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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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Form 10-Q

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|(x)        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 
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|           |  | For the quarterly period ended June 30, 2002                                             
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|( )        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|           |  | For the transition period from  to                                                       

Commission File Number: 0-26063

barnesandnoble.com inc.(Exact Name of Registrant as Specified in Its Charter)

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|---------------------------------------- |  |  |  | -------------------
|Delaware                                 |  |  |  | 13-4048787         
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|(State or Other Jurisdiction of          |  |  |  | (I.R.S. Employer   
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|Incorporation or Organization)           |  |  |  | Identification No.)
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|76 Ninth Avenue, New York, NY            |  |  |  | 10011              
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|(Address of Principal Executive Offices) |  |  |  | (Zip Code)         

(212) 414-6000(Registrants Telephone Number, Including Area Code)

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 (x)  No ( )

Number of shares of $.001 par value Class A Common Stock, Class B Common
Stock and Class C Common Stock outstanding as of August 7, 2002 was 47,946,566,
one and one, respectively.



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TABLE OF CONTENTS



|                                                 |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                  
|                                                 | Item 1: Financial Statements                                                                 
|                                                 | Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3: Quantitative and Qualitative Disclosure about Market Risk                            
|PART II  OTHER INFORMATION                     
|                                                 | Item 1: Legal Proceedings                                                                    
|                                                 | Item 2: Changes in Securities and Use of Proceeds                                            
|                                                 | Item 3: Defaults upon Senior Securities                                                      
|                                                 | Item 4: Submission of Matters to a Vote of Securities Holders                                
|                                                 | Item 5: Other Information                                                                    
|                                                 | Item 6: Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|EX-99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
|EX-99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER



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barnesandnoble.com inc.

June 30, 2002

Index to Form 10-Q

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|PART I -  |  | FINANCIAL INFORMATION                                                                 |  |            |    |         
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|Item 1:   |  | Financial Statements                                                                  |  |            | 3  |         
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|Item 2:   |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |            | 12 |         
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|Item 3:   |  | Quantitative and Qualitative Disclosure About Market Risk                             |  |            | 16 |         
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|PART II - |  | OTHER INFORMATION                                                                     |  |            | 17 |         
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|Item 1:   |  | Legal Proceedings                                                                     |  |            | 17 |         
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|Item 2:   |  | Changes in Securities and Use of Proceeds                                             |  |            | 17 |         
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|Item 3:   |  | Defaults upon Senior Securities                                                       |  |            | 17 |         
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|Item 4:   |  | Submission of Matters to a Vote of Securities Holders                                 |  |            | 17 |         
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|Item 5:   |  | Other Information                                                                     |  |            | 17 |         
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|Item 6:   |  | Exhibits and Reports on Form 8-K                                                      |  |            | 18 |         
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|          |  |                                                                                       |  | Signatures |    |          | 19 | 

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PART I  FINANCIAL INFORMATION




Item 1:Financial Statements

barnesandnoble.com inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except per share data)
(unaudited)

|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |        |         |         | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------- | ----------------------------- | ------------------------ | ----- | ------------------ | ------ | ---------------- | ------ | -------- | ------ | -------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | 
|                                                     |                                                                                        |                               |                          |       | Three months ended |        | Six months ended
|                                                     |                                                                                        |                               |                          |       |                    |        |                 
|                                                     |                                                                                        |                               |                          |       | June 30,           |        | June 30,         |        | June 30, |        | June 30,
|                                                     |                                                                                        |                               |                          |       | 2002               |        | 2001             |        | 2002     |        | 2001    
|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |         
|Net sales                                            |                                                                                        | $                             | 85,837                   |       |                    | $      | 83,684           |        |          | $      | 192,372  |        |         | $      | 192,725 |       
|                                                    
|                                                    
|                                                    
|                                                    
|Cost of sales                                        |                                                                                        |                               | 65,665                   |       |                    |        | 63,195           |        |          |        | 149,038  |        |         |        | 147,109 |       
|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |       
|                                                     |                                                                                        | Gross profit                  |                          |       | 20,172             |        |                  |        | 20,489   |        |          |        | 43,334  |        |         |        | 45,616  |        
|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |       
|Operating expenses:                                  |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Fulfillment and customer service                                                       |                               |                          | 8,525 |                    |        |                  | 9,929  |          |        |          | 17,997 |         |        |         | 22,300 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Marketing, sales and editorial                                                         |                               |                          | 7,773 |                    |        |                  | 14,930 |          |        |          | 18,050 |         |        |         | 32,363 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Technology and web site
development                                                    |                               |                          | 9,256 |                    |        |                  | 10,843 |          |        |          | 18,832 |         |        |         | 24,790 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | General
and administrative                                                             |                               |                          | 6,417 |                    |        |                  | 7,453  |          |        |          | 12,803 |         |        |         | 15,806 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization                                                          |                               |                          | 8,433 |                    |        |                  | 10,404 |          |        |          | 16,525 |         |        |         | 20,356 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Equity
in net loss of equity investments including related amortization of
intangibles |                               |                          | 845   |                    |        |                  | 7,051  |          |        |          | 1,374  |         |        |         | 13,209 |        
|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |       
|                                                     |                                                                                        |                               | Total operating expenses |       |                    | 41,249 |                  |        |          | 60,610 |          |        |         | 85,581 |         |        |         | 128,824 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Loss from operations                                 |                                                                                        |                               | (21,077                  | )     |                    |        | (40,121          | )      |          |        | (42,247  | )      |         |        | (83,208 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Interest income, net                                 |                                                                                        |                               | 457                      |       |                    |        | 1,719            |        |          |        | 1,092    |        |         |        | 4,965   |       
|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |       
|                                                     |                                                                                        | Loss before minority interest |                          |       | (20,620            | )      |                  |        | (38,402  | )      |          |        | (41,155 | )      |         |        | (78,243 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Minority interest                                    |                                                                                        |                               | 14,934                   |       |                    |        | 27,812           |        |          |        | 29,806   |        |         |        | 56,666  |       
|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |       
|                                                     |                                                                                        | Net loss                      |                          | $     | (5,686             | )      |                  | $      | (10,590  | )      |          | $      | (11,349 | )      |         | $      | (21,577 | )      
|                                                     |                                                                                        |                               |                          |       |                    |        |                  |        |          |        |          |        |         |        |         |       
|Basic net loss per common share                      |                                                                                        |                               | ($0.13                   | )     |                    |        | ($0.24           | )      |          |        | ($0.26   | )      |         |        | ($0.49  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Basic weighted average common
shares
outstanding (1) |                                                                                        |                               | 43,788                   |       |                    |        | 43,787           |        |          |        | 43,788   |        |         |        | 43,787  |       



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|(1) |  | Excludes assumed conversion of Membership Units and the elimination of
minority interest, as it is not dilutive.
|--- |  | ----------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

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barnesandnoble.com inc.

CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except per share data)
(unaudited)

|                         |                                                                                                                  |                                            |                        |          |         |             |         |              |         |  |  | 
|------------------------ | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------- | -------- | ------- | ----------- | ------- | ------------ | ------- |  |  | 
|                         |                                                                                                                  |                                            |                        |          |         | June 30,    |         | December 31,
|                         |                                                                                                                  |                                            |                        |          |         | 2002        |         | 2001        
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|                         |                                                                                                                  |                                            |                        |          |         | (unaudited) |         |              |         | 
|                         |                                                                                                                  |                                            |                        | ASSETS  
|                        
|                        
|                        
|                        
|Current assets:          |                                                                                                                  |                                            |                        |          |         |             |         |             
|                        
|                        
|                        
|                        
|                         | Cash and cash equivalents                                                                                        |                                            | $                      | 87,607   |         |             | $       | 105,125      |        
|                        
|                        
|                        
|                        
|                         | Marketable securities                                                                                            |                                            |                        |         |         |             |         | 10,141       |        
|                        
|                        
|                        
|                        
|                         | Receivables, net                                                                                                 |                                            |                        | 9,813    |         |             |         | 15,698       |        
|                        
|                        
|                        
|                        
|                         | Merchandise inventories                                                                                          |                                            |                        | 37,746   |         |             |         | 48,563       |        
|                        
|                        
|                        
|                        
|                         | Prepaid expenses and other current assets                                                                        |                                            |                        | 5,745    |         |             |         | 3,874        |        
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|                         |                                                                                                                  | Total current assets                       |                        |          | 140,911 |             |         |              | 183,401 | 
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|Fixed assets, net        |                                                                                                                  |                                            | 72,358                 |          |         |             | 85,771  |             
|                        
|                        
|                        
|                        
|Other non-current assets |                                                                                                                  |                                            | 15,266                 |          |         |             | 18,204  |             
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|                         | Total assets                                                                                                     |                                            | $                      | 228,535  |         |             | $       | 287,376      |        
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|                         |                                                                                                                  |                                            | LIABILITIES AND EQUITY
|                        
|                        
|                        
|                        
|Current liabilities:     |                                                                                                                  |                                            |                        |          |         |             |         |             
|                        
|                        
|                        
|                        
|                         | Accounts payable                                                                                                 |                                            | $                      | 5,182    |         |             | $       | 4,652        |        
|                        
|                        
|                        
|                        
|                         | Accrued liabilities                                                                                              |                                            |                        | 75,571   |         |             |         | 90,590       |        
|                        
|                        
|                        
|                        
|                         | Payable to affiliate                                                                                             |                                            |                        | 40,347   |         |             |         | 43,531       |        
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|                         |                                                                                                                  | Total current liabilities                  |                        |          | 121,100 |             |         |              | 138,773 | 
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|Minority interest        |                                                                                                                  |                                            | 76,025                 |          |         |             | 105,845 |             
|                        
|                        
|                        
|                        
|Stockholders equity:    |                                                                                                                  |                                            |                        |          |         |             |         |             
|                        
|                        
|                        
|                        
|                         | Preferred Stock: $0.001 par value; 50,000,000 shares authorized; none
issued and outstanding                     |                                            |                        |         |         |             |         |             |        
|                        
|                        
|                        
|                        
|                         | Common Stock Series A; $0.001 par value; 750,000,000 shares authorized;
43,788,478 shares issued and outstanding |                                            |                        | 44       |         |             |         | 44           |        
|                        
|                        
|                        
|                        
|                         | Common Stock Series B; $0.001 par value; 1,000 shares authorized; 1 share
issued and outstanding                 |                                            |                        |         |         |             |         |             |        
|                        
|                        
|                        
|                        
|                         | Common Stock Series C; $0.001 par value; 1,000 shares authorized; 1 share
issued and outstanding                 |                                            |                        |         |         |             |         |             |        
|                        
|                        
|                        
|                        
|                         | Paid-in capital                                                                                                  |                                            |                        | 189,280  |         |             |         | 189,279      |        
|                        
|                        
|                        
|                        
|                         | Accumulated deficit                                                                                              |                                            |                        | (157,914 | )       |             |         | (146,565     | )      
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|                         |                                                                                                                  | Total stockholders equity                 |                        |          | 31,410  |             |         |              | 42,758  | 
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             
|                         | Commitments and contingencies                                                                                    |                                            |                        |          |         |             |         |              |        
|                        
|                        
|                        
|                        
|                         |                                                                                                                  | Total liabilities and stockholders equity |                        | $        | 228,535 |             |         | $            | 287,376 | 
|                         |                                                                                                                  |                                            |                        |          |         |             |         |             

See accompanying notes to consolidated financial statements.

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barnesandnoble.com inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)

|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |         |         |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------ | ----------------------------------------------------- | ------------------------------------------- | ------- | ---------------- | ------- | -------- | ------- | ------- | ------- | -
|                                                 |                                                                                |                                                       |                                             |         | Six Months Ended
|                                                 |                                                                                |                                                       |                                             |         |                 
|                                                 |                                                                                |                                                       |                                             |         | June 30,         |         | June 30,
|                                                 |                                                                                |                                                       |                                             |         | 2002             |         | 2001    
|                                                 |                                                                                |                                                       |                                             |         |                  |         |         
|Cash flows from operating activities:            |                                                                                |                                                       |                                             |         |                  |         |          |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                                                       |                                                       | $                                           | (11,349 | )                |         | $        | (21,577 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash flows from operating activities: |                                                       |                                             |         |                  |         |          |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Depreciation and amortization                         |                                             |         | 16,760           |         |          |         | 29,796  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Decrease in receivables, net                          |                                             |         | 5,885            |         |          |         | 15,510  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Decrease in merchandise inventories                   |                                             |         | 10,817           |         |          |         | 7,538   |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Increase in prepaid expenses and other current assets |                                             |         | (1,871           | )       |          |         | (4,771  | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Increase (decrease) in accounts payable               |                                             |         | 530              |         |          |         | (2,301  | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Decrease in payable to affiliate                      |                                             |         | (3,184           | )       |          |         | (7,618  | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Decrease in accrued liabilities                       |                                             |         | (15,019          | )       |          |         | (34,341 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                | Minority interest in loss                             |                                             |         | (29,806          | )       |          |         | (56,666 | )      
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        
|                                                 |                                                                                |                                                       | Net cash flows used in operating activities |         |                  | (27,237 | )        |         |         | (74,430 | )
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        
|Cash flows from investing activities:            |                                                                                |                                                       |                                             |         |                  |         |          |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of fixed assets                                                      |                                                       |                                             | (3,361  | )                |         |          | (8,577  | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Gain on disposal of fixed assets                                               |                                                       |                                             |        |                  |         |          | 336     |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Sales of marketable securities                                                 |                                                       |                                             | 10,141  |                  |         |          |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Decrease in other non-current assets                                           |                                                       |                                             | 2,938   |                  |         |          | 80      |        
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        
|                                                 | Net cash flows from (used in) investing activities                             |                                                       |                                             | 9,718   |                  |         |          | (8,161  | )      
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        
|Cash flows from financing activities:            |                                                                                |                                                       |                                             |         |                  |         |          |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from exercise of stock options                                        |                                                       |                                             | 1       |                  |         |          |        |        
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        
|                                                 | Net cash flows from financing activities                                       |                                                       |                                             | 1       |                  |         |          |        |        
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        
|Net change in cash and cash equivalents          |                                                                                |                                                       | (17,518                                     | )       |                  |         | (82,591  | )      
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                |                                                       | 105,125                                     |         |                  |         | 217,304  |        
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        
|Cash and cash equivalents at end of period       |                                                                                | $                                                     | 87,607                                      |         |                  | $       | 134,713  |        
|                                                 |                                                                                |                                                       |                                             |         |                  |         |          |        

See accompanying notes to consolidated financial statements.

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barnesandnoble.com inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)

The unaudited consolidated financial statements include the accounts of
barnesandnoble.com inc. (the Company) and barnesandnoble.com llc (B&N.com).

In the opinion of the Companys management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly its consolidated
financial position as of June 30, 2002 and the results of its operations and
its cash flows for the six months then ended. These consolidated financial
statements are condensed and therefore do not include all of the information
and footnotes required by generally accepted accounting principles. The
consolidated financial statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended December 31, 2001. The
Company followed the same accounting policies in preparation of this report as
in such Annual Report. Operating results for the six months ended June 30, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.

1. ORGANIZATION

The Company is a holding company whose sole asset is a 27.6% equity
interest in B&N.com, an internet-based retailer of books, music, DVD/video and
online courses, and whose sole business is to manage the operations of B&N.com.
As the sole manager of B&N.com, the Company controls all of the affairs of
B&N.com and as a result, B&N.com is consolidated with the Company for financial
statement purposes. Barnes & Noble, Inc. (Barnes & Noble) and Bertelsmann
A.G. (Bertelsmann) each beneficially own a 36.2% equity interest (equivalent
to an aggregate of 115 million Membership Units) in B&N.com. Each Membership
Unit held by these companies is convertible into one share of the Companys
Class A Common Stock. As reflected in the consolidated statements of
operations, the loss before minority interest represents the total loss for the
period and the net loss represents the portion of the loss attributable to the
Company.

2. RECLASSIFICATIONS

Certain prior-period amounts have been reclassified for comparative
purposes to conform to the 2002 presentation.

3. ACCRUED SPECIAL CHARGES

In connection with the November 16, 2000 acquisition of Fatbrain.com, Inc.
(Fatbrain), B&N.com assessed and formulated plans to restructure certain
operations of Fatbrain. These plans involved the closure of the Fatbrain
fulfillment facility in Kentucky as well as a consolidation of administrative
operations reducing the workforce at Fatbrains office in Santa Clara,
California. The objectives of the plans were to consolidate operations and
leverage overhead expenses. The costs associated with the consolidation effort
were recorded as liabilities in the purchase business combination and consist
of severance and other employee costs of $1,059, all of which had been paid by
the end of the first quarter of 2002, and facility closure costs of $1,876, of
which $1,839 has been paid through the end of the second quarter 2002. Unpaid
balances are included in accrued liabilities.

An impairment of fixed assets and other special charges of $88,213 ($0.56
per share assuming conversion of membership units) and $75,051 ($0.51 per share
assuming conversion of membership units) were recorded as a component of
operating expenses during the fourth quarters of 2001 and 2000, respectively.
These charges were primarily related to the impairment of fixed and other
assets, including equity investments, as well as the consolidation of
fulfillment operations and administrative functions. At June 30, 2002, the
accrued liability associated with the special charges was $6,496 and consisted
of the following:

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barnesandnoble.com inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)

|                                 |  |           |        |          |  |           |       |            |  |           |       |  |  |   |       |  |  |   |       | 
|-------------------------------- |  | --------- | ------ | -------- |  | --------- | ----- | ---------- |  | --------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                 |  | Balance   |        | 2002     |  | Balance   |       | Due within |  | Due after
|                                 |  | 31-Dec-01 |        | Payments |  | 30-Jun-02 |       | 12 Months  |  | 12 Months
|                                 |  |           |        |          |  |           |       |            |  |          
|Facility/Lease Termination Costs |  | $         | 6,997  |          |  | $         | 1,636 |            |  | $         | 5,361 |  |  | $ | 1,528 |  |  | $ | 3,833 | 
|                                
|                                
|                                
|                                
|Employee Termination Benefits    |  |           | 4,436  |          |  |           | 3,799 |            |  |           | 637   |  |  |   | 637   |  |  |   |      | 
|                                
|                                
|                                
|                                
|Other Impairment Charges         |  |           | 2,014  |          |  |           | 1,516 |            |  |           | 498   |  |  |   | 498   |  |  |   |      | 
|                                 |  |           |        |          |  |           |       |            |  |           |       |  |  |   |       |  |  |   |       | 
|                                 |  | $         | 13,447 |          |  | $         | 6,951 |            |  | $         | 6,496 |  |  | $ | 2,663 |  |  | $ | 3,833 | 
|                                 |  |           |        |          |  |           |       |            |  |           |       |  |  |   |       |  |  |   |       | 

4. INVESTMENTS IN EQUITY METHOD INVESTEES

The Company has made certain investments in business entities accounted
for under the equity method of accounting. The Company accounts for an
investment under the equity method if the investment gives the Company the
ability to exercise significant influence over the operating and financial
policies of such entity. An investment of 20% or more of the voting stock
typically denotes such influence, in the absence of other evidence to the
contrary.

In January 2000, B&N.com acquired a 32% common stock interest in enews,
inc. (enews), a retailer of magazine subscriptions on the Internet, and
warrants to acquire additional common stock, for $26,428 in cash and 714 shares
of the Companys stock valued at $12,857, to expand its presence in the on-line
magazine subscription market. Through June 30, 2002, B&N.coms investment in
enews was approximately 46.8%.

In July 2002, the Board of Directors of enews approved a Plan of Complete
Liquidation (the Liquidation Plan), which was then approved by stockholders
of enews owning at least a majority of the outstanding shares of capital stock
of enews. Currently the Company is assessing the impact of the Liquidation
Plan on its financial position and results of operations, which the
Company believes will not be material.

5. RELATED PARTY TRANSACTIONS

B&N.com has entered into agreements with Barnes & Noble, Bertelsmann and
their affiliates. The Company believes that the transactions and agreements
discussed below (including renewals of any existing agreements) between B&N.com
and its affiliates are at least as favorable to B&N.com as could be obtained
from unaffiliated parties. The Board of Directors and its Audit Committee must
approve in advance any proposed transaction or agreement with affiliates and
will utilize procedures in evaluating the terms and provisions of such proposed
transaction or agreement as are appropriate in light of the fiduciary duties of
directors under Delaware law.

B&N.com entered into a Supply Agreement dated October 31, 1998, as
amended, with Barnes & Noble (the Supply Agreement), whereby Barnes & Noble
has agreed to supply inventory to B&N.com through Barnes & Nobles distribution
facilities and purchasing departments. Pursuant to the Supply Agreement, Barnes
& Noble charges B&N.com its actual cost to acquire the inventory plus any
incremental overhead incurred by Barnes & Noble in connection with providing
such merchandise supply services. The Company purchased $50,659 and $56,277
from Barnes & Noble representing 39% and 49% of the Companys purchases for the
six months ended June 30, 2002 and 2001, respectively. The charges for
incremental overhead for the six months ended June 30, 2002 and 2001 were
$1,169 and $1,057, respectively. At June 30, 2002, $40,347 remained payable to
Barnes & Noble in connection with such purchases.

Under a Services Agreement, dated as of October 31, 1998, as amended,
between B&N.com and Barnes & Noble (the Services Agreement), B&N.com receives
various administrative services from Barnes & Noble, including, among other
things, services for payroll processing, benefits administration, insurance
(property and casualty, medical, dental and life) and tax administration. In
accordance with the terms of the Services Agreement, B&N.com reimburses Barnes
& Noble

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barnesandnoble.com inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)

in an amount equal to the third-party expenses it incurs to provide such
services, plus any incremental internal costs. B&N.com was
charged $596 and $789 for such services during the six months ended June 30, 2002 and 2001,
respectively.

B&N.com purchased merchandise from Calendar Club, L.L.C. (Calendar
Club), a company engaged in the wholesaling and retailing of calendars, in
which Barnes & Noble owns a 73.9% interest. B&N.coms purchases from Calendar
Club for the six months ended June 30, 2002 totaled $304.

B&N.com subleases from Barnes & Noble approximately one-third of a 300,000
square foot warehouse facility located in New Jersey. B&N.com was charged by
Barnes & Noble $249 and $230 for such subleased space during the six months
ended June 30, 2002 and 2001, respectively. The amount paid to Barnes & Noble
by B&N.com approximates the cost per square foot paid by Barnes & Noble as
tenant pursuant to its lease of the space from an unaffiliated third party.

Since 1999, B&N.com has used AEC One Stop Group, Inc. (AEC), as its main
music supplier, and as one of its suppliers of DVD/video. AEC is among the
largest wholesale distributors of music, videos and DVDs in the United States.
AEC also provides B&N.com with a music, DVD and video product database.
Subsequent to the initial supply arrangement between AEC and B&N.com, AECs
parent corporation was acquired by an investor group in which Leonard Riggio,
Chairman of the Board of the Company and B&N.com, became a minority investor.
B&N.com was charged by AEC $14,015 and $11,338 in connection with this
agreement for merchandise purchased during the six months ended June 30, 2002
and 2001, respectively. In addition, B&N.com was charged by AEC $136 and $100
for database services during the six months ended June 30, 2002 and 2001,
respectively. At June 30, 2002, $4,481 remained payable to AEC.

B&N.com licenses the Barnes & Noble name under a royalty-free license
agreement, dated as of October 31, 1998, as amended, between B&N.com and Barnes
& Noble College Bookstores, Inc. (the License Agreement), of which Leonard
Riggio is the principal stockholder. Pursuant to the License Agreement, the
Company has been granted an exclusive license to use the Barnes & Noble name
and trademark for the purpose of selling books over the internet (excluding
sales of college textbooks). Under a separate agreement dated as of January
2001, between the Company and Textbooks.com, Inc. (Textbooks.com) a
corporation owned by Leonard Riggio, B&N.com was granted the right to sell
college textbooks over the Internet using the Barnes & Noble name. Pursuant
to this agreement, B&N.com pays Textbooks.com a royalty on revenues (net of
product returns, applicable sales tax and excluding shipping and handling)
realized by the Company from the sale of books designated as textbooks. The
term of the agreement is for five years and renews annually for additional
one-year periods unless terminated 12 months prior to the end of any given
term. For the six months ended June 30, 2002 and 2001, the Company recorded
royalty expense of $1,864 and $2,166, respectively, under the terms of this
agreement.

B&N.com has various royalty-free non-exclusive licenses dated October 31,
1998, as amended, from Barnes & Noble and Bertelsmann Online (BOL). B&N.com
licenses from Barnes & Noble the right to use Barnes & Nobles database of book
bibliographic data as well as certain software applications. B&N.com licenses
from BOL, the subsidiary through which Bertelsmann conducts its Internet
business, its name and trademark for use in B&N.coms operations. Under
Technology Sharing License Agreements, B&N.com was granted a royalty-free
license to view, access and use BOLs computer technology and systems, and
B&N.com granted BOL a license to view, access and use B&N.coms computer
technology and systems. All of the agreements described in this paragraph are
subject to certain renewal and termination provisions.

Barnes & Noble commenced a marketing
program in November 2000, whereby a
customer purchases a Readers AdvantageTM Card for a non-refundable annual
membership fee of $25.00. With this card, customers can receive discounts of
10% on all Barnes & Noble store purchases and 5% on all of their purchases
through the B&N.com Web site. B&N.com and Barnes & Noble have agreed to share
the revenue, net of expenses, generated from the sale of the cards, related to
this program in proportion to the discounts customers receive on purchases with
each company. B&N.coms share of the card revenue generated from this program
for the six months ended June 30, 2002 and 2001 was $788 and $248,
respectively.

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barnesandnoble.com inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)

B&N.com ships, through its fulfillment centers, customer orders on behalf
of Barnes & Noble to Barnes & Noble retail stores as well as to Barnes & Noble
customers homes. B&N.com charges Barnes & Noble the costs associated with such
shipments plus any incremental overhead incurred by B&N.com to process these
orders. The fees received are recorded as a reduction of B&N.coms total
fulfillment expense. For the six months ended June 30, 2002 and 2001, B&N.com
recorded $205 and $506, respectively, for shipping and handling from Barnes &
Noble. In addition, during the year 2001, B&N.com and Barnes & Noble entered
into an agreement whereby B&N.com receives a commission on all items ordered by
customers at Barnes & Noble stores and shipped directly to customers homes by
B&N.com. Commissions for these sales were recorded as revenue and amounted to
$572 for the six months ended June 30, 2002.

Barnes & Noble subleased warehouse space from the Company in Reno, Nevada.
B&N.com charged Barnes & Noble $500 and $909 for such
subleased space for the six months ended June 30, 2002 and 2001, respectively. Additionally, B&N.com sold
$6,186 of warehouse equipment from its Reno warehouse to Barnes & Noble in
2001. The equipment was sold to Barnes & Noble at its original cost. In January
2002, B&N.com determined it could not effectively utilize the full capacity of
its Reno, Nevada distribution center. Accordingly, following Board approval on
January 29, 2002, B&N.com agreed to transfer the Reno warehouse lease and sell
B&N.coms inventory located in Reno to Barnes & Noble. Barnes & Noble purchased
the inventory from B&N.com at cost for approximately $9,877. The Board of
Barnes & Noble also approved Barnes & Nobles assumption of the lease
obligation and the hiring of all of the employees at the Reno facility. The
Reno lease assignment and the transfer of the operations of the Reno facility
to Barnes & Noble was completed in April 2002. In connection with the
transfer, B&N.com agreed to pay one-half of the rent charged for the facility
through December 31, 2002. B&N.com paid $306 in relation to these expenses for
the six months ended June 30, 2002.

In 2000, B&N.com began purchasing new and used textbooks directly from MBS
Textbook Exchange, Inc. (MBS), a corporation majority-owned by Leonard Riggio
and one of the nations largest wholesalers of college textbooks. B&N.coms
total purchases for the six months ended June 30, 2002 and 2001 were $8,822 and
$7,538, respectively. In addition, B&N.com maintains a link on its Web site
called Sell Your Textbooks which is hosted by MBS and through which B&N.com
customers are able to sell used books directly to MBS. B&N.com is paid a
commission based on the price paid by MBS to the consumer. Total commissions
received for the six months ended June 30, 2002 and 2001 were $29 and $5,
respectively.

Under a Strategic Relationship Agreement, dated as of May 1, 2001 (the
Strategic Relationship Agreement), between B&N.com and GameStop, Inc.
(GameStop), a majority-owned subsidiary of Barnes & Noble, B&N.coms Web site
refers customers to the GameStop Web site for purchases of video game hardware,
software and accessories and PC entertainment software. GameStop pays B&N.com a
referral fee based on its net sales revenue from certain eligible purchases
made by customers as a result of the redirection from the B&N.com Web site.
Either party may terminate the Strategic Relationship Agreement after May 1,
2002 on 60 days notice. Commissions of $59 were recorded for the six months
ended June 30, 2002 under this agreement. Commissions for the six months ended
June 30, 2001 were negligible.

B&N.com has an approximate 46.8% equity stake in enews, a company engaged
in selling magazine subscriptions on the Internet, and accounts for this
investment under the equity method. Substantially all of the balance of the
shares are owned by Barnes & Noble. B&N.com fulfills a majority of orders for
magazine subscriptions through enews and records a commission on these sales.
Beginning in October 2000, enews subleased space from B&N.com at its New York
office for an annual rent of $95. B&N.com recorded commissions of $697 and $131
for the periods ended June 30, 2002 and 2001, respectively, and was reimbursed
$232 for expenses incurred on behalf of enews for the period ended June 30,
2002.

Michael N. Rosen, a director of the Company, is also a member of Bryan
Cave Robinson Silverman, outside counsel to the Company and B&N.com.

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barnesandnoble.com inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)

6. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations(SFAS 141), and No. 142, Goodwill
and Other Intangible Assets(SFAS 142). SFAS 141 requires the use of the
purchase method of accounting and prohibits the use of the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
SFAS 141 also requires that the Company recognize acquired intangible assets
apart from goodwill if the acquired intangible assets meet certain criteria.
SFAS 141 applies to all business combinations initiated after June 30, 2001 and
for purchase business combinations completed on or after July 1, 2001. It also
requires that, upon adoption of SFAS 142, the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company
reassessed the useful lives of other intangible assets within the first interim
quarter after adoption of SFAS 142.

The Companys previous business combinations were accounted for using the
purchase method. As of June 30, 2002, the net carrying amount of goodwill is
$13,777. As required by SFAS 142, the Company has completed their initial
impairment test on the goodwill in the second quarter ended June 30, 2002 and
as a result no impairment charge is deemed necessary.

The effect of adoption of SFAS No. 142 on the reported net loss for the
prior period is as follows:

|                                                     |                               |      |         |       |   |   |         |       |  
|---------------------------------------------------- | ----------------------------- | ---- | ------- | ----- | - | - | ------- | ----- | -
|For the six months ended June 30,                    |                               | 2002 |         | 2001 
|                                                     |                               |      |         |      
|Loss before minority interest                        |                               | $    | (41,155 | )     |   | $ | (78,243 | )    
|                                                    
|                                                    
|                                                    
|                                                    
|Add back: Amortization of goodwill                   |                               |      |        |       |   |   | 10,065  |      
|                                                     |                               |      |         |       |   |   |         |      
|Loss before minority interest, as adjusted           |                               | $    | (41,155 | )     |   | $ | (68,178 | )    
|                                                     |                               |      |         |       |   |   |         |      
|Loss before minority interest per share:             |                               |      |         |       |   |   |         |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loss before minority interest |      | $       | (0.26 | ) |   | $       | (0.49 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Amortization of goodwill      |      |         |      |   |   |         | 0.06  |  
|                                                     |                               |      |         |       |   |   |         |      
|Loss before minority interest per share, as adjusted |                               | $    | (0.26   | )     |   | $ | (0.43   | )    
|                                                     |                               |      |         |       |   |   |         |      

In August 2001, the FASB also issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The
FASBs new rules on asset impairment supersede SFAS No. 121, and portions of
Accounting Principles Bulletin Opinion 30, Reporting the Results of
Operations. This new standard provides a single accounting model for
long-lived assets to be disposed of and significantly changes the criteria that
would have to be met to classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are not depreciated
and are stated at the lower of fair value and carrying amount. The adoption of
this Statement has not had material impact on the Companys financial position
and operating results.

Statement of Financial Accounting Standards No. 145, Rescission of SFAS
Statements No. 4, 44 and 64, Amendment of SFAS Statement No. 13, and Technical
Corrections (SFAS 145), updates, clarifies and simplifies existing
accounting pronouncements. SFAS 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt.

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barnesandnoble.com inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)

SFAS 145 amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The provisions of
SFAS 145 related to SFAS No. 4 and SFAS No. 13 are effective for fiscal years
beginning and transactions occurring after May 15, 2002, respectively. It is
anticipated that the financial impact of SFAS 145 will not have a material
effect on the Company.

Statement of Financial Accounting Standards No. 146, Accounting for the
Costs Associated with Exit or Disposal Activities (SFAS 146), requires
the Company to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or
disposal plan. SFAS 146 replaces Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit and Activity (including Certain Costs Incurred in a
Restructuring). The provisions of SFAS 146 are to be applied prospectively to
exit or disposal activities initiated after December 31, 2002.

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Item 2:Managements Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company is a holding company whose sole asset is its 27.6% equity
interest in B&N.com and whose sole business is acting as sole manager of
B&N.com. B&N.com launched its initial online store in March 1997 and since that
time has become the seventh largest e-commerce Web site, based on the Jupiter
Media Metrix June 2002 report.

B&N.com has pursued a strategy of focusing on the sale of books, music,
DVD/video and online courses. Since opening its online store (www.bn.com) in
March 1997, B&N.com has sold products to more than 12 million customers in 228
countries. B&N.coms online bookstore includes the largest in-stock selection
of in-print book titles with access to 1 million titles for immediate delivery,
supplemented by more than 20 million listings from its nationwide network of
out-of-print, rare and used book dealers. B&N.com offers its customers fast
delivery, easy and secure ordering and rich editorial content.

The results of operations discussed hereafter include the consolidated
results of the Company and B&N.com. In view of the rapidly changing nature of
B&N.coms business and its limited operating history, the Company believes that
period-to-period comparisons of the operating results of B&N.com, including
gross profit margin and operating expenses as a percentage of sales, are not
necessarily meaningful and should not be relied upon as an indication of future
performance.

Results of Operations

Net sales

|          |  |                             |        |                           |  |          |        |      |  |      |   |          |  |   |         |  |  |   |         |  |  |  |    |   
|--------- |  | --------------------------- | ------ | ------------------------- |  | -------- | ------ | ---- |  | ---- | - | -------- |  | - | ------- |  |  | - | ------- |  |  |  | -- | --
|          |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|          |  | (in thousands of dollars)   |        | (in thousands of dollars)
|          |  |                             |        |                          
|          |  | 2002                        |        | 2001                      |  | % Change |        | 2002 |  | 2001 |   | % Change
|          |  |                             |        |                           |  |          |        |      |  |      |   |         
|Net sales |  | $                           | 85,837 |                           |  | $        | 83,684 |      |  |      | 3 | %        |  | $ | 192,372 |  |  | $ | 192,725 |  |  |  | (1 | %)

Net sales are comprised of sales of books, music, video and eBooks and
related products, net of returns and promotional discounts, as well as outbound
shipping and handling charges. Units sold to the Companys consumer customers
for the six months ended June 30, 2002 increased 19.7% from June 30, 2001,
offset by a decline in units sold to corporate customers. Net sales in 2002
reflect the impact of the Companys free shipping promotion, which was not in
effect during the second quarter of 2001.

Gross profit

|             |  |                             |        |      |  |          |        |                           |  |      |    |          |  |   |        |   |  |   |        |   |  |  |    |   
|------------ |  | --------------------------- | ------ | ---- |  | -------- | ------ | ------------------------- |  | ---- | -- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | -- | --
|             |  | Three Months Ended June 30, |        |      |  |          |        | Six Months Ended June 30,
|             |  | (in thousands of dollars)   |        |      |  |          |        | (in thousands of dollars)
|             |  |                             |        |      |  |          |        |                          
|             |  | 2002                        |        | 2001 |  | % Change |        | 2002                      |  | 2001 |    | % Change
|             |  |                             |        |      |  |          |        |                           |  |      |    |         
|Gross profit |  | $                           | 20,172 |      |  | $        | 20,489 |                           |  |      | (2 | %)       |  | $ | 43,334 |   |  | $ | 45,616 |   |  |  | (5 | %)
|            
|            
|            
|            
|Gross margin |  |                             | 23.5   | %    |  |          | 24.5   | %                         |  |      |    |          |  |   | 22.5   | % |  |   | 23.7   | % |  |  |    |   

Gross profit is net sales less the cost of sales, which consists of the
cost of merchandise sold to customers as well as inbound and outbound shipping
costs. Gross profit decreased as a result of the Companys introduction of a
free shipping promotion in July 2001, which led to a reduction of shipping
revenue as a percentage of net sales and negatively affected gross margin.

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Fulfillment and customer service

|                                 |  |                             |       |                           |  |          |       |      |  |      |     |          |  |   |        |   |  |   |        |   |  |  |     |   
|-------------------------------- |  | --------------------------- | ----- | ------------------------- |  | -------- | ----- | ---- |  | ---- | --- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | --- | --
|                                 |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                 |  | (in thousands of dollars)   |       | (in thousands of dollars)
|                                 |  |                             |       |                          
|                                 |  | 2002                        |       | 2001                      |  | % Change |       | 2002 |  | 2001 |     | % Change
|                                 |  |                             |       |                           |  |          |       |      |  |      |     |         
|Fulfillment and customer service |  | $                           | 8,525 |                           |  | $        | 9,929 |      |  |      | (14 | %)       |  | $ | 17,997 |   |  | $ | 22,300 |   |  |  | (19 | %)
|                                
|                                
|                                
|                                
|Percentage of net sales          |  |                             | 9.9   | %                         |  |          | 11.9  | %    |  |      |     |          |  |   | 9.4    | % |  |   | 11.6   | % |  |  |     |   

Fulfillment and customer service expenses consist primarily of the cost of
operating and staffing distribution and customer service centers. Fulfillment
and customer service expenses decreased on an absolute basis and as a
percentage of net sales primarily as a result of achieving more efficiency in
operations. B&N.com anticipates that its fulfillment and customer service costs
will continue to decrease in absolute dollars and as a percentage of net sales
based on anticipated further productivity improvements.

Marketing, sales and editorial

|                               |  |                             |       |                           |  |          |        |      |  |      |     |          |  |   |        |   |  |   |        |   |  |  |     |   
|------------------------------ |  | --------------------------- | ----- | ------------------------- |  | -------- | ------ | ---- |  | ---- | --- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | --- | --
|                               |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                               |  | (in thousands of dollars)   |       | (in thousands of dollars)
|                               |  |                             |       |                          
|                               |  | 2002                        |       | 2001                      |  | % Change |        | 2002 |  | 2001 |     | % Change
|                               |  |                             |       |                           |  |          |        |      |  |      |     |         
|Marketing, sales and editorial |  | $                           | 7,773 |                           |  | $        | 14,930 |      |  |      | (48 | %)       |  | $ | 18,050 |   |  | $ | 32,363 |   |  |  | (44 | %)
|                              
|                              
|                              
|                              
|Percentage of net sales        |  |                             | 9.1   | %                         |  |          | 17.8   | %    |  |      |     |          |  |   | 9.4    | % |  |   | 16.8   | % |  |  |     |   

Marketing, sales and editorial expenses consist primarily of advertising
and promotional expenditures, as well as payroll and related expenses for
personnel engaged in marketing and selling activities. Marketing and sales
expenses decreased primarily due to a significant reduction in B&N.coms
advertising and promotional expenditures. Such expenses decreased in absolute
dollars and as a percentage of net sales due to the Companys focus on more
targeted and measurable marketing programs as well as the re-negotiation of
many of the Companys online marketing deals to obtain more advantageous terms.
The Company expects to continue this focus to drive down these expenses as a
percentage of sales. Marketing, sales and editorial expenses are expected to
decline both in dollars and as a percentage of net sales for the remainder of
2002 as further efficiencies are realized.

Technology and web site development

|                                    |  |                             |       |                           |  |          |        |      |  |      |     |          |  |   |        |   |  |   |        |   |  |  |     |   
|----------------------------------- |  | --------------------------- | ----- | ------------------------- |  | -------- | ------ | ---- |  | ---- | --- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | --- | --
|                                    |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                    |  | (in thousands of dollars)   |       | (in thousands of dollars)
|                                    |  |                             |       |                          
|                                    |  | 2002                        |       | 2001                      |  | % Change |        | 2002 |  | 2001 |     | % Change
|                                    |  |                             |       |                           |  |          |        |      |  |      |     |         
|Technology and web site development |  | $                           | 9,256 |                           |  | $        | 10,843 |      |  |      | (15 | %)       |  | $ | 18,832 |   |  | $ | 24,790 |   |  |  | (24 | %)
|                                   
|                                   
|                                   
|                                   
|Percentage of net sales             |  |                             | 10.8  | %                         |  |          | 13.0   | %    |  |      |     |          |  |   | 9.8    | % |  |   | 12.9   | % |  |  |     |   

Technology and web site development expenses consist principally of
payroll and related expenses for web page production and computer network
operations personnel and consultants, and costs of infrastructure related to
systems and
telecommunications. The decrease for the six months ended June 30, 2002 in
technology and web site development expenses was primarily attributable to
increased infrastructure efficiency and reduced labor expenses during the
second quarter. Technology and web site development expenses are expected to
continue to decrease in dollars and as a percentage of sales for the remainder
of 2002 as further efficiencies are realized.

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##### Table of Contents



General and administrative

|                           |  |                             |       |                           |  |          |       |      |  |      |     |          |  |   |        |   |  |   |        |   |  |  |     |   
|-------------------------- |  | --------------------------- | ----- | ------------------------- |  | -------- | ----- | ---- |  | ---- | --- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | --- | --
|                           |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                           |  | (in thousands of dollars)   |       | (in thousands of dollars)
|                           |  |                             |       |                          
|                           |  | 2002                        |       | 2001                      |  | % Change |       | 2002 |  | 2001 |     | % Change
|                           |  |                             |       |                           |  |          |       |      |  |      |     |         
|General and administrative |  | $                           | 6,417 |                           |  | $        | 7,453 |      |  |      | (14 | %)       |  | $ | 12,803 |   |  | $ | 15,806 |   |  |  | (19 | %)
|                          
|                          
|                          
|                          
|Percentage of net sales    |  |                             | 7.5   | %                         |  |          | 8.9   | %    |  |      |     |          |  |   | 6.7    | % |  |   | 8.2    | % |  |  |     |   

General and administrative expenses primarily consist of payroll and
related expenses for executive, finance and administrative personnel,
recruiting, professional fees and other general corporate expenses including
costs to process credit card transactions. The decrease in general and
administrative expenses was a result of the Companys efforts to consolidate
operations.

Depreciation and amortization

|                              |  |                             |        |                           |  |          |        |      |  |      |       |          |  |   |        |   |  |   |        |   |  |  |     |   
|----------------------------- |  | --------------------------- | ------ | ------------------------- |  | -------- | ------ | ---- |  | ---- | ----- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | --- | --
|                              |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                              |  | (in thousands of dollars)   |        | (in thousands of dollars)
|                              |  |                             |        |                          
|                              |  | 2002                        |        | 2001                      |  | % Change |        | 2002 |  | 2001 |       | % Change
|                              |  |                             |        |                           |  |          |        |      |  |      |       |         
|Depreciation and amortization |  |                             | $8,433 |                           |  | $        | 10,404 |      |  |      | (19%) |          |  | $ | 16,525 |   |  | $ | 20,356 |   |  |  | (19 | %)
|                             
|                             
|                             
|                             
|Percentage of net sales       |  |                             | 9.8    | %                         |  |          | 12.4   | %    |  |      |       |          |  |   | 8.6    | % |  |   | 10.6   | % |  |  |     |   

The decrease in depreciation and amortization expenses is the result of
lower capital expenditures in fiscal 2002 and 2001 as compared with fiscal
2000. In 2002 the Company no longer amortizes goodwill due to the adoption of
SFAS 142.

Equity in net loss of equity investments including related amortization of intangibles

|                                                                                       |  |                             |     |                           |  |          |       |      |  |      |     |          |  |   |       |   |  |   |        |   |  |  |     |   
|-------------------------------------------------------------------------------------- |  | --------------------------- | --- | ------------------------- |  | -------- | ----- | ---- |  | ---- | --- | -------- |  | - | ----- | - |  | - | ------ | - |  |  | --- | --
|                                                                                       |  | Three Months Ended June 30, |     | Six Months Ended June 30,
|                                                                                       |  | (in thousands of dollars)   |     | (in thousands of dollars)
|                                                                                       |  |                             |     |                          
|                                                                                       |  | 2002                        |     | 2001                      |  | % Change |       | 2002 |  | 2001 |     | % Change
|                                                                                       |  |                             |     |                           |  |          |       |      |  |      |     |         
|Equity in net less of equity
investments including related
amortization of intangibles |  | $                           | 845 |                           |  | $        | 7,051 |      |  |      | (88 | %)       |  | $ | 1,374 |   |  | $ | 13,209 |   |  |  | (90 | %)
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Percentage of net sales                                                                |  |                             | 1.0 | %                         |  |          | 8.4   | %    |  |      |     |          |  |   | 0.7   | % |  |   | 6.9    | % |  |  |     |   

Equity in net loss of equity investments consists of losses from the
Companys equity investments in enews for the second quarter ended June 30,
2002. Equity in net loss of equity investments decreased in the six months
ended June 30, 2002 in comparison with the prior year period as enews realized
lower losses year over year. In addition, the 2001 period included other equity
investments, which the Company no longer holds, as well as goodwill, which is
no longer amortized as a result of the adoption of SFAS No. 142. The carrying
balance of goodwill is assessed for recoverability on a periodic basis. In July
2002, the Board of Directors and stockholders of enews approved the Liquidation
Plan. Currently the Company is assessing the impact of the Liquidation Plan on
its financial position and results of operations, which the Company
believes will not be material.

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##### Table of Contents



Interest income, net

|                        |  |                             |     |                           |  |          |       |      |  |      |     |          |  |   |       |   |  |   |       |   |  |  |     |   
|----------------------- |  | --------------------------- | --- | ------------------------- |  | -------- | ----- | ---- |  | ---- | --- | -------- |  | - | ----- | - |  | - | ----- | - |  |  | --- | --
|                        |  | Three Months Ended June 30, |     | Six Months Ended June 30,
|                        |  | (in thousands of dollars)   |     | (in thousands of dollars)
|                        |  |                             |     |                          
|                        |  | 2002                        |     | 2001                      |  | % Change |       | 2002 |  | 2001 |     | % Change
|                        |  |                             |     |                           |  |          |       |      |  |      |     |         
|Interest income, net    |  | $                           | 457 |                           |  | $        | 1,719 |      |  |      | (73 | %)       |  | $ | 1,092 |   |  | $ | 4,965 |   |  |  | (78 | %)
|                       
|                       
|                       
|                       
|Percentage of net sales |  |                             | 0.5 | %                         |  |          | 2.1   | %    |  |      |     |          |  |   | 0.6   | % |  |   | 2.6   | % |  |  |     |   

Interest income decreased compared with last year as cash balances
decreased due to their use as a source of funding the Companys operations. All
available cash is invested in various marketable securities consisting
primarily of money market funds containing highly liquid U.S. Treasury
Securities, U.S. government agency securities and investments in high quality
corporate issuers.

Income Taxes

The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. The Company has provided a
full valuation allowance on the deferred tax asset, consisting primarily of net
operating loss carryforwards, due to the uncertainty of its realizability.

Liquidity and Capital Resources

As
of June 30 2002, the Companys cash, cash equivalents and
short-term marketable securities were $87.6
million, compared to $115.3 million on December 31, 2001. The Company continues
to have a debt-free balance sheet.

Net cash flows used in operating activities were $27.2 million for the six
months ended June 30, 2002 and $74.4 million for the six months ended June 30,
2001. Cash used for the six months ended June 30, 2002 was attributable to a
net loss of $11.3 million, a corresponding decrease in minority interest of
$29.8 million, a decrease in accrued liabilities of $15.0 million, a decrease
in payables to affiliates of $3.2 million and an increase in prepaid expenses
and other current assets of $1.9 million. This was offset by a $10.8 million
decrease in merchandise inventories, a decrease in receivables of $5.9 million,
depreciation and amortization of $16.8 million and an increase of $0.5 million
in accounts payable. Cash used for the six months ended June 30, 2001 was
attributable to a net loss of $21.6 million and a corresponding decrease in
minority interest of $56.7 million, a decrease in payables to affiliates of
$7.6 million, a decrease in accrued liabilities of $34.3 million, an increase
of $4.8 million in prepaid expenses and other current assets and a decrease of
$2.3 million in accounts payable. This was offset by depreciation and amortization of $29.8 million, a decrease
in merchandise inventories of $7.5 million and a decrease in receivables of
$15.5 million.

Net cash flows from investing activities of $9.7 million for the six
months ended June 30, 2002 were attributable to a decrease of $2.9 million in
other non-current assets and sales of marketable securities of $10.1 million,
offset by purchases of fixed assets totaling $3.4 million. Net cash flows used
in investing activities of $8.2 million for the six months ended June 30, 2001
were attributable to purchases of fixed assets totaling $8.6 million, partially
offset by a $0.3 million gain on the disposal of fixed assets.

At June 30, 2002, the Companys principal sources of liquidity consisted
of $87.6 million in cash and cash equivalents. As of June 30, 2002, the
Companys remaining principal commitments consisted of obligations outstanding
under operating leases. The Company has pledged a portion of its cash and cash
equivalents as collateral for stand-by letters of credit that guarantee certain
of the Companys real property lease obligations. At June 30, 2002, the total
amount of collateral pledged under these agreements was $4.3 million. The
Company has no unconsolidated majority owned subsidiaries and no interests in
special purpose entities.

The
Company believes that current cash and cash equivalents will be sufficient
to meet its anticipated cash needs for at least twelve months. However, any
projection of future cash needs and cash flows is subject to substantial
uncertainty. If current cash and cash equivalents in addition to cash generated
from operations are insufficient to satisfy the Companys

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##### Table of Contents



liquidity requirements, the Company may seek to sell additional equity or debt securities
or to obtain a credit facility. The sale of additional equity or convertible
debt securities could result in additional dilution to the Companys
stockholders. There can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at all. In addition, the
Company will, from time to time, consider the acquisition of or investment in
complementary businesses, products and technologies, which might increase the
Companys liquidity requirements or cause the Company to issue additional
equity or debt securities.

Forward-Looking Statements

This report may contain certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company and B&N.com that are based on the beliefs
of the management of the Company as well as assumptions made by and information
currently available to the management of the Company. When used in this report,
the words anticipate, believe, estimate, expect, intend, plan and
similar expressions, as they relate to the Company, B&N.com or the management
of the Company, identify forward-looking statements. Such statements reflect
the current views of the Company with respect to future events, the outcome of
which is subject to certain risks, including among others general economic and
market conditions, changes in product demand, the growth rate of Internet usage
and e-commerce, possible disruptions in the Companys or B&N.coms computer or
telephone systems, possible increases in shipping rates or interruptions in
shipping service, effects of competition, possible work stoppages or increases
in labor costs or labor shortages, unanticipated adverse litigation results or
effects, the performance of B&N.coms current and future investments and new
product initiatives, unanticipated costs associated with B&N.coms new
warehouses or the failure to successfully integrate those warehouses into
B&N.coms distribution network, the level and volatility of interest rates, the
successful integration of acquired businesses, changes in tax and other
governmental rules and regulations applicable to the Company or B&N.com and
other factors that may be outside of the Companys control. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially from those
described herein as anticipated, believed, estimated, expected, intended or
planned. Subsequent written and oral forward-looking statements attributable to
the Company, B&N.com or persons acting on their behalf are expressly qualified
in their entirety by the cautionary statements in this paragraph and elsewhere
described in this report and other reports filed by the Company with the
Securities and Exchange Commission.




Item 3:Quantitative and Qualitative Disclosure about Market Risk

The Company invested in enews and MightyWords, Inc. (MightyWords),
primarily for strategic purposes. Such investments are accounted for under the
equity method if they give the Company the ability to exercise significant
influence, but not control, over an investee. This is generally defined as an
ownership interest in voting stock of the investee between 20% and 50%,
although other factors, such as representation on the investees Board of
Directors and the impact of commercial arrangements, are considered in
determining whether the equity method is appropriate. The Company regularly
reviews the carrying value of its investments and identifies and records
impairment losses when events and circumstances indicate that such assets are
permanently impaired. In December 2001, B&N.com considered the MightyWords
investment impaired as the MightyWords Board of Directors had voted to dissolve
the company and distribute the remaining cash back to investors after
obligations of the company were met. B&N.com recorded an impairment charge of
$9.2 million related to equity method and other investments in December 2001.
At June 30, 2002, the Companys equity-method investments amounted to $1.2
million. No impairment is considered to exist at June 30, 2002 beyond that
which was recorded at December 31, 2001. These investments are in companies
involved in the Internet and e-commerce industries and their fair values are
subject to significant fluctuations due to volatile market conditions. In July
2002, the Board of Directors and stockholders of enews approved the Liquidation
Plan. Currently the Company is assessing the impact of the Liquidation Plan on
its financial position and results of operations, which the Company
believes will not be material.

B&N.com invests its excess cash in money market funds consisting of highly
liquid debt instruments of the U.S. Government and its agencies, and of high
quality corporate issuers. B&N.com is exposed to interest rate risk on the
money market instruments that it holds. As of June 30, 2002, the Companys
investments in cash and cash equivalents totaled approximately $87.6 million.

16



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##### Table of Contents






PART II  OTHER INFORMATION




Item 1:Legal Proceedings

No material developments have occurred with respect to previously reported legal proceedings.




Item 2:Changes in Securities and Use of Proceeds

The effective date of the Companys registration statement, filed on Form
S-1 under the Securities Act of 1933 (File No. 333-64211) relating to the
initial public offering of its Class A Common Stock, was May 25, 1999. Pursuant
to the initial public offering, a total of 28,750,000 shares of the Companys
Class A Common Stock were sold to an underwriting syndicate. The managing
underwriters of the initial public offering were Goldman, Sachs & Co., Merrill
Lynch & Co., Salomon Smith Barney and Wit Capital Corporation. The initial
public offering was completed on May 28, 1999, at an initial public offering
price of $18.00 per share. The initial public offering resulted in gross
proceeds to the Company of $517.5 million, $31.1 million of which were applied
to the underwriting discount and approximately $2.0 million of which were
applied to initial public offering expenses. As a result, net proceeds of the
initial public offering to the Company were approximately $484.4 million. Such
net proceeds were used by the Company to acquire 28,750,000 Membership Units of
B&N.com. The remaining funds have been used to purchase fixed assets and
support the operations of B&N.com. Except as indicated in the Companys
prospectus and other reports filed with the Securities and Exchange Commission,
none of the net proceeds of the initial public offering were paid by the
Company or B&N.com, directly or indirectly, to any director, officer or general
partner of the Company or B&N.com or any of their associates, or to any persons
owning ten percent or more of any class of the Companys equity securities, or
any affiliates of the Company or B&N.com.




Item 3:Defaults upon Senior Securities

None




Item 4:Submission of Matters to a Vote of Securities Holders

None




Item 5:Other Information

On
August 6, 2002, the Company received notice from the Nasdaq
Stock Market, Inc. (Nasdaq) that, for the previous 30
consecutive trading days, the price of the Companys common
stock had closed below the minimum $1.00 per share requirement for
continued inclusion under Marketplace Rule 4450(a)(5)
(the Rule). Therefore, in accordance with Marketplace Rule
4450(a)(2), the Company has 90 calendar days, or until
November 4, 2002, to regain compliance. If compliance with the
Rule cannot be demonstrated by November 4, 2002, the Companys securities will be delisted
from the Nasdaq National Market. The Company is considering its
alternatives with respect to regaining compliance with the Rule. The
delisting of the Companys common stock would have a significant
adverse effect on the stocks liquidity.

At
the Companys Annual Meeting of Stockholders held on August 8,
2002, Peter Olson was elected as a new Class C Director of the
Company, in place of Joel Klein, who was recently selected as New
York City Chancellor of Schools. Since July 1998, Mr. Olson has
been Chairman and Chief Executive Officer of Random House, the book
division of Bertelsmann AG and the worlds largest publisher of
general interest books. Prior to that, Mr. Olson was the
Chairman of the Bertelsmann Book Group North America from 1994 to
July 1998.

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##### Table of Contents






Item 6:Exhibits and Reports on Form 8-K

(a)  Exhibits

| |  |             |      |  |  |                                                                                                                                                  
| |  | ----------- | ---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit No. |      | 
| |  |             |      | 
| |  |             | 99.1 |  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
|
| |  |             | 99.2 |  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002

(b)  No report on 8-K was filed by the Company during the fiscal quarter
for which this report is filed.

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##### Table of Contents






SIGNATURES

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

|                      |  |                                      |  |                                             
|--------------------- |  | ------------------------------------ |  | --------------------------------------------
|                      |  | barnesandnoble.com
inc.
(Registrant) |  |                                             
|                     
|                     
|                     
|                     
|                      |  |                                      |  |                                             
|                     
|                     
|                     
|                     
|Date: August 14, 2002 |  |                                      |  |                                             
|                     
|                     
|                     
|                     
|                      |  | By:                                  |  | /s/ Kevin M. Frain                          
|                      |  |                                      |  |                                             
|                      |  |                                      |  | Kevin M. Frain                              
|                     
|                     
|                     
|                     
|                      |  |                                      |  | Chief Financial Officer                     
|                     
|                     
|                     
|                     
|                      |  |                                      |  | (Principal Accounting and Financial Officer)

19