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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 10-Q (Mark One) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004
 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number: 0-26063 barnesandnoble.com inc. (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    13-4048787(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)76 Ninth Avenue, New York, NY
    
    10011(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 o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x
    
    No o
 Number of shares of $.001 par value Class A Common Stock, Class B Common
Stock and Class C Common Stock outstanding as of May 3, 2004 was 52,484,075,
one and one, respectively.




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barnesandnoble.com inc. March 31, 2004 Index to Form 10-Q Page No.PART I  FINANCIAL INFORMATIONItem 1: Financial Statements
    
    
    3Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4: Controls and Procedures
    
    
    17PART II  OTHER INFORMATIONItem 1: Legal Proceedings
    
    
    17Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    17Item 3: Defaults upon Senior Securities
    
    
    17Item 4: Submission of Matters to a Vote of Security Holders
    
    
    17Item 5: Other Information
    
    
    17Item 6: Exhibits and Reports on Form 8-K
    
    
    17Signatures
    
    
    21Certification of Chief Executive Officer
    
    
    22Certification of Chief Financial Officer
    
    
    23CERTIFICATIONCERTIFICATIONCERTIFICATIONCERTIFICATION
  2




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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 endedMarch 31,
    
    March 31,2004
    
    2003Net sales
    
    $
    114,893
    
    
    $
    105,964Cost of sales
    
    
    87,319
    
    
    
    79,968Gross profit
    
    
    27,574
    
    
    
    25,996Operating expenses:Fulfillment and customer service
    
    
    9,654
    
    
    
    9,005Marketing, sales and editorial
    
    
    7,746
    
    
    
    9,129Technology and web site development
    
    
    7,664
    
    
    
    7,390General and administrative
    
    
    6,250
    
    
    
    6,392Depreciation and amortization
    
    
    6,122
    
    
    
    7,354Total operating expenses
    
    
    37,436
    
    
    
    39,270Loss from operations
    
    
    (9,862
    )
    
    
    (13,274
    )Interest income, net
    
    
    89
    
    
    
    137Loss before minority interest
    
    
    (9,773
    )
    
    
    (13,137
    )Minority interest
    
    
    7,388
    
    
    
    9,816Net loss
    
    $
    (2,385
    )
    
    $
    (3,321
    )Basic net loss per common share
    
    $
    (0.05
    )
    
    $
    (0.08
    )Diluted net loss per common share
    
    $
    (0.06
    )
    
    $
    (0.08
    )Basic weighted average common shares outstanding
    
    
    44,177
    
    
    
    43,802Diluted weighted average common shares outstanding (1)
    
    
    163,315
    
    
    
    158,802
   (1)
    
    Includes assumed conversion of Membership Units and the elimination of
minority interest. See accompanying notes to consolidated financial statements. 3




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barnesandnoble.com inc. CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except per share data) RestatedMarch 31,
    
    December 31,2004
    
    2003(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,803
    
    
    $
    68,344Receivables, net of allowance $1,875 and $1,892, respectively
    
    
    5,171
    
    
    
    5,368Merchandise inventories
    
    
    45,024
    
    
    
    57,900Prepaid expenses and other current assets
    
    
    4,550
    
    
    
    4,072Total current assets
    
    
    83,548
    
    
    
    135,684Fixed assets, net
    
    
    59,711
    
    
    
    61,874Goodwill
    
    
    102,137
    
    
    
    102,137Trade name
    
    
    44,700
    
    
    
    44,700Intangible assets, net
    
    
    2,546
    
    
    
    3,500Other non-current assets
    
    
    114
    
    
    
    23Total assets
    
    $
    292,756
    
    
    $
    347,918LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    10,861
    
    
    $
    13,277Accrued liabilities
    
    
    53,362
    
    
    
    77,197Payable to affiliate
    
    
    52,689
    
    
    
    71,957Total current liabilities
    
    
    116,912
    
    
    
    162,431Minority interest
    
    
    165,223
    
    
    
    172,516Commitments and contingenciesStockholders 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;
48,320,237 and 48,280,087 shares issued and outstanding
    
    
    48
    
    
    
    48Common 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
    
    
    191,001
    
    
    
    190,966Accumulated deficit
    
    
    (180,428
    )
    
    
    (178,043
    )Total stockholders equity
    
    
    10,621
    
    
    
    12,971Total liabilities and stockholders equity
    
    $
    292,756
    
    
    $
    347,918
 See accompanying notes to consolidated financial statements. 4




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barnesandnoble.com inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars, except per share data)
(unaudited) Three Months EndedMarch 31,
    
    March 31,2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (2,385
    )
    
    $
    (3,321
    )Adjustments to reconcile net loss to net cash flows from operating activities:Depreciation and amortization
    
    
    5,973
    
    
    
    7,353Decrease in receivables, net
    
    
    197
    
    
    
    9,783Decrease in merchandise inventories
    
    
    12,876
    
    
    
    2,883(Increase) decrease in prepaid expenses and other current assets
    
    
    (478
    )
    
    
    495Decrease in accounts payable
    
    
    (2,416
    )
    
    
    (6,055
    )Decrease in payable to affiliate
    
    
    (19,268
    )
    
    
    (2,641
    )Decrease in accrued liabilities
    
    
    (23,835
    )
    
    
    (20,851
    )Minority interest in loss
    
    
    (7,388
    )
    
    
    (9,816
    )Net cash flows used in operating activities
    
    
    (36,724
    )
    
    
    (22,170
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    (2,856
    )
    
    
    (945
    )Increase in other non-current assets
    
    
    (91
    )
    
    
    (2
    )Net cash flows used in investing activities
    
    
    (2,947
    )
    
    
    (947
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    130
    
    
    
    Net cash flows from financing activities
    
    
    130
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (39,541
    )
    
    
    (23,117
    )Cash and cash equivalents at beginning of period
    
    
    68,344
    
    
    
    70,144Cash and cash equivalents at end of period
    
    $
    28,803
    
    
    $
    47,027
 See accompanying notes to consolidated financial statements. 5




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barnesandnoble.com inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2004 and March 31, 2003
(in thousands of dollars, except per share data)
(unaudited) The unaudited consolidated financial statements include the accounts of
barnesandnoble.com inc. (the Company), barnesandnoble.com llc (B&N.com) and
Barnes & Noble BookQuest LLC, a wholly owned subsidiary of 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 March 31, 2004 and the results of its operations and
its cash flows for the three 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/A for the year ended December 31, 2003.
The Company followed the same accounting policies in preparation of this report
as in such Annual Report. Operating results for the three months ended March
31, 2004 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2004.  1.
    
    ORGANIZATION The Company is a holding company whose sole asset is a 29.6% equity
interest in B&N.com, an online retailer of books, music and DVD/video, and
whose sole business is currently acting as sole manager of B&N.com. As 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. As of March 31, 2004, Barnes
& Noble, Inc. (Barnes & Noble) beneficially owns an equity interest of 72.9%,
(or 115,000 Membership Units and 4,139 shares of Class A Common Stock) in
B&N.com. Each Membership Unit held by Barnes & Noble 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 subsequent to the commencement of its activities. On September 15, 2003, Barnes & Noble completed its acquisition of the
entire 36.8% equity interest of Bertelsmann AG (Bertelsmann) in the Company
and B&N.com resulting in Barnes & Noble increasing its beneficial equity
interest in the Company from approximately 38.0% to approximately 74.7% and its
voting interest from approximately 48.4% to approximately 96.6%. The purchase
price paid by Barnes & Noble was $165,406 (including acquisition costs of
$1,253), equivalent to $2.80 per share or Membership Unit. As a result of the
substantial change in ownership from this transaction, push down accounting has
been applied to the Companys financial statements. Accordingly, the
proportionate share of the Companys assets acquired and liabilities assumed
have been adjusted to reflect Barnes & Nobles basis. The $151,260 step-up
resulting from the purchase price allocation was credited to the minority
interest attributable to Barnes & Noble. Based upon a preliminary assessment of the fair values, the allocation of
the purchase price to the approximate 36.8% proportionate amount of assets
acquired and the liabilities assumed by Barnes & Noble was as follows: Current assets
    
    $
    35,370Hardware and software
    
    
    23,600Other tangible assets
    
    
    6,973Customer list and relationships
    
    
    4,800Trade name
    
    
    44,700Goodwill
    
    
    93,372Total assets acquired
    
    
    208,815Liabilities assumed
    
    
    43,409Total purchase price
    
    $
    165,406
 Hardware and software have been assigned preliminary estimated useful
lives of four years. The customer list and relationships intangible asset has
been assigned a preliminary useful life of four years to be amortized on an
accelerated basis based on estimated usage, whereby a substantial portion of
the asset will be amortized in the first year. The above preliminary purchase
price allocation is subject to revision as more detailed analysis is completed
and additional information on the fair 6




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barnesandnoble.com inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2004 and March 31, 2003
(in thousands of dollars, except per share data)
(unaudited) value of assets and liabilities of the Company becomes available. Barnes &
Noble has engaged an independent third party to perform a valuation analysis.
The final purchase price allocation is expected to be completed by the second
quarter of 2004. It is possible that some or all of the preliminary amounts may
change. The final allocation to goodwill and the trade name (which is
considered to have an indefinite life and will not be amortized) will be tested
at least annually for impairment in accordance with SFAS Statement No. 142,
Goodwill and Other Intangible Assets. As a result of the above noted push down accounting, the accompanying
balance sheets have been adjusted to reflect the new asset bases described
above. Depreciation and amortization for the three months ended March 31,
2004 include $954 related to the above noted purchase price adjustment, all of
which has been attributed to the minority interest in the statement of
operations. On January 8, 2004, the Company and Barnes & Noble entered into a
definitive merger agreement. Under the terms of this merger, the holders of
the Companys outstanding common stock, other than that owned by Barnes & Noble
and its subsidiaries, will be entitled to receive $3.05 in cash for each share
that they own. As a result of this transaction the Company will become wholly
owned by Barnes & Noble. The closing of the merger is expected to occur during
the second quarter of fiscal 2004. On May 3, 2004, the Company filed a
definitive proxy statement with the Securities and Exchange Commission
regarding the proposed merger.  2.
    
    RECLASSIFICATIONS Certain prior-period amounts have been reclassified for comparative
purposes to conform to the 2004 presentation.  3.
    
    STOCK OPTIONS The Company has one stock-based employee compensation plan in effect. The
Company accounts for all transactions under which employees receive shares of
stock or other equity instruments in the Company based on the price of its
stock in accordance with the provisions of Accounting Principles Board Opinion
No. 25 Accounting for Stock Issued to Employees. Options which have been
repriced have been treated as variable options. No stock-based employee
compensation cost is reflected in net loss, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the date of grant and the market price of the stock has not exceeded
the exercise price of any repriced options. The following table illustrates
the effect on net loss and earnings per share if the Company had applied the
fair value recognition provisions of Statement of Financial Accounting
Standards No. 123 Stock-Based Compensation (SFAS No. 123). Three Months Ended March 31,2004
    
    2003Net loss:As reported
    
    $
    (2,385
    )
    
    $
    (3,321
    )Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards ($18 for three months
ended March 31, 2004 and $944 for
three months ended March 31,
2003), net of minority
interest
    
    
    (5
    )
    
    
    (239
    )Proforma net loss
    
    
    (2,390
    )
    
    
    (3,560
    )Basic net loss per share:As reported
    
    $
    (0.05
    )
    
    $
    (0.08
    )Proforma SFAS No. 123
    
    $
    (0.05
    )
    
    $
    (0.08
    )Diluted net loss per share:As reported
    
    $
    (0.06
    )
    
    $
    (0.08
    )Proforma SFAS No. 123
    
    $
    (0.06
    )
    
    $
    (0.08
    )
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barnesandnoble.com inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2004 and March 31, 2003
(in thousands of dollars, except per share data)
(unaudited) The fair value for each option granted was estimated at the date of grant
using the Black-Scholes option-pricing model, one of the allowable valuation
methods under SFAS No. 123, with the following assumptions: Three Months Ended March 31,2004
    
    2003Average risk free interest rates
    
    
    3.65
    %
    
    
    4.00
    %Average expected life (in years)
    
    
    3.50
    
    
    
    3.52Volatility
    
    
    102.27
    %
    
    
    50.13
    %
 The weighted-average fair value of the options granted during the three
months ended March 31, 2004 and 2003 was estimated to be $2.00 and $0.53,
respectively.  4.
    
    ACCRUED SPECIAL CHARGES An impairment of fixed assets and other special charges of $88,213 ($0.56
per share assuming conversion of membership units) was recorded as a component
of operating expenses during the fourth quarter of 2001. 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 March 31, 2004, the accrued liability associated
with the special charges was $3,769 and consisted of the following: Balance
    
    2004
    
    Balance
    
    Due within
    
    Due after31-Dec-03
    
    Payments
    
    31-Mar-04
    
    12 Months
    
    12 MonthsFacility/lease termination costs
    
    $
    3,367
    
    
    $
    283
    
    
    $
    3,084
    
    
    $
    1,649
    
    
    $
    1,435Employee termination benefits
    
    
    50
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    Other impairment charges
    
    
    635
    
    
    
    
    
    
    
    635
    
    
    
    635
    
    
    
    $
    4,052
    
    
    $
    283
    
    
    $
    3,769
    
    
    $
    2,334
    
    
    $
    1,435
  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 the 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. B&N.com purchased $27,974 and $26,417 from
Barnes & Noble representing 31% and 36% of its purchases for the three months
ended March 31, 2004 and 2003, respectively. The charges for incremental
overhead for the three months ended March 31, 2004 and 2003 were $1,022 and
$922, respectively. Under a Services Agreement, dated 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 8




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barnesandnoble.com inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2004 and March 31, 2003
(in thousands of dollars, except per share data)
(unaudited) tax administration. In accordance with the terms of the Services
Agreement, B&N.com reimburses Barnes & Noble in an amount equal to the
third-party expenses it incurs to fund and provide such services, plus any
incremental internal costs. B&N.com was charged $643 and $730 for such services
during the three months ended March 31, 2004 and 2003, respectively. B&N.com has historically purchased merchandise directly 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
did not make any purchases from Calendar Club for the three months ended March
31, 2004 and 2003. 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 $145 and $144 for such subleased space during the three months
ended March 31, 2004 and 2003, 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 $11,209 and $9,270 in connection with this agreement
for merchandise purchased during the three months ended March 31, 2004 and
2003, respectively. In addition, B&N.com was charged by AEC $75 and $92 for
database services during the three months ended March 31, 2004 and 2003,
respectively. At March 31, 2004 and 2003, $4,423 and $2,475, respectively,
remained payable to AEC. B&N.com licenses the Barnes & Noble name under a royalty-free license
agreement, dated October 31, 1998, as amended, between B&N.com and B&N College
(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 three
months ended March 31, 2004 and 2003, the Company recorded royalty expense of
$1,582 and $1,299, 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s Books 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 were
terminated as of September 16, 2003. B&N.com and Barnes & Noble commenced a marketing program in November 2000,
whereby a customer purchases a subscription to the Barnes & Noble Membership
Program (formerly the Readers Advantage card) for an annual membership fee
of $25.00, which is non-refundable after the first 30 days of the membership
term. With this membership card, customers can receive discounts of 10% on all
Barnes & Noble purchases and 5% on all B&N.com purchases. B&N.com and Barnes &
Noble have agreed to share the expenses, net of revenue 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 three months ended March 31, 2004 and 2003 was $894
and $557, respectively. 9




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barnesandnoble.com inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2004 and March 31, 2003
(in thousands of dollars, except per share data)
(unaudited) In 2002, B&N.com entered into an agreement with Marketing Services
(Minnesota) Corp. (Marketing Services Corp.), a wholly owned subsidiary of
Barnes & Noble, for marketing services, which includes the issuance of gift
cards. Under this agreement B&N.com has received $7,138 and $5,481 as of March
31, 2004 and 2003, respectively from Marketing Services Corp., which represents
reimbursement for purchases of gift cards in a Barnes & Noble store and
redeemed on the B&N.com Web site. 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. For the three months ended March 31, 2004 and 2003, B&N.com recorded
$715 and $446, respectively, as a reimbursement for shipping and handling from
Barnes & Noble. In addition, during 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
$483 and $308 for the three months ended March 31, 2004 and 2003, respectively. 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 three months ended March 31, 2004 and 2003 were $8,660
and $5,877, 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 and recorded as revenue for the three months ended March 31, 2004 and
2003 were $19 and $21, respectively. Under a Strategic Relationship Agreement, dated as of May 1, 2001 (the
Strategic Relationship Agreement), between B&N.com and GameStop Corp.
(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 on 60 days
notice. Commissions of $2 and $3 were recorded as revenue for the three months
ended March 31, 2004 and 2003, respectively, under this agreement. B&N.com has an approximate 46.8% equity stake in enews, inc. (enews), a
company previously engaged in selling magazine subscriptions on the Internet,
and accounted for this investment under the equity method. Substantially all of
the balance of the shares are owned by Barnes & Noble. In July 2002, the Board
of Directors and stockholders of enews approved a Plan of Complete Liquidation
(the Liquidation Plan). As of December 31, 2003, the implementation of the
Liquidation Plan had been substantially completed and was concluded by February
29, 2004. Prior to the implementation of the Liquidation Plan, B&N.com
fulfilled a majority of orders for magazine subscriptions through enews and
recorded a commission on these sales. B&N.com was reimbursed $138 and $49,
respectively, for expenses incurred on behalf of enews for the three months
ended March 31, 2004 and 2003. At December 31, 2004 and 2003, $52,689 and $45,620, respectively, remained
payable to Barnes & Noble in connection with the transactions described above. In July 2003, Barnes & Noble announced that it reached an agreement with
DirectGroup Bertelsmann, the direct-to-customer division of German-based media
company Bertelsmann, to acquire all of Bertelsmanns interest in B&N.com for
$165,406 (including acquisition related costs) in a combination of cash and
notes, equivalent to $2.80 per share or Membership Unit. On September 15, 2003
Barnes & Noble completed its acquisition of all of Bertelsmanns interest in
the Company and B&N.com resulting in Barnes & Noble increasing its beneficial
equity interest in the Company from approximately 38.0% to approximately 74.7%
and its voting interest from approximately 48.4% to approximately 96.6%. 10




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##### Table of Contents



barnesandnoble.com inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2004 and March 31, 2003
(in thousands of dollars, except per share data)
(unaudited) On January 8, 2004, the Company and Barnes & Noble entered into a
definitive merger agreement. Under the terms of the merger, the holders of the
Companys outstanding common stock, other than that owned by Barnes & Noble and
its subsidiaries, will be entitled to receive $3.05 in cash for each share that
they own. As a result of this transaction the Company will become wholly owned
by Barnes & Noble. The closing of the merger is expected to occur during the
second quarter of fiscal 2004. On May 3, 2004, the Company filed a definitive
proxy statement with the Securities and Exchange Commission regarding the
proposed merger. Michael N. Rosen, a director and Secretary of the Company, is also a
member of Bryan Cave LLP, outside counsel to the Company and B&N.com. 11




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##### Table of Contents



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 29.6% 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 is
currently ranked the 13th most-trafficked online shopping
site and the 4th
most-trafficked Web site affiliated with a traditional retailer, based on the
comScore Media Metrix March 2004 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 approximately 18.0 million customers
in 230 countries. B&N.coms online bookstore includes the largest in-stock
selection of in-print book titles, supplemented by more than 30 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 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 net sales, are
not necessarily meaningful and should not be relied upon as an indication of
future performance. Critical Accounting Policies Securities and Exchange Commission Financial Reporting Release No. 60
requests all companies to include a discussion of critical accounting policies
or methods used in the preparation of financial statements. The Company
believes that the following critical accounting policies affect the significant
judgments and estimates used in the preparation of the Companys financial
statements. Revenue Recognition.The Companys product sales, including outbound
shipping and handling charges, are recognized, net of estimated returns and
discounts, at the time the products are shipped to customers. Commissions
received on sales of magazine subscriptions were recorded at the net amount
earned as the Company was acting as an agent in such transactions. The Company
continuously monitors and tracks product returns and records a provision for
the estimated amount of future returns, based on historical experience. While
returns have historically been within the Companys expectations and the
provisions established, the Company cannot guarantee that it will continue to
experience the same return rates that it has in the past. Any significant
increase in product return rates could have a material adverse impact on the
Companys operating results for the period or periods in which such returns
materialize. Impairment of Goodwill and Other Long-Lived Assets.The Companys
long-lived assets include fixed assets, goodwill and trade name. At March 31,
2004, the Company had $59.7 million of fixed assets, net of accumulated
depreciation, $102.1 million of net goodwill and $44.7 million of trade name
assets, accounting for approximately 70.1% of the Companys total assets.
B&N.com reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. In valuation, assets held and used are measured
by a comparison of the carrying amount of an asset to undiscounted pre-tax
future net cash flows. Future events could cause B&N.com to conclude that
impairment indicators exist and that long-lived assets may be impaired. Any
resulting impairment loss could have a material adverse impact on the Companys
financial condition and results of operations. As required by SFAS No. 142,
Goodwill and Other Intangible Assets, the Company completed its annual
impairment test on the goodwill and trade name as of November 30, 2003 and
deemed that no impairment charge was necessary. The Company has noted no
subsequent indicators of impairment. Changes in market conditions, among other
factors, could have a material impact on these estimates. 12




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##### Table of Contents



Results of Operations Net sales Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeNet sales
    
    $
    114,893
    
    
    $
    105,964
    
    
    
    8.4
    %
 Net sales are comprised of sales of books, music, DVD/video and online
courses including outbound shipping and handling charges, net of returns and
discounts. For the three months ended March 31, 2004, net sales increased 8.4%
to $114.9 million from $106.0 million for the three months ended March 31, 2003
as a result of an increase in units sold to new customers as well as repeat
purchases from B&N.coms existing customer base. The Company has been
recording used and out-of-print book sales on a net commission basis since
April 2003 due to the launch of a new business arrangement for the used and
out-of-print book business whereby the Company acts as an agent on those sales.
Comparable sales reflect the gross amount of used and out-of-print sales,
consistent with how these sales were recorded in the prior year. Comparable
sales for the three months ended March 31, 2004 were $120.2 million, a 13.4 %
increase compared to the three months ended March 31, 2003. The Company expects
net sales for the second quarter ending June 30, 2004 to range between $85
million and $95 million. Gross profit Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeGross profit
    
    $
    27,574
    
    
    $
    25,996
    
    
    
    6.1
    %Gross margin
    
    
    24.0
    %
    
    
    24.5
    %
 Gross profit is net sales less the cost of sales, which consists of the
cost of merchandise sold to customers, and inbound and outbound shipping costs.
For the three months ended March 31, 2004, gross profit increased 6.1% to
$27.6 million from $26.0 million as a result of the Companys 8.4% net sales
increase. Quarterly gross margin results will fluctuate due to the timing of
promotional activities. Fulfillment and customer service Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeFulfillment and customer service
    
    $
    9,654
    
    
    $
    9,005
    
    
    
    7.2
    %Percentage of net sales
    
    
    8.4
    %
    
    
    8.5
    %
 Fulfillment and customer service expenses consist primarily of the cost of
operating and staffing distribution and customer service centers, including
costs attributable to picking, packing and preparing customer orders for
shipment and responding to inquiries from customers. For the three months ended
March 31, 2004, fulfillment and customer service expenses increased 7.2% on an
absolute basis to $9.7 million from $9.0 million as a result of the 8.4%
increase in net sales. The Company expects fulfillment and customer service
expenses to decrease as a percentage of net sales during 2004. Marketing, sales and editorial Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeMarketing, sales and editorial
    
    $
    7,746
    
    
    $
    9,129
    
    
    
    (15.1
    %)Percentage of net sales
    
    
    6.7
    %
    
    
    8.6
    %
 13




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##### Table of Contents



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. For the three months
ended March 31, 2004, marketing, sales and editorial expenses decreased in
absolute dollars to $7.7 million or 6.7% of net sales from $9.1 million or 8.6%
of net sales for the three months ended March 31, 2003, primarily due to the
improvement in terms of online marketing deals, as well as the Companys
increased focus on more targeted and measurable marketing programs. The
Company expects to continue to reduce these expenses as a percentage of net
sales in 2004. Technology and web site development Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeTechnology and web site development
    
    $
    7,664
    
    
    $
    7,390
    
    
    
    3.7
    %Percentage of net sales
    
    
    6.7
    %
    
    
    7.0
    %
 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. Certain costs relating to the development of
internal-use software are capitalized and depreciated over three years. For
the three months ended March 31, 2004, technology and web site development
expenses decreased to 6.7% of net sales from 7.0% of net sales as a result of
the Companys 8.4% net sales increase. The Company expects technology and web
site development expenses to decrease slightly as a percentage of net sales in
2004. General and administrative Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeGeneral and administrative
    
    $
    6,250
    
    
    $
    6,392
    
    
    
    (2.2
    %)Percentage of net sales
    
    
    5.4
    %
    
    
    6.0
    %
 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. For the three months ended March 31,
2004, general and administrative expenses decreased to $6.3 million or 5.4% of
net sales from $6.4 million or 6.0% of net sales for the three months ended
March 31, 2003 primarily due to improved efficiencies. Depreciation and amortization Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeDepreciation and amortization
    
    $
    6,122
    
    
    $
    7,354
    
    
    
    (16.8
    %)Percentage of net sales
    
    
    5.3
    %
    
    
    6.9
    %
 For the three months ended March 31, 2004, depreciation and amortization
expenses decreased to $6.1 million or 5.3% of net sales from $7.4 million or
6.9% of net sales for the three months ended March 31, 2003. The decrease is
due to significant fixed asset purchases in 2000 becoming fully depreciated by
the end of December 31, 2003. Capital expenditures for 2004 are expected to be
within the range of $15 million to $20 million. 14




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Interest income, net Three Months Ended March 31,(in thousands of dollars)2004
    
    2003
    
    % ChangeInterest income, net
    
    $
    89
    
    
    $
    137
    
    
    
    (35.0
    %)Percentage of net sales
    
    
    0
    .1%
    
    
    0
    .1%
 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 March 31, 2004, the Companys cash and cash equivalents were $28.8
million, compared to $68.3 million on December 31, 2003. The Company continues
to have a debt-free balance sheet. Net cash flows used in operating activities were $36.7 million for the
three months ended March 31, 2004 and $22.2 million for the three months ended
March 31, 2003. Cash used for the three months ended March 31, 2004 was
attributable to a net loss of $2.4 million, minority interest of $7.4 million,
a decrease in accrued liabilities of $23.8 million, a decrease in payable to
affiliate of $19.3 million, a decrease of $2.4 million in accounts payable and
an increase in prepaid expenses and other current assets of $0.5 million. This
was offset by a decrease in receivables of $0.2 million, depreciation and
amortization of $6.0 million and a $12.9 million decrease in merchandise
inventories. Cash used for the three months ended March 31, 2003 was
attributable to a net loss of $3.3 million, minority interest of $9.8 million,
a decrease in accrued liabilities of $20.9 million, a decrease in payable to
affiliate of $2.6 million and a decrease of $6.1 million in accounts payable.
This was offset by a decrease in receivables of $9.8 million, depreciation and
amortization of $7.4 million, a $2.9 million decrease in merchandise
inventories and a decrease in prepaid expenses and other current assets of $0.5
million. Net cash flows used in investing activities of $2.9 million for the three
months ended March 31, 2004 was attributable to purchases of fixed assets
totaling $2.9 million. This was offset by a decrease in other non-current
assets of $0.1 million. Net cash flows used in investing activities of $0.9
million for the three months ended March 31, 2003 was attributable to purchases
of fixed assets totaling $0.9 million. Net cash flows from financing activities were $0.1 million for the three
months ended March 31, 2004, due to proceeds from the exercise of stock
options. There were no cash flows from financing activities for the three
months ended March 31, 2003. At March 31, 2004, the Companys principal sources of liquidity consisted
of $28.8 million in cash and cash equivalents. As of March 31, 2004, 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. The Company expects to gain
leverage on previous investments in capital associated with operations,
infrastructure and personnel. The Company has no unconsolidated majority-owned
subsidiaries and no interests in special purpose entities. 15




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##### Table of Contents



The following summarizes the Companys contractual obligations as of March
31, 2004 (in thousands): Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (1)
    
    
    39,543
    
    
    
    3,785
    
    
    
    11,474
    
    
    
    7,165
    
    
    
    17,119Purchase obligations
    
    
    9,653
    
    
    
    4,849
    
    
    
    4,804
    
    
    
    
    
    
    
    Service arrangements (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities reflected on the
Companys balance sheet under GAAP
    
    
    3,084
    
    
    
    1,649
    
    
    
    1,435
    
    
    
    
    
    
    
    Total
    
    $
    52,280
    
    
    $
    10,283
    
    
    $
    17,713
    
    
    $
    7,165
    
    
    $
    17,119
  (1)
    
    The Company has pledged a portion of its cash equivalents as
collateral for stand-by letters of credit that guarantee certain of the
Companys real property lease obligations. At March 31, 2004, the total
amount of collateral pledged under these agreements was $4,353.  (2)
    
    The Company has entered into agreements with service providers, which
are transaction based and have no minimum commitments. 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
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 warehouse or
the failure to successfully integrate that warehouse 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. 16




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##### Table of Contents



Item 3:Quantitative and Qualitative Disclosures about Market Risk B&N.com invests certain of its excess cash in money market funds
consisting of debt instruments of the U.S. Government and its agencies, and of
high quality corporate issuers. All highly liquid instruments with an original
maturity of three months or less are considered cash equivalents; those with
original maturities greater than three months and less than one year are
classified as marketable securities. Long-term marketable securities mature in
periods greater than one year. B&N.com is exposed to interest rate risk on the
debt instruments that it holds. The value of the Companys marketable
securities is subject to market price volatility. As of March 31, 2004, the
Companys cash and cash equivalents totaled approximately $28.8 million. 
 Item 4:Controls and Procedures Disclosure Controls and Procedures. The Companys management, with the
participation of the Companys Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Companys disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the
end of the period covered by this report. Based on such evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Companys disclosure controls and
procedures are effective. Notwithstanding the foregoing, a control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that it will detect or uncover failures within the Company
to disclose material information otherwise required to be set forth in the
Companys periodic reports. Internal Control Over Financial Reporting. There have not been any
changes in the Companys internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during
the first quarter of 2004 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial
reporting. 
 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, Use of Proceeds and Issuer Purchases of Equity Securities Not applicable. 
 Item 3:Defaults upon Senior Securities None. 
 Item 4:Submission of Matters to a Vote of Security Holders None. 
 Item 5:Other Information None. 
 Item 6:Exhibits and Reports on Form 8-K (a) Exhibits 17




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##### Table of Contents



ExhibitNo.
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of January 8, 2004, by and
among the Company, Barnes & Noble, B&N.com Holding Corp. and
B&N.com Acquisition Corp. (Incorporated herein by reference to
Exhibit 2.1 in the Companys Current Report on Form 8-K, filed
January 9, 2004)3.1
    
    Amended and Restated Certificate of Incorporation of the Company.
(Incorporated herein by reference to Exhibit 3.1 in the Companys
Form 10-K for the year ended December 31, 2000, filed April 2,
2001)3.2
    
    Amended and Restated By-laws of the Company. (Incorporated herein
by reference to Exhibit 3.2 in the Companys Form 10-K for the

year ended December 31, 2000, filed April 2, 2001)10.1
    
    Second Amended and Restated Limited Liability Company Agreement of
barnesandnoble.com llc. (Incorporated herein by reference to
Exhibit 10.1 in the Companys Form 10-K for the year ended
December 31, 2000, filed April 2, 2001)10.2
    
    Amendment No. 1 to Second Amended and Restated Limited Liability
Company Agreement of barnesandnoble.com llc. (Incorporated herein
by reference to Exhibit 10.30 in the Companys Form 10-K for the
year ended December 31, 1999, filed March 30, 2000)10.3
    
    Stockholders Agreement between Barnes & Noble, Inc. and
Bertelsmann AG. (Incorporated herein by reference to Exhibit 10.3
in the Companys Form 10-K for the year ended December 31, 2000,
filed April 2, 2001)10.4
    
    1999 Incentive Plan of the Company. (Incorporated herein by
reference to Exhibit 10.1 in Amendment No. 3 of the Companys
Registration Statement No. 333-64211, filed May 24, 1999)10.5
    
    Deferred Compensation Plan of the Company. (Incorporated herein by
reference to Exhibit 10.25 in Amendment No. 3 of the Companys
Registration Statement No. 333-64211, filed May 24, 1999)10.6
    
    Retirement Plan of the Company. (Incorporated herein by reference
to Exhibit 10.26 in Amendment No. 3 of the Companys Registration
Statement No. 333-64211, filed May 24, 1999)10.7
    
    Agreement of Lease, dated as of October 1, 1999, between 111
Chelsea LLC, as landlord, and barnesandnoble.com llc, as tenant.
(Incorporated herein by reference to Exhibit 10.33 in the
Companys Form 10-K for the year ended December 31, 1999, filed
March 30, 2000)10.8
    
    Indenture of Lease and Amendments thereto, dated as of June 7,
1994, between SDI Technologies, Inc., as Landlord, and B. Dalton
Bookseller, Inc., as Tenant. (Incorporated herein by reference to
Exhibit 10.22 in Amendment No. 1 of the Companys Registration
Statement No. 333-64211, filed March 18, 1999)10.9
    
    Lease, dated as of June 30, 1997, between P.A. Building Company,
as Landlord, and Barnes & Noble, Inc., as Tenant. (Incorporated
herein by reference to Exhibit 10.23 in Amendment No. 1 of the
Companys Registration Statement No. 333-64211, filed March 18,
1999)10.10
    
    Amended and Restated Industrial Lease Agreement effective as of
July 27, 1999, between Industrial Developments International
(Tennessee), L.P., as landlord, and barnesandnoble.com llc, as
tenant. (Incorporated herein by reference to Exhibit 10.31 in the
Companys Form 10-K for the year ended December 31, 1999, filed
March 30, 2000)10.11
    
    Supply Agreement, dated as of October 31, 1998, between
barnesandnoble.com llc and Barnes & Noble, Inc. (Incorporated
herein by reference to Exhibit 10.14 in Amendment No. 1 of the
Companys Registration Statement No. 333-64211, filed March 18,
1999)10.12
    
    Amendment No. 1 to the Supply Agreement, between
barnesandnoble.com llc and Barnes & Noble Inc. (Incorporated
herein by reference to Exhibit 10.14 in the Companys Form 10-K
for the year ended December 31, 2000, filed April 2, 2001)10.13
    
    Amended and Restated Services Agreement, dated as of October 31,
1998, among the Company, barnesandnoble.com llc and Barnes &
Noble, Inc. (Incorporated herein by reference to Exhibit 10.10 in
Amendment No. 1 of the Companys Registration Statement No.
333-64211, filed March 18, 1999)10.14
    
    Amendment No. 1 to the Amended and Restated Services Agreement,
among the Company, barnesandnoble.com llc
 18




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##### Table of Contents



ExhibitNo.
    
    Descriptionand Barnes & Noble, Inc.
(Incorporated herein by reference to Exhibit 10.16 in the
Companys Form 10-K for the year ended December 31, 2000, filed
April 2, 2001)10.15
    
    Technology Sharing and Licensing Agreement, dated as of October
31, 1998, between barnesandnoble.com llc, as Licensor and
BOL.Global, Inc., as Licensee. (Incorporated herein by reference
to Exhibit 10.8 in Amendment No. 1 of the Companys Registration
Statement No. 333-64211, filed March 18, 1999)10.16
    
    Amendment No. 1 to the Technology Sharing and License Agreement,
between barnesandnoble.com llc, as Licensor and BOL.Global, Inc.,
as Licensee. (Incorporated herein by reference to Exhibit 10.18 in
the Companys Form 10-K for the year ended December 31, 2000,
filed April 2, 2001)10.17
    
    Technology Sharing and Licensing Agreement, dated as of October
31, 1998, between barnesandnoble.com llc, as Licensee and
BOL.Global, Inc., as Licensor. (Incorporated herein by reference
to Exhibit 10.9 in Amendment No. 1 of the Companys Registration
Statement No. 333-64211, filed March 18, 1999)10.18
    
    Amendment No. 1 to the Technology Sharing and License Agreement,
between barnesandnoble.com llc, as Licensee and BOL.Global, Inc.,
as Licensor. (Incorporated herein by reference to Exhibit 10.20 in
the Companys Form 10-K for the year ended December 31, 2000,
filed April 2, 2001)10.19
    
    Amended and Restated Database and Software License Agreement,
dated as of October 31, 1998, among the Company,
barnesandnoble.com llc and Barnes & Noble, Inc. (Incorporated
herein by reference to Exhibit 10.15 in Amendment No. 1 of the
Companys Registration Statement No. 333-64211, filed March 18,
1999)10.20
    
    Amendment No. 1 to the Amended and Restated Database and Software
License Agreement, among the Company, barnesandnoble.com llc and
Barnes & Noble, Inc. (Incorporated herein by reference to Exhibit
10.22 in the Companys Form 10-K for the year ended December 31,
2000, filed April 2, 2001)10.21
    
    Trademark License Agreement, dated as of October 31, 1998, between
BOL.Global, Inc. and barnesandnoble.com llc. (Incorporated herein
by reference to Exhibit 10.13 in Amendment No. 1 of the Companys
Registration Statement No. 333-64211, filed March 18, 1999)10.22
    
    Amendment No. 1 to the Trademark License Agreement, between
BOL.Global, Inc. and barnesandnoble.com llc. (Incorporated herein
by reference to Exhibit 10.24 in the Companys Form 10-K for the
year ended December 31, 2000, filed April 2, 2001)10.23
    
    Amended and Restated Trademark License Agreement, dated as of
October 31, 1998, between Barnes & Noble College Bookstores, Inc.
and barnesandnoble.com llc. (Incorporated herein by reference to
Exhibit 10.12 in Amendment No. 1 of the Companys Registration
Statement No. 333-64211, filed March 18, 1999)10.24
    
    Amendment No. 1 to the Amended and Restated Trademark License
Agreement, between Barnes & Noble College Bookstores, Inc. and
barnesandnoble.com llc. (Incorporated herein by reference to
Exhibit 10.26 in the Companys Form 10-K for the year ended
December 31, 2000, filed April 2, 2001)10.25
    
    Web Site Agreement, dated as of January 31, 2001, between
Textbooks.com, Inc. and barnesandnoble.com llc. (Incorporated
herein by reference to Exhibit 10.27 in the Companys
Form 10-K for the year ended December 31, 2000, filed April 2, 2001)10.26
    
    Employment Agreement, dated as of October 31, 2002, between the
Company and Marie J. Toulantis (Incorporated herein by reference
to Exhibit 10.26 in the Companys Form 10-K for the year ended
December 31, 2002, filed March 27, 2003)31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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(b) Reports on Form 8-K On January 9, 2004, the Company filed a Report on Form 8-K pursuant to
Items 5 and 7 of such form announcing a definitive merger agreement with
Barnes & Noble for $3.05 in cash per share of the Companys common stock
that Barnes & Noble does not currently own and the subsequent dismissal of
lawsuits filed with respect to the proposed merger, subject to customary
conditions. On January 30, 2004, the Company furnished a Report on Form 8-K
pursuant to Items 7 and 12 of such form announcing fourth quarter 2003 and
fiscal year ended December 31, 2003 financial results. Subsequent to the end of the first quarter, on April 28, 2004, the
Company furnished a Report on Form 8-K pursuant to Items 7 and 12 of such
form announcing first quarter ended March 31, 2004 financial results. 20




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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: May 10, 2004;
    By:
    /s/ Kevin M. FrainKevin M. FrainChief Financial Officer and Vice
President, Operations
(Principal Accounting and Financial Officer) 21