP shall have the right to complete its due diligence during the Due Diligence Period and to make a loan to the Company and obtain the Option on the terms outlined herein. Once VPVP has notified the Company that it has satisfactorily completed its due diligence and wishes to complete the Loan (which notice, if to be given, must occur within 10 calendar days following execution of this Term Sheet), the Company and Sony agree to cooperate reasonably and in good faith to complete such transaction as expeditiously as practicable thereafter.

Indemnification: The Company shall indemnify, defend and hold harmless VPVP and its affiliates, agents, employees, officers, directors and partners (collectively, the “Indemnitees”) from and against any investigations, proceedings, claims, lawsuits or actions, and for any expenses, losses, damages, attorneys’ fees and costs (payable in advance for the amounts expected to be incurred), and liabilities (joint or several), to which the Indemnitees may become subject under the Securities Act of 1933, the Securities Exchange Act of 1934, or any other applicable rule, regulation or law, arising out of or in any way related to this Term Sheet, the definitive agreements, and/or an investment in or loan to the Company.

Expenses and Professional Fees: The Company shall pay to VPVP at the closing of the Loan Agreement VPVP’s attorneys’ fees and due diligence expenses, in connection with this transaction. If for any reason the transactions contemplated by this Term Sheet do not close, the Company shall immediately reimburse VPVP’s out-of-pocket legal, accounting and due diligence expenses.

Confidentiality: The terms and existence of this Term Sheet are confidential to VPVP and may not be disclosed by the Company or Sony except as may be approved by VPVP.

Miscellaneous: The footnote contains various applicable miscellaneous provisions.*

* This Term Sheet constitutes and contains the entire agreement and understanding between parties with respect to the subject matter hereof and supersedes any prior or contemporaneous oral or written agreements or

-3-

****

Except as set forth in “Due Diligence Period and Right to Invest”, “Confidentiality”, “Indemnification”, and “Miscellaneous” above, the provisions of this Term Sheet are non-binding on each party.

understandings. Each party acknowledges and agrees that they have not made any representations, warranties or agreements of any kind regarding the subject matter hereof, except as expressly set forth herein. This Term Sheet may not be modified or amended, except by an instrument is writing signed by duly authorized officers of both of the parties hereto. The parties, agree that any dispute arising out of the connection with this Term Sheet will be resolved solely by confidential binding arbitration in San Francisco, California according to the commercial arbitration rules of _AMS. Each party shall bear its own attorney’s fees, expert witness fees, and costs in connection with such arbitration. This Term Sheet has been negotiated and drafted by each party, with counsel from each party reviewing the document. The language in this Agreement shall be construed as to its fair meaning and not strictly for or against any party. This Term Sheet, and any dispute arising hereunder, shall be governed by California law, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than California. If any provision of this Term Sheet is determined to be invalid in whole or in part of any reason, such unenforceable or invalid provision shall not affect the legality, enforceability or validity of the rest of this Term Sheet. If any provision is stricken in accordance with the previous sentence, then the stricken provisions shall be replaced with a legal, enforceable and valid provision that is as similar in tenor to the stricken provision as is legally possible. The provisions of this Term Sheet are intended solely for the benefit of the Company, VPVP, and Sony and no provision hereof may be enforced by any creditor, shareholder, officer, director, or agent of, or any other party affiliated with the Company, VPVP or Sony. The Company and Sony shall use its reasonable best efforts to perform such further acts and things as VPVP may reasonably request in order to carry out the intent and accomplish the purposes of the binding provisions of this Term Sheet.

-4-

If the terms and conditions described above are acceptable to you, please so indicate by your signature below. This proposal shall remain outstanding until 4:00 pm, San Francisco time, on June 26, 2003, unless previously revoked by us.

VP ALPHA HOLDINGS IV, L.L.C
By:	VANTAGEPOINT VENTURE ASSOCIATES IV, L.L.C.
	Its	Managing Member
		By:	ALAN E. SALZMAN
		Name:	Alan E. Salzman
		Title:	Managing Member
Agreed and Accepted:
	eUNIVERSE INC.
	By:	BRAD GREENSPAN
		Brad Greenspan,CEO
550 DIGITAL MEDIA VENTURES, INC.
	By:	/s/    TOM CONNOLLY
	Title:	Sr. V.P. & Chief Financial Officer

Date:                                     

-5-

EX-10.45

Exhibit 10.45

Not for Circulation

Confidential & Proprietary

Term Sheet # 2

This term sheet is among eUniverse, Inc. (“Company”) and VP Alpha Holdings IV, L.L.C. (“VPVP”).

Loan: Bridge loan to the Company from VPVP in the amount of $2.0 million (the “Loan”). The principal of the Loan to be due and payable on the earlier of (a) the closing of the PIPE transaction referenced below, in which case the outstanding principal and interest under the Loan shall be applied toward the purchase price in the PIPE transaction, (b) the maturity date of the Company’s existing loan with an affiliate of Sony, (c) two years from the date of the Loan, or (d) the closing of any debt or equity financing by the Company in excess of $2.5 million. $500,000 additional paid directly to Sony to purchase $500,000 of its existing promissory note from the Company. Bridge loan is to be secured by first priority lien on assets of the Company, on a pari passu basis with the Company’s existing loan from an affiliate of Sony, will be payable interest only at 8% per annum payable quarterly. Form of Loan Agreement to be acceptable to VPVP in its sole discretion and acceptable to the Company in good faith. If the Option referenced below is not exercised within 120 days, VPVP to receive 3-year warrants to purchase 200,000 shares of Series B Preferred Stock of the Company excercisable at $2.50 per share (as appropriately adjusted for stock splits, stock dividends, recapitalizations, and similar matters). The form of warrant will be typical for venture capital transactions, including but not limited to a net issuance feature.

Option: Sony to grant VPVP an exclusive option to purchase 4.8 million shares held by Sony, consisting of a pro rata number of Common and Preferred shares held by Sony (the “Option”). The Option shall be for 180 days, exercisable at a price equal to $1.10 per share. In the event that VPVP sells or distributes the Option shares at a net price in excess of $3 per share, then Sony shall receive a contingent payment equal to 40% of the amount in excess of $3 per share, subject to a maximum additional payment to Sony of $1.10 per share. The contingent payment shall be in the form of cash if the shares are sold, or in the event of a distribution to VPVP’s limited partners, in the form of Company shares for Sony to sell or hold as it determines. The form of the Option shall contain customary representations, warranties and other terms acceptable to VPVP, Sony will agree to vote in favor of the consummation of the PIPE transaction and related transactions referenced below, as approved by the Board of Directors of the Company. The Company will consent to the Option and the transactions contemplated thereunder.

PIPE Transaction: Purchase by VPVP of $10 million of shares of Series B Preferred Shares of the Company (with the Loan paid off in connection therewith) pursuant to the terms and conditions of a definitive Stock Purchase Agreement (the “Stock Purchase Agreement”). The shares will consist of Series B Preferred Stock of the Company, with the following changes to the existing tems:

(a)  The purchase price shall be as set forth below.

(b) The initial conversion price shall be $1.50.

(c) The authorized number of shares of Series B Preferred Stock will be increased to cover the issuance contemplated by this Term Sheet.

(d) Reference to 550 Digital Media Ventures in the Series B Preferred Stock terms shall be changed to VPVP.

(e) The Series B Preferred shares will be convertible to Common only on the election by VPVP, or upon other events acceptable to VPVP in its sole discretion.

(f) The 8% dividend shall be mandatory and paid quarterly in shares of Series B Preferred.

The Company will seek NASDAQ approval to allow the PIPE transaction to proceed without shareholder vote. If shareholder vote is necessary for any reason, Company covenants to use its reasonable best efforts to obtain such favorable vote or to otherwise stage or structure the transaction to accomplish the issuance of the shares or so many of such shares it may lawfully do without shareholder approval in a manner acceptable to VPVP.

Line of Credit: In the event of a closing of the PIPE transaction contemplated by this Term Sheet, VPVP shall make available to the Company an acquisition and business development line of credit of up to $20 million (the “Line of Credit”). The Line of Credit is intended to provide the Company with capital to make appropriate acquisitions and enter into strategic business development ventures (a “Transaction”). Each Transaction is subject to VPVP’s approval in its sole discretion. The definitive agreement for the Line of Credit shall be in form and substance acceptable to VPVP and the Company in their sole discretion.

Price: The price for each share of Series B Preferred Stock under the PIPE transaction (the “Price”) shall be $1.50 per share, which takes into account the amount and type of securities set forth in “Capitalization” below. This price takes into account (i) the fact that no underwriter fee will be paid by the Company; (ii) the Company’s stock is lightly traded; (iii) The Company is the subject of ongoing litigation; and (iv) the Shares are not immediately freely tradable.

Use of Proceeds from PIPE Transaction: Ongoing operation and expansion of the Company.

Capitalization: The Company represents and warrants that its outstanding capitalization (including any outstanding stock, convertible securities, warrants, options, or rights or commitments to issue any of the foregoing, contingent or fixed) consists of the following:

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Security	Number of Shares on an As Converted to Common Basis
Common1	25,866,812
Series A Preferred	400,000
Series B Preferred 2	1,923,077
Warrants	700,000
Vested Options	3,673,277
Unvested Options	1,966,239
Ungranted Options	2,601,301
Total	37,130,706

Definitive Agreements: The Company and Sony will act in good faith to negotiate, complete and enter into a definitive Option Agreement, Loan Agreement, Stock Purchase Agreement, and related closing documents reflecting the terms and conditions hereof as soon as reasonably possible, with a goal of executing the Loan Agreement and Option within 10 days hereof.

Information & Registration Rights: VPVP shall receive standard information rights and the right to have its shares in the Company registered under applicable securities laws (as soon as practicable after the closing of the PIPE transaction).

Closing and Closing Conditions: The closing of the Loan Agreement and the other transactions contemplated hereby will be conditioned upon a variety of items for the benefit of VPVP (which may be waived by VPVP in its sole discretion only in a writing signed by VPVP), including but not limited to the following:

(a) The parties shall have negotiated the definitive agreements on terms acceptable to VPVP in its sole discretion.

(b) All representations and warranties of the Company in the definitive agreements shall be true at the signing dates and as of the closing dates.

(c) The Company shall have performed all of its pre-closing covenants contained in the definitive agreements.

(d) VPVP shall have completed its business and legal due diligence and approved the same in its sole discretion.

(e) There shall have been no material adverse change or effect that, individually or when taken together with all other changes or effects, is or could be likely to be materially adverse to the business assets, financial condition, operations, capitalization, or prospects of the Company and its subsidiaries.

(f) The price of the Company’s stock as traded on NASDAQ prior to the closing shall be acceptable to VPVP in its sole discretion.

The Closing of the PIPE transaction shall be subject to a number of additional conditions for the benefit of VPVP, including resolution of litigation that the Company is involved in a manner satisfactory to VPVP. The Closing of the PIPE transaction and the other transactions contemplated hereby, shall be subject to applicable customary conditions for the benefit

¹ Sony owns 3,366,154 shares of Common Stock and 1,923,077 shares of Series B Preferred Stock. Except for such shares, Sony hold no options, warrants, or rights to acquire any securities of the Company.

² See footnote 1, above.

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of the Company, but in no event more extensive than the conditions contained in the purchase agreement between Sony and the Company with respect to Sony’s prior purchase of Series B preferred shares.

Board of Directors: If the PIPE transaction closes, then VPVP shall have the right to designate the greater of (a) two directors to the Board or (b) the number of directors provided for in the Series B Preferred Stock Certificate of Designation. To the extent that VPVP has representatives on the Board, those representatives shall be accorded no less favorable treatment than any other Board member with respect to all matters, including, without limitation, expense reimbursement, stock options or grants, benefits, and access to Company information and management.

Representations and Warranties: The Company will make representations and warranties in the definitive agreements customary in transactions of this kind including, without limitation, representations regarding due formation, qualification and good standing, organization documents and by-laws, company power, subsidiaries, capitalization, authorization, due issuance, financial statements subsequent developments, no encumbrances, obligations, use of proceeds, assets, litigation, proprietary information, patents, contracts, and commitments. The Company’s representations concerning financial statements, ownership of its intellectual property, compliance with laws and non-infringement of third party intellectual property rights, shall be not be qualified by any “knowledge” qualifier.

Due Diligence Period and Right to Invest: The Company recognizes that VPVP has and will expend considerable resources and time in negotiating definitive agreements with respect to the transactions contemplated herein. Accordingly, following execution of this Term Sheet, the Company and its shareholders, officers, directors and agents and Sony shall negotiate in good faith with VPVP for a period of 10 days for the Loan and 90 days for the PIPE transaction (the “Due Diligence Period”), with respect to transactions contemplated hereby. Such negotiations shall reflect the terms set forth in this Term Sheet.

For valuable consideration, receipt of which is hereby acknowledged, the Company agrees that VPVP shall have the right to complete its due diligence during the Due Diligence Period and to make the Loan to the Company and to invest in the PIPE transaction on the terms outlined herein. Once VPVP has notified the Company that it has satisfactorily completed its due diligence and wishes to complete the Loan or PIPE transaction (which notice, if to be given, must occur within 10 calendar days following execution of this Term Sheet with respect to the Loan and within 90 days with respect to the PIPE transaction), the Company agrees to cooperate reasonably and in good faith to complete such transaction as expeditiously as practicable.

Directors Liability Insurance: The Company will maintain, for the period that VPVP has a representative on the Board of Directors of the Company, a directors’ liability insurance policy in form and substance reasonably satisfactory to VPVP, covering the directors of the Company in the amount of at least $10 million.

Indemnification: The Company shall indemnify, defend and hold harmless VPVP and its affiliates, agents, employees, officers, directors and partners (collectively,

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the “Indemnitees”) from and against any investigations, proceedings, claims. lawsuits or actions, and for any expenses, losses, damages, attorneys’ fees and costs (payable in advance for the amounts expected to be incurred), and liabilities (joint or several), to which the Indemnitees may become subject under the Securities Act of 1993, the Securities Exchange Act of 1934, or any other applicable rule, regulation or law, arising out of or in any way related to this Term Sheet, the definitive agreements, and/or an investment in or loan to the Company.

Expenses and Professional Fees: The Company shall pay to VPVP at the closing of the Loan Agreement VPVP’s attorneys’ fees and due diligence expenses, in connection with this transaction. If for any reason the transactions contemplated by this Term Sheet do not close, the Company shall immediately reimburse VPVP’s out-of-pocket legal, accounting and due diligence expenses. The Company shall pay to VPVP at the closing of the PIPE transaction VPVP’s attorneys fees and due diligence expenses in connection with that transaction.

Confidentiality: The terms and existence of this Term Sheet are confidential to VPVP and may not be disclosed by the Company or Sony except as may be approved by VPVP.

Miscellaneous: The footnote contains various applicable miscellaneous provisions.

* * * *

Except as set forth in “Due Diligence Period and Right to Invest”, “Confidentiality”, Indemnification”, and “Miscellaneous” above, the provisions of this Term Sheet are non-binding on each party.

* This Term Sheet constitutes and contains the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes any prior or contemporaneous oral or written agreements or understandings. Each party acknowledges and agrees that they have not made any representation’s, warranties or agreements of any kind regarding the subject matters hereof, except as expressly set forth herein. This Term Sheet may not be modified or amended, except by an instrument in writing signed by duly authorized officers of both of the parties hereto. The parties agree that any dispute arising out of or in connection with this Term Sheet will be resolved solely by confidential binding arbitration in San Francisco, California according to the commercial arbitration rules of JAMS. Each party shall bear its own attorneys’ fees, expert witness fees, and costs in connection with such arbitration. This Term Sheet has been negotiated and drafted by each party, with counsel from each party reviewing the document. The language in this Agreement shall be construed as to its fair meaning and not strictly for or against any party. This Term Sheet, and any dispute arising hereunder, shall be governed by California law, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than California. If any provision of this Term Sheet is determined to be invalid in whole or in part for any reason, such unenforceable or invalid provision shall not effect the legality, enforceability or validity of the rest of this Term Sheet. If any provision is stricken in accordance with the previous sentence, then the stricken provision shall be replaced with a legal, enforceable and valid provision that is as similar in tenor to the stricken provision as is legally possible. The provisions of this Term Sheet are intended solely for the benefit of the Company and VPVP and no provision hereof may be enforced by any creditor, shareholder, officer, director, or agent of, or any other party affiliated with, the Company or VPVP, Company shall use its reasonable best efforts to perform such further acts and things as VPVP may reasonably request in order to carry out the intent and accomplish the purpose of the binding provisions of this Term Sheet.

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If the terms and conditions described above are acceptable to you, please so indicate by your signature below. This proposal shall remain outstanding until 4:00 pm, San Francisco time, on June 24, 2003. unless previously revoked by us.

VP ALPHA HOLDINGS IV, L.L.C.
By:	VANTAGEPOINT VENTURE ASSOCIATES IV, L.L.C.
	Its	Managing Member
		By:	/s/    ALAN E. SALZMAN
		Name:	Alan E. Salzman
		Title:	Managing Member

Agreed and Accepted:
	eUNIVERSE, INC.
	By:	/s/    BRAD GREENSPAN
		Brad Greenspan, CEO

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EX-10.46

EXHIBIT 10.46

EUNIVERSE, INC.

SECURED NOTE PURCHASE AGREEMENT

This Secured Note Purchase Agreement (the “Agreement”) is made this 15th day of July, 2003 (the “Effective Date”) by and between eUniverse, Inc., a Delaware corporation (the “Company”), and VP Alpha Holdings IV, L.L.C. (the “Purchaser”).

RECITALS

WHEREAS, on the terms and subject to the conditions of this Agreement, the Company desires to issue and sell, and the Purchaser desires to purchase from the Company, a secured note in the aggregate principal amount of $2,500,000, in the form attached hereto as Exhibit A (the “Note”), in consideration of $2,000,000 loaned directly to the Company and the cancellation of a $500,000 note (the “Assigned Note”) purchased by the Purchaser from 550 DMV (as defined below) in connection herewith;

WHEREAS, in further consideration of the purchase by the Purchaser of the Note, the Company may, subject to certain conditions, issue to the Purchaser a warrant to purchase 200,000 shares of the Company’s Series B Convertible Preferred Stock, par value $0.10 per share (or a substantially similar preferred stock with the changes set forth in the Option Agreement (as defined below)), in the form attached hereto as Exhibit B (the “Warrant”); and

WHEREAS, the Note, the Warrant, and any Preferred Stock issuable upon exercise of the Warrant are collectively referred to herein as the “Securities.”

AGREEMENT

In consideration of the mutual promises contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, the parties to this Agreement agree as follows:

1. Purchase and Sale of Note.

(a) Sale and Issuance of Note. At the Closing (as hereinafter defined), on the terms and subject to the conditions of this Agreement, the Purchaser agrees to purchase from the Company, and the Company agrees to issue and sell to the Purchaser, the Note.

(b) Closings.

(i) The sale and purchase of the Note to be purchased by the Purchaser (the “Closing”) shall occur at the offices of Fulbright & Jaworski L.L.P. 865 S. Figueroa St., 29^th Floor, Los Angeles, CA 90017, at 10:00 a.m. (Los Angeles time), on July 16, 2003 or on such other business day thereafter as may be agreed upon by the Company and the Purchaser. At the Closing, the Company will deliver to the Purchaser the Note dated the date of the Closing, and

registered in the name of the Purchaser, in exchange for delivery by the Purchaser to the Company or its order of immediately available funds in the amount of $2,000,000 and the Assigned Note.

2. Security Interest. The indebtedness represented by the Note shall be secured and shall be entitled to the benefit of a security agreement, in the form attached hereto as Exhibit C (the “Security Agreement”), pursuant to which the Purchaser shall be granted a first priority security interest in all of the assets of the Company, pari passu with the first priority security interest in favor of 550 DMV (as defined below) pursuant to the certain Security Agreement dated September 6, 2000, as amended or modified to date.

3. Conditions to Closing(s). The Purchaser’s obligation to purchase and pay for the Notes to be sold to it at the Closing is subject to the fulfillment of the following conditions (unless waived in writing by Purchaser):

(a) Representations and Warranties. The representations and warranties of the Company in the Transaction Documents (as defined in Section 4(a)) shall be correct when made and at the time of the Closing.

(b) Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in the Transaction Documents required to be performed or complied with by it prior to or at the Closing.

(c) Compliance Certificates. The Company shall have delivered to the Purchaser an officer’s certificate, dated the date of the Closing, certifying that the conditions specified in Section 3(a) and Section 3(b) have been fulfilled.

(d) Due Diligence. Purchaser shall have completed its business and legal due diligence of Borrower and approved the same in its sole discretion.

(e) No Material Adverse Change. Since the date hereof, there shall have been no material adverse change or effect that, individually or when taken together with all other changes or effects, is or could be likely to be materially adverse to the business assets, financial condition, operations, capitalization, or prospects of the Company and its subsidiaries, taken as a whole.

(f) Note. The Company shall have delivered to Purchaser the Note, duly executed by the Company.

(g) The Security Agreement. The Company shall have delivered to Purchaser the Security Agreement, duly executed by the Company.

(h) The Option Agreement. The Company shall have delivered to Purchaser the Option Agreement, duly executed by the Company and 550 DMV shall have delivered the Option Agreement (as defined in Section 7(k)), duly executed by 550 DMV.

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(i) The Intercreditor Agreement. The Company shall have delivered to Purchaser an Intercreditor Agreement in the form of Exhibit D hereto (the “Intercreditor Agreement”), duly executed by the Company and 550 DMV shall have delivered the Intercreditor Agreement, duly executed by 550 DMV.

(j) Financing Statements. The Company shall have delivered to Purchaser UCC-1 financing statements and other documents and instruments which Purchaser may reasonably request to perfect its security interest in the collateral described in the Security Agreement, duly executed by the Company.

(k) Expenses. The Company shall have reimbursed Purchaser for its transaction expenses in accordance with Section 10(a).

(l) Opinion of Counsel. Purchaser shall have received an opinion of legal counsel for the Company in the form of Exhibit E.

(m) Certificate of Good Standing. A Certificate of Good Standing with respect to the Company, certified as of a recent date prior to the Closing by the Secretary of State of the State of Delaware.

(n) Secretary’s Certificate. A certificate of the Secretary of the Company, dated the Closing Date, certifying that (1) the Certificate of Incorporation of the Company, delivered to Purchaser pursuant to the terms hereof, is in full force and effect and has not been amended, supplemented, revoked or repealed since the date of such certification; (2) attached thereto is a true and correct copy of the Bylaws of the Company as in effect on the Closing Date; (3) attached thereto is a true and correct copy of resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery, and performance by the Company of this Agreement and the other Transaction Documents (as defined in Section 4(a)) and the consummation of the transactions contemplated hereby and thereby; and (4) there are no proceedings for the dissolution or liquidation of the Company that have commenced or, to the knowledge of the Company, been threatened.

4. Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser that as of the date hereof:

(a) Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. It has all requisite right, power and authority to (i) own or lease and operate its properties and assets, (ii) conduct its business as presently conducted, and (iii) engage in and consummate the transactions contemplated hereby, except as set forth on Schedule 4(a). The Company is duly qualified or otherwise authorized as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification or authorization is required by applicable law except for those jurisdictions in which failure to do so would not have a material adverse effect on (x) the Company’s ability to perform its obligations under this Agreement, the Note, the Security Agreement, the Option Agreement, the Intercreditor Agreement or that certain Amendment to Second Amended and Restated Convertible Secured

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Promissory Note by the Company in favor of the Purchaser, dated as of the date hereof (the “Transaction Documents”) or (y) the results of operations, condition (financial or otherwise), business, assets or liabilities of the Company and its Subsidiaries, taken as a whole (in either case, a “Material Adverse Effect”).

(b) Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the authorization, sale, issuance and delivery of the Note, and the performance of all obligations of the Company hereunder and thereunder has been taken. The Agreement and the Note, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. The Company’s Board of Directors has determined in its good faith business judgment that the issuance of the Securities hereunder and the consummation of the other transactions contemplated hereby are in the best interests of the Company and its stockholders.

(c) No Conflict with Other Instruments. Except as set forth on Schedule 4(c), the execution, delivery and performance of this Agreement and the Note will not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of the Company’s Certificate of Incorporation (the “Certificate”) or the Company’s by-laws; (ii) any provision of any judgment, decree or order to which the Company is a party or by which it is bound; (iii) any material contract, obligation or commitment to which the Company is a party or by which it is bound or other contract, obligation or commitment to which the Company is a party or by which it is bound and which would reasonably be expected to have a Material Adverse Effect or impair the Company’s performance of this Agreement or the Note; or (iv) any statute, rule or governmental regulation applicable to the Company.

(d) Securities Law Compliance. Subject to the accuracy of the representations and warranties of the Purchaser set forth in Section 5, the offer, issue, and sale of the Note is exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”) and the qualification requirements, if any, of applicable state securities laws.

(e) Subsidiaries. Except as set forth on Schedule 4(e), the Company has no Subsidiaries. For purposes of this Agreement, “Subsidiary” means any corporation, association or other business entity in which the Company or one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by the Company or one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of the Company or one or more of its Subsidiaries).

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(f) Absence of Changes. Since March 31, 2003, except as set forth on Schedule 4(f) hereto, the Company and its Subsidiaries have not (1) sold, leased, transferred or otherwise disposed of any material portion of their assets (other than dispositions in the ordinary course of business consistent with past practices), (2) terminated or amended in any material respect any Material Contract to which the Company or any of its Subsidiaries is a party or to which it is bound or to which its properties are subject, (3) suffered any loss, damage or destruction, whether or not covered by insurance, which has had a Material Adverse Effect, (4) incurred any liabilities for indebtedness (other than in the ordinary course of business or contractual liabilities) which, individually or in the aggregate, have had a Material Adverse Effect, (5) incurred, created or suffered to exist any material Liens on its assets, (6) suffered any labor dispute, strike, or other work stoppage, (7) made or obligated itself to make any capital expenditures in excess of $100,000 individually, (8) paid any dividends, whether in cash or property, on account of, or repurchased any of, the Common Stock, (9) increased the compensation payable or to become payable to any of its executive officers out of the ordinary course of business,(10) entered into any contract or other agreement requiring the Company or a Subsidiary to make payments in excess of $250,000 individually, other than in the ordinary course of business consistent with past practices or (11) entered into any agreement to do any of the foregoing.

(g) Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing (other than notice filings) or declaration with, any court or any federal, state, municipal or local government or any political subdivision, governmental department, board, agency or instrumentality thereof, and any administrative or regulatory agency (each, a “Governmental Authority”) is required in connection with the execution, delivery or performance by the Company of this Agreement or the issuance, sale and delivery of the Note.

(h) Litigation. Except as set forth on Schedule 4(h) hereto, there is no litigation, action, complaint, claim or suit, judicial or administrative action, audit, proceeding or governmental investigation pending or, to the knowledge of the Company, threatened, against the Company or its Subsidiaries or any of their respective properties. Neither the Company nor any Subsidiary is in default in any material respect under any judgment, order or decree of a Governmental Authority. There is no judgment, order, decree, injunction, stipulation or settlement against the Company or any Subsidiary that is reasonably likely to prevent, enjoin or materially alter or delay any of the transactions contemplated by this Agreement or that would reasonably be likely to cause a Material Adverse Effect.

(i) Taxes. Except as set forth on Schedule 4(i), the Company and its Subsidiaries have timely filed all income tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments payable by them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (x) the amount of which is not individually or in the aggregate material or (y) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. Except as set forth on Schedule 4(i), none of the Company’s or its Subsidiaries’ tax returns is currently subject to an audit.

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(j) Title to Property; Leases. Except as set forth on Schedule 4(j) hereto, the Company and its Subsidiaries have good and sufficient title to their respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet of the Company or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens, except for those defaults in title and Liens which do not and will not materially detract from the value of the property subject thereto or interfere with the use of the property subject thereto or materially impair the respective operations of the Company and any Subsidiary involving such property. All leases of the Company and its Subsidiaries are valid and subsisting and are in full force and effect in all material respects. Neither the Company nor any of its Subsidiaries owns any real property and none of them is in material breach of any real property lease.

(k) Licenses, Permits, Etc. The Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that are material, without known conflict with the rights of others, except for those conflicts that, individually or in the aggregate, would not have a Material Adverse Effect.

(l) Employee Benefit Plans. Except as set forth on Schedule 4(l) hereto: (i) neither the Company nor any Subsidiary has employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”)); (ii) the Company and each Subsidiary does not now, or has it ever, maintained, established, sponsored, participated in, or contributed to, any pension plan within the meaning of Section 3(2) of ERISA which is subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended; and (iii) at no time has the Company or any Subsidiary contributed to or been requested to contribute to any multiemployer plan as defined in Section 3(37) of ERISA.

(m) Existing Indebtedness. Except as described therein, Schedule 4(m) hereto sets forth a complete and correct list of all outstanding Indebtedness (as hereinafter defined) of the Company and its Subsidiaries as of May 31, 2003, since which date there has been no material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. For purposes of this Agreement, “Indebtedness” with respect to the Company means, at any time, without duplication, (i) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable preferred stock; (ii) its liabilities for the deferred purchase price of property acquired by the Company (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (iii) all liabilities appearing on its balance sheet in accordance with GAAP in respect of capital leases; (iv) all liabilities for borrowed money secured by any Lien with respect to any

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property owned by the Company (whether or not it has assumed or otherwise become liable for such liabilities); (v) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); and (vi) any guaranty of the Company with respect to liabilities of a type described in any of subclauses (i) through (v) hereof. Except as set forth on Schedule 4(m), since the date of the 2003 Financial Statements (as defined in Section 4(q)), neither the Company nor any Subsidiary has incurred any liabilities of any kind, character and description, whether accrued, absolute, secured or unsecured, contingent or otherwise of a kind that would have been required to be disclosed on such 2003 Financial Statements if they were dated as of the date hereof other than (i) liabilities incurred in the ordinary course of business subsequent to the date of the 2003 Financial Statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the 2003 Financial Statements.

(n) Patents, Copyrights and Trademarks. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of the rights of, others (collectively, “Intellectual Property”). A list of the Company’s registered trademarks, copyrights and service marks, patents and domain names is set forth on Schedule 4(n). The Company has not received any written communications alleging that any of the Company’s material Intellectual Property has violated any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by the employees of the Company, nor the conduct of the Company’s business as proposed, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company, other than those which have been assigned to the Company. The Company has no actual knowledge of any unauthorized use, infringement or misappropriation of its intellectual property rights or of any obligation on the part of the Company to pay any royalties or other payments to third parties. The Company has entered into written agreements with all key employees and key contractors of the Company and each Subsidiary with provisions seeking to protect the confidentiality of all Company Intellectual Property and to ensure full and unencumbered ownership by the Company or a Subsidiary of all Company Intellectual Property including, without limitation, appropriate “work for hire” language.

(o) Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.

(p) Capitalization. The authorized capital stock of the Company consists of

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250,000,000 shares of Common Stock, par value $0.001 per share, and 40,000,000 shares of preferred stock (“Preferred Stock”), par value $0.10 per share. 10,000,000 shares of the Preferred Stock have been designated as Series A 6% Convertible Preferred Stock (the “Series A”) and 4,098,335 shares of preferred stock have been designated Series B Preferred Shares (the “Series B”). There are outstanding 26,562,239 shares of Common Stock, 350,250 shares of Series A and 1,923,077 shares of Series B, and the Company has no other shares of capital stock outstanding. All of the outstanding shares of capital stock of the Company have been duly authorized, validly issued and are fully paid and nonassessable.

Except as set forth on Schedule 4(p): (1) there are no outstanding options, warrants, rights to subscribe for, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company, or arrangements by which the Company is or may become bound to issue additional shares of capital stock, nor are any such issuances or arrangements contemplated other than pursuant to the eUniverse, Inc. 1999 Stock Awards Plan and the eUniverse, Inc. 2002 Employee Stock Purchase Plan, (2) there are no agreements or arrangements under which the Company is obligated to register the sale of any of its securities under the Securities Act of 1933, as amended (the “Securities Act”) and (3) the Company has no obligations (contingent or otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any interests therein or to pay any dividend or make any distribution in respect thereof.

The Company has furnished to the Purchaser true and correct copies of the Company’s certificate of incorporation, including any certificates of designation (the “Certificate of Incorporation”) as in effect on the date hereof, and the Company’s by-laws (the “By-laws”) as in effect on the date hereof. The Company is not in violation of any provision of its Certificate of Incorporation or By-laws. Except as set forth in the Certificate of Incorporation or on Schedule 4(p) none of the Note or Series B are subject to preemptive rights or any other similar rights of the stockholders of the Company.

(q) Financial Statements. The Company has delivered or caused to be delivered to the Purchaser audited consolidated balance sheets and audited consolidated statements of income and retained earnings and cash flows of the Company and any Subsidiaries, as applicable, as of March 31, 2001, and March 31, 2002 (the “Delivered Financial Statements”). Attached hereto as Schedule 4(q) are an unaudited consolidated balance sheet of the Company and the Subsidiaries, as applicable, as of March 31, 2003, and unaudited consolidated statements of income of the Company and any Subsidiaries, as applicable, for the year ended March 31, 2003 (the “2003 Financial Statements”). Except as set forth on Schedule 4(q), the Delivered Financial Statements were prepared in conformity with generally accepted accounting principles (“GAAP”) applied on a consistent basis (except as may be indicated in the notes thereto) and present fairly, in all material respects, the financial position and the results of operations of the Company and the Subsidiaries, as applicable, as of the dates, and for the periods, referred to therein. Except as set forth on Schedule 4(q), the 2003 Financial Statements were prepared in conformity with GAAP applied on a consistent basis (except for the lack of footnote disclosure) and present fairly, in all material respects, the financial position and the results of operations of the Company and the Subsidiaries, as applicable, as of the dates, and for the periods, referred to therein.

(r) SEC Documents. Set forth in Schedule 4(r) is a list of all reports,

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schedules, forms, statements and other documents filed by the Company with the Securities and Exchange Commission (the “SEC”) pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the foregoing filed prior to the date hereof, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”) since March 31, 2003. Except as set forth on Schedule 4(r), the Company has delivered to the Purchaser true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied with the requirements of the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(s) Foreign Corrupt Practices Act. Neither the Company nor any Subsidiary, director, officer, agent, employee or other Person acting on behalf of the Company or any Subsidiary has, in the course of his, her or its actions for, or on behalf of, the Company or any Subsidiary, offered or made, directly or indirectly through any other Person, any payments of anything of value (in the form of a contribution, gift, entertainment or other expense), to (a) any Person employed by, or acting in an official capacity on behalf of, any governmental agency, department or instrumentality, or (b) any foreign or domestic government official, political party or official of such party, or any candidate for political office or employee thereof. Neither the Company, any Subsidiary, nor any director, officer, agent, employee or other Person acting on behalf of the Company or any Subsidiary has violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or unlawful payment to any foreign or domestic government or political party official, employee, appointee or candidate.

(t) Material Contracts. Each contract of the Company or a Subsidiary of the Company the absence of which would reasonably be expected to have a Material Adverse Effect (each “Material Contract”) is listed on Schedule 4(t) hereof. Each such Material Contract is the legal, valid and binding obligation of the Company, enforceable against the Company and/or such Subsidiary, as the case may be, in accordance with its terms. Except as set forth on Schedule 4(t) there has not occurred any breach, violation or default by the Company or any event that, with the lapse of time, the giving of notice or the election of any Person, or any combination thereof, would constitute a breach, violation or default by the Company or a Subsidiary, as the case may be, under any such contract or, to the knowledge of the Company or its Subsidiary, as the case may be, by any other Person to any such contract. Except as set forth on Schedule 4(t) neither the Company nor any Subsidiary has been notified that any party to any Material Contract intends to cancel, terminate, not renew or exercise an option under any Material Contract, whether in connection with the transactions contemplated hereby or otherwise.

(u) Right of First Refusal; Voting and Registration Rights. To the Company’s actual knowledge and except as set forth on Schedule 4(u) or in the Certificate of Incorporation, no party has any right of first refusal, right of first offer, right of co-sale, preemptive right or other similar right with respect to the Note or Series B. Except as set forth on Schedule 4(u) or in the Certificate of Incorporation or the By-laws of the Company or any of

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its Subsidiaries, there are no agreements to which the Company or any of its Subsidiaries is a party and no agreements by which the Company, any of its Subsidiaries are bound, which (1) may restrict the voting rights of the Purchaser with respect to the Note or Series B in its capacity as a stockholder of the Company, (2) restrict the ability of the Purchaser, or any successor thereto or assignee or transferee thereof, to transfer the Note or Series B, (3) require the vote of more than a majority of the Company’s issued and outstanding Common Stock, voting together as a single class, to take or prevent any corporate action, other than those matters requiring a class vote under Delaware law, or (4) entitle any party to nominate or elect any director of the Company or require any of the Company’s stockholders to vote for any such nominee or other Person as a director of the Company in each case, except as provided for in or contemplated by this Agreement.

(v) Compliance with Laws. Except as set forth in Schedule 4(v), neither the Company nor any Subsidiary has received notification from any Governmental Entity (1) asserting a material violation of any law, statute, ordinance or regulation or the terms of any judgments, orders, decrees, injunctions or writs applicable to the conduct of its business, (2) threatening to revoke any material license, franchise, permit or government authorization, or (3) materially restricting or in any material way limiting its operations as currently conducted. Except as set forth in Schedule 4(v), the Company is in full compliance with all laws, governmental rules, and regulations to which it is subject, the violation of which would reasonably be expected to result in a Material Adverse Affect.

(w) Employee Relations. All material bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock plan, stock option or award plan, health and medical insurance plans, life insurance and disability insurance plans, other material employee benefit plans, contracts or arrangements which cover multiple employees of the Company or the Subsidiaries including, but not limited to, “employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (collectively, the “Employee Benefit Plans”), are listed on Schedule 4(w). No Employee Benefit Plans are or were collectively bargained for or have terms requiring assumption of any guarantee by the Purchaser.

There have been no violations of ERISA or the Internal Revenue Code of 1986, as amended (the “Code”) by the Company relating to any Employee Benefit Plan that would reasonably be expected to have a Material Adverse Effect. The Company has timely filed all documents, notes and reports (including IRS Form 5500) for each such Employee Benefit Plan with all applicable governmental authorities and has timely furnished all required documents to the participants or beneficiaries of each such Employee Benefit Plans, except where the failure to timely file or furnish the foregoing would not reasonably be expected to have a Material Adverse Effect.

The Company and its Subsidiaries have operated and administered all plans, programs and arrangements providing compensation and benefits to employees materially in accordance with their terms and applicable laws.

The Company and its Subsidiaries are not delinquent in payments to any of their employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed through the date hereof. The Company and its Subsidiaries are in compliance

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with all applicable federal and state laws, rules and regulations respecting employment, employment practices, labor, terms and conditions of employment and wages and hours, except for either immaterial instances of noncompliance or instances of noncompliance of which the Company is unaware. Neither the Company nor any Subsidiary is party to any collective bargaining agreement. There is no labor strike, dispute, slowdown or stoppage actually pending or, to the knowledge of the Company, threatened against or involving the Company or any Subsidiary.

No director, officer or other employee of the Company or any Subsidiary will become entitled to any retirement, severance or similar benefit or enhanced or accelerated benefit (including any acceleration of vesting or lapse of repurchase rights or obligations with respect to any Employee Benefit Plan) solely as a result of the transactions contemplated in this Agreement; and no payment made or to be made to any current or former employee or director of the Company or any of its Affiliates by reason of the transactions contemplated hereby (whether alone or in connection with any other event, including, but not limited to, a termination of employment) will constitute an “excess parachute payment” within the meaning of Section 280G of the Code. For the purposes of this Agreement “Affiliate” has the meanings assigned to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

(x) Brokers. There is no investment banker, broker, finder, financial advisor or other Person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement payable by Purchaser.

(y) Environmental Matters. (i) (A) No written notice, notification, demand, request for information, citation, summons, complaint or order has been received by, and no action, claim, suit or proceeding is pending or, to the knowledge of the Company, threatened by any Person against, the Company or any Subsidiary, and no penalty has been assessed against the Company or any Subsidiary, in each case, with respect to any matters relating to or arising out of any Environmental Law; (ii) to the actual knowledge of the Company, the Company and its Subsidiaries are in compliance with all Environmental Laws; and (iii) to the actual knowledge of the Company, there are no liabilities of or relating to the Company or any Subsidiary relating to or arising out of any Environmental Law.

For purposes of this Agreement, the term “Environmental Laws” means federal and state, statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders and codes, relating to human health and the environment, including, but not limited to, Hazardous Materials; and the term “Hazardous Material” means all substances or materials regulated as hazardous, toxic, explosive, dangerous, flammable or radioactive under any Environmental Law including, but not limited to: (A) petroleum, asbestos, or polychlorinated biphenyls and (B) in the United States, all substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan.

(z) Related-Party Transactions. Except as set forth on Schedule 4(z) hereto, no employee, officer, director, or Affiliate of the Company or member of his or her immediate family is currently indebted to the Company or any of its Subsidiaries in an aggregate amount in excess of $50,000, nor is the Company or any of its Subsidiaries indebted to any of such individuals in an aggregate amount in excess of $50,000. Except as set forth on Schedule 4(z)

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hereto, as of the date hereof none of such Persons has any direct or indirect ownership interest exceeding ten percent in any firm or corporation with which the Company is affiliated (other than any Subsidiary) or with which the Company has a material business relationship, or any firm or corporation that directly competes with the Company. No officer or director of the Company is a party to any Material Contract with the Company, other than contracts relating to his or her employment or service as a director.

(aa) Insurance. The Company has in force fire, casualty, product liability and other insurance policies, with extended coverage, sufficient in amount to allow it to replace any of its material properties or assets which might be damaged or destroyed or sufficient to cover liabilities to which the Company or any Subsidiary may reasonably become subject. The Company has directors’ and officers’ liability insurance policies (primary and excess) that are in full force and effect for an aggregate of $10 million of coverage.

(bb) Acknowledgment Regarding the Purchaser’s Purchase of the Securities. The Company acknowledges and agrees that the Purchaser and its agents, employees, attorneys and affiliates are not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, and the relationship between the Company and the Purchaser is “arms length” and that, except for the representations and warranties of the Purchaser under this Agreement, any statement made by the Purchaser or any of its representatives, employees, attorneys, affiliates or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Purchaser’s purchase of Securities and has not been relied upon by the Company, its officers or directors in any way. The Company further represents to the Purchaser that the Company’s decision to enter into this Agreement has been based solely on an independent evaluation by the Company and its representatives.

(cc) Disclosure. No representation or warranty by the Company contained in the Transaction Documents, and no representation, warranty or statement by the Company contained in any certificate or schedule furnished to the Purchaser pursuant to the Transaction Documents, contains any untrue statement by the Company of a material fact or omits to state any material fact necessary to make any statement herein or therein not misleading.

5. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company that:

(a) Purchase Entirely for Own Account. The Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof in any manner that would cause issuance of the Securities hereunder to fail to be exempt from the registration requirements of the Act, and the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same in any manner that would cause issuance of the Securities hereunder to fail to be exempt from the registration requirements of the Act. The Purchaser has not been formed for the specific purpose of acquiring any of the Securities.

(b) Knowledge. The Purchaser is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an

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informed and knowledgeable decision to acquire the Securities. Without limiting the foregoing, the Purchaser is aware that the Company intends to restate its financial statements for at least the second and third quarter of the fiscal year ended March 31, 2003 (“Fiscal 2003”), has issued an earnings warning for the fourth quarter of fiscal 2003, is the subject of an informal inquiry and a pending delisting proceeding with the NASDAQ and an informal inquiry from the SEC and is named as a defendant in several pending class action and shareholder derivative lawsuits. Nothing contained in this Section 5(b) shall be deemed to in any way qualify any of the representations and warranties of the Company contained in Section 4.

(c) Restricted Securities. The Purchaser understands that the Securities have not been registered under the Act, by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser understands that the Securities are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser’s control, and which the Company is under no obligation and may not be able to satisfy.

(d) Legends. The Purchaser understands that the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends:

(i) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.”

(ii) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended.

(e) Accredited Investor. The Purchaser is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Act.

6. Financial Statements and Information. The Company shall deliver to the Purchaser so long as the Purchaser holds the Note:

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(a) Quarterly Statements. Within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a senior financial officer of the Company as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company’s Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 6(a).

(b) Annual Statements. Except with respect to fiscal 2003, within 105 days after the end of the fiscal year of the Company, copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, and (ii) consolidated statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that delivery within the time period specified above of copies of the Company’s Annual Report on Form 10-K for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Security Exchange Act of 1934, as amended) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 6(b).

(c) SEC and Other Reports. Promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular and periodic report, each registration statement that shall have become effective (without exhibits except as expressly requested by the Purchaser), and each final prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission.

(d) Notice of Default or Event of Default. Promptly, and in any event within five days after the chief financial officer, principal accounting officer, treasurer or controller (each, a “Senior Financial Officer”) of the Company becoming aware of the existence of any event or condition, not otherwise disclosed herein or in the schedules hereto, the occurrence or

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existence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default (as hereinafter defined) (a “Default”) or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto.

(e) Requested Information. With reasonable promptness, such other data and information relating to the operations, condition (financial or otherwise), business, assets or liabilities of the Company, or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Note as from time to time may be reasonably requested by the Purchaser.

(f) Notices from Governmental Entity. Promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Governmental Entity relating to any order, ruling, statute or other law or regulation that would reasonably be expected to have a Material Adverse Effect.

7. Additional Agreements of the Parties.

(a) Use of Proceeds. The Company shall use the net cash proceeds from the sale of the Note for working capital purposes.

(b) Visits and Inspections. The Company agrees to permit, or, in the case of properties, books, records or persons not within its immediate control, promptly take such actions as are reasonably practicable in order to permit, representatives (whether or not officers or employees) of the Purchaser, from time to time upon reasonable advance notice to the chief executive officer, secretary or chief financial officer of the Company, as often as may be reasonably requested, to (i) visit and inspect any properties of the Company and its Subsidiaries, (ii) inspect and make extracts from the books and records of the Company and its Subsidiaries, including management letters prepared by its independent certified public accountants, and (iii) discuss with any person, including the principal officers and the independent certified public accountants of the Company, the results of operations, condition (financial or otherwise), business, assets or liabilities of the Company. All such information received shall be held by the Purchaser and its representatives subject to the confidentiality requirements of that certain Mutual Nondisclosure Agreement, dated as of May 27, 2003 by and between the Company and VantagePoint Venture Partners (the “Nondisclosure Agreement”).

(c) No Impairment. The Company will not, by amendment of its Certificate or By-laws, or through reorganization, consolidation, merger, dissolution, issuance or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Purchaser under this Agreement against wrongful impairment.

(d) Compliance with Law. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which

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each of them is subject and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

(e) Insurance. The Company will and will cause each of its Subsidiaries to maintain, with financial sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. So long as the Note is outstanding, the Company shall maintain directors and officers insurance policies with an aggregate policy limit of at least ten million dollars ($10,000,000)

(f) Maintenance of Properties. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance would not, individually or in the aggregate, have a Materially Adverse Effect.

(g) Payment of Taxes. The Company will and will cause each of its Subsidiaries to file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies payable by any of them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, provided that neither the Company nor any Subsidiary need pay any such tax or assessment if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate would not reasonably be expected to have a Material Adverse Effect.

(h) Corporation Existence. The Company will at all times preserve and keep in full force and effect its corporation existence. The Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise would not, individually or in the aggregate, have a Material Adverse Effect.

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(i) Transactions with Affiliates. The Company will not and will not permit any Subsidiary to enter into directly or indirectly any material transaction or material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or rendering of any services) with any affiliate (other than the Company or another Subsidiary), except pursuant to the reasonable requirements of the Company’s or such Subsidiary’s business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm’s-length transaction with a person not an affiliate of the Company.

(j) Merger, Consolidation, etc. The Company shall not consolidate with or merge with any other corporation or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any person unless (i) the successor formed by such consolidation or the survivor of such merger or the person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be, shall be a solvent corporation organized and existing under the laws of the U.S. or any state thereof (including the District of Columbia), and, if the Company is not such a corporation, such corporation shall have executed and delivered to the Purchaser its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement, the Note and the other Transaction Documents; and (ii) immediately after giving effect to such transaction, no Default or Event of Default (as hereinafter defined) shall have occurred and be continuing. No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 7(k) from its liability under this Agreement, the Note or the other Transaction Documents.

(k) Contingent Warrant Issuance. The Company and Purchaser acknowledge that concurrently herewith Purchaser is entering into an Option Agreement (the “Option Agreement”) with 550 Digital Media Ventures, Inc. (“550 DMV”), pursuant to which Purchaser is being given the right to purchase certain shares of the Company’s capital stock from 550 DMV. If Purchaser does not exercise its option to purchase such stock under the Option Agreement within 120 days of the date hereof, Purchaser may elect, by written notice to the Company given within ten (10) days of the expiration of such 120 day period, to transfer all its rights under the Option Agreement to the Company in exchange for the Warrant.

(l) Indemnification. The Company agrees to protect, indemnify, defend and hold harmless Purchaser and all of its affiliates, partners, and their respective directors, members, attorneys (including, without limitation, those retained in connection with the transactions contemplated by the Transaction Documents), representatives, officers, and employees (collectively, the “Indemnitees”) from and against any and all liabilities, losses, damages or expenses (including in respect of or for attorney’s fees and other expenses) of any kind or nature and from any suits, claims or demands, causes of action, proceedings, (payable by the Company monthly in advance of being incurred if the Company is not immediately assuming satisfactory defense of the matter, in the amounts reasonably estimated by the Purchaser to be incurred) arising on account of, relating to, in connection with, or as a result of (i) any breach of a representation or warranty of the Company contained herein, (ii) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents or in

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Term Sheet #2 (as defined in Section 10(b)), (iii) any use by the Company of any proceeds of the Note, and (iv) any violation by the Company, its Subsidiaries or their respective officers, directors and employees of the Act, the Exchange Act, or any other applicable rule, regulation or law arising on account of, relating to, in connection with, or as a result of the Transaction Documents and/or the transactions contemplated therein or in Term Sheet #2 (as defined in Section 10(b)), except to the extent such liability is finally judicially determined to directly arise from the willful misconduct or gross negligence of any such Indemnitee. Upon receiving knowledge of any suit, claim or demand asserted by a third party that Purchaser believes is covered by this indemnity, Purchaser shall give the Company notice of the matter and an opportunity to defend it, at the Company’s sole cost and expense, with legal counsel reasonably satisfactory to Purchaser. Any failure or delay of Purchaser to notify the Company of any such suit, claim or demand shall not relieve the Company of its obligations under this Section 7(l) but shall reduce such obligations to the extent of any increase in those obligations caused solely by any such failure or delay which is unreasonable. The obligations of the Company under this Section 7(l) shall survive the payment and performance of the Company’s obligations under the Transaction Documents.

8. Events of Default. An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing:

(a) Failure to Pay. The Company’s failure to pay any of the Principal Amount (as defined in the Note) due under the Note on the date the same becomes due and payable, or any accrued interest or other amounts due under the Note after the same becomes due and payable; or

(b) Representations and Warranties. Any representation and warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or

(c) Default in Performance. The Company defaults in the performance of or compliance with any term contained herein and such default is not remedied within 30 days after the earlier of (i) an officer of the Company obtaining actual knowledge of such default, and (ii) the Company receiving written notice of such default from the Purchaser (any such written notice to be identified as a “notice of default”); or

(d) Other Defaults. The Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in any aggregate principal amount of at least $100,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $100,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared due and payable before its stated maturity or before its regularly scheduled dates of payment; or

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(e) Inability to Pay Debts. The Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other similar officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporation action for the purpose of any of the foregoing; or

(f) Defaults under Security Agreement. Any Event of Default under the Security Agreement; or

(g) Monetary Judgments. A final judgment or judgments for the payment of money (including a determination by the Pension Benefit Guaranty Corporation that the Company is so liable) aggregating in excess of $250,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay.

9. Remedies on Default, Etc.

(a) Acceleration.

(i) If an Event of Default with respect to the Company described in Section 8(e) has occurred, the Note shall automatically become due and payable.

(ii) If any other Event of Default has occurred and is continuing, the Purchaser may at any time at its option, by notice to the Company, declare the Note to be immediately due and payable.

Upon the Note becoming due and payable under this Section 9(a), whether automatically or by declaration, the Note will forthwith mature and the entire unpaid principal amount of the Note plus all accrued and unpaid interest thereon shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. Effective upon an Event of Default that is not cured, the interest rate on the Note shall increase by the lesser of (i) 2% or (ii) the maximum penalty as shall be permitted by applicable law (the “Default Rate”).

(b) Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether the Note has become or has been declared immediately due and payable under Section 9(a), the Purchaser may proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein, in the Note or in the other Transaction Documents, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

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(c) No Waiver or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of the Purchaser in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice the Purchaser’s rights, powers and remedies. No right, power or remedy conferred by this Agreement, the Note or the Security Agreement upon the Purchaser shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 9(a), the Company will pay to the Purchaser on demand such further amount as shall be sufficient to cover all costs and expenses of the Purchaser incurred in any enforcement or collection under this Section 9, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.

10. Miscellaneous.

(a) Transaction Expenses. The Company shall pay to Purchaser at the Closing, Purchaser’s attorneys’ fees and due diligence expenses incurred in connection with this transaction. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including attorneys’ fees) incurred by Purchaser in connection with the transactions contemplated hereby.

(b) Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Note and the purchase or transfer by the Purchaser of the Note or portions thereof or interest therein, and may be relied upon by any subsequent holder of the Note, regardless of any investigation made at any time by or on behalf of the Purchaser or any such holder, until such time as the Note is paid in full. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, the Transaction Documents and the Nondisclosure Agreement embody the entire agreement and understandings between the Purchaser and the Company and supersede all prior agreements and understandings relating to the subject matter hereof, except that certain Term Sheet #2, dated as of July 1, 2003, (“Term Sheet #2”) shall continue in full force and effect according to its terms as it relates to a potential PIPE transaction described therein and the rights of the Purchaser contained under “Due Diligence Period and Right to Invest” and the “Miscellaneous” clause contained therein. Without limiting the foregoing, the section of Term Sheet #2 entitled “Indemnification” is hereby superseded by this Agreement.

(c) Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Notwithstanding the foregoing, the Purchaser may assign its rights under this Agreement in whole or in part to any of its affiliates. No such assignment shall relieve the Purchaser of any of its obligations hereunder. The Company shall not have the right to assign this Agreement without the Purchaser’s written consent.

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(d) Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

(e) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(f) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Except as otherwise stated, all section and schedule references refer to Sections and Schedules in this Agreement.

(g) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or 3 business days after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth on the signature page hereto or as subsequently modified by written notice.

(h) Finder’s Fee. Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction. The Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless the Purchaser from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

(i) Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the Company and the Purchaser. Any amendment or waiver effected in accordance with this Section shall be binding upon the Purchaser and each transferee of the Securities, each future holder of all such Securities, and the Company.

(j) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

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(k) Payments Due on Non-Business Days. Anything in this Agreement or the Note to contrary notwithstanding, any payment of principal or interest on the Note that is due on a date other than a business day shall be made on the next succeeding business day without including the additional days elapsed in the computation of the interest payable on such next succeeding business day.

(l) Construction. All provisions of this Agreement have been negotiated at arms length, each party having legal counsel, and this Agreement shall not be construed for or against any party by reason of the authorship or alleged authorship of any provision hereof, notwithstanding that each party may have signed a separate signature page. The language in this Agreement shall be construed as to its fair meaning and not strictly for or against any party.

[Signature Page Follows]

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The parties have executed this Secured Note Purchase Agreement as of the date first written above.

COMPANY: eUNIVERSE, INC.
By:	/s/    BRAD GREENSPAN
	Brad Greenspan, Chief Executive Officer
Address: 6060 Center Drive Suite 300 Los Angeles, CA 90045
PURCHASER: VP ALPHA HOLDINGS IV, L.L.C.
By:	VANTAGE POINT VENTURE ASSOCIATEs IV, L.L.C., its Managing Member
By:	/s/    ALAN E. SALZMAN
	Name:                Alan E. Salzman Title:                Managing Member
Address: c/o Vantage Point Venture Partners 1001 Bayhill, Suite 300 San Bruno, CA 94066 Facsimile: 650-869-6344

[SIGNATURE PAGE TO SECURED NOTE PURCHASE AGREEMENT]

EXHIBITS

Exhibit A	–	Form of Secured Promissory Note
Exhibit B	–	Form of Warrant
Exhibit C	–	Form of Security Agreement
Exhibit D	–	Form of Intercreditor Agreement
Exhibit E	–	Form of Opinion of Company Counsel

EX-10.47

Exhibit 10.47

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS, FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 8 OF THIS WARRANT.

eUniverse, Inc.

WARRANT TO PURCHASE SHARES

OF SERIES B PREFERRED STOCK

THIS CERTIFIES THAT, for value received, VP Alpha Holdings IV, L.L.C.., a Delaware corporation, and its assignees are entitled to subscribe for and purchase 200,000 shares of the fully paid and nonassessable Series B Preferred Stock (as adjusted pursuant to Section 5 hereof, the “Shares”) of eUniverse, Inc., a Delaware corporation (the “Company”), at the Warrant Price as set forth in Section 2 below, subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term “Series Preferred” shall mean the Company’s authorized Series B Preferred Stock, and any Stock into or for which such Series B Preferred Stock may thereafter be converted or exchanged, and (b) the term “Date of Grant” shall mean the Date of Grant listed on the signature page hereof.

1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant through 5 p.m., Pacific standard time, three (3) years from the Date of Grant.

2. Warrant Price. The price at which this Warrant may be exercised shall be $2.50 per share of Series B Preferred Stock. Such price and such other price as shall result from time to time, from the adjustments specified in Section 5 hereof is herein referred to as the “Warrant Price”.

3. Method of Exercise Payment; Issuance of New Warrant. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check by wire transfer to an account designated by the Company (a “Wire Transfer”), or by the cancellation by the holder hereof of indebtedness or other obligations of the Company to such holder of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased, or (b) exercise of the right provided for in Section 11.3 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof by the Company at the Company’s expense as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period.

4. Stock Fully Paid; Reservation of Shares. All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be duly authorized, validly issued, fully paid and nonassessable, and free from all taxes, liens, encumbrances, preemptive rights and charges. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock, and from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Series Preferred issuable upon exercise of the Warrant (and shares of its Common Stock for issuance on conversion of such Series Preferred).

5. Adjustment of Warrant Price and Number of Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) Conversion of Series Preferred. Should all of the Company’s Series Preferred be, or if outstanding would be, at any time prior to the expiration of this Warrant or any portion thereof, converted into shares of the Company’s Common Stock in accordance with the Company’s Certificate of Incorporation, then the Company shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance satisfactory to the holder of this Warrant), so that the holder of this Warrant shall have the right to receive that number of shares of the Company’s Common Stock equal to the number shares of the Common Stock that would have been received if this Warrant had been exercised in full and the Series Preferred received thereupon had been simultaneously converted immediately prior to such event, and the Warrant Price shall immediately be adjusted to equal the quotient obtained by dividing (i) the aggregate Warrant Price of the maximum number of shares of Series Preferred for which this Warrant was exercisable immediately prior to such conversion, by (ii) the number of shares of Common Stock for which this Warrant is exercisable immediately after such conversion. Such new Warrant shall be immediately exercisable and shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5 and shall provide for anti-dilution protection that shall be as nearly equivalent as may be practicable to the anti-dilution provision applicable to the Series Preferred on the Date of Grant. For purposes of the

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foregoing, the “Certificate of Incorporation” shall mean the Certificate of Incorporation of the Company as amended and/or restated and effective immediately prior to the conversion of all of the Company’s Series Preferred. At the time of any such conversion of all of the Company’s Series Preferred, references herein to Series Preferred shall be deemed to refer to the Company’s Common Stock to the extent necessary to give appropriate meaning to the provisions hereof.

(b) Reclassification or Merger. In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance satisfactory to the holder of this Warrant), so that the holder of this Warrant shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or merger that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reclassification, change or merger if this Warrant had been exercised immediately before such reclassification, change or ^,merger, all subject to further adjustment as provided in this Section 5. Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5 and, in the case of a new Warrant issuable after the amendment of the terms of the anti-dilution protection of the Series Preferred, shall provide for anti-dilution protection that shall be as nearly equivalent as may be practicable to the anti-dilution provisions applicable to the Series Preferred on the Date of Grant. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers.

(c) Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, the Warrant Price shall be proportionately decreased in the case of a split or subdivision or increased in the case of a combination, effective at the close of business on the date the subdivision or combination becomes effective.

(d) Stock Dividends and Other Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 5(b) and 5(c)), of Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution.

(e) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately priori to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(f) Anti-dilution Rights. The other antidilution rights applicable to the Shares of Series Preferred purchasable hereunder are set forth in the Company’s Certificate of Incorporation, as amended through the Date of Grant, a true and complete copy of which has been supplied to the holder of this Warrant (the “Charter”). The Company shall promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made.

6. Notice of Adjustments. Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 5 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 14 hereof, by first class mail, postage prepaid) to the holder of this Warrant. In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 14 hereof, by first class mail, postage prepaid) to the holder of this Warrant.

7. Fraction Shares. No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Company’s Board of Directors.

8. Compliance with; Act: Disposition of Warrant or Shares of Series Preferred.

(a) Compliance with Act. The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Act or any applicable state securities laws. Upon exercise of this Warrant,

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unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form:

“THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 8 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY.”

Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows:

(1) The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Act. The holder is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Act.

(2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder’s investment intent as expressed herein.

(3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act.

(b) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder’s counsel, or other evidence, if reasonably requested by the Company, to the effect that such offer sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effects) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Promptly upon receiving such written notice and reasonably satisfactory opinion or other evidence, if so requested, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 8(b) that the opinion of counsel for the holder, or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

(c) Applicability of Restrictions. Neither any restrictions of any legend described in this Warrant nor the requirements of Section 8(b) above shall apply to any transfer or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is partnership, (ii) to a partnership of which the holder is a partner, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, in any such transfer, if applicable, the transferee shall on the Company’s request agree in writing to be bound by the terms of this Warrant as if an original signatory hereto.

9. Rights as Shareholder’s Information. No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders.

10. Registration Rights. The Company grants registration rights to the holders of this Warrant for any Common Stock of the Company obtained upon conversion of the Series Preferred,

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comparable to the registration rights granted to the investors in that certain                  Agreement dated as of             ,          (the “Registration Rights Agreement”).

11. Additional Rights.

11.1 Secondary Sales. The Company agrees that it will not interfere with the holder of this Warrant in obtaining liquidity if opportunities to make secondary sales of the Company’s securities become available.

11.2 Mergers. The Company shall provide the holder of this Warrant with at least thirty (30) days’ notice of the terms and conditions of any of the following potential transactions: (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than 50% of the voting power of the Company is disposed of. The Company will cooperate with the holder in arranging the sale of this Warrant in connection with any such transaction.

11.3 Rights to Convert Warrant into Stock; Net Issuance.

(a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the “Conversion Right”) into shares of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as provided in this Section 11.3 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) (X) that number of shares of fully paid and nonassessable Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) equal to the quotient obtained by dividing the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in subsection (b) hereof), which value shall be determined by subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right from (B) the aggregate fair market value of the Converted Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Conversion Date (as herein defined) by (Y) the fair market value of one share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) on the Conversion Date (as herein defined).

Expressed as a formula, such conversion (assuming the Series Preferred has been automatically converted into Common Stock) shall be computed as follows:

X    =	B –A
	Y
Where: X	=	the number of shares of Common Stock that may be issued to holder
Y	=	the fair market value (FMV) of one share of Common Stock
A	=	the aggregate Warrant Price (i.e., Converted Warrant Shares x Warrant Price)
B	=	the aggregate FMV (i.e., FMV x Converted Warrant Shares)

No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant.

(b) Method of Exercise. The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 11.3(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “Conversion Date”), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Company’s Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a “Public Offering”). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. Any conversion from Series Preferred to Common Stock shall be in the ratio of one (1) share of Common Stock for each share of Series Preferred (as adjusted herein and in the Charter). On the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one (1) share of Common Stock.

(c) Determination of Fair Market Value. For purposes of this Section 11.3, “fair market value” of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the “Determination Date”) shall mean:

(i) If the Conversion Right is exercised in connection with and contingent upon the closing of the sale and issuance of shares of Common Stock of the Company in a firmly underwritten public offering, pursuant to an effective registration statement under the Securities Act of 1933, as amended, (“Public Offering”), and if the Company’s Registration Statement relating to such Public Offering (“Registration Statement”) has been declared effective by the SEC, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

(ii) If the Conversion Right is not exercised in connection with and contingent upon a Public offering, then as follows:

(A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the

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Common Stock on such exchange over the 30-day period ending five business days prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible;

(B) If traded over-the-counter, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the 30-day period ending five business days prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and

(C) If there is no public market for the Common Stock, then fair market value shall be determined by mutual agreement of the holder of this Warrant and the Company.

12. Representations and Warranties. The Company represents and warrants to the holder of this Warrant that:

(a) Loan Agreement. The representations and warranties of the Company contained in that certain Secured Note Purchase Agreement (the “Note Purchase Agreement”) between the Company and the initial holder hereof, dated as of                     , 2003, are true, complete and correct.

(b) Corporate Power. The Company has all requisite legal and corporate power to execute and deliver this Warrant and any other agreement contemplated hereby, to sell and issue the Warrant, to sell and issue the Shares upon exercise of the Warrant upon the terms of the Warrant, to sell and issue the shares of Common Stock issuable upon conversion of the Shares (the “Conversion Shares”) and to carry out and perform its obligations under the terms of this Agreement and any other agreement contemplated hereby or thereby. (The Shares and the Conversion Shares are collectively referred to hereinafter as the “Underlying Stock.”)

(c) Authorization. All corporate action on the part of the Company, its directors and stockholders necessary for the authorization, sale and issuance of the Warrant, the Warrant Shares and the Conversion Shares, and the performance of the company’s obligations hereunder, contemplated hereby and the reservation of the Underlying Stock has been taken. This Agreement and the Warrant and the other transactions contemplated hereby are valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors.

(d) Rights. The rights, preferences, privileges and restrictions granted to or imposed upon the Shares and the holders thereof are as set forth in the Company’s Certificate of Incorporation, a true and complete copy of which has been provided to the holder of this Warrant.

(e) No Inconsistency. The execution and delivery of this warrant is not, and the issuance of the Shares upon exercise of the Warrant in accordance with the terms hereof, and the issuance of the Conversion Shares upon conversion of the Shares, will not be, inconsistent with the Certificate of Incorporation or the Company’s Bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby and, except for defaults, conflicts, or contraventions, or where the failure to obtain any such consent or approval, or to register, file, or take any action, would not have a Material Adverse Effect (as defined in the Note Purchase Agreement).

(f) No Suits. There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, would reasonably be expected to have a Material Adverse Effect (as defined in the Note Purchase Agreement) or a material adverse effect on the ability of the Company to perform its obligations under this Warrant.

13. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

14. Notices. Any notice, request, communication or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant.

15. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant.

16. Lost Warrants or Stock Certificates. The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

17. Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.

18. Governing Law. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California without regard to the conflicts of law principle.

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19. Survival of Representations, Warranties and Agreements. All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant and the exercise or conversion of this Warrant (or any part hereof). All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

20. Remedies. In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant.

21. No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

22. Severability. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

23. Dispute Resolution. In the event of any dispute arising out of or relating to this Warrant, then such dispute shall be              resolved solely and exclusively by confidential binding arbitration with the San Francisco branch of JAMS (“JAMS”) to be governed by JAMS’ Commercial Rules of Arbitration (the “JAMS Rules”) and heard before one arbitrator. The parties shall attempt to mutually select the arbitrator. in the event they are unable to mutually agree, the arbitrator shall be selected by the procedures prescribed by the JAMS Rules. Each party shall bear its own attorneys’ fees, expert witness fees, and costs incurred in connection with any arbitration.

23. Construction. This Agreement has been negotiated and drafted by both parties with counsel and its language shall be construed as to its fair meaning and not strictly for or against any party.

24. Entire Agreement; Modification. This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

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EXHIBIT A

NOTICE OF EXERCISE

To eUniverse, Inc

1. The undersigned hereby:

¨ elects to purchase              shares of Series B Preferred Stock of eUniverse, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or

¨ elects to exercise its net issuance rights pursuant to Section 11.3 of the attached Warrant with respect to              Shares of Series B Preferred Stock.

2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below:

(Name)

(Address)

3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws

(Signature)

(Date)

EX-10.48

Exhibit 10.48

OPTION AGREEMENT

OPTION AGREEMENT, dated as of July 15, 2003, among 550 Digital Media Ventures, Inc. (“Seller”), an affiliate of Sony Broadband Entertainment, Inc., eUniverse, Inc., a Delaware corporation (the “Company”), and VP Alpha Holdings IV, L.L.C. (“Buyer”).

R E C I T A L S

This Agreement is entered into upon the basis of the following facts and intentions of the parties:

A. Seller owns 3,050,000 shares of the Common Stock and 1,750,000 shares of the Series B Preferred Stock (each, a “Share”, and collectively the “Shares”) of the Company that will be subject to this Agreement. Seller separately owns an additional 316,154 shares of the Common Stock and 173,077 shares of the Series B Preferred Stock of the Company, which shares shall not be subject to this Agreement.

B. Seller desires to grant to Buyer an option to purchase the Shares.

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

1. Option. Seller hereby grants to Buyer an option (the “Option”) to purchase any and all (but not less than 50%) of the Shares from Seller upon all of the terms, covenants and conditions hereinafter set forth. The share certificates representing the Shares shall hereafter bear a legend referring to this Option Agreement.

2. Consideration for the Option. Seller acknowledges that it has received good, valuable and sufficient consideration for the Option.

3. Term and Exercise. Buyer may exercise the Option at any time up to 5:00 p.m., New York City time on January 10, 2004 (the “Termination Date”) by delivery to Seller of written notice of its exercise of the Option, together with its check for the full Purchase Price (as defined below). Within 5 business days following exercise of the Option, Seller shall deliver to Buyer certificates for the Shares, duly exercised for transfer, at which time the closing of the purchase of the Shares from Seller shall occur (the “Closing”). The date of the Closing is referred to herein as the “Closing Date.”

4. Purchase Price.

(a) The purchase price (“Purchase Price”) which Buyer agrees to pay upon exercise of the Option is one dollar and ten cents ($1.10) per Share, payable in cash at the Closing.

(b) In the event that Buyer thereafter sells any Shares acquired from Seller (each, a “Resold Share” and collectively, the “Resold Shares”) and receives cash consideration in excess of $3 per Resold Share, then Buyer shall, promptly after consummation of such sale, pay over to Seller an amount equal to 40% of the sale price over $3 per Resold Share received by Buyer, but in no event more than $1.10 per Resold Share (the “Contingent Payment”). In the event that Buyer distributes the Shares to its limited partners, then the Contingent Payment shall be made to Seller in the form of a portion of the Shares distributed, calculated to be equal to 40% of the excess of the fair market value price per share of the Company’s Common Stock (which shall equal the average closing price over the 20 consecutive trading days immediately preceding the distribution or if the Company’s Common Stock is not publicly traded then the fair market value after taking into account lack of marketability and any other appropriate factors, as determined by an appraisal undertaken by an independent appraiser experienced in valuing securities similar to the Shares which has been mutually selected by Buyer and Seller) over $3 per Share on the date of the Distribution, subject to a maximum distribution of Shares to Seller equal to a value of $1.10 per Share. By way of example, if Buyer exercises the option for all of the Shares, and then two (2) years later sells all of the Shares for a sale price cash consideration of $5 per Share, then Seller shall be entitled to a payment equal to $0.80 per Share ($5 – $3 x 40%). By way of further example, if Buyer exercises the Option for all of the Shares and Buyer distributes Shares to its limited partners and the fair market value of such distributed Shares as determined pursuant hereto is $7 per Share, then Seller shall be entitled to receive a number of Shares that have a fair market value of $5.28 million ($7 – $3 x 40%, subject to the maximum of $1.10 per Share, times 4.8 million Shares.)

5. Number of Shares. The number and class of Shares specified in this Agreement and/or the Purchase Price or per share number are subject to appropriate adjustment in the event of any stock dividend, stock split, share combination or other similar event affecting the Shares.

6. Representations and Warranties of Seller. Seller represents, warrants and covenants to Buyer, as of the date hereof and as of the Closing Date, that:

(a) Due Authorization. This Agreement has been duly authorized, executed and delivered by or on behalf of Seller and is a valid and binding agreement of Seller, enforceable in accordance with its terms against Seller.

(b) No Conflict. The execution and delivery by Seller of, and the performance by Seller of its obligations under this Agreement, will not contravene any provision of applicable law, or the certificate of incorporation, or by-laws of Seller, or to Seller’s knowledge, any agreement or other instrument binding upon Seller or any judgment, order or decree of any governmental body, agency or court having jurisdiction over Seller, and to Seller’s knowledge, no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by Seller of its obligations under this Agreement.

(c) Good Title to Shares. Seller has, and on the Closing Date will have, valid title to the Shares to be sold by Seller and the legal right and power, and all authorization and approval required by law, to enter into this Agreement, and to sell, transfer,

2

and deliver the Shares to be sold by Seller.

(d) Delivery of Shares. Delivery of the Shares to be sold by Seller pursuant to this Agreement will pass title to such Shares free and clear of any security interests, claims, liens, equities, and other encumbrances, other than any encumbrances or restrictions imposed on the Shares under securities laws or by the Company.

(e) No Price Stabilization or Manipulation. Seller has not taken and will not take, directly or indirectly, any action designed cause or result in stabilization or manipulation of the price of any of the Shares.

(f) Certain Transactions. Except as set forth in Exhibit A, the Company is not indebted, either directly or indirectly, to Seller, Sony Music Entertainment Inc. or any of its subsidiaries or any of their officers, directors or employees. Each of the Seller and Sony Music Entertainment Inc. and its subsidiaries hereby waives any breach or default under any agreement with the Company.

(g) Value. The Purchase Price may or may not reflect the actual value of the Shares, that Seller has investigated the value independently, that it has been represented by independent counsel, and that it understands that the value of the Shares when and if the Option is exercised may be significantly higher than the Purchase Price.

(h) Assignment. Prior to the Termination Date, Seller shall not sell, assign, transfer, pledge, hypothecate, or otherwise encumber any of the Shares.

7. Representations and Warranties of Buyer. Buyer represents, warrants and covenants to Seller, as of the date hereof and as of the Closing Date, that:

(a) Due Authorization. This Agreement has been duly authorized, executed and delivered by or on behalf of Buyer and is a valid and binding agreement of Buyer, enforceable in accordance with its terms against Buyer.

(b) No Conflict. The execution and delivery by Buyer of, and the performance by Buyer of its obligations under this Agreement, will not contravene any provision of applicable law, or the organizational documents of Buyer, or to Buyer’s knowledge, any agreement or other instrument binding upon Buyer or any judgment, order or decree of any governmental body, agency or court having jurisdiction over Buyer, and to Buyer’s knowledge, no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by Buyer of its obligations under this Agreement.

(c) No Price Stabilization or Manipulation. Buyer has not taken and will not take, directly or indirectly, any action designed to cause or result in stabilization or manipulation of the price of any of the Shares.

(d) Value. The Purchase Price may or may not reflect the actual value of the Shares, that Buyer has investigated the value independently and that it has been represented by independent counsel.

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(e) Investment Intent, Etc. Buyer is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act of 1933, and Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of, and is able to bear the economic risk of, its respective acquisition of the Shares. Buyer has had the opportunity to do its own due diligence regarding the Company, and Buyer is not relying on Seller with respect to such due diligence. Buyer is not acquiring the Shares with any present intention of offering or selling any of the Shares in a transaction that would violate the Securities Act 1933 or the securities laws of any state of the United States or any other applicable jurisdiction.

8. Rights. Any and all rights that Seller has associated with the Shares, including but not limited to registration rights, voting rights, preemptive right, liquidation preference, or otherwise, shall be deemed transferred (to the extent transferable) to Buyer upon Buyer’s exercise of the Option and payment of the Purchase Price.

9. Cooperation. If the Option is exercised, Seller and the Company shall, upon request of Buyer, promptly execute and deliver all additional documents reasonably deemed by Buyer to be necessary, appropriate or desirable to complete and evidence the sale, assignment and transfer of the Shares pursuant to this Agreement and to accomplish the other matters contemplated herein.

10. Certain Transactions. Seller shall vote as a stockholder in favor of an investment and loan transaction between the Company and Buyer resulting in an additional investment in the Company by Buyer of no less than $5 million at a price of at least $1 per share (if an equity transaction), as approved by the Board of Directors of the Company (the “Transaction”). In connection with consummation of any Transaction, Seller shall be deemed to have waived any anti-dilution protection and any pre-emptive rights and rights of first refusal that Seller may have in connection with its securities holdings in the Company.

11. Amended and Restated Certificate of Designation. Subject to the exercise of the Option, Seller and the Company consent and agree to the terms set forth in Exhibit B. An amendment to the certificate of incorporation of the Company amending the terms of the Series B Preferred Stock shall be filed by the Company with the Delaware Secretary of State as of the Closing Date which reflects the changes contemplated by such Exhibit B. If the Company reasonably determines that stockholder approval of such amendment is required under the laws of the State of Delaware, then the Board of Directors of the Company shall establish, before the Closing Date, a new class of preferred stock with the same rights, preferences and privileges as the Series B Preferred Stock after giving effect to the changes contemplated by Exhibit B. Immediately after the Closing, Buyer may elect to exchange its Series B Preferred Stock for shares of such new class of preferred stock (at the rate of one share for one share).

12. Purchase and Sale. If Buyer exercises the Option, at the Closing, Seller shall sell, transfer and deliver the Shares, represented by certificates duly endorsed in blank or accompanied by stock powers duly executed, to Buyer, and Buyer shall purchase the Shares in exchange for the Purchase Price.

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13. Acceptance. Company hereby consents to the transaction contemplated hereunder and confirms to Buyer that the Company’s representations and warranties contained in that Loan Agreement dated the date hereof between Buyer and the Company are true, correct, and complete.

14. Buyer May Exercise Option For Less Than All Shares. Notwithstanding any other provision herein to the contrary, Buyer may exercise the Option with respect to less than all of the Shares, but in no event less than 50% of the Shares.

15. Survival. All representations, warranties and agreements made by Seller and by Buyer in this Agreement shall survive the execution of this Agreement for a period of one (1) year from the date hereof, except for the provisions of Sections 6(a) and 6(c), which shall survive indefinitely.

16. Miscellaneous. This Agreement constitutes and contains the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes any prior or contemporaneous oral or written agreements or understandings. Each party acknowledges and agrees that they have not made any representations, warranties or agreements of any kind regarding the subject matter hereof, except as expressly set forth herein. This Agreement may not be modified or amended, except by an instrument in writing signed by duly authorized officers of both of the parties hereto. The parties agree that any dispute arising out of or in connection with this Agreement will be resolved solely by confidential binding arbitration in San Francisco, California according to the commercial arbitration rules of JAMS. Each party shall bear its own attorneys’ fees, expert witness fees, and costs in connection with such arbitration. This Agreement has been negotiated and drafted by each party, with counsel from each party reviewing the document. The language in this Agreement shall be construed as to its fair meaning and not strictly for or against any party. This Agreement, and any dispute arising hereunder, shall be governed by California law, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than California. If any provision of this Agreement is determined to be invalid in whole or in part for any reason, such unenforceable or invalid provision shall not affect the legality, enforceability or validity of the rest of this Agreement. If any provision is stricken in accordance with the previous sentence, then the stricken provision shall be replaced with a legal, enforceable and valid provision that is as similar in tenor to the stricken provision as is legally possible. The provisions of this Agreement are intended solely for the benefit of the Company, Buyer, and Seller and no provision hereof may be enforced by any creditor, shareholder, officer, director, or agent of, or any other party affiliated with, the Company, Seller or Buyer. The Company and Seller shall use their commercially reasonable efforts to perform such further acts and things as Buyer may reasonably request in order to carry out the intent and accomplish the purpose of this Agreement.

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IN WITNESS WHEREOF, this Option Agreement has been duly executed and delivered by Buyer, Company, and Seller as of the day and year first written below:

SELLLER:
550 Digital Media Ventures, Inc., on behalf of itself and Sony Music Entertainment Inc. and its subsidiaries
By:	/s/    MARK EISENBERG
Name:	Mark Eisenberg
Title:	Sr. V.P. & General Counsel

COMPANY
eUNIVERSE, INC.
By:	/s/    BRAD GREENSPAN
Name:	Brad Greenspan
Title:	Chief Executive Officer

BUYER
VP ALPHA HOLDINGS IV, L.L.C
	By:	VANTAGEPOINT VENTURE ASSOCIATES IV, L.L.C Its Managing Member
		By:	/s/    ALAN E. SALZMAN
		Name:	Alan E. Salzman
		Title:	Managing Member

[SIGNATURE PAGE TO OPTION AGREEMENT]

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Exhibit A

Indebtedness

Second Amended and Restated Promissory Note dated March 28, 2003 in the principal amount of $2,289,764, executed by eUniverse, Inc. payable to 550 Digital Media Ventures, Inc.

A-1

Exhibit B

Changes to Terms of Series B Preferred Shares

The Company’s existing Certificate of Designation of Series B Convertible Preferred Stock, filed with the Secretary of State of Delaware on January 8, 2003, shall be amended in a manner acceptable to Buyer to encompass the following changes:

1. The authorized number of shares of Series B Preferred Stock shall be increased to 20,000,000 shares.

2. No shares of Series B Preferred Stock shall be issued without the consent of Buyer.

3. Dividends for shares of Series B Preferred Stock held by Buyer, its affiliates and their assignees shall be entitled to an 8% cumulative dividend, payable quarterly. The dividend shall be payable in additional shares of Series B Preferred Stock, as amended for the matters contemplated by this Exhibit B.

4. Section 4(d) shall be amended to remove the reference to 550 Digital Media Ventures, Inc. and be substituted with reference to VP Alpha Holdings IV, L.L.C.

5. The initial Conversion Price defined in Section 5(c) shall be deemed to be $1.50 for shares held by Buyer, its affiliates and their assignees.

6. If Buyer has exercised the Option for all of the Shares, in the event of any vote or consent by the holders of Series B Preferred Stock, Seller and any assignee of its Series B Preferred Stock shall be deemed to have voted or consented in the same manner as the vote or consent of Buyer, its affiliates and assignees with respect to the Shares.

7. The provisions dealing with the “Company Election” shall not apply to the shares held by Buyer, its affiliates and their assignees.

8. The shares of Series B Preferred Stock held by Buyer, its affiliates and their assignees shall only be convertible into common stock of the Company at Buyer’s election or upon other events acceptable to Buyer in its sole discretion.

B-1

EX-10.49

Exhibit 10.49

SECURITY AGREEMENT

DEBTOR:

Name: eUniverse, Inc. 6060 Center Drive, Suite 300 Los Angeles, CA 90045

SECURED PARTY:

Name: Address: VP Alpha Holdings IV, L.L.C. c/o VantagePoint Venture Partners 1001 Bayhill Suite 300 San Bruno, CA 94066

1.

(a) Debtor, in consideration of the agreement of Secured Party to make a loan to Debtor pursuant to that certain Secured Note Purchase Agreement, of even date herewith, between Debtor and Secured Party (the “Purchase Agreement”), and for other good and sufficient consideration, hereby grants to Secured Party a first priority security interest in all of Debtor’s right, title and interest in and to all of the Debtor’s personal property and assets including without limitation the following property (except as set forth herein), including without limitation any and all additions, accessions and substitutions thereto or therefore, whether now held or hereafter acquired (hereinafter called the “Collateral”): (a) Accounts; (b) Instruments; (c) Documents; (d) Chattel Paper; (e) Supporting Obligations; (f) Letter of Credit Rights; (g) Equipment; (h) Fixtures; (i) General Intangibles; (j) Inventory; (k) Investment Property; (l) Deposit Accounts; (m) cash, money, currency, and liquid funds, wherever held; (n) Goods; (o) Intellectual Property; and (p) all Proceeds of each of the foregoing, to secure payment of the unpaid principal amount of and interest on the Note (as defined in the Purchase Agreement) and all other obligations and liabilities of Debtor to Secured Party, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Purchase Agreement or this Security Agreement and any other document executed and delivered in connection therewith or herewith and each other obligation and liability, whether direct or indirect, absolute or contingent, due or to become due, or now or hereafter existing, of the Debtor to Secured Party, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to Secured Party) or otherwise (the “Obligations”).

(b) Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Uniform Commercial Code of the State of Delaware (the “UCC”). For purposes hereof, the following definitions shall apply:

“Intellectual Property” means, collectively, all rights, priorities and privileges of the Debtor relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, inventions, patents, patent licenses, trademarks, trademark licenses and trade secrets (including customer lists), domain names, Web sites and know-how, including, but not limited to, the patents, trademarks and copyrights set forth on Schedule 4(n) of the Purchase Agreement.

2. Debtor expressly represents, warrants and covenants:

(a) That except for the first priority security interest granted hereby, the lien in favor of 550 Digital Media Ventures, Inc. (“550 DMV”) which is pari passu with the security interest created hereby and applies to all of the same Collateral, and the permitted liens listed on Schedule A hereto (the “Permitted Liens”), Debtor is the owner of the Collateral free from any adverse lien, security interest or encumbrances; and that Debtor will defend the Collateral against all claims and demands of all persons at anytime claiming the same or any interest therein. The security interest granted pursuant to this Security Agreement will constitute a valid and continuing first priority perfected security interest in favor of the Secured Party in the Collateral for which perfection is governed by the UCC or filing with the United States Copyright Office or United States Patent and Trademark Office. Such security interest will be prior to all other liens on the Collateral, except for Permitted Liens.

(b) That Debtor has the full power and authority to enter into this Security Agreement, that this Security Agreement has been duly authorized, executed, and delivered by the Debtor and Debtor’s obligations under this Security Agreement are legal, valid, binding, absolute and unconditional.

(c) That Debtor’s location is as stated above and the Collateral will be kept at that location or at the locations of Debtor’s subsidiaries.

(d) That Debtor will promptly notify Secured Party of any change in the location of the Collateral.

(e) That Debtor will pay all taxes and assessments of every nature which may be levied or assessed against the Collateral.

(f) That, except for liens disclosed herein or in the Schedules hereto, Debtor will not permit or allow any adverse lien, security interest or encumbrance whatsoever upon the Collateral and will not permit the same to be attached or replevined.

(g) That Debtor has used, and will continue to use for the duration of this Security Agreement, consistent standards of quality in its provision of services sold under Debtor’s service marks. Debtor shall use its best efforts to do any and all acts required by Secured Party to ensure Debtor’s compliance with this subparagraph.

(h) That the Collateral is in good condition, and that Secured Party may examine and inspect the Collateral at any time, wherever located. Without limiting the generality of

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the foregoing, Debtor hereby grants to Secured Party and its employees and agents the right to visit Debtor’s offices from which services are provided under any of Debtor’s service marks, and to inspect the quality control relating thereto at reasonable times during regular business hours.

(i) That Debtor will not do any act, or omit to do any act, whereby Debtor’s service marks or any registration or application appurtenant thereto, may become abandoned, invalidated, unenforceable, avoided, avoidable, or will otherwise diminish in value, and shall notify Secured Party immediately if it knows of any reason or has reason to know of any ground under which this result may occur. Debtor shall take appropriate action at its expense to halt the infringement of Debtor’s service marks and shall properly exercise its duty to control the nature and quality of the goods offered by any licensees in connection therewith.

(j) That Debtor will not use the Collateral in violation of any applicable statutes, regulations or ordinances or rights to any third parties.

(k) That Debtor will keep the Collateral at all times insured against risks of loss or damage by fire, theft and such other casualties as Secured Party may reasonably require, all in such amounts, under such forms of policies, upon such terms, for such periods, and written by such companies or underwriters as Secured Party may approve, losses in all cases to be payable to Secured Party and Debtor as their interest may appear. Secured Party may act as attorney for Debtor in making, adjusting and settling claims under or canceling such insurance and endorsing Debtor’s name on any drafts drawn by insurers of the Collateral.

(l) At any time and from time to time, upon the request of Secured Party, Debtor will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Secured Party may reasonably deem desirable in obtaining the full benefits of this Security Agreement, including, without limitation, the filing of any financing or continuation statement under the Uniform Commercial Code with respect to the liens and security interests granted hereby. Debtor hereby authorizes Secured Party to file any such financing or continuation statement without the signature of Debtor to the extent permitted by applicable law.

(m) That Debtor hereby indemnifies and holds Secured Party, its officers, directors, employees, affiliates, partners and shareholders, harmless from and against any claim, suit, loss, damage or expense (including reasonable attorneys’ fees) arising out of this Security Agreement, the Purchase Agreement, or Debtor’s operation of its business from the use of the Collateral.

(n) That, subject to Secured Party’s Intercreditor Agreement with 550 DMV, Debtor hereby irrevocably appoints Secured Party, and its successors and assigns, Debtor’s true and lawful attorney, with full power (in the name of Debtor or otherwise), after the occurrence and during the continuance of an Event of Default (defined in Section 4 below), to ask, require, demand, receive, compound and give acquittance for any and all moneys, claims and other amounts due and to

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become due at any time under, or arising out of, the Collateral; to endorse any checks or other instruments or orders in connection therewith; to enforce all Secured Party’s rights hereunder, to enter into all agreements or instruments required to carry out the terms hereof which are required to be performed by Debtor; to execute such other assignments and mortgages of the Collateral as Secured Party may deem to be necessary or advisable. Such power of attorney shall be deemed a power coupled with an interest and, therefore, irrevocable.

(o) Without thirty (30) days’ prior written notice to, and the prior written consent from, the Secured Party, the Debtor shall not (i) change the Debtor’s name, state of incorporation or organization, organizational identification number or place of business (or, if the Debtor has more than one place of business, its chief executive office).

(p) In no event shall the Debtor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any patent, trademark or copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving the Secured Party prior written notice thereof, and, upon request of the Secured Party, the Debtor shall execute and deliver any and all security documents as the Secured Party may request to evidence the Secured Party’s Lien on such Intellectual Property and the general intangibles of the Debtor relating thereto or represented thereby. The Debtor hereby authorizes the Secured Party to amend this Agreement (without any further action or consent from the Debtor) to include any such patent, trademark or copyright as Collateral hereunder.

3. Until an Event of Default, Debtor may have possession of the Collateral and use it in any lawful manner, and upon an Event of Default, Secured Party shall have the immediate right to the possession of the Collateral. The powers conferred on the Secured Party by this Section 3 are solely to protect the Secured Party’s interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Secured Party shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither the Secured Party nor any of its officers, directors, employees or agents shall, in the absence of willful misconduct or gross negligence, be responsible to the Debtor for any act or failure to act pursuant to this Section 3.

4. Debtor shall be in default under this Security Agreement upon the happening of any of the following events or conditions (each an “Event of Default”):

(a) default in the payment or performance of any obligation, covenant or liability contained or referred to herein or in any note evidencing the same;

(b) the making or furnishing of any warranty, representation or statement to Secured Party by or on behalf of Debtor which proves to have been false in any material respect when made or furnished;

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(c) loss, theft, damage, destruction, sale or encumbrance to or of any of the Collateral, or the making of any levy seizure or attachment thereof or thereon and, if capable of being remedied, such default shall continue unremedied for a period of 30 days;

(d) dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency laws of, by or against Debtor or any guarantor or surety for Debtor;

(e) any Event of Default under the Purchase Agreement;

and Debtor shall give Secured Party immediate notice of the occurrence of any matter referred to in clause (d) of this paragraph.

5. Subject to the Intercreditor Agreement with 550 DMV, upon such default and at any time thereafter, Secured Party may declare all obligations secured hereby immediately due and payable and shall have the remedies of a secured party under Article 9 of the Uniform Commercial Code. Secured Party may require Debtor to assemble the Collateral and deliver or make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Expenses of taking, holding, preparing for sale, or selling the Collateral or the like shall include Secured Party’s reasonable attorney’s fees and legal expenses. If an Event of Default has occurred and is continuing, the Secured Party may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the foregoing, the Secured Party, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law) to or upon the Debtor or any other person (all of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances collect, receive, appropriate and realize upon any or all of the Collateral, and/or may sell, lease, assign, give an option or options to purchase, or otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the foregoing), in one or more parcels at a public or private sale or sales, at any exchange, broker’s board or office of the Secured Party or elsewhere upon such terms and conditions as the Secured Party may deem advisable, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable expenses incurred therein or in connection with the care or safekeeping of any of the Collateral (including, without limitation, reasonable attorneys’ fees and expenses) to the payment in whole or in part of the Obligations, in such order as the Secured Party may elect, and only after such application and after the payment by the Secured Party of any other amount required by any provision of law, need the Secured Party account for the surplus, if any, to the Debtor. To the extent permitted by applicable law, the Debtor waives all claims, damages and demands it may acquire against the Secured Party arising out of the exercise by the Secured Party of any of its rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition. The Debtor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay

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the Obligations and the fees and disbursements of any attorneys employed by the Secured Party to collect such deficiency. In furtherance of the Secured Party’s rights hereunder while an Event of Default has occurred and is continuing, the Debtor hereby grants to the Secured Party an irrevocable, non-exclusive license (exercisable without royalty or other payment by the Secured Party) to use, license or sublicense any patent, trademark, tradename, copyright or other Intellectual Property in which the Debtor now or hereafter has any right, title or interest together with the right of access to all media in which any of the foregoing may be recorded or stored.

6. No waiver by Secured Party of any Event of Default shall operate as a waiver of any other Event of Default or of the same Event of Default on a future occasion. The taking of this Security Agreement shall not waive or impair any other security said Secured Party may have or hereafter acquire for the payment of the above indebtedness, nor shall the taking of any such additional security waive or impair this Security Agreement; but said Secured Party may, resort to any security it may have in the order it may deem proper, and notwithstanding any collateral security, Secured Party shall retain its rights of set-off against Debtor.

7. Secured Party’s rights hereunder shall be senior to the rights of any other person except for 550 DMV and as listed on Schedule A hereto.

8. All rights of Secured Party hereunder shall inure to the benefit of its successors and assigns; and all promises and duties of Debtor shall bind his heirs, executors or administrators or his or its successors or assigns. If there be more than one Debtor, their liabilities hereunder shall be joint and several.

9. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, EXCLUDING CONFLICT OF LAWS PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF LAWS OF ANY OTHER JURISDICTION.

10. This Security Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

[signature page follows]

6

Dated this 15th day of July, 2003.

Debtor:		Secured Party:
eUNIVERSE, INC.		VP ALPHA HOLDINGS IV, L.L.C. ,
		By: VANTAGE POINT VENTURE ASSOCIATES IV, L.L.C., its Managing Member
By:	/s/    BRAD GREENSPAN	Title:	/s/    ALAN E. SALZMAN
Name:	Brad Greenspan	Name:	Alan E. Salzman
Title:	Chief Executive Officer	Title:	Managing Member

[SIGNATURE PAGE TO SECURITY AGREEMENT]

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Schedule A

Permitted Liens

Secured Party has agreed that the first priority security interest granted to it pursuant to the terms of this Security Agreement shall be subordinate to a revolving, working capital line of credit obtained by the Debtor from a bona fide commercial lender for the primary purpose of covering day-to-day operational expenses incurred by the Debtor in the ordinary course of business, in an amount that does not exceed One Million Five Hundred Thousand Dollars ($1,500,000). Secured Party has further agreed to execute such agreements and other documents as may be reasonably necessary to effectuate the subordination provided above.

Secured Party’s security interest in any Collateral subject to a purchase money security interest shall be subordinated to such purchase money security interest.

Secured Party’s security interest shall be pari passu with the security interest of 550 DMV.

Liens for taxes not yet due and payable, materialman’s, warehouseman’s and mechanics’ liens for amounts not yet due and payable, liens created by statute for amounts not yet due and payable.

Liens in connection with equipment leases.

Security interests in proceeds in Debtor accounts held with merchant providers.

EX-10.50

EXHIBIT 10.50

BONUS REPAYMENT AGREEMENT

This Bonus Repayment Agreement is entered into as of the 21st day of August, 2003, by and between eUniverse, Inc., a Delaware corporation (the “Company”), and Brad D. Greenspan, an executive employed by the Company (“Executive”).

RECITALS

Whereas Executive has been employed by the Company from August 2000 through the present date and has been eligible to receive a short-term incentive bonus from the Company based on the financial performance of the Company;

Whereas Executive was paid a short-term incentive bonus in the amount of $42,500 (the “Bonus Amount”) on January 15, 2003 (the “Original Payment Date”), based on the financial performance of the Company during its 2003 fiscal year (ending on March 31, 2003) as described in the Company’s financial statements for such fiscal year;

Whereas the Company has determined that the financial statements of the Company for its 2003 fiscal year included incorrect financial information and, had such financial statements included the correct financial information, Executive would not have been paid the Bonus Amount and the parties agree that Executive is not entitled to retain such Bonus Amount; and

Whereas, the parties hereto would like to rescind the payment of the Bonus Amount or otherwise provide for the payment of the value of the Bonus Amount (“Bonus Amount Value”) by Executive to the Company, as provided herein;

TERMS OF AGREEMENT

Now, therefore, in exchange for their respective and mutual promises and agreements, the parties hereto agree to the following:

1.     Payment of Bonus Amount. Executive shall pay the full amount of the Bonus Amount Value to the Company on the following terms.

(a) Payment may take the form of cash, common stock of the Company (“Common Stock”), or a combination of cash and Common Stock.

(b) Executive has indicated on Attachment 1 hereto the amount of the Bonus Amount Value that he intends to pay in cash (the “Cash Amount”) and in Common Stock (the “Common Stock Amount”), respectively.

(c) Executive shall pay immediately to the Company in cash the Cash Amount.

(d) Executive shall deliver as soon as practicable after the date hereof to the escrow agent designated by the Company which may be itself (“Escrow Agent”) that number of shares of Common Stock, rounded to the nearest whole number, equal to the quotient of (i) the Common Stock Amount divided by (ii) $1.25, along with three signed assignments separate from

certificate with the power of attorney (in the form of the document attached hereto as Attachment 2) to permit the Escrow Agent to transfer the Common Stock held in escrow as provided herein. Subject to (f) below, such shares of Common Stock shall be held in escrow by the Escrow Agent for the benefit of the Company solely pending determination of the Per Share Value (as defined below) following the effective date of this Agreement, pursuant to the terms of the escrow (as set forth in the Joint Escrow Instructions attached hereto as Attachment 3). Such escrow shall be irrevocable. On the second business day following (i) the Per Share Value Determination Date as defined below or, if applicable, (ii) the date of the delivery of the valuation by the independent appraiser as provided in (e)(4) below (the “Escrow Release Date”), the Escrow Agent shall divide the Common Stock Amount by the Per Share Value, round such quotient to the nearest whole number, distribute to the Company from such escrow that number of shares equal to such quotient, and release the remaining shares (if any) to Executive.

(e) “Per Share Value” shall be determined as follows:

(1) If the Common Stock is actively traded on the National market or the SmallCap market of Nasdaq, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(2) If the Common Stock is not traded on the National market or the SmallCap market of Nasdaq but is actively traded on the over-the-counter bulletin board, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(3) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq or on the over-the-counter bulletin board, but is traded on the pink sheets market, then each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(4) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq, on the over-the-counter bulletin board, or on the pink sheets market for at least a thirty (30) day trading period within the 120 day period following the effective date of this Agreement, then the Per Share Value of each share of Common Stock shall be determined by an independent appraiser appointed by the Board of Directors of the Company.

(5) The determination of the Per Share Value shall be made at the close of business on the last day of the ten consecutive trading day period referred to in (1), (2) or (3) above, whichever is applicable, or as of the close of business on the 120^th day following the effective date of this Agreement if (4) above is applicable (the “Per Share Value Determination Date”).

(f) Executive shall have the right at any time prior to the Escrow Release Date to replace one or more shares of Common Stock held in escrow by the Escrow Agent with cash, the number of shares so replaced to be equal to the quotient, rounded down to the nearest whole number, of (i) the amount of such cash (the “Replacement Cash Amount”) divided by (ii) $1.25, and in the event of any such replacement the Escrow Agent shall release to Executive the number of shares so replaced. In the event of any such replacement, the Common Stock Amount shall be deemed to be reduced, immediately prior to its division by the Per Share Amount pursuant to (d) above, by the Replacement Cash Amount.

(g) Notwithstanding the foregoing, if on the Per Share Value Determination Date the product of (i) the number of shares of Common Stock held in escrow by the Escrow Agent and (ii) the Per Share Value, does not equal or exceed an amount equal to (x) the Common Stock Amount less (y) the Replacement Cash Amount, the Executive shall pay in cash to the Company prior to the Escrow Release Date the amount of any such shortfall.

3. Rescission of Bonus Amount. Executive and the Company hereby rescind the payment of the Bonus Amount subject to the payment by Executive of the Bonus Amount Value to the Company in full solely in the form of cash by December 31, 2003. Executive’s obligation to pay the Bonus Amount Value to the Company under this Agreement shall not be affected by whether the payment of the Bonus Amount is rescinded under this Section 3.

4. Opportunity to Obtain Independent Tax Counsel. Executive acknowledges that he has had the opportunity to obtain independent tax counsel regarding the tax treatment of the payment of the Bonus Amount and the Bonus Amount Value under this Agreement. Executive acknowledges that Pillsbury Winthrop LLP is counsel to the Company and not to him, that he is not and will not be relying on any advice furnished to the Company by Pillsbury Winthrop LLP or otherwise regarding the matters contained in this Agreement (including the tax effect thereof), and that he has been advised by the Company and Pillsbury Winthrop LLP that he should seek separate advice regarding the matters contained in this Agreement.

In Witness Whereof, the parties have executed this Agreement to be effective as of the date first above written.

eUNIVERSE, INC.	Executive
By: Brett C. Brewer	/s/    BRAD D. GREENSPAN
Title: President	Brad D. Greenspan

ATTACHMENT 1

Total Bonus Amount Value (To Be Repaid)	Cash Amount (Dollar Amount)	Common Stock Amount
		Dollar Amount	Number of Shares

ATTACHMENT 2

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED and pursuant to that certain Bonus Repayment Agreement dated as of             , 200    , by and between eUniverse, Inc., a Delaware corporation (the “Company”) and the undersigned (the “Repayment Agreement”), the undersigned hereby sells, assigns and transfers unto the Company or its successor              (            ) shares of common stock of the Company, standing in the undersigned’s name on the books of said corporation represented by Certificate No.              herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the said stock on the books of the said corporation with full power of substitution in the premises. This Assignment may be used only in accordance with and subject to the terms and conditions of the Repayment Agreement, in connection with the payment of shares of Common Stock of the undersigned to the Company pursuant to the Repayment Agreement.

Dated:	Signature
	Name:

Three Signed Copies Required

ATTACHMENT 3

JOINT ESCROW INSTRUCTIONS

eUniverse, Inc.

Escrow Agent

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

Dear Escrow Agent:

As Escrow Agent for both eUniverse, Inc., a Delaware corporation (“Company”), and the undersigned executive of the Company (“Executive”), you are hereby authorized and directed to hold the documents and property delivered to you pursuant to the terms of that certain Bonus Repayment Agreement by and between the Company and Executive (“Bonus Repayment Agreement”) to which these Joint Escrow Instructions have been attached, in accordance with the following instructions:

1. Payment of Bonus Amount.

(a) Pursuant to the Bonus Repayment Agreement (the terms of which are incorporated herein), Executive shall deliver as soon as practicable after the date hereof to you a number of shares of the common stock of the Company (“Common Stock”) referred to in the Bonus Repayment Agreement as “Common Stock Amount,” along with three signed assignments separate from certificate for the purpose of the transfers of the Common Stock as provided in the Bonus Repayment Agreement and herein. Subject to (c) below, such shares shall be held in escrow by you as Escrow Agent for the benefit of the Company solely pending determination of the Per Share Value (as defined below) following the effective date of the Bonus Repayment Agreement, pursuant to the terms herein. This escrow shall be irrevocable. On the second business day following (i) the Per Share Value Determination Date as defined below, or, if applicable, (ii) the date of the delivery of the valuation by the independent appraiser as provided in (b)(4) below (the “Escrow Release Date”), you shall divide the Common Stock Amount by the Per Share Value, round such quotient to the nearest whole number, distribute to the Company from such escrow that number of shares equal to such quotient, and release the remaining shares (if any) to Executive.

(b) “Per Share Value” shall be determined as follows:

(1) If the Common Stock is actively traded on the National market or the SmallCap market of Nasdaq, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(2) If the Common Stock is not traded on the National market or the SmallCap market of Nasdaq but is actively traded on the over-the-counter bulletin board, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(3) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq or on the over-the-counter bulletin board, but is traded on the pink sheets market, then each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(4) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq, on the over-the-counter bulletin board, or on the pink sheets market for at least a thirty (30) day trading period within the 120 day period following the effective date of this Agreement, then the Per Share Value of each share of Common Stock shall be determined by an independent appraiser appointed by the Board of Directors of the Company.

(5) The determination of the Per Share Value shall be made at the close of business on the last day of the ten consecutive trading day period referred to in (1), (2) or (3) above, whichever is applicable, or as of the close of business of the 120^th day following the effective date of this Agreement if (4) above is applicable (the “Per Share Value Determination Date”).

(c) Executive shall have the right at any time prior to the Escrow Release Date to replace one or more shares of Common Stock held in escrow by the Escrow Agent with cash, the number of shares so replaced to be equal to the quotient, rounded down to the nearest whole number, of (i) the amount of such cash (the “Replacement Cash Amount”) divided by (ii) $1.25, and in the event of any such replacement the Escrow Agent shall release to Executive the number of shares so replaced. In the event of any such replacement, the Common Stock Amount shall be deemed to be reduced, immediately prior to its division by the Per Share Amount pursuant to (a) above, by the Replacement Cash Amount.

2. At the Escrow Release Date, you are directed (a) to date any stock assignments necessary for the transfer in question to the Company, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company.

3. Executive irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as specified in the Bonus Repayment Agreement. Executive does hereby irrevocably constitute and appoint you as his attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of

assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated.

4. This escrow shall terminate upon the release of the Common Stock to the Company from this escrow.

5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Executive, you shall deliver all of same to Executive and shall be discharged of all further obligations hereunder; provided, however, that if at the time of termination of this escrow you are advised by the Company that the property subject to this escrow is the subject of a pledge or other agreement, you shall deliver all such property to the pledgeholder or other person designated by the Company.

6. Except as otherwise provided in these Joint Escrow Instructions, your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. Notwithstanding any provision herein to the contrary, in the event of any conflict between the terms of the Bonus Repayment Agreement and these Joint Escrow Instructions, the terms of the Bonus Repayment Agreement shall control.

7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties or their assignees. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Executive while acting in good faith and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.

8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

9. You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Bonus Repayment Agreement or any documents or papers deposited or called for hereunder.

10. You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.

11. You shall be entitled to employ such legal counsel (including without limitation the firm of Pillsbury Winthrop LLP) and other experts as you may deem necessary properly to

advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.

12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall resign by written notice to each party. In the event of any such termination, the Company may appoint a successor Escrow Agent and Executive hereby confirms the appointment of such successor or successors as his attorney-in-fact and agent to the full extent of your appointment.

13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, you may (but are not obligated to) retain in your possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.

15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in any United States Post Box, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties hereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days’ written notice to each of the other parties hereto:

TO COMPANY:

eUniverse, Inc.

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

with a copy to:

Pillsbury Winthrop LLP

50 Fremont Street

San Francisco, CA 94105

Attention: Nathaniel M. Cartmell III

TO EXECUTIVE:

See Signature Page for Name and Address of Executive.

TO ESCROW AGENT:

eUniverse, Inc.

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

with a copy to:

Pillsbury Winthrop LLP

50 Fremont Street

San Francisco, CA 94105

Attention: Nathaniel M. Cartmell III

16. By signing these Joint Escrow Instructions you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Bonus Repayment Agreement unless you are already a party to such agreement.

17. This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to “you” or “your” herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Bonus Repayment Agreement and these Joint Escrow Instructions in whole or in part.

Very truly yours,

eUNIVERSE, INC.

By:	Brett C. Brewer
	President
EXECUTIVE:
/s/    BRAD D. GREENSPAN
Name:	Brad D. Greenspan
Address: 6060 Center Drive, #300 Los Angeles, CA 90045
ESCROW AGENT:
eUNIVERSE, INC.
By:	Christopher S. Lipp
	Senior Vice President and General Counsel

EX-10.51

EXHIBIT 10.51

BONUS REPAYMENT AGREEMENT

This Bonus Repayment Agreement is entered into as of the 21st day of August, 2003, by and between eUniverse, Inc., a Delaware corporation (the “Company”), and Brett C. Brewer, an executive employed by the Company (“Executive”).

RECITALS

Whereas Executive has been employed by the Company from April 1999 through the present date and has been eligible to receive a short-term incentive bonus from the Company based on the financial performance of the Company;

Whereas Executive was paid a short-term incentive bonus in the amount of $33 thousand (the “Bonus Amount”) on January 15, 2003 (the “Original Payment Date”), based on the financial performance of the Company during its 2003 fiscal year (ending on March 31, 2003) as described in the Company’s financial statements for such fiscal year;

Whereas the Company has determined that the financial statements of the Company for its 2003 fiscal year included incorrect financial information and, had such financial statements included the correct financial information, Executive would not have been paid the Bonus Amount and the parties agree that Executive is not entitled to retain such Bonus Amount; and

Whereas, the parties hereto would like to rescind the payment of the Bonus Amount or otherwise provide for the payment of the value of the Bonus Amount (“Bonus Amount Value”) by Executive to the Company, as provided herein;

TERMS OF AGREEMENT

Now, therefore, in exchange for their respective and mutual promises and agreements, the parties hereto agree to the following:

1. Payment of Bonus Amount. Executive shall pay the full amount of the Bonus Amount Value to the Company on the following terms.

(a) Payment may take the form of cash, common stock of the Company (“Common Stock”), or a combination of cash and Common Stock.

(b) Executive has indicated on Attachment 1 hereto the amount of the Bonus Amount Value that he intends to pay in cash (the “Cash Amount”) and in Common Stock (the “Common Stock Amount”), respectively.

(c) Executive shall pay immediately to the Company in cash the Cash Amount.

(d) Executive shall deliver as soon as practicable after the date hereof to the escrow agent designated by the Company which may be itself (“Escrow Agent”) that number of shares of Common Stock, rounded to the nearest whole number, equal to the quotient of (i) the Common Stock Amount divided by (ii) $1.25, along with three signed assignments separate from

certificate with the power of attorney (in the form of the document attached hereto as Attachment 2) to permit the Escrow Agent to transfer the Common Stock held in escrow as provided herein. Subject to (f) below, such shares of Common Stock shall be held in escrow by the Escrow Agent for the benefit of the Company solely pending determination of the Per Share Value (as defined below) following the effective date of this Agreement, pursuant to the terms of the escrow (as set forth in the Joint Escrow Instructions attached hereto as Attachment 3). Such escrow shall be irrevocable. On the second business day following (i) the Per Share Value Determination Date as defined below or, if applicable, (ii) the date of the delivery of the valuation by the independent appraiser as provided in (e)(4) below (the “Escrow Release Date”), the Escrow Agent shall divide the Common Stock Amount by the Per Share Value, round such quotient to the nearest whole number, distribute to the Company from such escrow that number of shares equal to such quotient, and release the remaining shares (if any) to Executive.

(e) “Per Share Value” shall be determined as follows:

(1) If the Common Stock is actively traded on the National market or the SmallCap market of Nasdaq, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(2) If the Common Stock is not traded on the National market or the SmallCap market of Nasdaq but is actively traded on the over-the-counter bulletin board, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(3) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq or on the over-the-counter bulletin board, but is traded on the pink sheets market, then each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(4) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq, on the over-the-counter bulletin board, or on the pink sheets market for at least a thirty (30) day trading period within the 120 day period following the effective date of this Agreement, then the Per Share Value of each share of Common Stock shall be determined by an independent appraiser appointed by the Board of Directors of the Company.

(5) The determination of the Per Share Value shall be made at the close of business on the last day of the ten consecutive trading day period referred to in (1), (2) or (3) above, whichever is applicable, or as of the close of business on the 120^th day following the effective date of this Agreement if (4) above is applicable (the “Per Share Value Determination Date”).

(f) Executive shall have the right at any time prior to the Escrow Release Date to replace one or more shares of Common Stock held in escrow by the Escrow Agent with cash, the number of shares so replaced to be equal to the quotient, rounded down to the nearest whole number, of (i) the amount of such cash (the “Replacement Cash Amount”) divided by (ii) $1.25, and in the event of any such replacement the Escrow Agent shall release to Executive the number of shares so replaced. In the event of any such replacement, the Common Stock Amount shall be deemed to be reduced, immediately prior to its division by the Per Share Amount pursuant to (d) above, by the Replacement Cash Amount.

(g) Notwithstanding the foregoing, if on the Per Share Value Determination Date the product of (i) the number of shares of Common Stock held in escrow by the Escrow Agent and (ii) the Per Share Value, does not equal or exceed an amount equal to (x) the Common Stock Amount less (y) the Replacement Cash Amount, the Executive shall pay in cash to the Company prior to the Escrow Release Date the amount of any such shortfall.

3. Rescission of Bonus Amount. Executive and the Company hereby rescind the payment of the Bonus Amount subject to the payment by Executive of the Bonus Amount Value to the Company in full solely in the form of cash by December 31, 2003. Executive’s obligation to pay the Bonus Amount Value to the Company under this Agreement shall not be affected by whether the payment of the Bonus Amount is rescinded under this Section 3.

4. Opportunity to Obtain Independent Tax Counsel. Executive acknowledges that he has had the opportunity to obtain independent tax counsel regarding the tax treatment of the payment of the Bonus Amount and the Bonus Amount Value under this Agreement. Executive acknowledges that Pillsbury Winthrop LLP is counsel to the Company and not to him, that he is not and will not be relying on any advice furnished to the Company by Pillsbury Winthrop LLP or otherwise regarding the matters contained in this Agreement (including the tax effect thereof), and that he has been advised by the Company and Pillsbury Winthrop LLP that he should seek separate advice regarding the matters contained in this Agreement.

In Witness Whereof, the parties have executed this Agreement to be effective as of the date first above written.

eUNIVERSE, INC.		Executive
By:	Brad D. Greenspan	/s/    BRETT C. BREWER
Title:	Chief Executive Officer	Brett C. Brewer

ATTACHMENT 1

Total Bonus Amount Value (To Be Repaid)	Cash Amount (Dollar Amount)	Common Stock Amount
		Dollar Amount	Number of Shares

ATTACHMENT 2

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED and pursuant to that certain Bonus Repayment Agreement dated as of                     , 200    , by and between eUniverse, Inc., a Delaware corporation (the “Company”) and the undersigned (the “Repayment Agreement”), the undersigned hereby sells, assigns and transfers unto the Company or its successor                      (                    ) shares of common stock of the Company, standing in the undersigned’s name on the books of said corporation represented by Certificate No.              herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the said stock on the books of the said corporation with full power of substitution in the premises. This Assignment may be used only in accordance with and subject to the terms and conditions of the Repayment Agreement, in connection with the payment of shares of Common Stock of the undersigned to the Company pursuant to the Repayment Agreement.

Dated:	Signature
	Name:

Three Signed Copies Required

ATTACHMENT 3

JOINT ESCROW INSTRUCTIONS

eUniverse, Inc.

Escrow Agent

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

Dear Escrow Agent:

As Escrow Agent for both eUniverse, Inc., a Delaware corporation (“Company”), and the undersigned executive of the Company (“Executive”), you are hereby authorized and directed to hold the documents and property delivered to you pursuant to the terms of that certain Bonus Repayment Agreement by and between the Company and Executive (“Bonus Repayment Agreement”) to which these Joint Escrow Instructions have been attached, in accordance with the following instructions:

1. Payment of Bonus Amount.

(a) Pursuant to the Bonus Repayment Agreement (the terms of which are incorporated herein), Executive shall deliver as soon as practicable after the date hereof to you a number of shares of the common stock of the Company (“Common Stock”) referred to in the Bonus Repayment Agreement as “Common Stock Amount,” along with three signed assignments separate from certificate for the purpose of the transfers of the Common Stock as provided in the Bonus Repayment Agreement and herein. Subject to (c) below, such shares shall be held in escrow by you as Escrow Agent for the benefit of the Company solely pending determination of the Per Share Value (as defined below) following the effective date of the Bonus Repayment Agreement, pursuant to the terms herein. This escrow shall be irrevocable. On the second business day following (i) the Per Share Value Determination Date as defined below, or, if applicable, (ii) the date of the delivery of the valuation by the independent appraiser as provided in (b)(4) below (the “Escrow Release Date”), you shall divide the Common Stock Amount by the Per Share Value, round such quotient to the nearest whole number, distribute to the Company from such escrow that number of shares equal to such quotient, and release the remaining shares (if any) to Executive.

(b) “Per Share Value” shall be determined as follows:

(1) If the Common Stock is actively traded on the National market or the SmallCap market of Nasdaq, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(2) If the Common Stock is not traded on the National market or the SmallCap market of Nasdaq but is actively traded on the over-the-counter bulletin board, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(3) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq or on the over-the-counter bulletin board, but is traded on the pink sheets market, then each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(4) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq, on the over-the-counter bulletin board, or on the pink sheets market for at least a thirty (30) day trading period within the 120 day period following the effective date of this Agreement, then the Per Share Value of each share of Common Stock shall be determined by an independent appraiser appointed by the Board of Directors of the Company.

(5) The determination of the Per Share Value shall be made at the close of business on the last day of the ten consecutive trading day period referred to in (1), (2) or (3) above, whichever is applicable, or as of the close of business of the 120^th day following the effective date of this Agreement if (4) above is applicable (the “Per Share Value Determination Date”).

(c) Executive shall have the right at any time prior to the Escrow Release Date to replace one or more shares of Common Stock held in escrow by the Escrow Agent with cash, the number of shares so replaced to be equal to the quotient, rounded down to the nearest whole number, of (i) the amount of such cash (the “Replacement Cash Amount”) divided by (ii) $1.25, and in the event of any such replacement the Escrow Agent shall release to Executive the number of shares so replaced. In the event of any such replacement, the Common Stock Amount shall be deemed to be reduced, immediately prior to its division by the Per Share Amount pursuant to (a) above, by the Replacement Cash Amount.

2. At the Escrow Release Date, you are directed (a) to date any stock assignments necessary for the transfer in question to the Company, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company.

3. Executive irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as specified in the Bonus Repayment Agreement. Executive does hereby irrevocably constitute and appoint you as his attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of

assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated.

4. This escrow shall terminate upon the release of the Common Stock to the Company from this escrow.

5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Executive, you shall deliver all of same to Executive and shall be discharged of all further obligations hereunder; provided, however, that if at the time of termination of this escrow you are advised by the Company that the property subject to this escrow is the subject of a pledge or other agreement, you shall deliver all such property to the pledgeholder or other person designated by the Company.

6. Except as otherwise provided in these Joint Escrow Instructions, your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. Notwithstanding any provision herein to the contrary, in the event of any conflict between the terms of the Bonus Repayment Agreement and these Joint Escrow Instructions, the terms of the Bonus Repayment Agreement shall control.

7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties or their assignees. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Executive while acting in good faith and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.

8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

9. You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Bonus Repayment Agreement or any documents or papers deposited or called for hereunder.

10. You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.

11. You shall be entitled to employ such legal counsel (including without limitation the firm of Pillsbury Winthrop LLP) and other experts as you may deem necessary properly to

advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.

12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall resign by written notice to each party. In the event of any such termination, the Company may appoint a successor Escrow Agent and Executive hereby confirms the appointment of such successor or successors as his attorney-in-fact and agent to the full extent of your appointment.

13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, you may (but are not obligated to) retain in your possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.

15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in any United States Post Box, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties hereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days’ written notice to each of the other parties hereto:

TO COMPANY:

eUniverse, Inc.

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

with a copy to:

Pillsbury Winthrop LLP

50 Fremont Street

San Francisco, CA 94105

Attention: Nathaniel M. Cartmell III

TO EXECUTIVE:

See Signature Page for Name and Address of Executive.

TO ESCROW AGENT:

eUniverse, Inc.

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

with a copy to:

Pillsbury Winthrop LLP

50 Fremont Street

San Francisco, CA 94105

Attention: Nathaniel M. Cartmell III

16. By signing these Joint Escrow Instructions you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Bonus Repayment Agreement unless you are already a party to such agreement.

17. This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to “you” or “your” herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Bonus Repayment Agreement and these Joint Escrow Instructions in whole or in part.

Very truly yours,

eUNIVERSE, INC.

By:	Brad D. Greenspan
	Chief Executive Officer
EXECUTIVE:
/s/    BRETT C. BREWER
Name:	Brett C. Brewer
Address: 6060 Center Drive, #300 Los Angeles, CA 90045
ESCROW AGENT:
eUNIVERSE, INC.
By:	Christopher S. Lipp
	Senior Vice President and General Counsel

EX-10.52

EXHIBIT 10.52

BONUS REPAYMENT AGREEMENT

This Bonus Repayment Agreement is entered into as of the 21st day of August, 2003, by and between eUniverse, Inc., a Delaware corporation (the “Company”), and Christopher S. Lipp an executive employed by the Company (“Executive”).

RECITALS

Whereas Executive has been employed by the Company from January 2003 through the present date and has been eligible to receive a short-term incentive bonus from the Company based on the financial performance of the Company;

Whereas Executive was paid a short-term incentive bonus in the amount of $18 thousand (the “Bonus Amount”) on January 15, 2003 (the “Original Payment Date”), based on the financial performance of the Company during its 2003 fiscal year (ending on March 31, 2003) as described in the Company’s financial statements for such fiscal year;

Whereas the Company has determined that the financial statements of the Company for its 2003 fiscal year included incorrect financial information and, had such financial statements included the correct financial information, Executive would not have been paid the Bonus Amount and the parties agree that Executive is not entitled to retain such Bonus Amount; and

Whereas, the parties hereto would like to rescind the payment of the Bonus Amount or otherwise provide for the payment of the value of the Bonus Amount (“Bonus Amount Value”) by Executive to the Company, as provided herein;

TERMS OF AGREEMENT

Now, therefore, in exchange for their respective and mutual promises and agreements, the parties hereto agree to the following:

1. Payment of Bonus Amount. Executive shall pay the full amount of the Bonus Amount Value to the Company on the following terms.

(a) Payment may take the form of cash, common stock of the Company (“Common Stock”), or a combination of cash and Common Stock.

(b) Executive has indicated on Attachment 1 hereto the amount of the Bonus Amount Value that he intends to pay in cash (the “Cash Amount”) and in Common Stock (the “Common Stock Amount”), respectively.

(c) Executive shall pay immediately to the Company in cash the Cash Amount.

(d) Executive shall deliver as soon as practicable after the date hereof to the escrow agent designated by the Company which may be itself (“Escrow Agent”) that number of shares of Common Stock, rounded to the nearest whole number, equal to the quotient of (i) the Common Stock Amount divided by (ii) $1.25, along with three signed assignments separate from

certificate with the power of attorney (in the form of the document attached hereto as Attachment 2) to permit the Escrow Agent to transfer the Common Stock held in escrow as provided herein. Subject to (f) below, such shares of Common Stock shall be held in escrow by the Escrow Agent for the benefit of the Company solely pending determination of the Per Share Value (as defined below) following the effective date of this Agreement, pursuant to the terms of the escrow (as set forth in the Joint Escrow Instructions attached hereto as Attachment 3). Such escrow shall be irrevocable. On the second business day following (i) the Per Share Value Determination Date as defined below or, if applicable, (ii) the date of the delivery of the valuation by the independent appraiser as provided in (e)(4) below (the “Escrow Release Date”), the Escrow Agent shall divide the Common Stock Amount by the Per Share Value, round such quotient to the nearest whole number, distribute to the Company from such escrow that number of shares equal to such quotient, and release the remaining shares (if any) to Executive.

(e) “Per Share Value” shall be determined as follows:

(1) If the Common Stock is actively traded on the National market or the SmallCap market of Nasdaq, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(2) If the Common Stock is not traded on the National market or the SmallCap market of Nasdaq but is actively traded on the over-the-counter bulletin board, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(3) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq or on the over-the-counter bulletin board, but is traded on the pink sheets market, then each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(4) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq, on the over-the-counter bulletin board, or on the pink sheets market for at least a thirty (30) day trading period within the 120 day period following the effective date of this Agreement, then the Per Share Value of each share of Common Stock shall be determined by an independent appraiser appointed by the Board of Directors of the Company.

(5) The determination of the Per Share Value shall be made at the close of business on the last day of the ten consecutive trading day period referred to in (1), (2) or (3) above, whichever is applicable, or as of the close of business on the 120^th day following the effective date of this Agreement if (4) above is applicable (the “Per Share Value Determination Date”).

(f) Executive shall have the right at any time prior to the Escrow Release Date to replace one or more shares of Common Stock held in escrow by the Escrow Agent with cash, the number of shares so replaced to be equal to the quotient, rounded down to the nearest whole number, of (i) the amount of such cash (the “Replacement Cash Amount”) divided by (ii) $1.25, and in the event of any such replacement the Escrow Agent shall release to Executive the number of shares so replaced. In the event of any such replacement, the Common Stock Amount shall be deemed to be reduced, immediately prior to its division by the Per Share Amount pursuant to (d) above, by the Replacement Cash Amount.

(g) Notwithstanding the foregoing, if on the Per Share Value Determination Date the product of (i) the number of shares of Common Stock held in escrow by the Escrow Agent and (ii) the Per Share Value, does not equal or exceed an amount equal to (x) the Common Stock Amount less (y) the Replacement Cash Amount, the Executive shall pay in cash to the Company prior to the Escrow Release Date the amount of any such shortfall.

3. Rescission of Bonus Amount. Executive and the Company hereby rescind the payment of the Bonus Amount subject to the payment by Executive of the Bonus Amount Value to the Company in full solely in the form of cash by December 31, 2003. Executive’s obligation to pay the Bonus Amount Value to the Company under this Agreement shall not be affected by whether the payment of the Bonus Amount is rescinded under this Section 3.

4. Opportunity to Obtain Independent Tax Counsel. Executive acknowledges that he has had the opportunity to obtain independent tax counsel regarding the tax treatment of the payment of the Bonus Amount and the Bonus Amount Value under this Agreement. Executive acknowledges that Pillsbury Winthrop LLP is counsel to the Company and not to him, that he is not and will not be relying on any advice furnished to the Company by Pillsbury Winthrop LLP or otherwise regarding the matters contained in this Agreement (including the tax effect thereof), and that he has been advised by the Company and Pillsbury Winthrop LLP that he should seek separate advice regarding the matters contained in this Agreement.

In Witness Whereof, the parties have executed this Agreement to be effective as of the date first above written.

eUNIVERSE, INC.		Executive
By:	Brad D. Greenspan	/s/    CHRIS LIPP
Title:	Chief Executive Officer	Chris Lipp

ATTACHMENT 1

Total Bonus Amount Value (To Be Repaid)	Cash Amount (Dollar Amount)	Common Stock Amount
		Dollar Amount	Number of Shares

ATTACHMENT 2

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED and pursuant to that certain Bonus Repayment Agreement dated as of             , 200    , by and between eUniverse, Inc., a Delaware corporation (the “Company”) and the undersigned (the “Repayment Agreement”), the undersigned hereby sells, assigns and transfers unto the Company or its successor                      (            ) shares of common stock of the Company, standing in the undersigned’s name on the books of said corporation represented by Certificate No.              herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the said stock on the books of the said corporation with full power of substitution in the premises. This Assignment may be used only in accordance with and subject to the terms and conditions of the Repayment Agreement, in connection with the payment of shares of Common Stock of the undersigned to the Company pursuant to the Repayment Agreement.

Dated:	Signature
	Name:

Three Signed Copies Required

ATTACHMENT 3

JOINT ESCROW INSTRUCTIONS

eUniverse, Inc.

Escrow Agent

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

Dear Escrow Agent:

As Escrow Agent for both eUniverse, Inc., a Delaware corporation (“Company”), and the undersigned executive of the Company (“Executive”), you are hereby authorized and directed to hold the documents and property delivered to you pursuant to the terms of that certain Bonus Repayment Agreement by and between the Company and Executive (“Bonus Repayment Agreement”) to which these Joint Escrow Instructions have been attached, in accordance with the following instructions:

1. Payment of Bonus Amount.

(a) Pursuant to the Bonus Repayment Agreement (the terms of which are incorporated herein), Executive shall deliver as soon as practicable after the date hereof to you a number of shares of the common stock of the Company (“Common Stock”) referred to in the Bonus Repayment Agreement as “Common Stock Amount,” along with three signed assignments separate from certificate for the purpose of the transfers of the Common Stock as provided in the Bonus Repayment Agreement and herein. Subject to (c) below, such shares shall be held in escrow by you as Escrow Agent for the benefit of the Company solely pending determination of the Per Share Value (as defined below) following the effective date of the Bonus Repayment Agreement, pursuant to the terms herein. This escrow shall be irrevocable. On the second business day following (i) the Per Share Value Determination Date as defined below, or, if applicable, (ii) the date of the delivery of the valuation by the independent appraiser as provided in (b)(4) below (the “Escrow Release Date”), you shall divide the Common Stock Amount by the Per Share Value, round such quotient to the nearest whole number, distribute to the Company from such escrow that number of shares equal to such quotient, and release the remaining shares (if any) to Executive.

(b) “Per Share Value” shall be determined as follows:

(1) If the Common Stock is actively traded on the National market or the SmallCap market of Nasdaq, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(2) If the Common Stock is not traded on the National market or the SmallCap market of Nasdaq but is actively traded on the over-the-counter bulletin board, each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(3) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq or on the over-the-counter bulletin board, but is traded on the pink sheets market, then each share of Common Stock shall be valued at the average of the last reported sale price (or, if not available, the average of the best bid and best ask prices) for each day during the ten (10) consecutive trading day period ending on the thirtieth (30^th) trading day following commencement of active trading.

(4) If the Common Stock is not actively traded on the National market or SmallCap market of Nasdaq, on the over-the-counter bulletin board, or on the pink sheets market for at least a thirty (30) day trading period within the 120 day period following the effective date of this Agreement, then the Per Share Value of each share of Common Stock shall be determined by an independent appraiser appointed by the Board of Directors of the Company.

(5) The determination of the Per Share Value shall be made at the close of business on the last day of the ten consecutive trading day period referred to in (1), (2) or (3) above, whichever is applicable, or as of the close of business of the 120^th day following the effective date of this Agreement if (4) above is applicable (the “Per Share Value Determination Date”).

(c) Executive shall have the right at any time prior to the Escrow Release Date to replace one or more shares of Common Stock held in escrow by the Escrow Agent with cash, the number of shares so replaced to be equal to the quotient, rounded down to the nearest whole number, of (i) the amount of such cash (the “Replacement Cash Amount”) divided by (ii) $1.25, and in the event of any such replacement the Escrow Agent shall release to Executive the number of shares so replaced. In the event of any such replacement, the Common Stock Amount shall be deemed to be reduced, immediately prior to its division by the Per Share Amount pursuant to (a) above, by the Replacement Cash Amount.

2. At the Escrow Release Date, you are directed (a) to date any stock assignments necessary for the transfer in question to the Company, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company.

3. Executive irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as specified in the Bonus Repayment Agreement. Executive does hereby irrevocably constitute and appoint you as his attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of

assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated.

4. This escrow shall terminate upon the release of the Common Stock to the Company from this escrow.

5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Executive, you shall deliver all of same to Executive and shall be discharged of all further obligations hereunder; provided, however, that if at the time of termination of this escrow you are advised by the Company that the property subject to this escrow is the subject of a pledge or other agreement, you shall deliver all such property to the pledgeholder or other person designated by the Company.

6. Except as otherwise provided in these Joint Escrow Instructions, your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. Notwithstanding any provision herein to the contrary, in the event of any conflict between the terms of the Bonus Repayment Agreement and these Joint Escrow Instructions, the terms of the Bonus Repayment Agreement shall control.

7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties or their assignees. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Executive while acting in good faith and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.

8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

9. You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Bonus Repayment Agreement or any documents or papers deposited or called for hereunder.

10. You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.

11. You shall be entitled to employ such legal counsel (including without limitation the firm of Pillsbury Winthrop LLP) and other experts as you may deem necessary properly to

advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.

12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall resign by written notice to each party. In the event of any such termination, the Company may appoint a successor Escrow Agent and Executive hereby confirms the appointment of such successor or successors as his attorney-in-fact and agent to the full extent of your appointment.

13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, you may (but are not obligated to) retain in your possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.

15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in any United States Post Box, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties hereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days’ written notice to each of the other parties hereto:

TO COMPANY:

eUniverse, Inc.

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

with a copy to:

Pillsbury Winthrop LLP

50 Fremont Street

San Francisco, CA 94105

Attention: Nathaniel M. Cartmell III

TO EXECUTIVE:

See Signature Page for Name and Address of Executive.

TO ESCROW AGENT:

eUniverse, Inc.

6060 Center Drive #300

Los Angeles, CA 90045

Attention: Christopher S. Lipp, Senior Vice President and General Counsel

with a copy to:

Pillsbury Winthrop LLP

50 Fremont Street

San Francisco, CA 94105

Attention: Nathaniel M. Cartmell III

16. By signing these Joint Escrow Instructions you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Bonus Repayment Agreement unless you are already a party to such agreement.

17. This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to “you” or “your” herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Bonus Repayment Agreement and these Joint Escrow Instructions in whole or in part.

Very truly yours,

eUNIVERSE, INC.

By:	Brad D. Greenspan
	Chief Executive Officer
EXECUTIVE:
/s/    CHRISTOPHER S. LIPP
Name:	Christopher S. Lipp
Address: 6060 Center Drive, #300 Los Angeles, CA 90045
ESCROW AGENT:
eUNIVERSE, INC.
By:	Brad D. Greenspan
	Chief Executive Officer

EX-21.01

EXHIBIT 21.01

SUBSIDIARIES OF eUNIVERSE, INC.

ENTERTAINMENT UNIVERSE, INC.

Jurisdiction of Formation: California

CD UNIVERSE, INC.

Jurisdiction of Formation: Connecticut

CASES LADDER, INC.

Jurisdiction of Formation: California

GAMER’S ALLIANCE, INC.

Jurisdiction of Formation: Missouri

THE BIG NETWORK, INC.

Jurisdiction of Formation: Delaware

FALCON VENTURES CORPORATION

Jurisdiction of Formation: California

eCOMMMERCE TRANSACTIONS, LLC

Jurisdiction of Formation: Delaware

RELATIONSHIP MARKETING SERVICES, LLC

Jurisdiction of Formation: Delaware

INFINITY DISTRIBUTION SERVICES, LLC

Jurisdiction of Formation: Delaware

VELOCITY CONNECTIONS, LLC

Jurisdiction of Formation: Delaware

PERFORMANCE MARKETING GROUP, LLC

Jurisdiction of Formation: California

ULTRACONVERSIONS, LLC

Jurisdiction of Formation: Delaware

BETTER HERBAL LIVING, LLC

Jurisdiction of Formation: Delaware

SUNNINGDALE HOLDINGS, LLC

Jurisdiction of Formation: Delaware

NORTH PLAINS, LLC

Jurisdiction of Formation: Delaware

OPT-IN GROUP, LLC

Jurisdiction of Formation: Delaware

INFOBEAT, LLC

Jurisdiction of Formation: Delaware

YOGABOL, LLC

Jurisdiction of Formation: Delaware

RESPONSEBASE MARKETING, LLC

Jurisdiction of Formation: Delaware

EX-23.01

Exhibit 23.01

Consent of Merdinger, Fruchter, Rosen & Corso, P.C.

We consent to the inclusion in this Annual Report on Form 10-K of eUniverse, Inc. for the two years ended March 31, 2002 and to the incorporation by reference in Registration Statement Numbers 333-102313 and 333-76898 of eUniverse, Inc. on Forms S-8, of our report dated June 14, 2002.

/S/ Merdinger, Fruchter, Rosen & Corso, P.C.

Los Angeles, California
August 21, 2003

EX-23.02

Exhibit 23.02

Consent of Moss Adams LLP

We consent to the inclusion in this Annual Report on Form 10-K of eUniverse, Inc. for the year ended March 31, 2003 and to the incorporation by reference in Registration Statement Number 333-102313 of eUniverse, Inc. on Form S-8, of our report dual dated August 15 and 21, 2003.

/S/ Moss Adams LLP

Los Angeles, California
August 21, 2003

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Brad D. Greenspan, certify that:

1. I have reviewed this Annual Report on Form 10-K of eUniverse, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (omitted pursuant to SEC Release Nos. 33-8238; 34-47986)

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting, and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 22, 2003

/s/ Brad D. Greenspan

Brad D. Greenspan

Chairman of the Board of Directors and

Chief Executive Officer

CERTIFICATION

I, Michael J. Mincieli, certify that:

1. I have reviewed this Annual Report on Form 10-K of eUniverse, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (omitted pursuant to SEC Release Nos. 33-8238; 34-47986)

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting, and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 22, 2003

/s/ Michael J. Mincieli

Michael J. Mincieli

Vice President, Corporate Controller

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. § 1350

I, Brad D. Greenspan, Chairman of the Board and Chief Executive Officer of eUniverse, Inc. (the “Company”), certify pursuant to section 1350 of Chapter 63 of Title 18 of the United States Code that, to my knowledge,:

(1) the Annual Report of the Company on Form 10-K for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on August 22, 2003, (the “Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Brad D. Greenspan

Brad D. Greenspan

Chairman of the Board and

Chief Executive Officer

August 22, 2003

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

STATEMENT OF PRINCIPAL FINANCIAL OFFICER UNDER 18 U.S.C. § 1350

I, Michael J. Mincieli, Vice President, Corporate Controller of eUniverse, Inc. (the “Company”), certify pursuant to section 1350 of Chapter 63 of Title 18 of the United States Code that, to my knowledge,:

(1) the Annual Report of the Company on Form 10-K for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on August 22, 2003, (the “Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael J. Mincieli

Michael J. Mincieli

Vice President, Corporate Controller

(Principal Financial Officer)

August 22, 2003

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.