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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K
                                _______________

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

          For the fiscal year ended December 31, 2000

                                      OR

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

          For the transition period from __________ to __________

                       Commission file number 000-29295

                                  BUY.COM INC.
            (Exact name of registrant as specified in its charter)
                                _______________

              Delaware                                           33-0816584
   (State or other jurisdiction of                            (I.R.S. Employer
    incorporation or organization)                          Identification No.)

                                                                   92656
 85 Enterprise, Aliso Viejo, California                          (Zip code)
(Address of principal executive offices)

                                (949) 389-2000
             (Registrant's telephone number, including area code)
                                _______________

       Securities registered pursuant to Section 12(b) of the Act:  None
  Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
                               $0.0001 par value

     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 [_]

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

     The Registrant does not have different classes of Common Stock. As of March
21, 2001, the aggregate market value of the Common Stock of the Registrant held
by non-affiliates was approximately $9,233,502, based upon the closing sale
price of such stock on that date. For purposes of such calculation, only
executive officers, board members, and beneficial owners of more than 10% of the
Company's outstanding Common Stock are deemed to be affiliates.

     As of March 21, 2001, there were 136,120,162 shares of Common Stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders, currently expected to be held on June 7, 2001, as filed with the
Securities Exchange Act of 1934, as amended, are incorporated by reference in
Part III of this Report.


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                                 BUY.COM INC.

                            FORM 10-K ANNUAL REPORT
                            -----------------------

                               TABLE OF CONTENTS

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                                                   PART I
Item 1.      Business.......................................................................................   1
Item 2.      Properties.....................................................................................  21
Item 3.      Legal Proceedings..............................................................................  21
Item 4.      Submission of Matters to a Vote of Securityholders.............................................  22

                                                  PART II
Item 5.      Market for the Registrant's Common Equity and Related Stockholder Matters......................  23
Item 6.      Selected Financial Data........................................................................  23
Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations..........  25
Item 7A.     Qualitative and Quantitative Disclosures about Market Risk.....................................  30
Item 8.      Financial Statements and Supplementary Data....................................................  30
Item 9.      Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure............................................................  30

                                                  PART III
Item 10.     Directors and Executive Officers...............................................................  31
Item 11.     Executive Compensation.........................................................................  31
Item 12.     Security Ownership of Certain Beneficial Owners and Management.................................  31
Item 13.     Certain Relationships and Related Transactions.................................................  31

                                                  PART IV
Item 14.     Exhibits, Financial Statement Schedules and Reports On Form 8-K................................  31
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This report contains forward-looking statements which include, but are not
limited to, statements concerning our ability to operate the business to
positive operating cash flow, the ability to successfully execute our operating
plan, the need for additional capital, the ability to raise additional working
capital on acceptable terms, the ability to retain key employees, management
personnel and our Board of Directors, the ability to effectively transition a
new management team, the ability to maintain the support of our distributor and
vendor partners, the ability to maintain other key corporate relationships, the
ability to successfully complete pending transactions, the ability to achieve
our revenue goals in light of softening demand for consumer products, projected
revenues, expenses, gross profit and income and the success of pending
litigation. These forward-looking statements are based on our current
expectations, estimates and projections about our industry, management's
beliefs, and certain assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will"
and variations of these words or similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ materially and adversely
from those expressed in any forward-looking statements as a result of various
factors. The section entitled "Risk Factors" set forth at the end of Part I,
Item 1 of this report, the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of this report and
similar discussions in our other filings with the Securities and Exchange
Commission ("SEC") discuss some of the important risk factors that may affect
our business, results of operations and financial condition. You should
carefully consider those risks, in addition to the other information in this
report and in our other filings with the SEC, before deciding to invest in
Buy.com or to maintain or increase your investment. We undertake no obligation
to revise or update publicly any forward-looking statements for any reason.


                                    PART I

Item 1.   BUSINESS

General

BUY.COM is a multi-category Internet superstore that offers a broad selection of
brand name computer hardware and peripherals, software, books, videos, DVDs,
computer games, music, clearance products, consumer electronics, sporting goods,
office products and supplies and wireless products and services at everyday low
prices. Through our eleven online specialty stores, we offer products in a
convenient, easy-to-use shopping interface that features extensive product
information and multi-media presentations. Our e-commerce portal, www.buy.com,
links all of our eleven specialty stores and is designed to enhance the
customer's online shopping experience 24 hours a day, seven days a week. We use
a business model that involves outsourcing the majority of our operating
infrastructure, including distribution and fulfillment, customer service and
support, credit card processing and the hosting of our system infrastructure and
database servers. This business model allows us to eliminate many significant
capital investments and the costs and risks of carrying inventory. BUY.COM was
organized as a California limited liability company in June 1997 under the name
BuyComp LLC and was incorporated in Delaware as Buy Corp. in August 1998. In
November 1998, we changed our name to BUY.COM INC.

In 1999 and 2000, we focused significant efforts and financial resources on
sales and marketing activities to build our brand, increase customer traffic to
our Web site and enhance our customer loyalty. We also committed significant
financial resources to the development of our Web site, transaction processing
systems and network infrastructure. However, in early 2001, we initiated a
restructuring of our business and implemented a new operating plan designed to
accelerate our ability to achieve positive operating cash flow. As part of the
plan, we significantly reduced the size of our workforce and made further
expense reductions for the business in the areas of marketing and advertising,
product development and general and administrative. Our new operating plan also
requires us to refine our gross margin strategy and continue to increase prices
on many of our products. As a result, we expect that our sales volumes for 2001
will be significantly less than our sales volumes for 2000. Notwithstanding the
changes to our financial model, we still utilize a business model that requires
outsourcing the majority of its operating infrastructure to third party
providers, including distribution and fulfillment, customer

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support, credit card processing and the hosting of our system infrastructure and
database servers. The following information should be read in conjunction with
our consolidated financial statements and the related notes thereto included
elsewhere in this Annual Report on Form 10-K.

The BUY.COM Online Shopping Experience

Our Web site is a multi-category Internet superstore offering a broad range of
products. We have included informative content in each of our online stores to
allow customers to enjoy their visit to our Web site and make more informed
purchase decisions. We believe that shopping at www.buy.com offers attractive
benefits to customers, including convenience, ease of use, a broad selection,
in-depth product information and content, and everyday low prices. The following
highlights the key features of our online shopping experience:

     .    Browsing. We have created a seamless interface between each of our
          eleven online specialty stores that provides consistent functionality,
          look and feel. By clicking on the tabs at the top of every Web page,
          customers can move between stores quickly and easily. At the home page
          for each store, customers can view promotions and featured products or
          use a keyword search to locate a specific product. We have organized
          our product offerings into a simple set of categories and
          subcategories within each store to promote a uniform shopping
          experience and to make it easier for the customer to link directly to
          a particular store. This simple structure also allows customers to
          click on the designated category or subcategory to go to the desired
          location immediately.

     .    Accessing Information. One of the key advantages of online shopping is
          the ability to access a broad range of information quickly and easily.
          On our Web site, customers can find detailed product information and
          specifications, as well as other value added features, including
          product pictures, music clips, book previews, supplemental information
          from the manufacturers, gift ideas and specialty shops. We believe
          this extensive information enables the customer to make a more
          educated purchase decision and enhances the overall shopping
          experience.

     .    Selecting a Product and Checking Out. Customers can purchase products
          from each of our online stores using the same virtual shopping basket
          that is accessible from any product page on our Web site. Similar to a
          traditional retail store, customers can add and subtract products from
          their shopping basket as they browse, prior to making a final purchase
          decision. To execute orders, customers click on the "checkout" button.
          New customers are prompted to create an account and provide shipping
          and payment information. Repeat customers, through their personally
          created username and password, can access their account to view order
          status, view their history of previous orders or update their personal
          information. We store our customers' account information on our secure
          network, including multiple shipping addresses and billing options,
          which eliminates the need for repeat customers to complete their order
          information during future transactions. We charge our customer's
          credit card only after we have shipped the product. We also provide
          updated product information for each of our online stores to indicate
          product availability and the approximate amount of time until a
          particular product will be shipped.

     .    Monitoring Order Status. We attempt to maintain communication with our
          customers throughout the purchase and fulfillment process. We confirm
          each order via an automatic e-mail within minutes of the order
          placement, and we notify our customers via e-mail when their product
          has been shipped.

     .    Obtaining Assistance. Customers can access online assistance on our
          site by clicking on the "Help" button on each page in our specialty
          stores. Our customer service is comprised of an intuitive "help
          center" that allows customers to service themselves in many situations
          or contact a customer service representative via email to answer their
          questions.

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Our Online Specialty Stores

We have selected our eleven online specialty stores based upon product lines
that we believe have large market potential, are well suited for e-commerce, and
are in industries that allow us to establish a relationship with a dominant
distributor.  Our current online specialty stores include the following:

     .    COMPUTERS. This store offers computer products, including computers,
          printers, monitors, modems and peripherals from manufacturers such as
          Compaq, Hewlett-Packard, IBM, Viewsonic and 3COM. Customers may obtain
          detailed product descriptions and product pictures, as well as other
          promotional information. In addition, this store features vendor
          specific sub-stores that allow customers to browse products within the
          manufacturer's designated storefront.

     .    SOFTWARE. This store offers computer software titles from leading
          manufacturers, including Microsoft, Symantec, Corel and Adobe. Similar
          to our Computer specialty store, we feature manufacturer's sub-stores.
          In addition, customers may obtain information on rebates, promotions,
          new releases and top selling software products.

     .    ELECTRONICS. This store offers brand name consumer electronic
          products, including cameras, DVD players, telephones and televisions.
          This store offers detailed product descriptions and allows customers
          to browse by product category, reviewing other top selling products or
          by reviewing new products offered for sale.

     .    OFFICE PRODUCTS. This store offers a variety of office equipment,
          supplies, furniture, phone systems, and other products geared towards
          our small business customers. This store feature top selling products
          and offers customers the ability to create a business account to
          finance their purchases.

     .    BOOKS. This store offers hardback, paperback and audio book titles.
          Customers may browse a variety of categories, including subject
          matter, and new releases. Customers may also conduct targeted searches
          for their favorite authors or titles. Our site enables customers to
          read the first chapter of many books, as well as recommendations for
          related books. We also offer customers the opportunity to preorder
          upcoming releases.

     .    VIDEOS. This store offers DVD and VHS titles from multiple categories,
          including comedy, action, drama, documentary and foreign films. This
          store offers preorder capabilities and professional reviews, as well
          as recommendations for related titles. Customers may also focus their
          search on DVD titles within the DVD Only subcategory, accessible by a
          direct link from the home page.

     .    GAMES. This store offers games and accessories for PlayStation 2,
          Nintendo64, PlayStation, Dreamcast and Game Boy systems. This store
          offers PC and Mac games, strategy guides and gaming hardware. We
          provide detailed product descriptions, screen shots, professional
          reviews, codes and game hints, as well as recommendations for related
          games.

     .    MUSIC. This store offers music titles in both CD, cassette and
          minidisc formats. Customers may order titles from various categories
          including pop/rock, alternative, electronica, heavy metal, rhythm and
          blues/soul, classical, jazz, country, rap/hip hop, folk, new age and
          soundtracks. This store offers detailed product descriptions, music
          clips, full song listings and recommended albums. The store also
          includes upcoming releases and new artist features.

     .    SPORTS. This store offers brand name sports equipment and accessories.
          Customers may browse products by choosing a particular sport or by
          viewing specially featured products. This store also offers detailed
          product descriptions and images. We plan to discontinue or otherwise
          modify the way in which sporting goods are offered on our site before
          the end of 2001.

                                       3
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     .    WIRELESS. This store was launched in October 2000 and offers wireless
          phones and service plans from the leading manufacturers and wireless
          service providers. Product offerings in this store include the latest
          in web-enabled phones, wireless PDAs, wireless e-mail, FRS radios and
          cellular accessories. This store also provides customers with online
          access to manufacturer rebates, discounts and promotions when
          applicable. We also provide for side-by-side comparisons of mobile
          phones and plans, enabling customers to make buying decisions tailored
          to their individual needs.

     .    CLEARANCE. This store offers brand name close-out inventory from some
          of the most popular manufacturers, including Compaq, Toshiba, Hewlett-
          Packard, Kodak and Canon. Our inventory consists mainly of home
          electronics and computer hardware. We obtain this merchandise at
          substantial discounts through liquidations, overages and promotions.
          We also work with our vendors to ensure that this store's product
          selection serves to complement our other online stores.

Customer Service and Support

We believe customer support throughout the shopping experience is a key element
in providing a convenient shopping forum for our customers and establishing
customer loyalty. We provide e-mail support to our customers, and have built an
extensive self-help environment within our Web site. This tool allows customers
to receive all information regarding their current orders and past order
history. Within the Web site, customers may also track shipped orders with
Federal Express and United Parcel Service, check the status of orders being
processed, access links to our technology partners' Web sites for technical
support and request and print return labels.

To maintain our business model strategy and retain our ability to scale our
operations quickly, we have outsourced our customer support to ClientLogic, a
provider of customer service support to other notable technology organizations.
This strategy also has enabled us to minimize capital expenditures, while
ensuring that we are staffed to meet the service needs of our customers.  We
currently maintain a contact center in Bartlesville, Oklahoma where ClientLogic
has staffed approximately 85 dedicated BUY.COM customer service representatives
who are trained and managed on-site by BUY.COM management personnel. In addition
to our outsourced customer support, we maintain a limited in-house staff of
high-level customer service representatives to address more complex customer
inquiries and back office processing.

Advertising Revenue

Advertising revenue is a key component of our business model and consisted of
5.6% of our net revenues for the fiscal year ended December 31, 2000. We believe
that the large volume of product sales on our site, together with our ability to
attract proven online buyers, provides a high quality audience for our
advertisers. In addition, we provide a range of advertising opportunities to
reach Internet buyers. We presently derive advertising revenue from vendor co-op
advertising and media advertising. Vendor co-op advertising is a standard
practice in the retailing sector, where product vendors set aside certain
amounts of advertising funds to be paid to retailers in exchange for specific
marketing and in-store placement of their products. We also generate advertising
media revenue from click-through advertisements that direct the customer to the
advertiser's Web site. Currently, we derive most of our co-op advertising from
our technology and entertainment vendors.

Merchandising Strategies

We believe that our strong brand name and the breadth and depth of our product
selection in our online stores enable us to pursue unique merchandising and
pricing strategies. Because our stores are not restricted by physical capacity
limitations, we have a significant amount of flexibility with regard to the
presentation and organization of our product categories and the product
selection within each of those categories.

To date, our merchandising and pricing efforts have focused on offering popular
products with high brand awareness at low prices to drive traffic to our site.
As customer loyalty and recognition of our brand name has increased, we have
begun to augment this strategy by implementing the following:

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     .    cross-marketing higher margin products and services to our customers
          once they are in our online stores. By operating eleven integrated
          online specialty stores featuring a broad range of brand name
          products, we can often present the customer with other higher margin
          products, including accessories and other products that are
          complementary to the customer's initial purchase as well as popular
          point-of-purchase impulse buys;

     .    offering vendors the ability to create specialized promotional "stores
          within a store." We believe this will provide us greater flexibility
          in promoting higher margin products while capturing additional co-op
          advertising revenues available from our manufacturers; and

     .    raising prices on selected products. Since June 1999, we have raised
          prices on selected products to refine our pricing strategy and
          increase our gross margins. For some of these products the increase in
          price did not result in any decline in sales volumes. However, for
          other products, sales volumes declined. We expect that due to further
          price increases, our sales volumes will decline during the fiscal year
          ended December 31, 2001, as compared to the fiscal year ended December
          31, 2000. We believe, however, that by analyzing the results of our
          past price increases and customer buying pattern data, we can identify
          products that are potentially less price sensitive, which will provide
          the opportunity to raise margins through targeted price increases that
          are intended to result in sales volumes that are consistent with our
          operating plan.

Business Acquisitions

In August 2000, we acquired Telstreet.com, Inc. for an aggregate purchase price
of approximately $7.1 million in a stock for stock transaction in which the
current holders of Telstreet.com received shares of our common stock as
consideration for their shares. Telstreet.com was an online retailer of wireless
products and services, and this acquisition was the foundation for our Wireless
specialty store.

Business Dispositions

In October 1999, we declared a common stock dividend of 75% of the capital
stock, on an "as converted" basis, of Aqueduct, Inc. (formerly, BUYNOW INC.)
("Aqueduct") to all stockholders of record as of October 13, 1999.  We effected
the dividend in April 2000, and on the date of the dividend, we owned preferred
stock representing 25% of the capital stock of Aqueduct, on an "as converted"
basis. The Aqueduct preferred stock has a liquidation preference over the common
stock and is convertible into Aqueduct common stock.

In October 2000, we decided to discontinue the business and operations of
Buytravel.com LLC, our joint venture with United Airlines, Inc. for travel
services. To date, the costs associated with discontinuance of the buytravel.com
Web site and the operations of Buytravel.com LLC have been minimal and have been
allocated equally between United Airlines and us.

During 2000, we also made a strategic decision to focus our resources on our
domestic business. As a result, we discontinued the operations of our joint
venture in continental Europe and have since terminated its business operations.
In addition, we decided to terminate the operations of our joint venture in
Australia in November 2000. In March 2001, we sold our United Kingdom joint
venture to the John Lewis Partnership, and consequently, we no longer have any
international operations. In connection with the sale of the United Kingdom
joint venture, we granted a right to use our trademark and e-commerce technology
in the United Kingdom and the Republic of Ireland. We assume that we had a 50%
ownership interest in the losses of all three international joint ventures and
will therefore not maintain sufficient voting control to consolidate these joint
ventures. The losses associated with these joint ventures are included in the
line item "Equity in losses of joint ventures, net" for the year ended December
31, 2000 and are included in "Obligations to minority interest, net" on the
balance sheet, offset by capital contributions. We did not incur any charge for
the costs associated with the discontinuance of the continental European or
Australian joint venture for the year ended December 31, 2000.

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Distribution Network

We believe that the ability to maintain a primarily outsourced operating
infrastructure is key to an efficient and profitable e-commerce model. As part
of this strategy, we have entered into relationships with leading distributors
in each of our product segments, including Ingram Micro for computer hardware
and software, Ingram Entertainment for videos, DVDs, and video games, Ingram
Book for books, Valley Media for music, Action International Marketing for our
clearance products, Global Trade for consumer electronics, United Stationers for
office products and supplies, Brightpoint for the distribution of our wireless
products and Global Sports for our sporting goods. These distributors carry a
vast inventory of products located in warehouses throughout the country from
which products are picked, packed and shipped directly to our customers or our
national fulfillment provider. Through this system, we have been highly
effective at leveraging the inventory management and fulfillment capabilities of
each of our providers to deliver products cost- effectively to our customers
nationwide.

Competition

The e-commerce market is rapidly evolving, intensely competitive and we expect
that competition will further intensify in the future. Barriers to entry are
limited, and many traditional retailers have launched their own online
operations that provide significant competition to us due to their strong brand
recognition, physical presence and other factors. New technologies and the
expansion of existing technologies may also increase competitive pressures. We
currently compete with a variety of online vendors who specialize in computer
hardware and software products, as well as those who sell books, music, videos,
DVDs, consumer electronics, office products, wireless products and services,
sporting goods and other entertainment products. Moreover, all of the products
we sell in our online stores are available through traditional and/or catalog
retailers, many of whom have launched web sites to provide online shopping to
their customers. Consequently, we must compete with companies in the e-commerce
market as well as the traditional retail industry.

In the computer hardware, software, peripheral and clearance product markets,
our primary competitors include, but are not limited to:

     .    traditional computer retailers such as CompUSA;

     .    catalogue retailers such as CDW;

     .    online computer retailers such as Egghead.com; and

     .    software and hardware manufacturers that market their products through
          their own Web sites such as Apple Computer, Dell Computer and Gateway.

Our current or potential competitors with respect to books, DVDs and videos, and
other entertainment related products include, but are not limited to:

     .    traditional entertainment product retailers such as Barnes & Noble,
          Blockbuster Video and Borders;

     .    Internet-focused entertainment product retailers such as Amazon.com
          and Barnes & Noble.com; and

     .    non-entertainment retailers that sell a limited selection of
          entertainment products at low prices, such as Wal-Mart.

Our current or potential competitors with respect to consumer electronics
include, but are not limited to:

     .    traditional consumer electronic retailers such as Best Buy and Circuit
          City; and

     .    online retailers of consumer electronics such as Amazon.com and
          800.com.

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Our current or potential competitors with respect to sporting goods include, but
are not limited to:

     .    traditional sporting goods retailers such as The Sports Authority; and

     .    online retailers of sporting goods products such as fogdog.com.

We also compete with traditional and online retailers in our other product
categories.

We also expect to experience significant competitive pressure if any of our
distributors were to initiate their own retail operations. Because our
distributors have access to merchandise at very low costs, they could sell
products at lower prices than us and maintain a higher gross margin on their
product sales than we are able to achieve. If this were to occur, our current
and potential customers may decide to purchase directly from these distributors,
which could reduce our market share.

We believe that the primary competitive factors in online retailing include
brand recognition, price, product selection, customer service, value-added
services and ease of use. Although we believe that we compete favorably with
respect to these factors, several of our competitors may have an advantage over
us with respect to specific factors. In addition, many of our current and
potential competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing,
technical, management and other resources than we do.

Technology and Systems

We have implemented a combination of proprietary technologies and commercially
available licensed technologies. Our Web site's front-end is built on industry
standard technologies, including IBM NetFinity and other servers. The business
logic of the site is contained in a variety of proprietary programs. These
programs handle user interface, ordering and customer communications and operate
on redundant IBM NetFinity and other servers. We expect to add additional
servers and capacity as needed in the long-term. Our system includes redundant
hardware on mission critical components, which we believe can survive the
failure of several entire servers with relatively little downtime. We also
believe we can quickly and easily expand capacity without significant additional
development. We have historically run our key systems below capacity to support
potential growth.

Consistent with our operating strategy, we have an agreement to outsource the
hosting of our Web servers to an Internet data center specialist, Exodus
Communications, which maintains an extensive national network. Exodus provides
redundant Internet connections to multiple Internet access points, a secure
physical environment, climate control and redundant power. In addition, Exodus
provides us with a 24 hours a day, seven days a week system monitoring and
escalation. Exodus currently hosts our Web operations in their Irvine,
California data center, and we believe Exodus has adequate available floor space
for our needs in this facility for the foreseeable future. In addition, we
expect to be able to support a distributed, redundant site by placing some of
our servers in Exodus' other locations across the country.

Order Processing Applications. We use a set of computer software applications
-----------------------------
for processing each customer order. These applications charge customer credit
cards, print order information, transmit order information electronically to our
distributors and deposit transaction information into our accounting system. All
credit card numbers and financial and credit information are secured using the
Internet security protocol Secure Socket Layer, Version 3, an encryption
standard, and we maintain credit card numbers behind appropriate fire walls.

Marketing Applications. We have developed a set of computer software
----------------------
applications for sending automated broadcast e-mails to customers on a frequent
basis. This software extracts e-mail addresses from our mailing lists, sends e-
mails to the designated recipients and automatically services requests from
customers to remove them from the mailing list.

Ad Reporting. We have developed an application that allows for the tracking and
------------
reporting of aggregate customer responses to the Web advertisements we place
throughout the Internet. The reports include click-throughs to the
advertisements and orders and sales from those responses on a daily basis. These
reports allow for comparison of similar site's performance, placements within a
single site and the creative/graphic performance of the advertisements.

                                       7
<PAGE>

Intellectual Property

We regard the protection of our copyrights, service marks, trademarks, trade
secrets and other intellectual property rights as critical to our future
success. We rely on various intellectual property laws and contractual
restrictions to protect our proprietary rights in products and services. We have
acquired and registered many of our domain names with regulatory bodies in an
effort to protect these intellectual property rights. We have also entered into
confidentiality and invention assignment agreements with our employees and
contractors, and nondisclosure agreements with our suppliers and strategic
partners in order to limit access to and disclosure of our proprietary
information. We cannot assure you that these contractual arrangements or the
other steps taken by us to protect our intellectual property will prove
sufficient to prevent misappropriation of our technology or to deter independent
third party development of similar technologies. In addition, we have pursued
the registration of our key trademarks and service marks in the U.S. and
internationally, including but not limited to BUY.COM. However, effective
intellectual property protection may not be available in every country in which
our services may be made available in the future. There is also no guarantee
that the trademarks or servicemarks for which we have applied for registration
will offer adequate protection under applicable law.

We have licensed in the past, and expect that we may license in the future, some
of our intellectual property rights, including trademarks or copyrighted
material, to third parties. While we attempt to ensure that the quality of the
BUY.COM brand is maintained by these licensees, they could take actions that
might materially and adversely affect the value of our intellectual property
rights or reputation, which could harm our business. We also rely on
technologies that we license from third parties. These licenses may not continue
to be available to us on commercially reasonable terms in the future, if at all.
As a result, we may be required to obtain substitute technology of lower quality
or at greater cost, which could materially adversely affect our business,
results of operations and financial condition.

As is customary with technology companies, from time to time we have received,
and may continue to receive or become aware of, correspondence claiming
potential infringement of other parties' proprietary rights. We could incur
significant costs and diversion of management time and resources to defend
claims regardless of the validity of these claims. We may not have adequate
resources to defend these claims, and any associated costs and distractions
could have a material adverse effect on our business, financial condition and
results of operations. As an alternative to litigation, we may seek licenses for
other parties' intellectual property rights. We may not be successful in
obtaining any necessary licenses on commercially reasonable terms, if at all.

Employees

As of December 31, 2000, we had 258 full-time employees, including 105 employees
engaged in engineering and Web development, 45 engaged in sales and marketing,
and 108 engaged in general and administrative activities. In January and
February 2001, we began the implementation of a restructuring plan, and as a
result, we significantly reduced our workforce. As of March 21, 2001, we had 146
full-time employees. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work stoppage. We believe
our employee relations are good.

RISK FACTORS

Before deciding to invest in us or to maintain or increase your investment, you
should carefully consider the risks described below, in addition to the other
information contained in this report and in our other filings with the SEC,
including our quarterly reports on form 10-Q. The risks and uncertainties
described below are not the only ones facing our company. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also affect our business operations. If any of these risks actually occur, our
business, financial condition or results of operation could be seriously harmed.
In that event, the market price for our common stock could decline and you may
lose all or part of your investment.

                                       8
<PAGE>

We must successfully execute our new operating plan to achieve profitability
without having to raise additional working capital

In early 2001, we initiated a restructuring of our business and implemented a
new operating plan designed to accelerate our ability to achieve positive
operating cash flow without the need for additional working capital. As part of
the new operating plan, we significantly reduced the size of our workforce and
made further significant expense reductions for the business in the areas of
marketing and advertising, product development and general and administrative.
To successfully execute against our operating plan, we must adhere to our
expense reductions and work to achieve the revenue and gross margin targets
incorporated as underlying assumptions to our operating plan. If we are unable
to manage our operating expenses and increase our gross margins, without
experiencing significant deterioration in our projected sales volumes, we will
be unable to achieve positive operating cash flow. Further, we have
significantly reduced our marketing and advertising budget for 2001, and we
cannot guarantee that we will be able to maintain the visitor traffic levels,
visitor conversion rates, customer purchase activity and general brand awareness
that we have had in the past. Our ability to achieve our annual and quarterly
revenue and gross margin goals could also be negatively impacted by the
softening consumer demand for technology and entertainment products, as well as
the weakening general economic conditions and decreasing consumer confidence.

Our new operating plan reflects management's expectations as of the date of this
annual report, and is based on currently available information as well as
significant assumptions made by management regarding various revenue, gross
margin and operating expense items. We cannot guarantee that the assumptions
that we have relied upon in developing our operating plan will be accurate, or
that future events or results will conform to our expectations or assumptions.
If our assumptions are inaccurate, or our expectations prove to be erroneous in
light of future events, or if we are unable to maintain the support of our
vendors, distributors, third party advertisers and other key corporate
relationships regardless of the success of our new operating plan, we will need
to raise additional working capital before we achieve positive operating cash
flow. We currently do not have any commitments for additional financing, and we
cannot be certain that additional financing will be available when and to the
extent required, or that, if available, it will be on acceptable terms. If
adequate funds are not available on acceptable terms, we may not be able to fund
our operations and our business could fail.

In light of certain perceptions regarding our financial condition, our
customers, distributors and vendor partners may decide not to do business with
us

Due to concerns regarding our financial condition and our perceived ability to
fulfill our financial and other obligations, our customers, distributors, third
party advertisers, vendor partners and other corporate partners and service
providers may decide not to conduct business with us, or may conduct business
with us on terms that are less favorable than those customarily extended by
them. For example, our distributors could seek to limit our credit terms or
otherwise reduce their support of our business, forcing us to leverage our
operating cash by repaying our unsecured credit lines with them or increasing
the amount of our secured credit lines. Also, if our customers, vendor partners
and third party advertisers choose to do less business with us, our net sales
would decrease and our gross profits would be significantly impacted by reduced
sales volumes, including a corresponding decrease in co-op advertising revenue,
and reduced media advertising sales.

Our common stock is likely to be delisted from the Nasdaq National Market

We have received a notice from the Nasdaq National Market that our common stock
has failed to maintain the required minimum bid price of $1.00 over a period of
30 consecutive trading days. As a result, the Nasdaq National Market has
provided us with 90 calendar days, or until May 31, 2001, to regain compliance
with this requirement or be delisted from trading. If we are unable to regain
compliance with this requirement during this time period, and any appeal to the
Nasdaq National Market for relief from this requirement is unsuccessful, our
securities will be delisted from trading by the Nasdaq National Market. In this
instance, trading in shares of our common stock would decrease substantially or
cease altogether, the market price of our common stock may decline further,
potentially to zero, and you may lose some or all of your investment.

                                       9
<PAGE>

We have incurred substantial losses and we may continue to incur losses for the
foreseeable future

We have not achieved profitability since our inception, and we incurred net
losses of $130.2 million and $133.0 million for the years ended December 31,
1999 and 2000, respectively. Although we recently initiated a restructuring of
our business designed, in part, to significantly reduce costs in a number of
areas, we expect to continue to incur substantial costs and expenses related to:

   -  the implementation of our business model and our pricing strategies;

   -  brand development, marketing and other promotional activities;

   -  the expansion of our existing product and service offerings;

   -  the continued development of our Web site, transaction processing systems
      and network infrastructure;

   -  the development of strategic relationships; and

   -  our ability to effectively merchandise and manage our product mix.

Further, because we sell a substantial portion of our products at very
competitive prices, we have low and sometimes negative gross margins on our
product sales. Our ability to become profitable depends on, among other things:

  -  our ability to generate and sustain net sales, consistent with the
     assumptions underlying our new operating plan, with improved gross margins;

  -  our ability to maintain reasonable operating expense levels;

  -  our ability to generate significant advertising revenue; and

  -  our ability to provide other higher margin products and services.

If we are unable to manage and reduce our operating expenses and costs, while at
the same time increasing our gross margins compared to the year ended December
31, 2000, and without experiencing a significant deterioration in our sales
volumes, we will be unable to achieve positive operating cash flow. If we do not
achieve positive operating cash flow in a timely manner that is consistent with
our operating plan, our business could fail.

Our growth and operating results could be impaired if we are unable to meet our
future capital needs

Our projections of future cash needs and cash flows are subject to substantial
uncertainty, and if our current cash balances are insufficient to meet our
anticipated operating cash needs, our business will fail. Further, if we are
unable to operate our business and manage our cash resources in accordance with
the assumptions underlying our new operating plan, we may need to raise
additional working capital sooner than we would otherwise have expected. The
factors that may impair our ability to effectively operate our business and
manage our operating cash include, but are not limited to:

  -  our ability to retain the support of our distributor and vendor partners;

  -  our ability to maintain other key corporate relationships; and

  -  our ability to maintain sales volumes and gross margins consistent with our
     operating plan.

We may also seek to sell additional equity securities, obtain a line of credit
or seek other ways to fund our operations in the event we require additional
working capital to operate our business. We currently do not have any
commitments for additional financing and we cannot be certain that additional
financing will be available when and to the extent required, or that, if
available, it will be on acceptable terms. If adequate funds are not available
on acceptable terms, we

                                       10
<PAGE>

may not be able to fund our operations, and our business will fail. Further, if
we raise additional funds by issuing equity or convertible debt securities, the
percentage ownership of our stockholders will be diluted. Also, any new
securities could have rights, preferences and privileges senior to those of our
common stock.

We rely on a relatively new management team and need to retain our existing
personnel to effectively operate our business

Several of our executive officers recently joined the company in connection with
our restructuring, and we may experience difficulty assimilating these new
officers into our business operations. For example, in February 2001 we hired
James B. Roszak as our new Chief Executive Officer and Robert R. Price as our
new Chief Financial Officer. Our success depends, in part, upon their ability to
successfully transition their new management team and to retain existing
management. Further, our business is largely dependent on the personal efforts
and abilities of other members of senior management, as well as other key
personnel. In January and February 2001, we terminated the employment of
approximately 115 employees, and the retention of our remaining employees is key
to our success. Any of our officers or employees can terminate their employment
relationship at any time. We do not maintain key person life insurance on any
member of our management team. The loss of any key employee or our inability to
attract or retain other qualified employees could harm our business and results
of operations.

Our business may suffer as a result of our reduction in workforce

In January and February 2001, we initiated a restructuring of our business and
terminated the employment of approximately 115 employees. This reduction in
workforce may negatively impact our ability to conduct business and serve our
customers, distributors and vendor partners in a manner comparable with past
practice, which could cause our business to suffer significantly. For example,
we recently changed our customer support organization to discontinue telephone
support to our customers and only provide e-mail customer support. Although we
believe our new customer support program is adequate, there can be no assurance
that our customers will not become dissatisfied and choose to shop at another
destination. Further, our workforce reduction and loss of key management
personnel could cause concern among our distributors, vendors, third party
advertisers and other critical corporate relationships.

Ingram Micro's failure to supply and fulfill our computer hardware and software
products could reduce our revenues and harm our business

We depend on Ingram Micro, Inc. to provide the majority of our computer hardware
and software products and to fulfill our customers' orders. To date, a
substantial majority of our product sales revenue has been derived from computer
hardware and software products acquired from Ingram Micro. We cannot guarantee
that Ingram Micro will continue to supply a sufficient quantity of inventory on
a timely basis to satisfy our order requirements. If Ingram Micro were to
terminate or refuse to renew our distribution arrangement, we would have to
purchase our computer hardware and software products from other distributors. In
such event, we cannot be certain that other distributors could be effectively
and efficiently integrated into our distribution systems to provide comparable
fulfillment, processing and shipping services to our customers in a timely
manner. In addition, in the event we do not purchase at least $350.0 million of
products from Ingram Micro during the term of our agreement with them, our
current pricing schedules could be revised. Our distribution agreement with
Ingram Micro terminates in March 2002.

Because Ingram Micro is our primary source for computer hardware and software
products, we are subject to risks associated with Ingram Micro's ability to
replenish its inventory in a timely manner. Our customers' orders could be
significantly delayed if we need to seek other distributors to fulfill those
customers' orders. In addition, our distribution agreement with Ingram Micro
does not require them to set aside any amount of inventory to fulfill our orders
or to give our orders priority over other resellers to whom they sell.
Furthermore, some vendors may decide, for reasons outside our control, not to
offer particular products for sale on the Internet. These vendors may also cause
Ingram Micro not to sell products to us. Ingram Micro's delay or inability to
supply our orders would substantially harm our business.

Our future success also depends on our ability to provide timely and accurate
order fulfillment. We depend on Ingram Micro to process and ship substantially
all of the computer hardware and software products that we sell to our
customers. However, we have limited control over their shipping and processing
procedures. Ingram Micro's systems

                                       11
<PAGE>

and operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, physical and electronic break-ins, earthquakes
and similar events. We do not carry sufficient business interruption insurance
to compensate us for any losses that could occur as a result of Ingram Micro's
inability to perform for any reason.

We are dependent on several third party providers to fulfill a number of our
retail functions. If these parties are unwilling or unable to continue providing
services to us, our business could be seriously harmed

We are currently dependent on our distribution and fulfillment providers to
manage inventory, process orders and distribute products to our customers in a
timely manner. In addition to our contract with Ingram Micro for computer
hardware and software products and for the fulfillment of our consumer
electronics products, we have supply and distribution contracts with Ingram
Entertainment Inc. for videos, DVDs and games, Action International Marketing
for our clearance products, Valley Media, Inc. for music products, Global Trade,
Inc. for consumer electronics products and United Stationers Supply Co. for
office products and supplies. We do not have long-term agreements with any of
these third parties. We purchase all of our books from the Ingram Book Company,
which are shipped and processed by Ingram Fulfillment Services, Inc. and we use
Global Sports, Inc. for our other sporting goods products. We are also dependent
on various supply and fulfillment partners, including Brightpoint, Inc., and
various wireless service providers for the products and services offered in our
wireless store. If we do not maintain our existing relationships with these
providers on acceptable commercial terms, we may not be able to continue to
offer a broad selection of merchandise at low prices, and customers may refuse
to shop at our online store. In addition, manufacturers may decide, for reasons
outside our control, not to offer particular products for sale on the Internet.
Other manufacturers have chosen not to authorize any Internet resellers or
Internet resellers without a traditional "brick and mortar" retail store. If we
are unable to supply products to our customers, or if other product
manufacturers refuse to allow their products to be sold via the Internet, our
business will suffer severely.

We rely on our distributors to fulfill a number of traditional retail functions,
including maintaining inventory and preparing merchandise for shipment to
individual customers. In the future, our vendors may not be willing to provide
these services at competitive rates. In addition, vendors may refuse to develop
the communications technology necessary to support our direct shipment
infrastructure. We also have no effective means to ensure that our providers
will continue to perform these services to our satisfaction. Our customers could
become dissatisfied and cancel their orders or decline to make future purchases
if we or our providers are unable to deliver products on a timely basis. If our
customers become dissatisfied with our distributors and third party service
providers, our reputation and the BUY.COM brand could suffer.

Our operations are also heavily dependent upon a number of other third parties
for customer service and support, credit card processing, and hosting our system
infrastructure and database servers. In addition, our distributors and
fulfillment providers use the Federal Express Corporation, United Parcel Service
and the United States Postal Service to deliver substantially all of our
products. If the services of any of these third parties become unsatisfactory,
our customers may experience lengthy delays in receiving their orders, and we
may not be able to find a suitable replacement on a timely basis or on
commercially reasonable terms.

If we are not able to generate significant advertising revenue, we may not be
able to achieve profitability

Our future success will depend in part on the willingness of product
manufacturers and other advertisers to advertise on our Web site. There is
significant uncertainty about the demand for and market acceptance of Internet
advertising. We cannot assure you that the market for Internet advertising will
expand, become sustainable or that we will be able to continue to provide an
attractive forum for advertisers. If the market for Internet advertising fails
to develop or if we do not provide an attractive forum for advertisers, our
business may not achieve profitability.

Because our advertising revenues carry higher gross margins than our product
sales, any decline in our advertising revenues would have a disproportionate
impact on our overall gross margin. For example, since we expect our net sales
to decrease in 2001, compared to the year ended December 31, 2000, our co-op
advertising revenue should correspondingly decline, thus reducing our
advertising revenue. If our advertising revenues decline, we may not be able

                                       12
<PAGE>

to replace these revenues through other programs or through our product sales,
and we may be unable to achieve profitability.

We have only been operating our online business since November 1997 and face
challenges related to early stage companies in rapidly evolving markets

We were founded in June 1997 and began our online operations in November 1997.
You should consider our prospects in light of the risks and difficulties
frequently encountered by early stage companies in the rapidly evolving online
commerce market. These risks include, but are not limited to, an unpredictable
business environment, the difficulty of raising working capital, the difficulty
of attracting and retaining qualified management personnel and the use of our
business model.  To address these risks, we must, among other things:

  -  access sufficient capital to fund the implementation of our business model;

  -  increase our sales volumes and gross margins while limiting our operating
     expenses;

  -  expand our customer base;

  -  enhance our brand recognition;

  -  expand our product and service offerings;

  -  access sufficient product inventory to fulfill our customers' orders;

  -  successfully implement our business and marketing strategy;

  -  provide high quality customer service and order processing;

  -  respond effectively to competitive and technological developments; and

  -  attract and retain qualified personnel.

System failures could prevent access to our online store and harm our business
and results of operations

Our sales would decline and we could lose existing or potential customers if
they are not able to access our online store or if our online store, transaction
processing systems or network infrastructure do not perform to our customers'
satisfaction. Any network interruptions or problems with our Web site could:

   -  prevent customers from accessing our online stores;

   -  reduce our ability to fulfill orders;

   -  reduce the number of products that we sell;

   -  cause customer dissatisfaction; or

   -  damage our reputation.

We have experienced brief computer system interruptions in the past, and these
interruptions may recur. If the number of customers visiting our Web site
continues to increase, we will need to expand and upgrade our technology,
transaction processing systems and network infrastructure significantly. We may
not be able to make timely upgrades to our systems and infrastructure to
accommodate increases in the number of customers.

                                       13
<PAGE>

Our systems and operations are also vulnerable to damage or interruption from a
number of sources, including fire, flood, power loss, telecommunications
failure, physical and electronic break-ins, earthquakes and other similar
events. Our servers are also vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. Any substantial disruption of this
sort could completely impair our ability to generate revenues from our Web site.
We do not presently have a formal disaster recovery plan in effect and do not
carry sufficient business interruption insurance to compensate us for losses
that could occur.

Our business model is new and unproven, and we may not be able to achieve
profitability

We are subject to risks due to the unproven and evolving nature of our business
model and aggressive pricing strategy. The success of our business model depends
on the volume of customers that visit our Web site and purchase our products, as
well as our ability to generate significant online advertising revenues. To this
end, we have worked hard to build our brand name and enhance our customer
loyalty by selling our products at extremely low prices and maintaining very
low, and sometimes negative, gross margins on our product sales. We intend to
implement various strategies to improve our gross margins going forward, which
may include raising prices on products and product categories from time to time.
To the extent we raise the prices on our merchandise, our product sales may
decline. We may also have to increase our prices if distributors receive
pressure from manufacturers to discontinue sales to us as a result of our low
price strategy. If the amount of traffic to our Web site decreases due to price
increases, a reduced marketing budget, a weakening demand for technology and
entertainment products or otherwise, we may become less attractive to our
current and potential advertisers. As a result, our margins and advertising
revenues may decline.

Our ability to achieve profitability also depends on our ability to effectively
manage our operating costs. To this end, we have implemented a restructuring
plan that requires less headcount to operate our business, less resources
dedicated to the development of our system infrastructure, operating systems and
other capital expenditures and a more efficient use of the resources dedicated
to marketing and promoting our Web site. If we are unable to manage our
operating expenses, while at the same time increasing our gross margins compared
to the year ended December 31, 2000, and without experiencing a significant
deterioration in our sales volumes, we will be unable to achieve profitability.
Further, since our new operating plan requires significantly less resources
focused on the operation of our business, we may not be able to achieve high
levels of customer satisfaction, and consequently, we may lose existing and
potential customers.

Online security risks could seriously harm our business

A significant barrier to e-commerce and online communications is the secure
transmission of confidential information over public networks. Anyone who is
able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against potential
security breaches or to alleviate problems caused by any breach. We rely on
licensed encryption and authentication technology to provide the security and
authentication necessary for secure transmission of confidential information,
including credit card numbers. Advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments may
result in a compromise or breach of the algorithms that we use to protect
customer transaction data. In the event someone circumvents our security
measures, it could seriously harm our business and reputation, and we could lose
customers. Security breaches could also expose us to a risk of loss or
litigation and possible liability for failing to secure confidential customer
information.

If sales from our computer products decline, our operating results will suffer

Our operating results substantially depend on product revenue from the sale of
computer hardware, software products and peripherals. To date, a substantial
majority of our product sales revenues are derived from computer hardware and
software products. We expect that revenue from these products will continue to
represent more than a majority of our total product revenues during the next
twelve months. We could experience declines in these product sales due to
several factors, including, but not limited to:

  -  a general economic slowdown or "softness" in consumer demand for
     technology-related products;

                                       14
<PAGE>

  -  increased price competition from our competitors;

  -  technological obsolescence of the computer hardware, software and
     peripheral products that we offer;

  -  decisions by manufacturers of computer products to curtail or eliminate the
     sale of products or categories of products over the Internet or by us; or

  -  decreased customer demand for computer hardware, software and peripheral
     products.

If we are unable to maintain our current sales levels of computer hardware,
software and peripheral products, our financial condition and results of
operations would suffer.

We must continue to develop and maintain the BUY.COM brand, which is costly and
may not generate corresponding revenues

Maintaining and strengthening the BUY.COM brand is an important factor in
attracting new customers, building customer loyalty and attracting advertisers.
In the past, our initiatives have involved significant expenditures. However, as
part of our restructuring plan, we have significantly reduced the resources
allocated to our promotional strategies. If our remaining promotional efforts
are unsuccessful, we may not be able to recover these expenses or increase our
revenues or margins consistent with our operating plan. Further, we also believe
potential customers and advertisers are driven to our online store because of
our strong brand recognition. If advertisers do not believe our Web site is an
effective marketing and sales channel for their merchandise, or if customers do
not perceive us as offering a desirable way to purchase merchandise, our
branding efforts will suffer and we may lose customers.

Our ability to build and strengthen the BUY.COM brand depends largely on:

  -  our ability to allocate sufficient marketing dollars on our advertising and
     promotional efforts given our financial position;

  -  the success of our advertising and promotional efforts;

  -  our ability to provide our customers with a broad range of products at
     competitive prices with timely fulfillment; and

  -  our ability to provide high quality customer service.

We spent approximately $71.2 million and $92.4 million for the years ended
December 31, 1999 and 2000, respectively, on our marketing budget to build and
maintain our brand loyalty among our customers. However, we expect our marketing
budget will decrease in the near term as a result of our effort to achieve
positive operating cash flow. We cannot be certain that our reduced marketing
budget will successfully drive customer acquisition or that this allocation of
resources will provide additional revenues equal to this dedication of our
resources. If we fail to promote and maintain our brand, or if we incur
excessive expenses attempting to promote and maintain our brand, our business
may suffer.

Our future operating results may fluctuate and cause the price of our common
stock to decline

Our limited operating history and the emerging nature of the markets in which we
operate make it difficult to accurately predict our future revenues. We expect
that our revenues and operating results will fluctuate significantly from
quarter to quarter, due to a variety of factors, many of which are beyond our
control. If our quarterly revenues or operating results fall below the
expectations of investors or securities analysts, the price of our common stock
could significantly decline. The factors that could cause our operating results
to fluctuate include, but are not limited to:

  -  fluctuations in the amount of customer spending on the Internet;

  -  our ability to maintain the operation of all of our specialty stores;

                                       15
<PAGE>

  -  our ability to generate significant advertising revenues;

  -  our ability to build and maintain customer loyalty;

  -  the introduction of new or enhanced Web pages, services, products and
     strategic alliances by us and our competitors;

  -  price competition on the Internet or higher wholesale prices in general;

  -  the success of our brand building and marketing campaigns;

  -  our ability to effectively merchandise and manage our product mix;

  -  our ability to maintain our distributor, vendor and other key corporate
     relationships;

  -  increases in the cost of online or offline advertising;

  -  unexpected increases in shipping costs or delivery times;

  -  government regulations related to use of the Internet for commerce;

  -  our ability to maintain, upgrade and develop our Web site, transaction
     processing systems and network infrastructure;

  -  technical difficulties, system downtime or Internet brownouts;

  -  the amount and timing of operating costs and capital expenditures relating
     to maintaining our business, operations and infrastructure; and

  -  general economic conditions and economic conditions specific to the
     Internet and online commerce.

If we do not respond to technological change, our stores could become obsolete,
and we could lose customers

The development of our Web site entails significant technical and business
risks. To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online stores. The Internet
and the e-commerce industry are characterized by:

  -  rapid technological change;

  -  changes in customer requirements and preferences;

  -  frequent new product and service introductions embodying new technologies;
     and

  -  the emergence of new industry standards and practices.

However, we have significantly reduced the resources dedicated to the
enhancement of our network infrastructure and operating systems. If we are
unable to maintain our existing systems and create a positive customer
experience, our revenues may decline and our business will suffer.

The evolving nature of the Internet could also render our existing online stores
and systems obsolete. Our success will depend, in part, on our ability to:

  -  license or acquire leading technologies useful in our business;

                                       16
<PAGE>

  -  enhance our existing online stores;

  -  enhance our network infrastructure and transaction processing systems;

  -  develop new services and technology that address the increasingly
     sophisticated and varied needs of our current and prospective customers;
     and

  -  adapt to technological advances and emerging industry and regulatory
     standards and practices in a cost-effective and timely manner.

Future advances in technology may not be beneficial to, or compatible with our
business. Furthermore, we may not use new technologies effectively or adapt our
Web site and transaction processing systems to customer requirements or emerging
industry standards on a timely basis, or at all, depending on our financial
condition. If we are unable to adapt to changing market conditions or user
requirements in a timely manner, our stores may become obsolete and we will lose
customers.

We may be subject to liability for sales and other taxes

We currently collect sales or other similar taxes on the shipment of goods in
the States of California, Indiana, and Massachusetts. However, one or more
states could seek to impose additional income tax obligations or sales tax
collection obligations on out-of-state companies, such as ours, which engage in
or facilitate online commerce. Any new taxes on the sale of products and
services through the Internet or the income derived from these sales could
substantially impair the growth of e-commerce and adversely affect our ability
to become profitable. Furthermore, since our service is available over the
Internet in multiple states and in foreign countries, these jurisdictions may
require us to qualify to do business in these states and foreign countries. If
we fail to qualify in a jurisdiction that requires us to do so, we could face
liabilities for taxes and penalties.

We may be unable to protect our Internet domain names, which are essential to
our business

Our Internet domain names are critical to our brand recognition and our overall
success. We have many registered domain names relating to our brand, including
BUY.COM. If we are unable to protect these domain names, our competitors could
capitalize on our brand recognition. The acquisition and maintenance of domain
names generally are regulated by governmental agencies and their designees. The
regulation of domain names in the United States and in foreign countries has
changed and is subject to further change in the future. As a result, we may be
unable to acquire or maintain relevant domain names in the United States and in
other countries where we conduct business. Furthermore, we may be unable to
protect our domain names or prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our domain
names, trademarks and other intellectual property rights.

Our operating results could be impaired if we become subject to burdensome
government regulations and legal uncertainties concerning the Internet

Due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet,
relating to:

  -  user privacy;

  -  pricing, usage fees and taxes;

  -  content;

  -  copyrights;

  -  distribution;

                                       17
<PAGE>

  -  characteristics and quality of products and services; and

  -  online advertising and marketing.

The adoption of any additional laws or regulations may decrease the popularity
or impede the expansion of the Internet and could seriously harm our business. A
decline in the popularity or growth of the Internet could decrease demand for
our products and services, reduce our advertising revenues and margins and
increase our cost of doing business. Moreover, the applicability of existing
laws to the Internet is uncertain with regard to many important issues,
including property ownership, intellectual property, export of encryption
technology, libel and personal privacy. The application of laws and regulations
from jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services, could also harm our business.

If we are unable to successfully defend against pending legal actions against
us, we could face substantial liabilities

We are currently a party to pending legal actions against us, the outcomes of
which are uncertain and could result in significant judgments against us. In
March 2000, a class action suit was filed against us in the U.S. District Court
for the Central District of California alleging that we provide personal
customer information to our third party advertising server without informing our
customers or seeking their approval. In April 2000, another class action was
filed against us in the U.S. District Court for the Central District of
California based on similar facts to the federal class action filed in March
2000. A third class action suit was filed against us in Orange County,
California Superior Court in April 2000 based on facts similar to the two
federal class actions.

In March 2001, the PGA Tour filed a counterclaim against us in the federal
district court in the Central District of California. The counterclaim alleges
that we breached our contract with them by declaring our sponsorship agreement
to be terminated, by demanding that the PGA Tour cease all uses of our
trademark, by breaching the confidentiality provisions of our agreement with
them and by taking action that adversely affects the goodwill of the Buy.Com
Tour. The PGA Tour seeks damages in excess of $75,000 and attorneys' fees.

Defending against these lawsuits may involve significant expense and diversion
of management's resources. Furthermore, due to the inherent uncertainties of
litigation, we may not prevail in these actions. In addition, our ongoing
operations may continue to subject us to significant litigation and costs in the
future. For a more detailed description of these legal actions, see "Part I,
Item 3, Legal Proceedings."

The success of our business depends on the continued growth of the Internet as a
viable commercial marketplace

Our success depends upon the widespread acceptance of the Internet as a vehicle
to purchase products. The e-commerce market is at an early stage of development,
and demand and continued market acceptance is uncertain. We cannot predict the
extent to which customers will shift their purchasing habits from traditional to
online retailers. If customers or manufacturers are unwilling to use the
Internet to conduct business and exchange information, our business will fail.
It is possible that the Internet may not become a viable long-term commercial
marketplace due to the potentially inadequate development of the necessary
network infrastructure, the delayed development of enabling technologies and
performance improvements and the high cost of shipping products. The commercial
acceptance and use of the Internet may not continue to develop at historical
rates or may not develop as quickly as we expect. In addition, concerns over
security and privacy may inhibit the growth of the Internet.

We face intense competition in various retail segments and some of our
competitors may be better positioned to capitalize on the rapidly growing e-
commerce market

The e-commerce market is new, rapidly evolving and intensely competitive. Many
of our current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing, technical, management and other resources than we do. Some of our
competitors have and may continue to use aggressive pricing or inventory
availability practices and devote substantially more resources to Web

                                       18
<PAGE>

site and system development than us. We expect that competition will further
intensify in the future. New technologies and the expansion of existing
technologies may also increase the competitive pressure we face. Increased
competition may result in reduced operating margins, loss of market share and
diminished brand recognition.

We believe that the primary competitive factors in the online market include
brand recognition, price, product selection, ease of use, customer service,
available content and value added services. We currently compete with a variety
of online vendors that specialize in computer hardware and software products, as
well as those who sell books, music, videos, DVDs and other entertainment
products, consumer electronics, office supplies and products, sporting goods and
wireless products and services. Moreover, all of the products we sell in our
online stores are typically available from traditional retailers. Consequently,
we must compete with companies in the online commerce market as well as the
traditional retail industry.

We would also realize significant competitive pressure if any of our
distribution providers were to initiate their own retail operations. Since our
distributors have access to merchandise at very low costs, they could sell
products at lower prices and maintain a higher gross margin on their product
sales than we can. In this event, our current and potential customers may decide
to purchase directly from these distributors. Increased competition from any
distributor capable of maintaining high sales volumes and acquiring product at
lower prices than us could significantly reduce our market share.

If we are unable to protect our trademarks and intellectual property rights, our
reputation and brand could be impaired, and we could lose customers

We regard our trademarks, trade secrets and similar intellectual property as
critical to our success. We rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with employees,
customers, providers and others to protect our proprietary rights. We cannot be
certain that we have taken adequate steps to protect our proprietary rights,
especially in countries where the laws may not protect our rights as fully as in
the United States. In addition, third parties may infringe or misappropriate our
proprietary rights, and we could be required to incur significant expenses to
preserve them. We have applied for the registration of some of our trademarks
and service marks in the United States and some other countries. Even if we are
able to register these names, registration may not adequately protect us against
infringement by others. Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our products
and services are made available online. If we are not able to protect our
trademarks and other intellectual property, we may experience difficulties in
achieving and maintaining brand recognition and customer loyalty.

Intellectual property claims against us could be costly and result in the loss
of significant rights

Other parties may assert infringement or unfair competition claims against us.
In the past, other parties have sent us notices of claims of infringement of
intellectual property rights, and we expect to receive other notices in the
future. We cannot predict whether third parties will assert claims of
infringement against us, or whether any past or future assertions or
prosecutions will adversely affect our business. If we are forced to defend
against any of these claims, whether meritless or not, we may face costly
litigation and diversion of technical and management personnel. As a result of
these disputes, we may have to expend significant resources to develop or
acquire non-infringing property. Alternatively, we may need to pursue royalty or
licensing agreements, which may not be available on acceptable terms, if at all.

SOFTBANK and its affiliates control a majority of our outstanding common stock
which will enable them to control many significant corporate actions and may
prevent a change in control that would otherwise be beneficial to our
stockholders.

SOFTBANK and its affiliates own approximately 28% of our outstanding stock as of
March 21, 2001. In addition, as a result of a voting trust agreement with our
largest stockholder, approximately 44% of our stock outstanding as of March 21,
2001 must be voted by the trustees to mirror the voting of all shares that are
not subject to the terms of the voting trust agreement on significant
stockholder actions, as defined in the voting trust agreement. On routine
stockholder actions, the trustees have the discretion to vote the trust shares
in any manner determined by a majority of

                                       19
<PAGE>

the trustees. Because SOFTBANK and its affiliates will control a majority of the
shares not subject to the voting trust, they will effectively control the votes
of approximately 72% of our common stock on significant corporate actions and
28% on routine corporate governance matters as of March 21, 2001. This control
by SOFTBANK and its affiliates could have a substantial impact on matters
requiring the vote of the stockholders, including the election of our directors
and most of our corporate actions. This control could delay, defer or prevent
others from initiating a potential merger, takeover or other change in our
control, even if these actions would benefit our stockholders and us. This
control could adversely affect the voting and other rights of our other
stockholders and could depress the market price of our common stock.

If we are unable to successfully manage the transition from the leadership of
our founder, our business could suffer

In the fall of 1999, Scott A. Blum, our founder, majority stockholder and former
Chief Executive Officer and Chairman, resigned from our Board of Directors,
deposited all of his shares of our common stock into a voting trust, and
withdrew from participation in our management, business and operations. Mr. Blum
had previously resigned as our Chief Executive Officer and terminated his
employment with us in March 1999.  As of March 21, 2001, Mr. Blum's shares
represented approximately 44% of our outstanding capital stock. Prior to leaving
the company, Mr. Blum was primarily responsible for conceiving, developing and
implementing our business model and recruiting our Board of Directors and our
management team. In addition, Mr. Blum was directly involved in the creation,
development and implementation of our corporate image and advertising strategy.
If we are unable to successfully transition our leadership while maintaining the
support of Mr. Blum within the limits of the voting trust, our business could
suffer.

Our stock price may be volatile and has recently declined in a significant way

The trading price of our common stock is likely to be volatile and could
fluctuate widely in response to many of the following factors, some of which are
beyond our control:

  -  variations in our operating results, such as our inability to meet our
     estimated revenue targets for the quarters ended June 30, 2000, September
     30, 2000 and December 31, 2000;

  -  our ability, or inability, to raise additional working capital;

  -  announcements of technological innovations, new services or product lines
     by us or our competitors;

  -  changes in our business model and operating strategies;

  -  changes in expectations of our future financial performance, including
     financial estimates by securities analysts and investors;

  -  changes in operating and stock price performance of other Internet and
     online commerce companies;

  -  conditions or trends in the Internet industry;

  -  additions or departures of key personnel; and

  -  future sales of our common stock.

Domestic and international stock markets often experience significant price and
volume fluctuations. These fluctuations, as well as general economic and
political conditions unrelated to our performance, may adversely affect the
price of our common stock.

From February 8, 2000 (the first day of public trading of our common stock),
through March 21, 2001, the high and low sales prices for our common stock
fluctuated between $27.50 and $0.22. On March 21, 2001, the closing price of our
common stock was $0.25. In the past, following periods of volatility in the
market price of their securities, many

                                       20
<PAGE>

companies have been the subject of securities class action litigation. If we
were sued in a securities class action, it could result in substantial costs and
a diversion of management's attention and resources and would cause the price of
our common stock to fall.

A large number of shares may be sold into the public market in the near future,
which may cause the market price of our common stock to decline significantly,
even if our business is doing well

A substantial number of shares of our common stock are eligible for resale as a
result of the expiration of time restrictions imposed by law and by contract.
We have also recently implemented an employee equity incentive program that
provides for the issuance of shares of common stock to certain executives that
may also be sold into the public market. Sales of such additional shares in the
public market could reduce the market price of our common stock. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate.

Item 2.   PROPERTIES

Our principal administrative and engineering facility is located in
approximately 50,000 square feet of office space in Aliso Viejo, California
under a lease that expires in January 2006. Our lease agreement for this
facility requires monthly base rental payments of approximately $125,000 per
month. We also lease a facility of approximately 20,000 square feet in Irvine,
California to warehouse and process our product returns. Our lease for this
facility expires in October 2003 and requires monthly payments of approximately
$14,000. We believe our existing facilities will be sufficient for our needs for
at least the next twelve months.

Item 3.   LEGAL PROCEEDINGS

In March 1999, a class action suit was filed against us in the Orange County,
California Superior Court alleging breach of contract, fraud and violation of
consumer protection laws based on an error in the pricing of a computer monitor
that was offered for sale on our Web site.  Shortly thereafter in March 1999, a
similar class action case was filed in Camden County, New Jersey. Both actions
claimed that we intentionally mispriced the monitors as a scheme to cause more
people to visit our site. Plaintiffs also claimed that we attempted the same
scheme with other products. The plaintiffs were seeking compensatory and
punitive damages in addition to injunctive relief. Neither action set forth the
amount of damages sought by the plaintiffs. In September 2000, we received
preliminary approval from the Orange County Superior Court to settle both
lawsuits for an aggregate of $575,000. We received the final approval of the
settlement by the Orange County Superior Court in December 2000.

On March 13, 2000 a class action suit was filed against us in the U.S. District
Court for the Central District of California alleging that we collect, use and
disclose personally identifiable customer information to our third party
advertising server and other advertisers without first informing our customers
or seeking their permission in violation of several federal statutes. The
complaint seeks damages of up to $10,000 per class member per violation, actual
and punitive damages, restitution, attorneys' fees and costs plus injunctive and
other equitable relief. On April 7, 2000 a companion lawsuit was filed in the
Superior Court of the State of California, County of Orange alleging violations
of state statutory and common law based upon the same facts and federal causes
of action as alleged in the federal class action. The state complaint seeks
statutory damages of up to $5,000 per class member per violation, plus actual
and punitive damages or restitution, attorneys' fees and costs and injunctive
and other equitable relief. On April 25, 2000 a third class action suit was
filed in the United States District Court for the Central District of California
alleging violation of the same federal statutes as those in the federal class
action filed on March 13, 2000. As with the first two class actions, the
complaint alleges that we collect, use and disclose personally identifiable
information of our consumers without first informing them or obtaining their
consent. The complaint seeks unspecified statutory damages, compensatory
damages, punitive damages, attorneys' fees and costs, plus declaratory,
injunctive and other equitable relief, including disgorgement of all profits and
restitution of all monies acquired by means of any act or practice declared to
be unlawful. The classes have not yet been certified in any of these actions and
such actions are in their early stages.

                                       21
<PAGE>

On February 28, 2001, we filed suit against the PGA Tour for breach of contract
based on our Buy.com Tour sponsorship agreement with them in the federal
district court in the Central District of California. We claim that the PGA Tour
entered into an agreement with another party to provide e-commerce services to
them in violation of our agreement. We are seeking rescission of our agreement,
a return of our sponsorship fees, including those secured by a $17,000,000
letter of credit, and additional damages. In March 2001, the PGA Tour filed a
counterclaim against us in the federal district court in the Central District of
California. The counterclaim alleges that we breached our contract with them by
declaring our sponsorship agreement to be terminated, by demanding that the PGA
Tour cease all uses of our trademark, by breaching the confidentiality
provisions of our agreement with them and by taking action that adversely
affects the goodwill of the Buy.Com Tour. The PGA Tour seeks damages in excess
of $75,000 and attorneys' fees. The cases are in their early stages.

Furthermore, although we intend to defend ourselves vigorously, these actions
could result in significant expenses and diversion of management time and other
resources. Further, the outcome of the actions filed against us is uncertain.
Therefore, we can give no assurance that we will prevail in these suits against
us. See "Risk Factors--If we are unable to successfully defend against pending
legal actions against us, we could face substantial liabilities."

Although we are not aware of any other material legal proceedings pending
against us, we are from time to time subject to ordinary course litigation and
disputes between our customers, employees and us.

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

     None.

                                       22
<PAGE>

                                    PART II

Item 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

Market Information

Our common stock is listed for quotation on the Nasdaq National Market under the
symbol "BUYX." The following table sets forth, for the periods indicated, the
high and low closing bid prices for our common stock as reported by the Nasdaq
National Market since our initial public offering which was completed in
February 2000:

                                                                   High     Low
                                                                  -------  -----
  2000
      First Quarter (February 8, 2000 through March 31, 2000)..... $27.50  $9.63
      Second Quarter.............................................. $ 8.56  $4.75
      Third Quarter............................................... $ 5.31  $2.72
      Fourth Quarter.............................................. $ 2.90  $ .50

On March 21, 2001, the closing sale price for our common stock as reported by
the Nasdaq National Market was $0.25.

Holders

As of March 23, 2001, there were approximately 40,289 holders of record of our
common stock.

Dividends

We have never paid any cash dividends on our common stock and we have no current
plans to do so.

Use of Proceeds from Registered Securities

On February 11, 2000, we completed an initial public offering (the "Offering")
of our common stock, $0.0001 par value. The shares of common stock sold in the
Offering were registered under the Securities Act of 1933, as amended, on a
Registration Statement on Form S-1 (the "Registration Statement") (Reg. No. 333-
89737) that was declared effective by the SEC on February 7, 2000. All
16,100,000 shares of common stock registered under the Registration Statement
(including 2,100,000 shares sold pursuant to the exercise of the 30
Underwriters' over-allotment option) were sold at a price of $13.00 per share.
After deducting the underwriting discounts and commissions and offering
expenses, we received net proceeds from the Offering of approximately $192.1
million. As of December 31, 2000, we had used approximately $124.7 million of
the net proceeds from the Offering for capital expenditures associated with
system upgrades and expansion, marketing activities, including our sponsorship
of the buy.com Tour, repayment of certain indebtedness, investments in our joint
ventures, and to fund operating losses and for working capital all as described
elsewhere in this report. Except for the repayment of a $5.0 million debt to The
Scott A. Blum Separate Property Trust, none of the net proceeds of the Offering
were paid directly or indirectly to any director, officer, general partner of
our or their associates, persons owning 10% or more of any class of equity
securities, or an affiliate of ours, other than in the form of wages or salaries
and bonuses paid out in the ordinary course of business.

Item 6.   SELECTED FINANCIAL DATA

The following selected consolidated financial data with respect to our
consolidated statement of operations for the years ended December 31, 2000,
1999, 1998 and for the period from June 7, 1997 (inception) through December 31,
1997, and our consolidated balance sheets as of December 31, 2000, 1999 1998 and
1997, are derived from our audited consolidated financial statements.  The
following information should be read in conjunction with our consolidated
financial statements and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Annual Report on Form 10-K.

                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                                                                           JUNE 7, 1997
                                                                                                            (INCEPTION)
                                                                   YEARS ENDED DECEMBER 31,                   THROUGH
                                                       -----------------------------------------------      DECEMBER 31,
                                                           2000             1999              1998              1997
                                                       ------------     ------------      ------------      ------------
                                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
 <S>                                                   <C>              <C>               <C>               <C>
 STATEMENT OF OPERATIONS DATA:
 Net revenues                                          $    787,670     $    596,848      $    125,290      $        878
 Cost of goods sold                                         740,977          603,695           123,527               832
                                                       ------------     ------------      ------------      ------------

 Gross profit (loss)                                         46,693           (6,847)            1,763                46

 Operating expenses:
     Sales and marketing                                     92,425           71,189            13,430               130
     Product development                                     25,280            7,617               950                30
     General and administrative                              49,076           42,692             5,425               269
                                                       ------------     ------------      ------------      ------------
          Total operating expenses                          166,781          121,498            19,805               429
                                                       ------------     ------------      ------------      ------------

          Operating loss                                   (120,088)        (128,345)          (18,042)             (383)

 Other income (expense):
     Interest income (expense)                                7,228           (1,141)              202                (7)
     Other                                                     (728)             153                (4)                -
                                                       ------------     ------------      ------------      ------------

          Total other income (expense)                        6,500             (988)              198                (7)

 Net loss before equity in losses of joint ventures        (113,588)        (129,333)          (17,844)             (390)

 Equity in losses of joint ventures, net                    (19,434)            (835)                -                 -
                                                       ------------     ------------      ------------      ------------

 Net loss                                              $   (133,022)    $   (130,168)     $    (17,844)     $       (390)
                                                       ============     ============      ============      ============
 Net loss per share:
     Basic and diluted                                 $      (1.04)    $      (1.45)     $      (0.22)     $      (0.00)
                                                       ============     ============      ============      ============

 Weighted average number of common shares outstanding:
     Basic and diluted                                  128,489,722       89,597,782        81,815,869        81,331,078


 BALANCE SHEET DATA:
 Cash and cash equivalents                             $     56,656     $     24,693      $      9,221      $         34
 Marketable securities                                       10,769                -                 -                 -
 Working capital (deficit)                                   41,042          (20,640)           (3,562)             (391)
 Total assets                                               136,504          119,606            26,837               267
 Long-term debt                                                 324            1,738             1,175                 -
 Stockholders' equity                                        83,232           23,048             6,635              (340)
</TABLE>

                                       24
<PAGE>

Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

BUY.COM is a multi-category Internet superstore that offers a broad selection of
brand name computer hardware and peripherals, software, books, videos, DVDs,
computer games, music, clearance products, consumer electronics, sporting goods,
office supplies and products, and wireless products and services at everyday low
prices. BUY.COM was organized as a California limited liability company in June
1997 under the name BuyComp LLC and was incorporated in Delaware as Buy Corp. in
August 1998. In November 1998, we changed our name to BUY.COM INC.

We derive revenues principally from the sale of products and, to a lesser
extent, from paid advertisements on our Web site. We recognize product revenue
upon shipment of products. We generally recognize advertising revenue straight
line over the period of time an advertisement runs on our site. In some
circumstances, our agreements with advertisers require consumer action, in which
case, we recognize advertising revenue when the consumer action is completed.

We have employed a business model that includes outsourcing the majority of our
infrastructure to leading national distribution and fulfillment providers with
established expertise. Through this model, we capitalize on the cost
efficiencies achieved by our distribution providers and minimize our
infrastructure and operating expenses, enabling us to pass significant savings
on to our customers. Additionally, by aligning with leading distributors in each
of our product categories, we can use their significant inventories and
distribution capabilities to offer a broader selection of products at lower
costs than traditional retailers can.

Consistent with our merchandising strategy, we have started to raise prices on
many of our products. We intend to continue these selective price increases, and
as a result, may experience decreased sales volumes.  For this reason, our
ability to become and remain profitable depends upon our ability to maintain our
net revenues consistent with our operating plan. Over recent quarters we have
not achieved revenue growth and in fact, we expect our net revenue for 2001 to
be significantly less than our net revenue for the year ended December 31, 2000,
and we cannot be certain that we will ever become profitable.

To date, our sales of computer hardware and software products have accounted for
the vast majority of our net revenues. Our sales of products in other categories
constituted less than 20% of our net revenues for the year ended December 31,
2000, and for the year ended December 31, 1999.  None of our other product
categories individually constituted more than 10% of our net revenues during
these periods.  Product sales, including shipping and handling, accounted for
96.0% and 98.2% of net revenues for the years ended December 31, 2000 and
December 31, 1999, respectively.

Shipping and handling net revenues were $28.1 million and $30.1 million for the
years ended December 31, 2000 and December 31, 1999, respectively.  Shipping and
handling results are a direct function of our product sales and are an integral
part of our merchandising and pricing strategy and may fluctuate based on
promotional programs. Accordingly, we believe shipping and handling net revenues
and the corresponding gross profit on these net revenues cannot be viewed
independent of product sales and gross profit. The gross profit on our shipping
and handling net revenues was $1.9 million and $12.8 million for the years ended
December 31, 2000 and December 31,1999, respectively.

We currently generate additional revenues from vendor co-op advertising as well
as media advertising. Vendor co-op advertising is a standard practice in the
retailing sector, where product vendors set aside certain amounts of advertising
funds to be paid to retailers in exchange for specific marketing and in-store
placement of their products. We also generate advertising media revenue from
click-through advertisements that direct the customer to the advertiser's Web
site. These media advertising revenues are generally derived from short-term
advertising contracts in which we typically guarantee a minimum number of
advertising impressions to be delivered to users over a specified period of time
for a fixed fee. In the cases where we guarantee a minimum number of advertising
impressions, we defer a portion of the advertising revenues until the minimum
number of impressions has been achieved. Advertising sales accounted for 5.6%
and 2.8% of net revenues for the years ended December 31, 2000 and December 31,
1999, respectively.

                                       25
<PAGE>

Our net revenues are also net of coupon redemptions. Coupon redemptions result
in a reduction of gross revenues in the period the coupons are redeemed by an
amount equal to the value of the coupons redeemed. Coupon redemptions were $12.8
million, or 1.6% of net revenues, for the year ended December 31, 2000, and $6.2
million, or 1.0% of net revenues, for the year ended December 31, 1999.

We have incurred significant losses since our inception and our cost of sales
and operating expenses have increased dramatically. This trend reflects the
costs associated with our increased efforts to promote the BUY.COM brand, build
market awareness, attract new customers, recruit personnel, build operating
infrastructure, and develop and expand our Web site and related transaction-
processing systems. However, we initiated a restructuring plan in February 2001,
and consistent with our plan, we intend to reduce our marketing budget, web site
development, and technology and operating infrastructure development. We still
believe, however, that we will continue to incur substantial operating losses in
the near term, and we may never achieve profitability.

RESULTS OF OPERATIONS

Net revenues

<TABLE>
<CAPTION>
                                                 Year Ended December 31
                                                 ----------------------
                                                 (amounts in thousands)

                             2000     Percent Change      1999     Percent Change       1998
                             ----     --------------      ----     --------------       ----
<S>                        <C>        <C>               <C>        <C>                 <C>
Net revenues.............  $787,670        32%          $596,848         376%         $125,290
</TABLE>

Net revenues were $125.3 million, $596.8 million and $787.7 million for 1998,
1999 and 2000, respectively, representing increases of $471.6 million, or 376%,
from 1998 to 1999, and $190.8 million, or 32%, from 1999 to 2000. These
increases in the periods indicated reflect a significant increase in the number
of units sold.  This increase in product sales is primarily due to the growth of
our customer base and repeat purchases from our existing customers and the
launch of several new online stores.  We had approximately 246,000, 1.9 million,
and 3.5 million cumulative customer accounts as of December 31, 1998, 1999, and
2000, respectively.

Gross profit (loss)

                                  Year Ended December 31
                                  ----------------------
                                  (amounts in thousands)

                             2000         1999            1998
                             ----         ----            ----
Gross profit (loss)......  $46,693      $(6,847)         $1,763
Gross margin.............      5.9%        (1.1%)           1.4%

Gross profit is calculated as net revenue less the cost of sales which includes
the cost of products sold, shipping costs, and the related distribution and
fulfillment costs. Gross profits were $1.8 million, negative $6.8 million and
$46.7 million in 1998, 1999 and 2000, respectively. The increase from 1999 to
2000 was primarily due to more sophisticated merchandising and pricing
management of our product mix and an increased contribution of higher margin
advertising revenues.

                                       26
<PAGE>

Sales and marketing

<TABLE>
<CAPTION>
                                                 Year Ended December 31
                                                 ----------------------
                                                 (amounts in thousands)

                             2000     Percent Change      1999     Percent Change       1998
                             ----     --------------      ----     --------------       ----
<S>                        <C>        <C>               <C>        <C>                 <C>
Sales and marketing......  $92,425          30%         $71,189         430%           $13,430
Percentage of net             11.7%                        11.9%                          10.7%
revenues.................
</TABLE>

Sales and marketing expenses consist primarily of advertising and promotional
expenses, as well as credit card fees, outsourced customer service fees and
payroll associated with our advertising and marketing personnel. Sales and
marketing expenses were $13.4 million, $71.2 million, and $92.4 million in 1998,
1999 and 2000, respectively, representing increases of $21.2 million, or 30%,
from 1999 to 2000, and $57.8 million, or 430%, from 1998 to 1999. The increases
were primarily attributable to the expansion of our online advertising campaigns
and the expansion of our affiliate program. The increases in our sales and
marketing expenses were also due, to a lesser extent, to increased personnel and
related expenses required to implement our marketing strategy as well as the
costs associated with the sponsorship of the buy.com Tour. We intend to continue
to pursue our branding and marketing campaign in order to attract new customers
and retain our existing customers; however, consistent with our restructuring
plan, our branding efforts will be limited. As a result, we expect sales and
marketing expenses to decrease in absolute dollars in future periods.

Product development

<TABLE>
<CAPTION>
                                                 Year Ended December 31
                                                 ----------------------
                                                 (amounts in thousands)

                             2000     Percent Change      1999     Percent Change       1998
                             ----     --------------      ----     --------------       ----
<S>                        <C>        <C>                <C>       <C>                 <C>
Product development......  $25,280          232%         $7,617          702%          $ 950
Percentage of net              3.2%                         1.3%                         0.8%
revenues.................
</TABLE>

Product development expenses consist primarily of personnel costs, facilities
expenses, and other related expenses associated with developing and enhancing
our Web site, and costs of acquired content.  Product development expenses were
$950,000, $7.6 million, and $25.3 million in 1998, 1999 and 2000, respectively,
representing increases of $17.7 million, or 232%, from 1999 to 2000, and $6.7
million, or 702%, from 1998 to 1999.  The increases were due to increased
personnel and outside consulting costs required to enhance the features,
content, and functionality of our online stores and transaction processing
systems.  We intend to continue to enhance our Web site and technology and
information systems; however, consistent with our restructuring plan, we expect
product development expenses to decrease in absolute dollars in future periods.
Also, in accordance with authoritative accounting guidance, certain costs are
capitalized and amortized over the estimated useful lives of the applicable
assets.

General and administrative

<TABLE>
<CAPTION>
                                                 Year Ended December 31
                                                 ----------------------
                                                 (amounts in thousands)

                             2000     Percent Change      1999     Percent Change       1998
                             ----     --------------      ----     --------------       ----
<S>                        <C>        <C>               <C>        <C>                 <C>
General and                $49,076           15%        $42,692         687%           $5,425
administrative...........
Percentage of net
revenues.................    6.2%                           7.2%                          4.3%
</TABLE>

                                       27
<PAGE>

General and administrative expenses consist primarily of payroll and related
expenses for executive and administrative personnel, facilities expenses,
professional fees, depreciation, amortization of deferred compensation and
warrants, amortization of goodwill and other intangibles, and other general
corporate expenses. General and administrative expenses were $5.4 million, $42.7
million and $49.1 million in 1998, 1999 and 2000, respectively, representing an
increase of $6.4 million, or 15%, from 1999 to 2000, and $37.3 million, or 687%
from 1998 to 1999. The increases were due to increased headcount and related
expenses associated with the hiring of additional personnel and increased
professional expenses, as well as increases in amortization charges resulting
from the acquisition of Telstreet.com in 2000 and Buygolf.com in 1999.
Consistent with our restructuring plan, we expect general and administrative
expenses to decrease in absolute dollars due to our staff reduction and our
reduction of other general and administrative expenses.

Other Income (Expense)

                                  Year Ended December 31
                                  ----------------------
                                  (amounts in thousands)

                             2000          1999         1998
                             ----          ----         ----

Interest income
(expense)..............     $7,228       $(1,141)       $202
Other Income                  (728)          153          (4)
(expense)..............

Interest income on cash and marketable securities was $202,000, negative $1.1
million and $7.2 million in 1998, 1999 and 2000, respectively. The increases in
2000 were due to higher balances resulting from our financing activities,
principally the net proceeds from our initial public offering in February 2000.
Interest expense for the year ended December 31, 2000 consists of interest on
asset acquisitions financed through capital leases. In addition, interest
expense for the year ended December 31, 2000 also includes interest on our line
of credit incurred during the first quarter of 2000. Other income and expense is
comprised of net gains and losses on sales of property and equipment and other
miscellaneous items.

Interest expense for the year ended December 31, 1999, consists of the expense
associated with the loan due to one our stockholders and our credit facilities,
offset by interest income from our Series B preferred stock financing. Interest
income for the year ended December 31, 1998, includes interest income associated
with our Series A preferred stock financing.

Equity in losses of joint ventures, net

                                  Year Ended December 31
                                  ----------------------
                                  (amounts in thousands)

                             2000          1999         1998
                             ----          ----         ----

Equity in losses of        $19,434        $ 835          N/A
joint ventures, net.....

Equity in losses of joint ventures represents the losses associated with our
ownership interest in our joint venture partnerships, including our
international business initiatives and Buytravel.com LLC. Our accounting
treatment assumes that our ownership interest in the international joint
ventures and Buytravel.com LLC is 50%. Equity in losses of joint ventures, net,
increased to $19.4 million for 2000 from $835,000 for 1999. The increases were
due to the fact that our international joint ventures were at an early stage of
their operations and were incurring net losses, which we recorded as an equity
method investment. We have recently decided to discontinue the operations of our
international joint ventures in continental Europe and Australia. The costs
associated with the discontinuance of the continental European joint venture
were insignificant, and we expect the costs associated with the discontinuance
of the Australian joint venture and the sale of the United Kingdom joint
venture, which will be incurred during the first quarter of 2001, to be minimal.

                                       28
<PAGE>

Liquidity and Capital Resources

As of December 31, 2000, our principal sources of liquidity consisted of $56.7
million of cash and $10.8 million of marketable securities compared to $24.7
million of cash at December 31, 1999. As of December 31, 2000, approximately
$27.0 million of such amounts is characterized as restricted cash to secure our
obligations under several letters of credit.

Net cash used in operating activities amounted to $111.4 million for 2000. This
was primarily attributable to the net loss for the year of $133.0 million,
partially offset by non-cash charges related to depreciation, amortization of
deferred compensation and warrants, equity in losses of joint ventures, and
amortization of goodwill and other intangibles totaling $40.1 million, as well
as $18.5 million of cash used in changes in operating assets and liabilities and
the loss from the disposal of property and equipment. Cash used in changes in
operating assets and liabilities is primarily a function of a decrease in our
accounts payable, a decrease in other liabilities and accrued expenses, an
increase in accounts receivable, offset by a decrease in prepaid expenses and
other current assets, a decrease in noncurrent assets, and an increase in
deferred revenues. For 1999, net cash used in operating activities was $79.2
million and was primarily attributable to the net loss, increases in accounts
receivable, prepaid expenses and other current assets, an increase in other
noncurrent assets, and a decrease in deferred revenue, offset by noncash
expenses, and increases in accounts payable and other liabilities and accrued
expenses.

Net cash used in investing activities was $34.9 million and $14.7 million for
the years ended December 31, 2000 and 1999, respectively, and primarily
consisted of net purchases of marketable securities, purchases of property and
equipment, and cash paid for investments in equity method investees, partially
offset by proceeds from the sale of property and equipment.

Net cash provided by financing activities was $178.3 million for the year ended
December 31, 2000 as a result of the net proceeds from our initial public
offering in February 2000, borrowings from our international joint venture
partners, and proceeds from the exercise of stock options, and partially offset
by the repayment of our credit facility and a promissory note to a stockholder.
Net cash provided by financing activities was $109.4 million for the year ended
December 31, 1999, and was a result of proceeds from a loan by a stockholder,
proceeds from the issuance of preferred and common stock, and proceeds from our
credit facility.

As of December 31, 2000, our principal commitments consisted primarily of
obligations in connection with our capital and operating leases as more fully
described in our consolidated financial statements and the notes related
thereto.  We also have a commitment for the sponsorship of the buy.com TOUR,
pursuant to which we have secured a $17.0 million letter of credit. However,
since the end of 2000, the PGA Tour has drawn down on our secured letter of
credit, and only $14.9 million remains in such letter of credit.  Pursuant to
the terms of the letter of credit, the PGA TOUR may draw upon such remaining
balance in early May 2001.

During 2000, we discontinued the operations of our continental European joint
venture and the costs associated with such termination were insignificant. We
also terminated our Australian joint venture, and in March 2001, we sold our
interest in our United Kingdom joint venture to the John Lewis Partnership. We
expect to incur minimal costs associated with the termination of our Australian
joint venture and the sale of our joint venture in the United Kingdom during the
first quarter of 2001.

In 1999 and 2000, we focused significant efforts and financial resources on
sales and marketing activities to build our brand, increase customer traffic to
our Web site and enhance our customer loyalty. We also committed significant
financial resources to the development of our Web site, transaction processing
systems and network infrastructure. However, in early 2001, we initiated a
restructuring of our business and implemented a new operating plan designed to
accelerate our ability to achieve positive operating cash flow. As part of the
plan, we significantly reduced the size of our workforce and made further
expense reductions for the business in the areas of marketing and advertising,
product development and general and administrative. Our new operating plan also
requires us to refine our gross margin strategy and continue to increase prices
on many of our products. As a result, we expect that our sales volumes for 2001
will be significantly less than our sales volumes for 2000. Notwithstanding the
changes to our financial model, we still utilize a business model that requires
outsourcing the

                                       29
<PAGE>

majority of its operating infrastructure to third party providers, including
distribution and fulfillment, customer support, credit card processing and the
hosting of our system infrastructure and database servers.

As a result of our new operating plan and financial model, we expect our current
cash balances will be sufficient to meet our cash needs for the next 12 months.
We may also seek to sell additional equity securities, obtain a line of credit
or seek other ways to fund our operations. We currently do not have any
commitments for additional financing and we cannot be certain that additional
financing will be available when and to the extent required, or that, if
available, it will be on acceptable terms. We have also received a notice from
the Nasdaq National Market that our common stock has failed to maintain the
required minimum bid price of $1.00 over a period of 30 consecutive trading
days. As a result, we have 90 calendar days, or until May 31, 2001, to regain
compliance with this requirement or be delisted from trading. If our common
stock were delisted from the Nasdaq National Market, the ability of any
potential or future investors to achieve liquidity from our common stock would
be severely limited and will inhibit, if not preclude, our ability to raise
additional working capital on acceptable terms, if at all.

Item 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market rate risk for changes in interest rates is related
primarily to our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. Our short-term investments are
comprised of U.S. government obligations and public corporate debt securities.
Interest rate fluctuations impact the carrying value of the portfolio. We do not
believe that the future market risks related to the above securities will have
material adverse impact on our financial position, results of operations or
liquidity.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BUY.COM's consolidated financial statements and schedules, as listed under Item
14, appear in a separate section of this Annual Report on Form 10-K beginning on
page F-1.

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

None.

                                       30
<PAGE>

                                   PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS

The sections titled "Executive Officers and Key Employees of the Company,"
"Proposal One: Election of Directors" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" appearing in the Company's Proxy Statement for
the 2001 Annual Meeting of Stockholders are incorporated herein by reference.

Item 11.  EXECUTIVE COMPENSATION

The sections titled "Executive Compensation and Other Information" and "Director
Compensation" appearing in the Company's Proxy Statement for the 2001 Annual
Meeting of Stockholders are incorporated herein by reference.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section titled "Principal Stockholders" appearing in the Company's Proxy
Statement for the 2001 Annual Meeting of Stockholders is incorporated herein by
reference.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section titled "Certain Transactions" appearing in the Company's Proxy
Statement for the 2001 Annual Meeting of Stockholders is incorporated herein by
reference.

                                    PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

          (a)(1)  Financial Statements

          BUY.COM's financial statements appear in a separate section of this
Annual Report on Form 10-K beginning on the pages referenced below:

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Report of Independent Public Accountants.................................   F-1
Consolidated Balance Sheets..............................................   F-2
Consolidated Statements of Operations....................................   F-3
Consolidated Statements of Stockholders' Equity..........................   F-4
Consolidated Statements of Cash Flows....................................   F-5
Notes to Consolidated Financial Statements...............................   F-7
</TABLE>


          (2)  Financial Statement Schedule

     BUY.COM's financial statement schedules appear in a separate section of
this Annual Report on Form 10-K beginning on the pages referenced below:

Report of Independent Public Accountants on Supplemental Schedule........  F-24

Schedule II - Valuation and Qualifying Account...........................  F-25

          (3)  Exhibits

                                       31
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.    Description
-----------    -----------
<S>            <C>
    2.1        Agreement and Plan of Merger and Reorganization dated October 26, 1998 by and among
               BUY.COM, Speedserve.com Inc., Ingram Entertainment Inc., David C. Mason and Michael G.
               Mason. (1)

    3.1        Amended and Restated Certificate of Incorporation of BUY.COM. (1)

    3.2        Amended and Restated Bylaws of BUY.COM. (1)

    4.1        Specimen common stock certificate. (1)

    9.1        Voting Trust Agreement dated June 7, 1999 by and between Scott Blum, The Scott A. Blum
               Separate Property Trust, BUY.COM and certain of BUY.COM's outside directors. (1) 9.2
               Amended and Restated Voting Trust Agreement dated October 26, 1999 by and between Scott
               Blum, The Scott A. Blum Separate Property Trust, BUY.COM and certain of BUY.COM's outside
               directors. (1)

   10.1        + Order Fulfillment Agreement dated February 1, 1999 by and between BUY.COM and i.FILL, a
               division of Valley Media, Inc. (1)

   10.2        + Master Service Agreement dated October 1, 1998 by and between BUY.COM and SOFTBANK
               Services Group. (1)

   10.3        + Resale Agreement dated March 10, 1999 by and between BUY.COM and Ingram Micro, Inc.;
               Amendment dated August 11, 1999. (1)

   10.4        Employment Agreement dated March 1, 1999 by and between BUY.COM and Gregory Hawkins;
               Amendment No. 1 to the Employment Agreement. (1)

   10.5        1998 Stock Option/Stock Issuance Plan. (1)

   10.6        1999 Stock Incentive Plan. (1)

   10.7        1999 Employee Stock Purchase Plan. (1)

   10.8        Summit Lease dated June 1999 by and between BUY.COM and AEW/Parker II, LLC. (1)

   10.9        Common Stock Purchase Warrant dated July 19, 1999 by and between BUY.COM and United Air
               Lines, Inc. (1)

   10.10       Common Stock Purchase Warrant dated July 20, 1999 by and between BUY.COM and The Bank of
               Nova Scotia. (1)

   10.11       Series A Convertible Participating Preferred Stock Agreement dated August 18, 1998 by and
               between BUY.COM and certain investors. (1)

   10.12       Form of Option Agreement pursuant to 1998 Stock Option/Stock Issuance Plan. (1)

   10.13       Series B Convertible Participating Preferred Stock Purchase Agreement dated September 2,
               1999 by and between BUY.COM and certain investors. (1)

   10.14       Common Stock Purchase Warrant dated October 8, 1999 by and between BUY.COM and Harpeth
               Holdings Inc. (1)

   10.15       Common Stock Issuance Agreement dated October 25, 1999 by and between BUY.COM INC. and PGA
               TOUR, Inc. (1)
</TABLE>

                                       32
<PAGE>

<TABLE>
   <S>         <C>
   10.16       BUY.COM Tour Agreement dated October 25, 1999 by and between BUY.COM INC. and PGA TOUR,
               Inc. (1)

   10.17       + Memorandum of Understanding dated October 8, 1999 by and between BUY.COM INC. and the
               Ingram Book Group. (1)

   10.18       + Ingram Fulfillment Services, Inc. Agreement dated October 8, 1999 by and between BUY.COM
               INC. and Ingram Fulfillment Services, Inc. (1)

   10.19       Fourth Amended and Restated Investor's Rights Agreement by and among Buy.com and the
               partners named herein dated November 17, 1999. (1)

   10.20       Special Executive Stock Option Plan (1)

   10.21       + Supply and Fulfillment Agreement dated April 24, 2000 by and between Buy.Com Inc. and
               Global Trade, Inc. (2)

   10.22       + Order Fulfillment Services Agreement dated May 2, 2000 by and between Buy.Com Inc. and
               Ingram Micro, Inc. (2)

   10.23       + Supplier Agreement dated June 13, 2000 by and between e-NITED business solutions a
               division of United Stationers Supply Co. and Buy.Com Inc.(2)

   10.24       + Strategic Alliance Agreement dated April 20, 2000 by and between Buy.Com Inc. and Global
               Sports, Inc. (2)

   10.25       + Technology and Trademark License Agreement dated April 26, 2000 by and between Buy.Com
               Inc. and BUYNOW, INC. (2)

   10.26       + Non-Competition Agreement dated April 26, 2000 by and between Buy.Com Inc. and BUYNOW,
               INC. (2)

   10.27       Severance Agreement and General Release effective February 11, 2000, by and between
               Buy.com Inc. and Greg Hawkins. (3)

   10.28       Severance Agreement and General Release effective February 11, 2000, by and between
               Buy.com Inc. and Mitch Hill. (3)

   10.29       *Fulfillment Services Agreement by and between Buy.com Inc., and Brightpoint North
               America, Inc. dated October 25, 2000. (3)

   10.30       *Amended and Restated Merchandising and Supply Agreement by and between Action
               International Marketing, L.P. and Buy.com Inc., dated December 28, 2000. (3)

   10.31       *Distribution and Fulfillment Agreement by and between Buy.com Inc. and Ingram
               Entertainment, Inc. dated May 12, 2000. (3)

   21.1        Subsidiaries of BUY.COM. (3)

   23.1        Consent of Arthur Andersen LLP (3)

   24.1        Power of Attorney (Included on signature pages hereto). (3)
</TABLE>

___________________________

(1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 filed with the Securities and Exchange Commission (the "Commission")
     (File No. 333-89737).

                                       33
<PAGE>

(2)  Incorporated by reference to the Company's Registration Statement on Form
     10-Q filed with the Commission on August 11, 2000 (File No. 000-29295).

(3)  Filed with the Commission with this Annual Report on Form 10-K.

     + Confidential treatment requested and received as to certain portions.

     * Confidential treatment is requested for certain confidential portions of
this exhibit pursuant to Rule 24b-2 under the Securities and Exchange Act of
1934, as amended.  In accordance with Rule 24b-2 these confidential portion have
been omitted from this exhibit and filed separately with the Commission.

 (b) Exhibits on Form 8-K

     No Current Reports on Form 8-K were filed during the quarter ended December
31, 2000.

                                       34
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                        BUY.COM INC.

Date:  March 29, 2001                   By:  /s/ James B. Roszak
                                             -------------------
                                             James B. Roszak
                                             Chief Executive Officer

     KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint James B. Roszak and Robert R. Price, and each of them, his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
      Signature                                          Title                                                 Date
      ---------                                          -----                                                 ----
<S>                                  <C>                                                                   <C>

/s/ James B. Roszak                  Chief Executive Officer (principal executive officer) and Director    March 29, 2001
-----------------------------------
      James B. Roszak

/s/ Robert R. Price                  Chief Financial Officer (principal financial and accounting           March 29, 2001
-----------------------------------  officer)
      Robert R. Price

/s/ Donald M. Kendall                Chairman of the Board of Directors                                    March 29, 2001
-----------------------------------
      Donald M. Kendall

/s/ William L. Burnham               Director                                                              March 29, 2001
-----------------------------------
      William L. Burnham

/s/ Sanat K. Dutta                   Director                                                              March 29, 2001
-----------------------------------
      Sanat K. Dutta

/s/ Charles W. Richion               Director                                                              March 29, 2001
-----------------------------------
      Charles W. Richion
</TABLE>

                                      35
<PAGE>

<TABLE>
<S>                                    <C>                                                           <C>
/s/ Edward S. Russell                  Director                                                      March 29, 2001
-----------------------------------
          Edward S. Russell

/s/ Wayne T. Thorson                   Director                                                      March 29, 2001
-----------------------------------
          Wayne T. Thorson
</TABLE>

                                       36
<PAGE>

                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.      Description
-----------      -----------
<C>              <S>
    2.1          Agreement and Plan of Merger and Reorganization dated October 26, 1998 by and among BUY.COM,
                 Speedserve.com Inc., Ingram Entertainment Inc., David C. Mason and Michael G. Mason. (1)

    3.1          Amended and Restated Certificate of Incorporation of BUY.COM. (1)

    3.2          Amended and Restated Bylaws of BUY.COM. (1)

    4.1          Specimen common stock certificate. (1)

    9.1          Voting Trust Agreement dated June 7, 1999 by and between Scott Blum, The Scott A. Blum Separate
                 Property Trust, BUY.COM and certain of BUY.COM's outside directors. (1)

    9.2          Amended and Restated Voting Trust Agreement dated October 26, 1999 by and between Scott Blum,
                 The Scott A. Blum Separate Property Trust, BUY.COM and certain of BUY.COM's outside directors.
                 (1)

   10.1          + Order Fulfillment Agreement dated February 1, 1999 by and between BUY.COM and i.FILL, a
                 division of Valley Media, Inc. (1)

   10.2          + Master Service Agreement dated October 1, 1998 by and between BUY.COM and SOFTBANK Services
                 Group. (1)

   10.3          + Resale Agreement dated March 10, 1999 by and between BUY.COM and Ingram Micro, Inc.; Amendment
                 dated August 11, 1999. (1)

   10.4          Employment Agreement dated March 1, 1999 by and between BUY.COM and Gregory Hawkins; Amendment
                 No. 1 to the Employment Agreement. (1)

   10.5          1998 Stock Option/Stock Issuance Plan. (1)

   10.6          1999 Stock Incentive Plan. (1)

   10.7          1999 Employee Stock Purchase Plan. (1)

   10.8          Summit Lease dated June 1999 by and between BUY.COM and AEW/Parker II, LLC. (1)

   10.9          Common Stock Purchase Warrant dated July 19, 1999 by and between BUY.COM and United Air Lines,
                 Inc. (1)

  10.10          Common Stock Purchase Warrant dated July 20, 1999 by and between BUY.COM and The Bank of Nova
                 Scotia. (1)

  10.11          Series A Convertible Participating Preferred Stock Agreement dated August 18, 1998 by and
                 between BUY.COM and certain investors. (1)

  10.12          Form of Option Agreement pursuant to 1998 Stock Option/Stock Issuance Plan. (1)

  10.13          Series B Convertible Participating Preferred Stock Purchase Agreement dated September 2, 1999 by
                 and between BUY.COM and certain investors. (1)

  10.14          Common Stock Purchase Warrant dated October 8, 1999 by and between BUY.COM and Harpeth Holdings
                 Inc. (1)

  10.15          Common Stock Issuance Agreement dated October 25, 1999 by and between BUY.COM INC. and
</TABLE>

                                       37
<PAGE>

<TABLE>
<S>              <C>
                 PGA TOUR, Inc. (1)

  10.16          BUY.COM Tour Agreement dated October 25, 1999 by and between BUY.COM INC. and PGA TOUR, Inc. (1)

  10.17          + Memorandum of Understanding dated October 8, 1999 by and between BUY.COM INC. and the Ingram
                 Book Group. (1)

  10.18          + Ingram Fulfillment Services, Inc. Agreement dated October 8, 1999 by and between BUY.COM INC.
                 and Ingram Fulfillment Services, Inc. (1)

  10.19          Fourth Amended and Restated Investor's Rights Agreement by and among Buy.com and the partners
                 named herein dated November 17, 1999. (1)

  10.20          Special Executive Stock Option Plan (1)

  10.21          + Supply and Fulfillment Agreement dated April 24, 2000 by and between Buy.Com Inc. and Global
                 Trade, Inc. (2)

  10.22          + Order Fulfillment Services Agreement dated May 2, 2000 by and between Buy.Com Inc. and Ingram
                 Micro, Inc. (2)

  10.23          + Supplier Agreement dated June 13, 2000 by and between e-NITED business solutions a division of
                 United Stationers Supply Co. and Buy.Com Inc.(2)

  10.24          + Strategic Alliance Agreement dated April 20, 2000 by and between Buy.Com Inc. and Global
                 Sports, Inc. (2)

  10.25          + Technology and Trademark License Agreement dated April 26, 2000 by and between Buy.Com Inc.
                 and BUYNOW, INC. (2)

  10.26          + Non-Competition Agreement dated April 26, 2000 by and between Buy.Com Inc. and BUYNOW, INC. (2)

  10.27          Severance Agreement and General Release effective February 11, 2000, by and between Buy.com Inc.
                 and Greg Hawkins. (3)

  10.28          Severance Agreement and General Release effective February 11, 2000, by and between Buy.com Inc.
                 and Mitch Hill. (3)

  10.29          *Fulfillment Services Agreement by and between Buy.com Inc., and Brightpoint North America, Inc.
                 dated October 25, 2000. (3)

  10.30          *Amended and Restated Merchandising and Supply Agreement by and between Action International
                 Marketing, L.P. and Buy.com Inc., dated December 28, 2000. (3)

  10.31          *Distribution and Fulfillment Agreement by and between Buy.com Inc. and Ingram Entertainment,
                 Inc. dated May 12, 2000. (3)

   21.1          Subsidiaries of BUY.COM. (3)

   23.1          Consent of Arthur Andersen LLP (3)

   24.1          Power of Attorney (Included on signature pages hereto). (3)
</TABLE>
________________________________

                                       38
<PAGE>

(1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 filed with the Securities and Exchange Commission (the "Commission")
     (File No. 333-89737).

(2)  Incorporated by reference to the Company's Registration Statement on Form
     10-Q filed with the Commission on August 11, 2000 (File No. 000-29295).

(3)  Filed with the Commission with this Annual Report on Form 10-K.

     + Confidential treatment requested and received as to certain portions.

     * Confidential treatment is requested for certain confidential portions of
this exhibit pursuant to Rule 24b-2 under the Securities and Exchange Act of
1934, as amended. In accordance with Rule 24b-2 these confidential portion have
been omitted from this exhibit and filed separately with the Commission.

                                       39
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To BUY.COM INC.:

We have audited the accompanying consolidated balance sheets of BUY.COM INC. (a
Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BUY.COM INC. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.


/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Orange County, California
January 31, 2001

                                      F-1
<PAGE>

                                 BUY.COM INC.
                                 ------------
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                    ASSETS
                                    ------

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                    -----------------------
                                                                                      2000           1999
                                                                                   ---------       --------
<S>                                                                                <C>             <C>
Current Assets:
       Cash and cash equivalents                                                   $  56,656      $  24,693
       Marketable securities                                                          10,769              -
       Accounts receivable, net of allowances of $2,813 and  $1,104                   19,424         17,882
       Prepaid expenses and other current assets                                       7,141         31,605
                                                                                   ---------      ---------
                  Total current assets                                                93,990         74,180
Property and equipment, net                                                           18,500         16,607
Intangibles, net                                                                      23,622         28,156
Other noncurrent assets                                                                  392            663
                                                                                   ---------      ---------
                                                                                   $ 136,504      $ 119,606
                                                                                   =========      =========

                               LIABILITIES AND STOCKHOLDERS' EQUITY
                               ------------------------------------
Current Liabilities:
       Accounts payable                                                            $  38,682      $  71,057
       Line of credit                                                                      -         12,377
       Other liabilities and accrued expenses                                          3,460          4,771
       Deferred revenue                                                                3,400          1,222
       Note payable to stockholder                                                         -          5,000
       Obligation to minority interest, net                                            7,156             72
       Current portion of long-term debt                                                 250            321
                                                                                   ---------      ---------
                  Total current liabilities                                           52,948         94,820
                                                                                   ---------      ---------
Long-term debt, net of current portion                                                   324          1,738
                                                                                   ---------      ---------
                                                                                      53,272         96,558
Commitments and Contingencies (Note 8)

Stockholders' Equity:
       Convertible preferred stock - Series A and Series B, $0.0001 par value;
          Authorized shares - 150,000,000
            Issued and outstanding--0  and 22,098,982 at December 31, 2000
             and 1999, respectively, including paid in capital                             -        104,939
       Common stock, $0.0001 par value;
          Authorized shares - 850,000,000
            Issued and outstanding--134,941,776 and 93,041,193
            at December 31, 2000 and 1999, respectively                                   13             10
          Additional paid-in capital                                                 368,970         72,659
       Deferred compensation                                                          (7,019)        (8,850)
       Accumulated deficit                                                          (278,732)      (145,710)
                                                                                   ---------      ---------
                  Total stockholders' equity                                          83,232         23,048
                                                                                   ---------      ---------
                                                                                   $ 136,504      $ 119,606
                                                                                   =========      =========
</TABLE>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-2
<PAGE>

                                 BUY.COM INC.
                                 ------------
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     -------------------------------------
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                 ----------------------------------------------------
                                                                     2000                1999                1998
                                                                 ------------         -----------         -----------
<S>                                                              <C>                  <C>                 <C>
 Net revenues                                                    $    787,670         $   596,848         $   125,290
 Cost of goods sold                                                   740,977             603,695             123,527
                                                                 ------------         -----------         -----------
 Gross profit (loss)                                                   46,693              (6,847)              1,763
                                                                 ------------         -----------         -----------
 Operating expenses:
     Sales and marketing                                               92,425              71,189              13,430
     Product development                                               25,280               7,617                 950
     General and administrative                                        49,076              42,692               5,425
                                                                 ------------         -----------         -----------
           Total operating expenses                                   166,781             121,498              19,805
                                                                 ------------         -----------         -----------

           Operating loss                                            (120,088)           (128,345)            (18,042)

 Other income (expense):
     Interest income (expense)                                          7,228              (1,141)                202
     Other                                                               (728)                153                  (4)
                                                                 ------------         -----------         -----------
           Total other income (expense)                                 6,500                (988)                198
                                                                 ------------         -----------         -----------

 Net loss before equity in losses of joint ventures                  (113,588)           (129,333)            (17,844)

 Equity in losses of joint ventures, net                              (19,434)               (835)                  -
                                                                 ------------         -----------         -----------
 Net loss                                                        $   (133,022)        $  (130,168)        $   (17,844)
                                                                 ============         ===========         ===========
 Net loss per share:
     Basic and diluted                                           $      (1.04)        $     (1.45)        $     (0.22)
                                                                 ============         ===========         ===========
 Weighted average number of common shares outstanding:
     Basic and diluted                                           $128,489,722         $89,597,782         $81,815,869

</TABLE>

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

                                      F-3
<PAGE>

                                 BUY.COM INC.
                                 ------------
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                -----------------------------------------------
                 (dollars in thousands, except share amounts)


<TABLE>
<CAPTION>
                                               Members' Contributions        Convertible Preferred Stock             Common Stock
                                               ----------------------  ----------------------------------------  -------------------
                                                                                                                          Additional
                                                             Paid-in                 Preferred                             Paid-in
                                                 Units       Capital     Shares        Stock         Shares        Par       cpital
                                               ----------   ---------  -----------  -----------   -------------   -----   ----------
<S>                                            <C>          <C>        <C>          <C>           <C>             <C>     <C>
     Balance, December 31, 1997                 9,000,000   $      50            -            -               -   $   -   $       -

     Reorganization of Company, August
        3, 1998:
         Retirement of members' units          (9,000,000)        (50)           -            -               -       -
         Allocation of accumulated
        loss to paid in capital                                                                                              (2,692)
         Issued Series A  Preferred stock               -           -    3,043,921            2               -       -           -
         Issued Common stock                            -           -            -            -      81,331,078                  40
     Issuance of Series A preferred
      stock for cash                                    -           -    9,131,785       14,941               -                   -
     Issuance of common stock for
      acqusition of Speedserve                          -           -            -            -       5,529,571               9,082
    Deferred compensation related to
      stock options granted                             -           -            -            -               -       -       3,234
     Amortization of deferred compensation              -           -            -            -               -       -           -
    Net loss                                            -           -            -            -               -       -           -
                                               ----------   ---------  -----------  -----------   -------------   -----   ---------
     Balance, December 31, 1998                         -           -   12,175,706       14,943      86,860,649       9       9,664
     Exercise of stock options for Cash                 -           -            -            -       1,980,122       -          22
     Issuance of Series B preferred
      stock for cash                                    -           -    9,923,276       89,996               -       -           -
     Issuance of common stock for
      acqusition of BuyGolf                             -           -            -            -       2,589,329       1      23,489
     Issuance of stock for sponsorship agreement        -           -            -            -       1,125,000       -      10,278
     Issuance of common stock for cash                  -           -            -            -         317,296       -       1,974
     Common stock issued for purchases
      of domain names                                   -           -            -            -         168,809       -         861
     Issuance of warrants for supply
      and debt agreements                               -           -            -            -               -       -       9,745
     Deferred compensation related to
      stock options granted                             -           -            -            -               -       -      16,626
     Amortization of deferred compensation              -           -            -            -               -       -           -
     Reduction in outstanding shares
     due to reverse stock split                         -           -            -            -             (12)      -           -
    Net loss                                            -           -            -            -               -       -           -
                                               ----------   ---------  -----------  -----------   -------------   -----   ---------
     Balance, December 31, 1999                         -           -   22,098,982      104,939      93,041,193      10      72,659

     Conversion of preferred stock
      into common stock                                 -           -  (22,098,982)    (104,939)     22,098,982       2     104,937
     Initial public offering                            -           -            -            -      16,100,000       1     192,094
     Exercise of stock options                          -           -            -            -       2,927,782       -       1,265
     Issuance of common stock for
      advertising agreement                             -           -            -            -           1,923       -          25
     Issuance of common stock for
    purchase of domain names                            -           -            -            -          24,372       -         316
     Issuance of common stock for
    acquisition of Telstreet.com                        -           -            -            -       1,358,683       -       7,050
     Change in market value of common
    stock issued for sponsorship agreement              -           -            -            -               -       -      (9,541)
     Purchase of treasury stock                         -           -            -            -        (611,159)      -        (517)
     Deferred compensation related to
    stock options granted                               -           -            -            -               -       -         682
     Amortization of deferred
    compensation                                        -           -            -            -               -       -           -
    Net Loss                                            -           -            -            -               -       -           -
                                               ----------   ---------  -----------  -----------   -------------   -----   ---------
     Balance, December 31, 2000                         -           -            -                $ 134,941,776   $  13     368,970
                                               ==========   =========  ===========  ===========   =============   =====   =========
</TABLE>

<TABLE>
<CAPTION>
                                                                                       Total
                                                   Deferred        Accumulated      Stockholders'
                                                 Compensation        Deficit           Equity
                                                 ------------      -----------      -------------
<S>                                              <C>               <C>              <C>
     Balance, December 31, 1997
                                                 $          -      $     (390)      $      (340)

     Reorganization of Company, August                      -               -               (50)
    3, 1998:
         Retirement of members' units                       -           2,692                 -

         Allocation of accumulated
        loss to paid in capital                             -               -                 2
         Issued Series A  Preferred
        stock                                               -               -                48
         Issued Common stock                                -               -            14,941

     Issuance of Series A preferred
    stock for cash                                          -               -             9,083
     Issuance of common stock for
    acqusition of Speedserve                           (3,234)              -                 -
     Deferred compensation related to
    stock options granted                                 795               -               795
     Amortization of deferred
    compensation                                            -         (17,844)          (17,844)
                                                 ------------      ----------      ------------
    Net
    loss                                               (2,439)        (15,542)            6,635

     Balance, December 31, 1998
                                                            -               -                22
     Exercise of stock options for
    cash                                                    -               -            89,996
     Issuance of Series B preferred
    stock for cash                                          -               -            23,490
     Issuance of common stock for
    acqusition of BuyGolf                                   -               -            10,278
     Issuance of stock for sponsorship
    agreement                                               -               -             1,974
     Issuance of common stock for cash                      -               -               861

     Common stock issued for purchases
    of domain names                                         -               -             9,745
     Issuance of warrants for supply
    and debt agreements                               (16,626)              -                 -
     Deferred compensation related to
    stock options granted                              10,125               -            10,215
     Amortization of deferred
    compensation                                            -               -                 -
     Reduction in outstanding shares
    due to reverse stock split                              -        (130,168)         (130,168)
                                                 ------------      ----------      ------------
    Net                                                (8,850)       (145,710)           23,048
    loss

     Balance, December 31,1999
                                                            -               -                 -

     Conversion of preferred stock
    into common stock                                      -               -           192,095
     Initial public offering                               -               -             1,265

     Exercise of stock options
     Issuance of common stock for
    advertising agreement                                   -               -                25
     Issuance of common stock for
    purchase of domain names                                -               -               316
     Issuance of common stock for
    acquisition of Telstreet.com                            -               -             7,050
     Change in market value of common
    stock issued for sponsorship
    agreement                                               -               -            (9,541)
     Purchase of treasury stock                             -               -              (517)

     Deferred compensation related to
    stock options granted                                (682)              -                 -
     Amortization of deferred
    compensation                                        2,513               -             2,513

    Net
    Loss                                                    -        (133,022)         (133,022)
                                                 ------------      ----------      ------------
     Balance, December 31, 2000                 $      (7,019)     $ (278,732)     $     83,232
                                                =============      ==========      ============
</TABLE>


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

                                      F-4
<PAGE>

                                 BUY.COM INC.
                                 -----------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                (IN THOUSANDS)
                                --------------

<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                                 --------------------------------------------------
                                                                    2000                1999                1998
                                                                 ----------          ----------           ---------
<S>                                                              <C>                 <C>                  <C>
OPERATING ACTIVITIES
Net Loss                                                         $ (133,022)         $ (130,168)          $ (17,844)

Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation                                                        4,978               1,291                 182
  Amortization of deferred compensation and warrants                  3,193              17,406                 795
  Equity in losses of joint ventures                                 19,434                 835                   -
  Amortization of goodwill and other intangibles                     12,470               5,275                 195
  Loss from the disposal of property and equipment                      916                (221)                  -
  Changes in assets and liabilities:
  Accounts receivable                                                (1,303)            (12,865)             (4,211)
  Prepaid expenses and other current assets                          14,511             (17,461)             (1,128)
  Other noncurrent assets                                               271                (374)               (264)
  Accounts payable                                                  (33,758)             53,795              15,641
  Other liabilities and accrued expenses                             (1,311)              4,322                 385
  Deferred revenues                                                   2,178              (1,073)              2,272
                                                                 ----------          ----------           ---------

   Net cash used in operating activities                           (111,443)            (79,238)             (3,977)
                                                                 ----------          ----------           ---------

INVESTING ACTIVITIES
  Purchase of marketable securities                                 (10,769)                  -                   -
  Purchase of property and equipment                                 (9,595)            (14,489)             (2,681)
  Proceeds from sale of property and equipment                        1,893                 735                   -
  Acquisition of domain names                                             -                (380)                  -
  Net proceeds received (costs incurred) in
    connection with acquisition                                         221                 225                 (81)
  Investments in equity method investees                            (16,600)               (763)                  -
                                                                 ----------          ----------           ---------

   Net cash used in investing activities                            (34,850)            (14,672)             (2,762)
                                                                 ----------          ----------           ---------

FINANCING  ACTIVITIES
  Net proceeds from initial public offering                         192,095                   -                   -
  Purchase of treasury stock                                           (517)                  -                   -
  Proceeds from issuance of preferred stock                               -              89,996              14,941
  Proceeds from issuance of common stock                                  -               1,974                   -
  Borrowings from (repayments to) stockholder                        (5,000)              5,000                (211)
  Exercise of stock options                                           1,290                  22                   -
  Borrowings from joint venture partner                               4,250                   -                   -
  Repayments under line of credit and other obligations             (13,862)                  -                   -
  Borrowings under line of credit and other obligations                   -              12,390               1,196
                                                                 ----------          ----------           ---------

   Net cash provided by financing activities                        178,256             109,382              15,926
                                                                 ----------          ----------           ---------

Net increase in cash                                                 31,963              15,472               9,187

Cash and cash equivalents at beginning of year                       24,693               9,221                  34
                                                                 ----------          ----------           ---------
Cash and cash equivalents at end of year                         $   56,656          $   24,693           $   9,221
                                                                 ==========          ==========           =========
</TABLE>

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

                                      F-5
<PAGE>

<TABLE>
<S>                                                              <C>                 <C>                  <C>
Supplemental cash flow information:
  Cash paid during the year for:
     Interest                                                    $      309          $      618           $      15
                                                                 ==========          ==========           =========
     Income Taxes                                                $       13          $        8           $       2
                                                                 ==========          ==========           =========
Summary of non-cash investing and financing activities

   Equipment acquired under capital lease                        $        -          $      850           $       -
                                                                 ==========          ==========           =========
   Stock issued in connection with domain name purchases         $      316          $      861           $       -
                                                                 ==========          ==========           =========
   Reduction in value of stock issued to PGA Tour                $    9,541          $        -           $       -
                                                                 ==========          ==========           =========
ACQUISITION

   Acquired all of the outstanding capital stock of
    Telstreet.com, Inc.

   The following table outlines the assets acquired,
    liabilities assumed and cash received:
   Fair value of assets aquired                                  $    8,470          $   24,265           $   9,476
   Less:
    Liabilities assumed                                              (1,641)             (1,000)               (312)
    Fair value of common stock issued                                (7,050)            (23,490)             (9,083)
                                                                 ----------          ----------           ---------
   Cash received (paid)  in connection with acquisitions         $      221          $      225           $     (81)
                                                                 ==========          ==========           =========
</TABLE>

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

                                      F-6
<PAGE>

                                 BUY.COM, INC

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   COMPANY BACKGROUND

     BUY.COM INC. and its subsidiaries, collectively (the "Company" or
"BUY.COM"), is a multi-category Internet superstore, offering a selection of
brand name computer hardware and peripherals, software, books, videos, DVDs,
computer games, music, clearance equipment, consumer electronics, wireless
products and services, sporting goods and office supplies and products. Through
eleven online specialty stores, the Company offers products in a convenient,
intuitive shopping interface that features extensive product information and
multi-media presentations. The Company's e-commerce portal, www.buy.com, links
all of the eleven specialty stores and is designed to enhance the customer's
online shopping experience 24 hours a day, seven days a week. BUY.COM uses a
business model that includes outsourcing the majority of its operating
infrastructure, such as distribution and fulfillment functions, customer service
and support, credit card processing, and the hosting of the Company's system
infrastructure and database servers.

     BUY.COM (formerly BuyComp, LLC and Buy Corp.) was organized in June 1997
and began offering products for sale through its web site in November 1997. From
BUY.COM's inception through mid-November 1997, the Company had no sales. During
this period, the Company's operating activities primarily involved the
development of the necessary infrastructure and the original BuyComp.com web
site. In August 1998, the Company changed its web site designation to
www.buy.com.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

Use of Estimates

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

Reclassifications

     Certain amounts in 1999 and 1998 have been reclassified to conform to the
presentation used in 2000.

Cash and Cash Equivalents

     For the purposes of consolidated statements of cash flows, the Company
considers investment instruments with an original maturity of three months or
less to be cash equivalents.  The carrying amount of cash equivalents
approximates fair value because of the short-term nature of those instruments.
Cash equivalents are comprised of investments in money market funds, government
mortgage backed bonds and highly rated corporate securities.  Cash and cash
equivalents include restricted cash of approximately $27.0 million and $0 as of
December 31, 2000 and December 31, 1999, respectively.

                                      F-7
<PAGE>

Marketable Securities

     The Company's marketable securities, which consist primarily of high-
quality short- to intermediate-term income securities and money market mutual
funds, are classified as available-for-sale and are reported at fair value.  The
cost of these securities approximate fair value; therefore, any unrealized gain
or losses are immaterial.

Accounts Receivable

     Accounts receivable consist of credit card and trade receivables arising in
the normal course of business as well as an accrual for products shipped to
customers but not yet billed by the Company.  The Company has arranged with its
vendors that goods sold to customers are shipped directly from vendor warehouse
facilities.  The Company typically does not bill customers' credit cards until
the Company has received confirmation from the applicable vendors that the goods
have been shipped.

     Substantially all of the Company's accounts receivable serve as collateral
for purchases made from Ingram Micro, Inc. ("Ingram"), one of the Company's
vendors.

Property and Equipment

     Property and equipment is stated at cost, less accumulated depreciation and
amortization.  Depreciation and amortization are computed using the straight-
line method over the estimated useful lives of the assets.  Fixed assets
purchased under capital leases are depreciated on a straight-line basis over the
lesser of the estimated useful life of the asset or the lease term.  When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed and any gain or loss is reflected in the results of
operations.  Maintenance and repair expenditures are charged to operations as
incurred.

Intangibles

     Intangible assets consist of the portion of the purchase price of
businesses acquired in excess of the fair value of identifiable net tangible
assets acquired and the cost of internet domain names acquired.  Amortization is
computed using the straight-line method over the estimated useful life of the
assets.

Long-Lived Assets

     The carrying values of intangible assets and other long-lived assets are
reviewed on a regular basis for the existence of facts or circumstances, both
internally and externally, that may suggest impairment.  The Company
periodically re-evaluates the original assumptions and rationale utilized in the
establishment of the carrying value and estimated useful lives of these assets.
The criteria used for these evaluations include management's estimate of the
assets' continuing ability to generate income from operations and positive cash
flows in future periods as well as the strategic significance of the intangible
assets to the Company's business activity.

Fair Value of Financial Instruments

     The carrying amounts for the Company's cash, accounts payable, and other
liabilities approximate fair value.  The fair market value for long-term debt
and marketable securities is based on quoted market prices where available.

Revenue Recognition

     Net revenues include product sales net of returns and allowances,
advertising sales, warranty sales net of amounts paid to the national insurance
provider, and gross outbound shipping and handling charges. The Company
recognizes revenue from product sales, net of discounts, coupon redemption and
estimated sales returns, when the products are shipped to customers. Gross
outbound shipping and handling charges are included in net sales. The Company
provides an allowance for sales returns, which is based on historical
experience. In certain cases, credit card companies require the Company to
charge customers' credit cards to obtain authorization. In such cases, the
Company

                                      F-8
<PAGE>

defers revenue recognition until it has confirmed shipment of the goods to the
customer. For all product sales transactions with its customers, the Company
acts as a principal, takes title to all products sold upon shipment, bears
credit risk, and bears inventory risk for returned products that the Company is
not able to return to suppliers, although these risks are mitigated through
arrangements with credit card issuers, shippers and suppliers.

     The Company recognizes revenue from advertising sales ratably over the term
of the advertising campaigns, which usually range from one to twelve months. To
the extent that advertising customers have paid the Company for advertisements
that have yet to be published on the Company's Web site, the Company defers
revenue recognition until such advertisements are delivered.  The Company has no
advertising contracts with a term in excess of one year.

     The Company receives activation commissions from wireless carriers for each
new wireless phone subscription sold by the Company.  New subscription
activation fees and commissions generally are fully refundable if the subscriber
cancels service within the minimum period of continuous active service
(generally 90 to 180 days). Under the modified terms of an agreement with a
wireless carrier, certain activation commissions are due and payable to the
Company at the time the subscription is executed.  Revenue from activation fees
and commissions is deferred until the deactivation period expires, except in the
case of the contract mentioned above, in which case, revenue is recognized upon
subscription.

Cost of Goods Sold

     Cost of goods sold includes product costs, direct costs associated with
advertising revenues and shipping and handling costs paid by the Company in
fulfillment of customers orders.

Advertising Costs

     The cost of advertising is expensed as incurred.  For the years ended
December 31, 2000, 1999 and 1998 the Company incurred advertising expense of
$46.9 million, $42.2 million and $7.8 million, respectively.

Income Taxes

     The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. Under the Tax Reform
Act of 1986, the benefits from net operating losses carried forward may be
impaired or limited in certain circumstances. In addition, a valuation allowance
has been provided for deferred tax assets when it is more likely than not that
all or some portion of the deferred tax asset will not be realized.  The Company
has established a full valuation allowance on the aforementioned deferred tax
assets due to the uncertainty of realization.

Loss Per Share

     Basic earnings per share is computed using the weighted-average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of potentially dilutive securities
outstanding during the period. Potentially dilutive securities are excluded from
the computation as their effect is antidilutive.

Comprehensive Income (Loss)

     Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, establishes standards for the reporting and display of
comprehensive income (loss) and its components in the financial statements.
Components of comprehensive income (loss) include amounts that, under SFAS No.
130, are included in comprehensive income (loss) but are excluded from net
income (loss). There were no significant differences between the Company's net
loss and comprehensive loss.

                                      F-9
<PAGE>

Stock-Based Compensation

     The Company has elected to follow the intrinsic method of accounting for
its employee stock options rather than the alternative fair value method.
Compensation expense relative to the Company's employee stock options is
measured based on the intrinsic value of stock options at the date of grant and
recognized over the vesting period of the option. The fair value method
recognizes the fair value of stock options granted at the date of grant in
earnings over the vesting period of the options. A pro forma disclosure of the
impact of applying this fair value method is included in the footnotes of these
financial statements.

Foreign Currency Translation

     The functional currency of the Company's foreign subsidiaries is the local
currency. Assets and liabilities of subsidiaries with international operations
are translated into U.S. dollars at year-end exchange rates, and revenues and
expenses are translated at average exchange rates prevailing as they occur.
Translation adjustments, if material, are included in accumulated other
comprehensive income (loss), a separate component of stockholders' equity.
Transaction gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved, which are immaterial,
are included in the consolidated statements of operations. The Company has not
entered into any foreign currency exchange contracts or other derivative
financial instruments.

Segment and Geographic Information

     The Company operates in one principal business segment primarily across
domestic markets.  Substantially all of the operating results and identifiable
assets are in the United States.

Concentration Risks

     At December 31, 2000 and 1999, the Company had no significant
concentrations of credit risk.

     The Company purchases the majority of its products from four major vendors:
Ingram, Ingram Entertainment, Inc. ("Ingram Entertainment"), Ingram Book
Company, Inc. ("Ingram Book") and Valley Media, Inc. ("Valley Media"). Except
for Ingram Book, the Company does not have long-term contracts or arrangements
with any of these vendors. Loss of any of these vendors could have a material
adverse effect on the Company's operations.

     The Company is heavily dependent upon a number of other third parties for
credit card processing, customer service and support, and hosting its system
infrastructure and database servers. In addition, Federal Express Corporation,
the United Parcel Service of America, Inc. and the United States Postal Service
deliver substantially all of the Company's products. If the services of any of
these third parties is interrupted, it could have a material adverse impact on
the Company's operations.

Recent Accounting Pronouncements

     In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities."  SFAS No. 133 was amended in June 1999 by
SFAS No. 137 "Accounting for Derivative Instrument and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133", and in June 2000 by
SFAS No. 138 for "Accounting for Certain Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133."  These statements establish
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. They require that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value with changes from fair value reflected in earnings. The Company
adopted the provisions of SFAS No. 133, as amended by SFAS No. 137 and SFAS No.
138 in January 2001. Effect of the adoption was immaterial to the financial
statements.

     On December 3, 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenue

                                      F-10
<PAGE>

in financial statements. SAB No. 101 was required to be adopted during the
quarter ended December 31, 2000. The Company believes that its revenue
recognition policies are in conformity with SAB No. 101 and continued adherence
to SAB No. 101 will not have a material impact on the Company's financial
statements.

     In March 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF Issue 00-2, "Accounting
for Web Site Development Costs."  This consensus provides guidance on what types
of costs incurred to develop Web sites should be capitalized or expensed.  The
consensus is effective for Web site development costs incurred for fiscal
quarters beginning after June 30, 2000.  The Company adopted this consensus on
July 1, 2000 and the effect of the adoption was immaterial.  Since July 1, 2000,
the Company capitalized $1.3 million of web site development costs. Such costs
are included in "Property and equipment, net" and will be depreciated over three
years.

     In March 2000, the FASB issued FASB Interpretation ("FIN") No. 44,
"Accounting for Certain Transactions Involving Stock Compensation." FIN No. 44
provides guidance for issues arising in applying APB No. 25. FIN No. 44 applies
specifically to new awards, exchanges of awards in a business combination,
modification to outstanding awards and changes in grantee status that occur on
or after July 1, 2000, except for the provisions related to repricings and the
definition of an employee which apply to awards issued after December 15, 1998.
Application of FIN No. 44 is not anticipated to have a material impact on the
Company's financial reporting.

     In July 2000, the EITF reached a consensus on EITF Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs." This consensus requires that all
amounts billed to a customer in a sale transaction related to shipping and
handling, if any, represent revenue and should be classified as revenue. The
EITF reached a tentative conclusion with respect to the classification of costs
related to outbound shipping and handling costs and the costs of tangible
supplies used to package product for shipment to customers as cost of sales.
The Company currently classifies costs related to pick, pack and shipping
customer orders (fulfillment costs) as cost of goods sold.

3.   BUSINESS ACQUISITIONS, DISPOSITIONS, AND INVESTMENTS

Business Acquisition

     In August 2000, the Company acquired all of the outstanding common stock of
Telstreet.com, Inc. ("Telstreet") for approximately $7.1 million. The
consideration for the acquisition consisted of 1,358,683 shares of common stock
with an estimated value of $5.19 per share, based upon the average of the fair
market value of the Company's common stock during the fifteen calendar days
immediately preceding the execution date of the merger agreement. Telstreet is
an online retailer of wireless products and services. The acquisition was
accounted for under the purchase method of accounting, with approximately $7.9
million allocated to goodwill. The goodwill is being amortized over a 3-year
period from the issuance of the stock.  The pro forma operating results would
not significantly vary from the Company's actual operating results.

     In October 1999, the Company issued a total of 2,589,329 shares of common
stock to acquire the remaining 95% of the outstanding common stock of
BuyGolf.com, Inc. ("BuyGolf") that it did not previously own. The common stock
issued had an estimated fair market value of $9.07 per share determined by
concurrent equity transactions with unrelated parties. BuyGolf is a retailer of
golf supplies and equipment. Please refer to Note 13, titled "Subsequent Events"
for more information related to the write-off of the goodwill associated with
the BuyGolf acquisition. The pro forma operating results would not significantly
vary from the Company's actual operating results.

Business Disposition

     In October 1999, the Company declared a common stock dividend of 75% of the
capital stock, on an "as converted" basis, of Aqueduct, Inc. (formerly, BUYNOW
INC.) ("Aqueduct") to all stock holders of record as of October 13, 1999.  The
Company effected the dividend in April 2000, and on the date of the dividend,
the Company owned preferred stock representing 25% of the capital stock of
Aqueduct, on an "as converted" basis.  The Aqueduct preferred stock has a
liquidation preference over the common stock and is convertible into Aqueduct
common stock.  As of December 31, 2000, the Company owned approximately 9% of
the capital stock of Aqueduct.

                                      F-11
<PAGE>

Joint Ventures

     In July 1999, the Company entered into an agreement with United Airlines
Inc. ("UA") to form BuyTravel.com LLC ("BuyTravel") to market and sell travel
services and products on the internet. The Company and UA each owned 50% of
BuyTravel.  In addition, as an incentive to execute this agreement, the Company
granted UA a warrant to purchase 1,250,000 shares of the Company's common stock
at an exercise price of $16.00 per share. The estimated fair market value of the
warrant of $7.0 million was expensed as contract costs in the period the warrant
was issued. The fair market value of the warrant was estimated using the Black-
Scholes pricing model using the following assumptions: fair value of the
Company's common stock of $5.71; risk-free interest rate of 6.00%; expected life
of 5.00 years; volatility of 85.00%; and dividend yield of 0.00%.  The fair
value of the Company's common stock was based upon equity transactions with
unrelated parties.  In October 2000, the Company discontinued the business and
operations of BuyTravel, including all of the Company's obligations related to
such joint venture.  The costs associated with the discontinuance of BuyTravel
were minimal and are included in "Equity in losses of joint ventures, net".

Domain Name Transactions

     During 1999, the Company entered into several agreements to purchase
Internet domain names. Domain names were purchased in various transactions for
168,809 shares of the Company's common stock the fair value of which was
estimated based upon concurrent equity transactions with non-related parties,
and approximately $380,000 in cash. During 2000, the Company issued 24,372
shares of its common stock for a fair value of approximately $316,000 associated
with an agreement for the acquisition of a domain name executed in 1999.

International Joint Ventures

     In 1999, the Company entered into a letter of intent with SOFTBANK America,
Inc. ("SOFTBANK America") to form three international joint ventures in which
the Company would have 50% ownership interests.  During the fourth quarter 2000,
the Company discontinued operations of its joint venture in continental Europe
and Australia and, in March 2001, sold its joint venture in the United Kingdom
to the John Lewis Partnership. Please refer to Note 13 titled "Subsequent
Events" for more information related to the sale of our United Kingdom joint
venture.  The Company had a 50% ownership interest in the losses and therefore
did not maintain sufficient voting control to consolidate these joint ventures.
The loss associated with these joint ventures is included in the line item
"Equity in losses of joint ventures, net" for the years ended December 31, 2000
and 1999, and is included in "Obligations to minority interest net" on the
balance sheet, offset by capital contributions.  The Company did not incur any
charge for the costs associated with discontinuance of the continental European
joint venture and expects the costs associated with the discontinuance of the
Australian joint venture and the sale of the United Kingdom joint venture to be
minimal.

4.   MARKETABLE SECURITIES

     Marketable securities are classified as available for sale investments and
are carried at fair value.  All securities mature within one year and their
original cost approximates current fair value.  As of December 31, 2000, the
Company's unrealized gains and/or losses are immaterial.  Marketable securities
consist of the following (amounts in thousands):



                                                   December 31,   December 31,
                                                       2000          1999
                                                  -------------  --------------

Agency securities                                   $    1,477      $      -
Commercial Paper                                         5,759             -
Corporate bonds                                          3,533             -
                                                  -------------  --------------
              Total marketable securities           $   10,769      $      -
                                                  -------------  --------------

                                      F-12
<PAGE>

5.   PROPERTY AND EQUIPMENT

     Property and equipment consist of the following (dollar amounts in
     thousands):

<TABLE>
<CAPTION>
                                                                      Estimated
                                                                        Useful          December 31,        December 31,
                                                                     Lives (years)          2000                1999
                                                                     -------------    ---------------     ----------------
          <S>                                                        <C>              <C>                 <C>
          Building and improvements..............................       20-40            $    ---             $ 1,446
          Computers, equipment, and software.....................         3-5              21,245              12,728
          Furniture and fixtures.................................           7               1,772               2,412
          Leasehold improvements.................................         1-6               1,195               1,378
                                                                                      ---------------     ----------------
                                                                                           24,212              17,964
                 Less--accumulated depreciation..................                          (5,712)             (1,357)
                                                                                      ---------------     ----------------
             Property and equipment, net.........................                        $ 18,500             $16,607
                                                                                      ===============     ================
</TABLE>

6.   INTANGIBLE ASSETS

     Intangible assets consist of the following (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                      Estimated
                                                                        Useful          December 31,        December 31,
                                                                     Lives (years)          2000                1999
                                                                     -------------    ---------------     ----------------
          <S>                                                        <C>              <C>                 <C>
          Domain names............................................        3              $  2,233             $  1,916
          Goodwill................................................        3                39,576               31,958
                                                                                      ---------------     ----------------
                                                                                           41,809               33,874
                 Less--accumulated amortization...................                        (18,187)              (5,718)
                                                                                      ---------------     ----------------
             Intangibles, net.....................................                       $ 23,622             $ 28,156
                                                                                      ===============     ================
</TABLE>

7.   LONG TERM DEBT

     On July 20, 1999, the Company obtained a $15.0 million revolving credit
facility with a commercial bank. The interest rate on the amounts drawn on this
facility is prime plus 2.00% or LIBOR plus 3.00%, at the Company's election.  In
connection with this credit facility, the Company paid a non-refundable
supplemental fee of $675,000 at the initial public offering of the Company's
stock. This fee was allocated to deferred financing costs and amortized using
the effective interest rate method as interest expense over the expected term of
the related debt. Additionally, the Company issued a warrant to the bank to
purchase a number of shares of the Company's common stock to be determined by an
agreed-upon formula at an exercise price per share equal to the price per share
of the Company's initial public offering. The estimated fair market value of the
warrant of $71,000 was allocated to deferred financing costs and amortized to
interest expense over the term of the related debt. On July 27, 1999, the
Company drew $12.4 million against this credit facility.  On February 14, 2000,
the Company repaid all of the outstanding amounts under its credit facility
totaling $12.4 million.  On April 20, 2000, the Company cancelled its $15.0
million credit facility.

8.   COMMITMENTS AND CONTINGENCIES

Leases

     For the years ended 2000 and 1999, the Company leased office facilities and
equipment under non-cancelable operating and capital leases.  Rental expense
under operating lease agreements for the years ended December 31, 2000, 1999,
and 1998, was approximately $2.3 million, $511,000 and $195,000 respectively.

                                      F-13
<PAGE>

     Future minimum commitments on leases, are as follows (dollar amounts in
thousands):

<TABLE>
<CAPTION>
                                                                             Capital             Operating
                                                                              Leases               Leases
                                                                         -----------------   -----------------
     <S>                                                                 <C>                  <C>
     Year ending December 31, 2000
               2001                                                              $ 313              $ 2,439
               2002                                                                220                2,154
               2003                                                                 69                1,727
               2004                                                                 51                1,520
               2005                                                                  -                  630
               Thereafter                                                            -                    -
                                                                         -----------------   -----------------
     Total minimum lease payments                                                  653              $ 8,470
                                                                                             =================
     Less - Amount representing interest                                            79
                                                                         -----------------
     Present value of net minimum lease payments                                   574
     Less - Current portion                                                        250
                                                                         -----------------
                                                                                 $ 324
</TABLE>

Supply, Fulfillment and Other Arrangements

     In June 1998, and again in March 1999, the Company entered into a contract
with Ingram to supply and distribute the computer hardware, software and
peripheral products that are sold in the Company's online stores. The Company
also maintains a line of credit with Ingram to purchase these goods and
merchandise. As a part of that line of credit, the Company granted Ingram a
security interest in the inventory purchased from them, the proceeds from this
inventory, and all of the Company's accounts receivable. Pursuant to this
agreement, if the Company does not purchase at least $350.0 million of product
annually, Ingram may revise the pricing schedules. Ingram has also agreed to
help the Company secure a minimum dollar amount of marketing related vendor
advertising based on a specified percentage of the Company's net purchases from
Ingram in any twelve month period. This agreement originally expired in March
2000, but is subject to automatic one-year renewal periods and has been renewed
until March 2002.  The agreement may be terminated by either party for any
reason upon 120 days notice.

     On January 18, 1999, the Company entered into an agreement to provide
extended warranties to customers on computer hardware products sold on the
Company's Web site. In accordance with the terms of the agreement, the Company's
liability on the extended warranties was assumed by a national insurance
provider. The extended warranties were sold on the Company's Web site and
payments were received by the Company. The Company remitted a fixed fee based
upon the type of warranty purchased by the customer as mutually agreed upon in
the agreement.  This agreement terminated during the first quarter of 2001.

     On February 1, 1999, the Company entered into a two-year agreement to
outsource the picking, packing and shipping functions for orders placed on the
Company's Music specialty store.  Pricing is based on a fee that is contingent
upon sales volume levels, which increase over the term of the agreement. This
agreement originally expired in February 2001, but is subject to automatic 30
day renewals until cancelled upon 30 days notice. This agreement may be
terminated by the vendor if they discontinue sales to on-line vendors.

     On March 11, 1999, the Company entered into agreements to outsource certain
services and functions related to the fulfillment of customer orders made on the
Company's Books specialty store. These agreements expire in September 2003.
Consideration for the services is based on a fixed, per-order fee. The Company
must be notified within six months of any rate increases to be in effect after
the first year of the agreement. The rate increases cannot exceed 8% of the
preceding year's rates. The agreement is terminable by either party with 90 days
notice.

     In October 1999, the Company entered into agreements with a third party
supplier whereby the Company will be entitled to certain discount programs and
fulfillment and cooperative advertising services. These agreements expire in
September 2003. In connection with these agreements, the Company has issued
warrants to purchase 625,000 shares of the Company's common stock at an exercise
price of $9.07 per share. The estimated fair market value of these warrants of
$2.7 million will be recorded as a current asset and will be amortized over the
initial term of the contract. The Company computed the fair value of the
warrants using the Black-Scholes option pricing model with the following

                                      F-14
<PAGE>

weighted average assumptions: dividend yield of 0.0%; expected volatility of
85.00%; risk-free rate of 6.00%; and expected lives of 2.00 years.

     In connection with the acquisition of BuyGolf, the Company acquired a
supply and distribution contract with Las Vegas Golf & Tennis, Inc. to be the
Company's primary source of the golf equipment and accessories the Company
sells. The Company recently terminated the operation of its Golf specialty store
and no longer sources golf equipment through Las Vegas Golf & Tennis.

     In October 1999, the Company entered a five-year sponsorship agreement with
the PGA TOUR in which the Company became the exclusive title sponsor of a
circuit of golf tournaments. As partial consideration for this agreement, the
Company issued 1,125,000 shares of common stock valued at $9.07 per share,
aggregating $10.2 million. The Company secured a $17.0 million letter of credit
from a commercial bank on behalf of the PGA Tour and paid $8.5 million upon the
completion of the Company's initial public offering as payment for the first
year sponsorship fee. The cash secured $17.0 million letter of credit has been
drawn down upon, and after December 31, 2000, is currently at $14.9 million in
availability. The 1,125,000 shares of common stock are subject to a repurchase
option at a nominal amount.  The Company has commenced litigation against the
PGA Tour for an alleged breach of its sponsorship agreement with them.  Please
refer to Note 13 titled "Subsequent Events" for more information related to the
Company's suit against the PGA Tour.

     On April 20, 2000, the Company entered into an agreement with Global
Sports, Inc. for the supply and fulfillment of sporting goods products offered
for sale in the Sports specialty store.  This contract expires in April 2005.

     On April 24, 2000, the Company entered into an agreement with Global Trade,
Inc. for supply and fulfillment of consumer electronics for customer orders made
on the Company's Electronics specialty store. This contract originally expires
on April 24, 2001, but has renewed for an additional one year term.  Either
party may terminate this agreement at any time with 120 days written notice.

     On May 12, 2000, the Company entered into an agreement with Ingram
Entertainment, Inc. for distribution and fulfillment services related to
customer orders made in the Company's Video and Games specialty stores.  This
contract expires on December 2, 2001, but is subject to automatic one year
renewal periods.  Either party may terminate this agreement at any time during
the renewal period upon 90 days written notice. This agreement may be terminated
if the Company does not meet certain minimum credit terms.

     On June 13, 2000, the Company entered into an agreement with e-Nited
Business Solutions, a division of United Stationers Supply Co., for fulfillment
and distribution of various office supplies and equipment.  This contract
expires June 13, 2001, but is subject to an automatic one-year renewal.  Either
party may terminate this agreement at any time with 90 days written notice.

     On August 9, 2000, the Company entered into an agreement with Tech Data
Corporation for fulfillment and distribution of computer hardware, software and
peripherals for customer orders made on the Company's site.  This contract
expires August 8, 2001, but is subject to an automatic renewal for a single 90-
day period.  Either party may terminate this agreement at any time with 30 days
written notice.

     On October 25, 2000, the Company entered into an agreement with Brightpoint
North America, Inc. for fulfillment services of wireless products for the
Company's wireless store.  This agreement expires October 24, 2002, but is
subject to automatic one-year renewal periods until cancelled.  Either party may
terminate this agreement with 60 days notice prior to the end of the initial or
renewal term.

     On December 28, 2000, the Company entered into an agreement with Action
International Marketing L.P. ("Action"), formerly known as Nashville Computer
Liquidators L.P.  Under the terms of the agreement, Action will merchandise and
supply refurbished, open-box and end-of-life computer hardware, electronics and
exceptional value household products to the Company.  The products are offered
on the Company's Clearance specialty store.  This agreement expires on April 19,
2001, but is subject to automatic one year renewals. Either party may terminate

                                      F-15
<PAGE>

this agreement at any time during a renewal period upon 30 days written notice.
This agreement may be terminated if the Company does not meet certain minimum
credit terms.

Legal Proceedings

     From time to time, the Company has been subject to legal proceedings and
claims in the ordinary course of business. These claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.

     On March 13, 2000 a class action suit was filed against the Company in the
U.S. District Court for the Central District of California alleging that it
collects, uses and discloses personally identifiable customer information to its
third party advertising server and other advertisers without first informing our
customers or seeking their permission in violation of several federal statutes.
The complaint seeks damages of up to $10,000 per class member per violation,
actual and punitive damages, restitution, attorneys' fees and costs plus
injunctive and other equitable relief. On April 7, 2000 a companion lawsuit was
filed in the Superior Court of the State of California, County of Orange
alleging violations of state statutory and common law based upon the same facts
and federal causes of action as alleged in the federal class action. The state
complaint seeks statutory damages of up to $5,000 per class member per
violation, plus actual and punitive damages or restitution, attorneys' fees and
costs and injunctive and other equitable relief. On April 25, 2000 a third class
action suit was filed in the United States District Court for the Central
District of California alleging violation of the same federal statutes as those
in the federal class action filed on March 13, 2000. As with the first two class
actions, the complaint alleges that the Company collects, uses and discloses
personally identifiable information of its consumers without first informing
them or obtaining their consent. The complaint seeks unspecified statutory
damages, compensatory damages, punitive damages, attorneys' fees and costs, plus
declaratory, injunctive and other equitable relief, including disgorgement of
all profits and restitution of all monies acquired by means of any act or
practice declared to be unlawful. The classes have not yet been certified in any
of these actions and such actions are in their early stages. As of the date of
this report, the litigation referenced above is at an early stage and no formal
discovery has commenced.  Consequently, Management is unable to determine or
predict the outcome of this litigation or its impact on the Company's financial
condition.

     The Company intends to defend all of these lawsuits vigorously even though
they could result in the expenditure of significant financial and managerial
resources. Management is not aware of any other material legal proceedings
pending against the Company.

9.   STOCKHOLDERS' EQUITY

     On March 10, 1999, the Board of Directors approved an increase in the
number of authorized common stock, par value $0.0001 per share, from 12,666,542
shares to 850,000,000 shares. In addition, the Board of Directors approved an
increase in the number of authorized shares of preferred stock from 1,298,742 to
150,000,000 shares. These increases in authorized shares were approved by the
stockholders of the Company by written consent dated March 22, 1999.

     On June 29, 1999, the Board of Directors declared a fifteen-for-one stock
split for all issued and outstanding shares of the Company's common and
preferred stock, which was distributed July 14, 1999 to the Company's
stockholders.  On January 31, 2000, the Company effected a five-for-eight
reverse split for all issued and outstanding shares of the Company's common and
preferred stock.  All share and per share data included in the consolidated
financial statements and the accompanying notes have been adjusted to reflect
this stock split and the reverse stock split.

     In October 1999, the Company issued 1,125,000 shares of common stock to the
PGA Tour as partial consideration for its five-year sponsorship.  The shares
were originally valued at $9.07 per share for a total consideration of $10.2
million which was recorded as "prepaids and other current assets".  The fair
market value at December 31, 2000 to be used toward the future sponsorship was
$0.66 per share or $738,000.  Accordingly, "additional paid-in-capital" and
"prepaids and other current assets" were reduced by the change in value.  Please
refer to Note 8, titled "Commitments and Contingencies" for more information
related to the Company's relationship with the PGA Tour.

                                      F-16
<PAGE>

     On February 8, 2000, the Company completed an initial public offering in
which the underwriters sold to the public 16,100,000 shares of common stock,
including 2,100,000 shares in connection with the exercise of the underwriters'
over-allotment option, at $13.00 per share.  The Company's proceeds from the
offering, after deducting underwriting discounts and commissions, were $12.09
per share, or $194,649,000 in the aggregate.  As of the closing date of that
offering, all of the convertible preferred stock outstanding was converted into
an aggregate of 22,098,982 shares of common stock.

SOFTBANK Investment

     On September 2, 1999, the Company entered into an agreement with SOFTBANK.
SOFTBANK and certain of its affiliates received 9,923,276 shares of Series B
convertible participating preferred stock, par value $0.0001 per share ("Series
B Preferred Stock"), from the Company for $90.0 million.  This transaction was
completed in October 1999.

10.  EMPLOYEE BENEFIT PLANS

1998 Stock Option/Issuance Plan

     In August 1998, the Company adopted and approved an incentive stock option
plan (the "1998 ISO Plan"). Under the 1998 ISO Plan, the number of shares of the
Company's common stock to be granted or subject to options or rights may not
exceed 21,587,475 shares.

     The options may be issued as "Incentive Stock Options" (as defined by the
Internal Revenue Code of 1986) or as nonqualified options. The plan provides
that the exercise price for all Incentive Stock Options shall not be less than
100%, and all nonqualified options shall not be less than 85%, of the fair
market value of the shares on the date of  grant. Further, no portion of the
options may be exercised beyond 10 years from the grant date. For Incentive
Stock Options granted to individuals who own more than 10% of the total combined
voting power of all classes of the stock of the Company, the option price shall
be at least 110% of the fair value at the date of grant. Options vest ratably
over three to four years from the date of grant.

     Subject to Internal Revenue Service limitations, options granted under the
1998 ISO Plan generally become exercisable immediately. Shares issued upon
exercise of options that are unvested are restricted and subject to repurchase
by the Company upon termination of employment or services, and such restrictions
lapse over the original vesting schedule. At December 31, 2000, there were no
shares subject to repurchase.

     The following table summarizes the Company's stock option activity:

<TABLE>
<CAPTION>
                                             Year Ended                       Year Ended                       Year Ended
                                          December 31, 2000                 December 31, 1999                December 31, 1998
                                    ------------------------------    -----------------------------     ---------------------------
                                                      Weighted                         Weighted                         Weighted
                                                      Average                          Average                           Average
                                      Shares       Exercise Price        Shares     Exercise Price        Shares     Exercise Price
                                    ------------------------------    -----------------------------     ---------------------------
<S>                                 <C>            <C>                <C>            <C>                <C>          <C>
Options outstanding,
     Beginning of year                 23,354,005       $ 4.30          14,483,402        $ 1.65           2,109,375      $ 0.01
          Granted                       5,249,314         4.97          11,772,660          6.61          12,374,027        1.92
          Exercised                    (2,853,532)        0.25          (1,905,122)         0.01                   -           -
          Forfeited/expired           (17,649,471)        5.48            (996,935)         1.31                   -           -
                                    ------------------------------    -----------------------------     ---------------------------
Options outstanding,
End of year                             8,100,316       $ 3.58          23,354,005        $ 4.30          14,483,402      $ 1.65
                                    ==============================    =============================     ===========================

Options exercisable at end of year      8,100,316       $ 3.58          23,354,005        $ 4.30          14,483,402      $ 1.65

</TABLE>

     All options issued by the Company are immediately exercisable upon grant.
Options exercisable and subject to continued vesting at December 31, 2000, 1999
and 1998 were 6,944,397, 18,479,185 and 13,827,151, respectively, are subject to
continued vesting requirements.

                                      F-17
<PAGE>

The following table summarizes all stock options outstanding as of December 31,
2000:

<TABLE>
<CAPTION>
                             Options Outstanding
   -------------------------------------------------------------------------
                                            Weighted
                                             Average
                                            Remaining
   Range of Exercise  Number of Shares   Contractual Life   Weighted Average
        Price           Outstanding          (Years)         Exercise Price
   -----------------  ----------------   ----------------   ----------------
   <S>                <C>                <C>                <C>
        $0.01            2,071,192             7.1             $   0.01
        $0.72              293,300             9.9             $   0.72
   $ 1.22 to $ 1.75      1,326,276             6.4             $   1.53
   $ 2.34 to $ 2.78        227,255             9.5             $   2.58
   $ 3.83 to $ 5.13      2,242,264             5.9             $   3.90
   $ 6.69 to $ 9.92      1,785,498             8.4             $   8.65
   $10.94 to $13.44        154,531             8.6             $  12.40
                         ---------
                         8,100,316
                         ---------
</TABLE>

     Had compensation cost for stock options awarded under this plan been
determined consistent with the fair value method, the Company's net loss and
loss per share would have reflected he following pro forma amounts (amounts in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                        2000           1999            1998
                                                     ----------     ----------      ----------
<S>                                                  <C>            <C>             <C>
Net loss, as reported                                $ (133,022)    $ (130,168)     $  (17,844)
Pro forma compensation expense                           (6,094)        (3,033)           (281)
                                                     ----------     ----------      ----------

Pro forma net loss                                   $ (139,166)    $ (133,201)     $  (18,125)
                                                     ==========     ==========      ==========

Basic and diluted net loss per share, as reported    $    (1.04)    $    (1.45)     $    (0.22)
Basic and diluted net loss per share, pro forma      $    (1.08)    $    (1.49)     $    (0.22)
</TABLE>


     The weighted average fair value at the date of grant for options granted
during fiscal 2000, 1999, and 1998, were $3.11, $1.36 and $0.53, respectively,
and were estimated using a Black-Scholes option pricing model with the following
assumptions used: weighted average risk-free interest rate of 6.10%, 5.67%, and
4.89%, respectively; expected life of 4.00 years, 3.99 years, and 3.82 years,
respectively; and weighted average dividend yield of 0.00% for all periods.  The
weighted average volatility yield was 105.0% during fiscal 2000 subsequent to
our initial public offering and 0.00% for all other periods.

Special Executive Stock Option Plan

     In October 1999, the Company adopted and approved the Special Executive
Stock Option Plan (the "Executive Plan"). Participation in the Executive Plan is
limited to non-employee directors, officers and other highly-compensated
employees of the Company. A reserve of 3,125,000 shares of the Company's common
stock was made for issuances under the Executive Plan.

     The options may be issued as "Incentive Stock Options" (as defined by the
Internal Revenue Code of 1986) or as nonqualified options. The plan provides
that the exercise price for all Incentive Stock Options shall not be less than
100%, and all nonqualified options shall not be less than 85%, of the fair
market value of the shares on the date of grant. Further, no portion of the
options may be exercised beyond 10 years from the grant date. For Incentive
Stock Options granted to individuals who own more than 10% of the total combined
voting power of all classes of the stock of the Company, the option price shall
be at least 110% of the fair value at the date of grant. Options vest over a
period determined by the Company's board of directors. Subject to Internal
Revenue Service limitations, options granted under the Executive Plan generally
become exercisable immediately.

                                      F-18
<PAGE>

1999 Stock Incentive Plan

     The Company has adopted the 1999 Stock Incentive Plan (the "1999 Plan").
The 1999 Plan was approved by the Company's board of directors in December 1999
and by its stockholders in January 2000.

     The 1999 Plan is the successor plan to the 1998 ISO Plan, the Executive
Plan and the BuyGolf.com, Inc. 1998 Stock Option Plan. The 1999 Plan became
effective at the time of the Initial Public Offering.

     The 1999 plan has five separate programs:

          .    the discretionary option grant program, under which eligible
               individuals may be granted options to purchase shares of common
               stock at an exercise price not less than the fair market value of
               those shares on the grant date;

          .    the stock issuance program, under which eligible individuals may
               be issued shares of common stock directly, upon the attainment of
               performance milestones or the completion of a specified period of
               service or as a bonus for past services;

          .    the salary investment option grant program, under which executive
               officers and other highly compensated employees may be given the
               opportunity to apply a portion of their base salary each year to
               the acquisition of special below market stock option grants;

          .    the automatic option grant program, under which option grants
               will automatically be made at periodic intervals to eligible non-
               employee board members to purchase shares of common stock at an
               exercise price equal to the fair market value of those shares on
               the grant date; and

          .    the director fee option grant program, under which non-employee
               board members may be given the opportunity to apply a portion of
               any retainer fee otherwise payable to them in cash each year to
               the acquisition of special below-market option grants.

     The exercise price for any options granted under the 1999 Plan may be paid
in cash or in shares of the Company's common stock valued at fair market value
at the exercise date. The 1999 Plan also includes provisions which may result in
the accelerated vesting of outstanding option grants and stock issuances upon a
change in control of the Company.

1999 Employee Stock Purchase Plan

     The 1999 Employee Stock Purchase Plan (the "Stock Purchase Plan") was
adopted and approved by the Company in September 1999. The Stock Purchase Plan
became effective at the time of the Company's Initial Public Offering.  The
Stock Purchase Plan is designed to allow eligible employees of the Company to
purchase shares of common stock at semi-annual intervals with accumulated
payroll deductions.

BuyGolf Stock Option Plan

     On December 2, 1998, BuyGolf adopted and approved an incentive stock option
plan (the "ISO Plan"). Under the ISO Plan, the number of shares of BuyGolf's
common stock to be granted or subject to options or rights may not exceed
1,000,000 shares.

     The options may be issued as "Incentive Stock Options" (as defined by the
Internal Revenue Code of 1986) or as nonqualified options.  The plan provides
that the exercise price of all Incentive Stock Options shall not be less than
100%, and all nonqualified options shall jot be less than 85%, of the fair
market value of the shares on the date of grant. Further, no portion of the
options may be exercised beyond 10 years from the grant date. For Incentive
Stock Options granted to individuals who own more than ten percent of the total
combined voting power of all classes of the stock of

                                      F-19
<PAGE>

the Company, the option price shall be a least 110 percent of the fair value at
the date of grant. Options vest ratably over there to four years from the date
of grant.

     In connection with the acquisition of BuyGolf in October 1999, the Company
has assumed the ISO plan.

Stock Option Deferred Compensation

     The Company recorded aggregate deferred compensation, net of reversals from
terminated options, of $682,000, $16.6 million, and $3.2 million in the years
ended December 31, 2000, 1999, and 1998, respectively. The amounts recorded
represent the difference between the grant price and the estimated fair value of
the Company's common stock based upon independent appraisals. Deferred stock
option compensation is charged to operations using the accelerated method over
the vesting period of the underlying options, which is typically three or four
years.

     Total amortization recognized was $2.5 million, $10.2 million and $795,000,
respectively, for the years ended December 31, 2000, 1999 and 1998.

401(k) Plan

     The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute through payroll deductions. The
Company does not match employees' contributions.

Restricted Stock Program

     In December 2000, the Company and the Board of Directors adopted and
approved the Restricted Stock Program (the "Restricted Program"). Participation
in the Restricted Program was limited to designated members of the Company's
management and was entirely voluntary. The Restricted Program provided
participants the opportunity to replace outstanding options with a restricted
share grant which vests in equal quarterly installments over a two year period.
For every two shares subject to an option that participants elected to exchange
under the Restricted Program, participants receive one share of the Company's
common stock under their restricted share grant at an issue price of $0.0001 per
share (the par value). As of December 31, 2000, the Company had cancelled
12,258,034 stock options and exchanged such options for an aggregate of
6,129,017 shares of common stock pursuant to the Restricted Program to be issued
in eight equal quarterly installments over the two years following the grant
date. The first of such quarterly installments occurred in February 2001. The
Company recorded deferred compensation of $4.4 million in the year ended
December 31, 2000 and total amortization recognized was $184,000 for that same
period. The Company also issued another 125,000 shares of common stock as an
equity incentive to a key employee in December 2000; the deferred compensation
charge associated with this issuance was minimal.

11.  LOSS PER SHARE

     The following is the calculation for net loss per share (amounts in
thousands, except share and per share data):

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                          2000           1999          1998
                                      ------------   ------------   -----------
<S>                                   <C>            <C>            <C>
Basic and diluted:
Net loss                              $   (133,022)  $   (130,168)  $   (17,844)
Weighted average common shares         128,489,722     89,597,782    81,815,869
                                      ------------   ------------   -----------
Net loss per common share             $      (1.04)  $      (1.45)  $     (0.22)
                                      ------------   ------------   -----------
</TABLE>

     At December 31, 2000, 1999 and 1998, respectively, options to purchase
8,100,316, 23,354,005 and 14,483,402 shares of common stock, preferred shares
convertible into 0, 22,098,982 and 12,175,706 shares of common stock, and
6,254,017, 0 and 0 restricted shares were not included in the computation of
diluted earnings per share as the effect would be antidilutive.

                                      F-20
<PAGE>

12.  INCOME TAXES

     The Company incurred taxable losses for federal and state purposes for the
years ended December 31, 2000, 1999 and 1998. Accordingly, the Company did not
incur any federal income tax expense for those periods other than the minimum
required taxes for certain state and local jurisdictions.

     Prior to August 3, 1998, the Company was taxed as a limited liability
company. All tax benefits arising from operating loses as a limited liability
company were passed to the individual shareholders.

     At December 31, 2000, the Company has net operating loss carryforwards
related to federal and state income taxes of approximately $234.7 million and
$216.9 million, respectively, which can be used to offset future federal and
state taxable income from operations. These carryforwards will expire in years
2004 through 2020.

     Significant components of the Company's net deferred tax asset at December
31, 2000, 1999 and 1998, are as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                      December 31,
                                            2000         1999          1998
                                         ----------   ----------    ----------
<S>                                      <C>          <C>           <C>
Net operating loss carryforwards         $   92,812   $   51,979    $    5,128
Depreciation and amortization                11,652        1,666         1,758
Other                                         3,231        3,430            47
                                         ----------   ----------    ----------
           Gross deferred tax assets        107,695       57,075         6,933
Valuation allowance                        (107,695)     (57,075)       (6,933)
                                         ----------   ----------    ----------
           Net deferred tax assets       $        -   $        -    $        -
                                         ----------   ----------    ----------
</TABLE>

     Under the Tax Reform Act of 1986, the benefits from net operating
losses carried forward may be impaired or limited in certain circumstances.
Events which may cause limitations in the amount of net operating losses that
the Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50.0% over a three year period.  The
impact of any limitations that may be imposed for future issuances of equity
securities, including issuances with respect to acquisitions, has not been
determined.

13.  SUBSEQUENT EVENTS (UNAUDITED)

     In the first quarter of 2001, the Company initiated a restructuring of its
business and implemented a new operating plan. The Company expects to record a
charge in the range of $32.0 to $37.0 million in the first quarter of 2001
associated with its restructuring plan. The charge is primarily attributable to
the impairment of goodwill associated with the BuyGolf acquisition, payment of
severance benefits for the employees that were terminated during the first
quarter, and the remaining sponsorship fees related to the Buy.Com Tour, as the
Company does not believe that any further benefits will be derived from its
sponsorship agreement with the PGA Tour. The Company also intends to terminate
the operation of its Sports specialty store by December 31, 2001.

     On February 28, 2001, the Company filed suit against the PGA Tour for
breach of contract based on the Company's Buy.com Tour sponsorship agreement
with them. The Company claims that the PGA Tour entered into an agreement with
another party to provide e-commerce services to them in violation of the
Company's agreement. The Company is seeking rescission of its agreement, a
return of its sponsorship fees, including those secured by a $14.9 million
standby letter of credit, and additional damages. The cases are in their early
stages. In March 2001, the PGA Tour filed a counterclaim against the Company in
the federal district court in the Central District of California. The
counterclaim alleges that the Company breached its contract by declaring our
sponsorship agreement to be terminated, by demanding that the PGA Tour cease all
uses of the Company's trademark, by breaching the confidentiality provisions of
the agreement and by taking action that adversely affects the goodwill of the
Buy.Com Tour. The PGA Tour seeks damages in excess of $75,000 and attorneys'
fees.

     In a letter dated March 2, 2001, the Company received notice from the
Nasdaq National Market that its common stock has failed to maintain the required
minimum bid price of $1.00 over a period of 30 consecutive

                                      F-21
<PAGE>

trading days. As a result, the Nasdaq National Market has provided the Company
with 90 calendar days, or until May 31, 2001, to regain compliance with this
requirement or be delisted from trading. If the Company is unable to regain
compliance with this requirement during this time period, and any appeal to the
Nasdaq National Market for relief from this requirement is unsuccessful, the
Company's securities will be delisted from trading by the Nasdaq National
Market.

     On March 7, 2001, the Company sold its interest in its United Kingdom joint
venture for $4.0 million to the John Lewis Partnership, a large retailer in the
United Kingdom.  In connection with the sale, the Company applied its proceeds
to the repayment of the Company's loan obligations to its joint venture partner.

14.  QUARTERLY RESULTS (UNAUDITED)

     The following tables contain selected unaudited Statement of Operations
information for each quarter of 2000, 1999, and 1998. The Company believes that
the following information reflects all normal recurring adjustments necessary
for a fair presentation of the information for the periods presented. The
operating results for any quarter are not necessarily indicative of results of
any future period.

                                      F-22
<PAGE>

<TABLE>
<CAPTION>
                                                                                        QUARTER ENDED
                                                        ---------------------------------------------------------------------------
                                                          December 31,        September 30,
                                                              2000                2000           June 30, 2000      March 31, 2000
                                                        ----------------    -----------------  -----------------  -----------------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>                 <C>                <C>                <C>
Net revenues                                            $     196,705          $    190,150        $    193,199      $    207,616
Gross profit                                                   13,350                12,713              11,757             8,873
Operating loss                                                (33,017)              (27,328)            (28,044)          (31,699)
Net loss                                                      (36,038)              (30,504)            (33,634)          (32,846)
Net loss per share:  Basic and diluted                  $       (0.27)         $      (0.23)       $      (0.26)     $      (0.28)
Weighted average number of common
shares outstanding: Basic and diluted                     134,529,551           132,547,388         131,226,802       115,544,187

<CAPTION>
                                                                                        QUARTER ENDED
                                                        ---------------------------------------------------------------------------
                                                          December 31,        September 30,
                                                              2000                2000           June 30, 2000      March 31, 2000
                                                        ----------------    -----------------  -----------------  -----------------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>                 <C>                <C>                <C>
Net revenues                                            $     200,676          $    158,960        $    129,280      $    107,932
Gross profit/(loss)                                            (1,593)                 (134)             (4,937)             (183)
Operating loss                                                (48,465)              (32,437)            (28,060)          (19,383)
Net loss                                                      (49,641)              (33,184)            (28,091)          (19,252)
Net loss per share:  Basic and diluted                  $       (0.54)         $      (0.37)       $      (0.32)     $      (0.22)
Weighted average number of common
shares outstanding: Basic and diluted                      92,042,658            89,231,521          88,749,809        88,300,193

<CAPTION>
                                                                                        QUARTER ENDED
                                                        ---------------------------------------------------------------------------
                                                          December 31,        September 30,
                                                              2000                2000           June 30, 2000      March 31, 2000
                                                        ----------------    -----------------  -----------------  -----------------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>                 <C>                <C>                <C>
Net revenues                                            $      61,529          $     34,985        $     19,233      $      9,543
Gross profit (loss)                                              (832)                  837               1,051               707
Operating loss                                                (13,357)               (3,031)             (1,219)             (435)
Net loss                                                      (13,181)               (3,008)             (1,217)             (438)
Net loss per share:  Basic and diluted                  $       (0.16)         $      (0.04)       $      (0.01)     $      (0.01)
Weighted average number of common
shares outstanding: Basic and diluted                      83,074,095            81,331,078          81,331,078        81,331,078
</TABLE>

                                      F-23
<PAGE>

       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE

To BUY.COM INC.:

We have audited in accordance with auditing standards generally accepted in the
Untied States, the consolidated financial statements included in BUY.COM INC.'s
(the "Company") Form 10-K and have issued our report thereon dated January 31,
2001. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental Schedule II as shown on page F-25
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Orange County, California
January 31, 2001

                                      F-24
<PAGE>

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNT

<TABLE>
<CAPTION>
                                                                  Charged to
                                           Beginning              Costs and
Accounts Receivable Allowances              Balance               Expenses              Deductions           Ending Balance
------------------------------            -------------        ---------------       ---------------      --------------------
                                                                       (amounts in thousands)
<S>                                       <C>                  <C>                   <C>                  <C>
Year ended December 31, 1998                    $     -              $     50           $        -              $     50
Year ended December 31, 1999                    $    50              $  1,640           $      586              $  1,104
Year ended December 31, 2000                    $ 1,104              $  3,708           $    1,999              $  2,813
</TABLE>

                                      F-25