<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 10-Q

                                  (Mark One)

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


                 For the quarterly period ended June 30, 2001
                 --------------------------------------------
                                      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 000-31299

                                 PEOPLEPC INC.
            (Exact name of registrant as specified in its charter)

                    Delaware                                 13-4048510
          (State or other jurisdiction         (IRS Employer Identification No.)
        of incorporation or organization)

100 Pine Street, Suite 1100, San Francisco, CA                  94111
  (Address of principal executive offices)                   (Zip Code)

      Registrant's telephone number, including area code: (415) 732-4400

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 [_]

The number of shares outstanding as of August 9, 2001 is 114,331,822.
<PAGE>

                                 PEOPLEPC INC.
                                   FORM 10Q
                                     INDEX

<TABLE>
<S>         <C>                                                                                                            <C>
PART I.       FINANCIAL INFORMATION
Item 1.            Condensed consolidated Financial Statements
            Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31,                         3
                   2000
            Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30,
                   2000 and 2001 (unaudited)                                                                               4
            Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30,
                   2000 and 2001 (unaudited)                                                                               5
            Notes to Condensed Consolidated Financial Statements (unaudited)                                               6
Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations                         10
Item 3.     Qualitative and Quantitative Disclosure about Market Risk                                                     16

PART II.      OTHER INFORMATION
Item 1.     Legal Proceedings                                                                                             31
Item 2.     Changes in Securities and Use of Proceeds                                                                     31
Item 4.     Submission of Matters to a Vote of Security Holders                                                           31
Item 5.     Other information                                                                                             31
Item 6.     Exhibits and Reports on Form 8-K                                                                              31

SIGNATURES
</TABLE>
<PAGE>

                                 PEOPLEPC, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                              June 30,      December 31,
                                                                                                2001            2000
                                                                                                ----            ----

                      ASSETS                                                                   (Unaudited)
<S>                                                                                           <C>           <C>
Current Assets:
  Cash and cash equivalents                                                                      $  23,377      $  65,493
  Restricted cash                                                                                    5,215         22,954
  Accounts receivable, net of allowance for doubtful
    accounts of $5,700 and $3,500 as of June 30, 2001
    and December 31, 2000, respectively                                                             16,757         41,864
  Prepaid expenses and other current assets                                                          2,479          2,177
                                                                                                 ---------      ---------

 Total current assets                                                                               47,828        132,488
Accounts receivable, long-term                                                                       1,880         11,589
Retained Interest in Accounts Receivable                                                             2,161
Property and equipment, net                                                                          8,213          7,688
Capitalized web site development costs, net                                                            453            674
Deposits and other assets                                                                              747            592
                                                                                                 ---------      ---------

 Total assets                                                                                    $  61,282      $ 153,031
                                                                                                 =========      =========


             LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable                                                                               $  18,630      $  23,745
  Accrued and other liabilities                                                                     15,288         39,193
  Borrowing under line of credit                                                                         0          5,176
  Current portion of deferred revenues, net                                                         28,135         19,047
                                                                                                 ---------      ---------

 Total current liabilities                                                                          62,053         87,161
Other long term liabilities                                                                          1,195
Deferred revenues, net                                                                              21,916         28,121
                                                                                                 ---------      ---------

 Total liabilities                                                                                  85,164        115,282
                                                                                                 ---------      ---------

Commitments (Note 2)

Minority interest in consolidated subsidiaries                                                      42,014         46,700
                                                                                                 ---------      ---------

Stockholders' deficit:
    Common stock: $0.0001 par value; 500,000 shares authorized; 115,486 and 115,159 shares
      issued, and 114,183 and 114,905 shares outstanding at June 30, 2001 and December 31, 2000         11             11
    Additional paid-in capital                                                                     330,918        350,884
    Common Stock in treasury at cost, 1,303 and 254 shares at June 30, 2001 and December 31, 2000     (306)          (280)
    Deferred stock-based compensation                                                              (13,021)       (38,995)
    Receivable from shareholder                                                                       (109)           (73)
    Accumulated other comprehensive income                                                             112
    Accumulated deficit                                                                           (383,501)      (320,498)
                                                                                                 ---------      ---------

 Stockholders' deficit                                                                             (65,896)        (8,951)
                                                                                                 ---------      ---------

 Total liabilities, minority interest and stockholders' deficit                                  $  61,282      $ 153,031
                                                                                                 =========      =========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>

                                 PEOPLEPC, INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                 ----------------------------------------------
                     (in thousands, except per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                               Three Months Ended       Six Months Ended
                                                                    June 30,                June 30,
                                                              --------------------    ---------------------

                                                               2001          2000       2001          2000
                                                               ----          ----       ----          ----
<S>                                                          <C>           <C>        <C>           <C>
Membership revenues earned                                   $ 40,745      $  8,521   $ 75,251      $  13,072
Other revenues                                                  1,962         2,527      4,789          5,861
                                                             --------      --------   --------      ---------

     Total revenues                                            42,707        11,048     80,040         18,933
                                                             --------      --------   --------      ---------

Cost of membership revenues earned                             33,073        11,217     69,587         18,989
Cost of other revenues                                          4,110         2,566      5,532          5,870
                                                             --------      --------   --------      ---------

     Total cost of revenues                                    37,183        13,783     75,119         24,859
                                                             --------      --------   --------      ---------

Gross profit (loss)                                             5,524        (2,735)     4,921         (5,926)
                                                             --------      --------   --------      ---------

Operating expenses:
  Sales and marketing (inclusive of stock-based
    compensation of $7 and $1,208 and $4,868 and
    $7,590 for the three and six months ended June 30,          5,535        49,211     13,738         66,536
    2001 and 2000, respectively)
  General and administrative (inclusive of stock-based
    compensation of $218 and $4,819 and $8,791 and
    $12,766 for the three and six months ended June 30,
    2000 and 2001, respectively)                               23,821        22,051     55,203         35,935
  Contract cancellation fees                                    2,876             0      2,876              0
  Other operating expenses                                         44             0     (1,829)             0
                                                             --------      --------   --------      ---------

     Total operating expenses                                  32,276        71,262     69,988        102,471
                                                             --------      --------   --------      ---------

Loss from operations                                          (26,752)      (73,997)   (65,067)      (108,397)
Minority interest in net loss of consolidated subsidiaries      1,623             0      4,059              0
Interest (expense)/ income, net                                (1,684)          756     (1,993)         1,399
                                                             --------      --------   --------      ---------

Net loss                                                     $(26,813)     $(73,241)  $(63,001)     $(106,998)
                                                             --------      --------   --------      ---------

Dividend related to beneficial conversion feature of
  preferred stock                                                   0       (18,209)         0        (18,209)
                                                             --------      --------   --------      ---------

Net loss attributable to common stockholders                 $(26,813)     $(91,450)  $(63,001)     $(125,207)
                                                             ========      ========   ========      =========

Basic and diluted net loss per share                         $  (0.24)     $  (2.76)  $  (0.57)     $   (3.79)
                                                             ========      ========   ========      =========

Shares used in computing basic and diluted net loss per
  share                                                       110,732        33,169    110,141         33,068
                                                             ========      ========   ========      =========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>

                                PEOPLEPC, INC.
                  CONDENSED CONSOLIDATED STATEMENT CASH FLOWS
                                (in thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                                           Six Months Ended
                                                                                                               June 30,
                                                                                                               --------
                                                                                                           2001           2000
                                                                                                           ----           ----
<S>                                                                                                   <C>                <C>
Cash flows from operating activities:
Net loss...........................................................................................      $(63,001)     $(106,998)
Adjustments to reconcile net loss to net cash used in
operating activities:
 Depreciation and amortization.....................................................................           678            156
 Amortization of deferred stock-based compensation.................................................         6,027         20,356
 Loss on sale of accounts receivable...............................................................         1,380             --
 Net increase in allowance for doubtful accounts...................................................         2,200            500
 Beneficial conversion feature related to issuance of preferred stock to Ford Motor
   Company.........................................................................................            --         17,943
 Issuance of common stock warrants and rights......................................................            --          8,126
 Minority interest in loss of consolidated subsidiaries............................................        (4,059)            --
 Changes in assets and liabilities:
  Accounts receivable..............................................................................         7,064        (12,209)
  Prepaid expenses and other current assets........................................................          (302)       (16,887)
  Deposits and other assets........................................................................           (64)          (893)
  Accounts receivable, long term...................................................................         9,709             --
  Accounts payable.................................................................................        (5,115)         5,974
  Accrued liabilities..............................................................................       (24,532)        (3,723)
  Deferred revenues................................................................................         2,883         10,076
  Retained interest in accounts receivable.........................................................        (2,161)            --
  Other............................................................................................         1,147           (109)
                                                                                                         --------      ---------
   Net cash used in operating activities...........................................................       (68,146)       (77,688)
                                                                                                         --------      ---------
Cash flows from investing activities:
  Restricted cash..................................................................................        17,739            941
  Purchase of property and equipment...............................................................        (1,526)        (1,573)
  Capitalized web site development costs...........................................................            --            (96)
                                                                                                          --------      ---------
   Net cash provided by (used in) investing
    activities.....................................................................................        16,213           (728)
                                                                                                         --------      ---------
Cash flows from financing activities:
  Sales of accounts receivable.....................................................................        14,463             --
  Proceeds from issuance of common stock...........................................................           104          2,939
  Repurchase of common stock.......................................................................          (139)            --
  Proceeds from issuance of Series C preferred stock, net..........................................            --         49,615
  Payments on borrowings under a line of credit....................................................        (4,723)            --
                                                                                                         --------      ---------
   Net cash provided by (used in) financing
    activities.....................................................................................         9,705         52,554
                                                                                                         --------      ---------
Effect of exchange rate changes on cash and cash equivalents.......................................           112             --

Net decrease in cash and cash equivalents..........................................................       (42,116)       (25,862)
Cash and cash equivalents at beginning of period...................................................        65,493         36,108
                                                                                                         --------      ---------

Cash and cash equivalents at end of period.........................................................      $ 23,377      $  10,246
                                                                                                         ========      =========

Supplemental noncash investing and financing activity:.............................................
 Receivable from stockholders......................................................................      $    109             --
 Interest paid.....................................................................................      $     42             --
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>

                                PEOPLEPC, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1. Business Activities and Summary of Significant Accounting Policies

     Nature of Business

     PeoplePC Inc. (the "Company" or "PeoplePC") provides a membership package
     that includes a brand-name computer, unlimited Internet access, customer
     support and an in-home warranty. Members also have the opportunity to
     benefit from discounts and special offers from merchants who participate in
     PeoplePC's member commerce program (formerly referred to as the buyer's
     club). The Company also operates PeoplePC's Online program, which
     provides consumers who do not wish to purchase a computer with all of the
     other benefits of a PeoplePC membership for a monthly fee. The Company was
     incorporated in Delaware on March 2, 1999.

     Basis of Presentation

     The consolidated financial statements include the accounts of PeoplePC and
     its more than 50% percent owned subsidiaries. All significant intercompany
     transactions and balances have been eliminated.

     Unaudited Interim Results

     The accompanying unaudited interim condensed consolidated financial
     statements of PeoplePC Inc., a Delaware corporation, as of June 30, 2001
     and for the three months and six months ended June 30, 2001 and June 30,
     2000 reflect all adjustments, consisting of normal recurring adjustments,
     which in the opinion of management, are necessary for a fair presentation
     of the results for the interim periods presented. These financial
     statements have been prepared in accordance with accounting principles
     generally accepted in the United States of America for interim financial
     information and with the instructions to Form 10-Q and Rule 10-01 of
     Regulation S-X. Accordingly, they do not include all of the information and
     footnotes required by accounting principles generally accepted in the
     United States of America for complete financial statements.

     These financial statements should be read in conjunction with our annual
     audited financial statements for the year ended December 31, 2000, which
     are included in our annual report on Form 10-K filed with the Securities
     and Exchange Commission.

     Operating results for the interim periods presented are not necessarily
     indicative of the results that may be expected for the full fiscal year
     ending December 31, 2001.


     Retained Interest in Accounts Receivables

     During May 2001, the Company sold $18.0 million in accounts receivable via
     its subsidiary PeoplePC Funding, Inc., a qualified special purpose entity,
     to a financial institution. The Company received $14,463,000 from the
     financial institution which will be used to fund operations. The financial
     institution has no recourse to the Company's assets for failure of the
     debtors to pay when due. The financial institution reserved an
     overcollateralization amount equal to 13% of the present value of the
     receivables. After all lender obligations, interest expenses and
     administrative fees are paid in full, the Company will receive the residual
     amount represented by the overcollateralization reserve. The Company's
     retained interests are non-interest bearing and subordinated to investor's
     interests. Their value is subject to credit risks on the transferred
     assets. The residual assets amounted to $2.2 million as of June 30,2001.

     Under the provisions of Statement of Financial Accounting Standards
     ("SFAS") No. 140, Accounting for Transfers and Servicing of Financial
     Assets and Extinguishments of Liabilities, the transaction was accounted
     for as a sale and as a result the related accounts receivable have been
     excluded from the accompanying condensed consolidated balance sheet and the
     Company recognized a loss on sale of $1.4 million, included in interest
     expense for the three months ended June 30, 2001.

<PAGE>

     Revenue Recognition

     Revenues and the related cost of revenues for the initial membership
     package, which includes the personal computer, cost of shipping the
     personal computer system, internet access for the term of the membership,
     and participation in a member commerce program, are deferred and recognized
     over the three-year term of the membership agreement for members signed up
     under enterprise deals and consumers up to May 2001. From May 2001,
     consumer membership packages include the personal computer, cost of
     shipping the personal computer system, Internet access for four years and
     participation in a member commerce program. In addition, consumers can
     subscribe to an optional extended warranty. Revenues and the related cost
     of revenues for the personal computer and shipping the personal computer
     system are recognized once the right of return has elapsed.
     Revenues and the related cost of internet access, the participation in a
     member commerce program and the extended warranty are deferred and
     recognized over the four-year term of the membership agreement.

     Revenues from the PeoplePC Online program are recognized monthly. Monthly
     subscriptions to PeoplePC's online service are renewable each month and the
     monthly fees are not refundable.

     The Company also offers peripherals and upgrades at the time of the initial
     membership. As there are no future obligations with respect to the
     peripherals and upgrades, the revenue and cost of revenues related to the
     sale of peripherals and upgrades are recognized in the period shipped.
     These revenues are included under the line item "Other revenues", which
     includes peripherals revenue, the related shipping revenues and revenues
     from the member commerce program.

     In some instances, and in an effort to aggressively enroll new members to
     build its brand, as well as to develop new channels of distribution, the
     Company has offered pricing of its memberships and services that was less
     than its total current and estimated future costs (primarily the cost of
     providing Internet access and email services) of performing under its
     membership agreements, resulting in an estimated gross margin loss over the
     life of the contract. As a result, the Company is required to accrue for
     the estimated loss related to this acquisition discount during the
     membership period. These amounts will be amortized over the life of the
     membership as an offset to future expenses. The Company recorded a net
     acquisition discount of $2.1 million for the three months ended June 30,
     2000. For the three months ended June 30, 2001, the Company recorded a
     $6.7 million reversal of acquisition discount previously recognized as a
     result of a reduction in the estimated costs to provide service over the
     customer life. The provision and related amortization is reflected in cost
     of membership revenues earned on the statement of operations and included
     with the related net deferred revenue on the balance sheet.

     The Company also derives revenue from providing development services on a
     time and material basis. Revenues pursuant to time and materials contracts
     are generally recognized as services are provided. Revenues exclude
     reimbursable expenses charged to clients.

     Comprehensive Loss

     The Company has adopted SFAS No. 130. "Reporting Comprehensive Income",
     which requires that an enterprise report and display, by major components
     and as a single total, the change in its net assets during the period from
     non-owner sources. The comprehensive loss is comprised of net loss and
     foreign currency translation adjustments. Comprehensive loss was $26.9
     million and $73.2 million for the three months ended June 30, 2001 and
     2000, respectively. For the six months ended June 30, 2001 and 2000,
     comprehensive loss was $63.1 million and $107.0 million.

     Deferred Stock-Based Compensation

     Deferred stock-based compensation has been included as a component of
     stockholders' deficit and is being amortized by charges to operations over
     the vesting period of the related options, generally 4 years, consistent
     with the method described in Financial Accounting Standards Board
     Interpretation ("FIN") No. 28. The Company recognized stock-based
     compensation of $0.3 million and $5.9 million, net of $4.9 million and $8.1
     million reversal of stock-based compensation amortized, related to unvested
     shares for terminated employees for the three and six months ended June 30,
     2001. The Company recorded reductions in deferred stock-based compensation
     relating to terminated employees of $9.7 million and $19.8 million for the
     three and six months ended June 30, 2001. As of June 30, 2001, the Company
     had an aggregate of $13.0 million of deferred stock-based compensation
     remaining to be amortized.

     Segment information

     The Company reports segment data based on the management approach which
     designates the internal reporting that is
<PAGE>

     used by management for making operating decisions and assessing performance
     as the source of the Company's reportable operating segments. During all
     periods presented, the Company operated in a single business segment. Long-
     lived assets and revenue are mainly located or generated in the United
     States.

     Net loss per share

     Basic net loss per share is computed by dividing net loss available to
     common stockholders by the weighted average number of vested common shares
     outstanding for the period. Diluted net loss per share is computed giving
     effect to all dilative potential common stock, including options, warrants
     and preferred stock. The following table sets forth the computation of
     basic and diluted net loss per share for the periods indicated:

<TABLE>
<CAPTION>

                                                           Three Months Ended               Six Months Ended
                                                     June 30, 2001   June 30, 2000   June 30, 2001   June 30, 2000
                                                     --------------  --------------  --------------  --------------
                                                                (in thousands, except per share data)
<S>                                                  <C>             <C>             <C>             <C>
     Numerator:
        Net loss available to common stockholders..       $(26,813)       $(73,241)       $(63,001)      $(106,998)
                                                          --------        --------        --------       ---------

     Denominator:
        Weighted average common shares.............        114,084          41,386         114,084          41,445
        Weighted average unvested common shares
           subject to repurchase...................         (3,352)         (8,217)         (3,943)         (8,377)
                                                          --------        --------        --------       ---------

     Denominator for basic and diluted calculation..       110,732          33,169         110,141          33,068
                                                          --------        --------        --------       ---------

     Basic and diluted net loss per share...........      $  (0.24)       $  (2.76)       $  (0.57)      $   (3.79)
                                                          --------        --------        --------       ---------
</TABLE>

     Options, warrants, non-vested common stock and preferred stock were not
     included in the computation of diluted net loss per share in the periods
     reported because the effect would be antidilutive.

     Antidilutive securities not included in net loss per share calculation for
     the periods:

<TABLE>
<CAPTION>
                                                                               June 30, 2001          June 30, 2000
                                                                               -------------          -------------
                                                                                          (in thousands)
 <S>                                                                           <C>                    <C>
     Non vested common stock......                                                   2,933                  7,838
     Common stock options.........                                                  13,909                  10,867
     Warrants.....................                                                   2,857                  5,262
     Convertible preferred stock..                                                      --                 63,285
                                                                                    ------                 ------

                                                                                    19,699                 87,252
                                                                                    ======                 ======
</TABLE>

2. Commitments and Contingencies

Leases
------

The Company leases office space under 14 operating leases expiring between 2001
and 2005, of which 2 leases can be renewed in 2004 for an additional period of
5 years. The Company also leases copiers under 2 operating leases expiring in
2005. The Company recognizes rent expense on a straight-line basis over the
lease period and has accrued for rent expense incurred but not paid. Total rent
expense under operating leases was approximately $.6 million and $1.1 million
and $.2 million and $.5 million for the three and six months ended June 30, 2001
and 2000, respectively.

Purchase commitments

The Company relies on Ingram Micro (the "Distributor") to provide some of its
computer products, maintain inventory, process orders, prepare merchandise for
shipment and to distribute its products to customers in a timely and accurate
manner. The Distributor purchases inventory from a computer manufacturer ("the
OEM") on behalf of the Company based on sales projections made by the Company.
The Company takes title to the equipment just prior to shipment to the customer.
The Company is obligated to purchase inventory held by the Distributor purchased
on its
<PAGE>

behalf. Our agreement with Ingram expired on February 8, 2001. The term of the
agreement has not been extended. However, the parties currently continue their
business relationship. At June 30, 2001 and December 31, 2000, the Company had
approximately $4.7 million and $1.5 million in non-cancelable purchase
commitments with the Distributor.

For the three months ended June 30, 2001, the Company paid $2.9 million to
cancel contracts with fees for previous purchase commitments. As of June 30,
2001 and December 31, 2000, the Company was obligated to purchase approximately
$.1 million and $25.8 million of equipment from an OEM.

Contingencies

In 1999, the Company recorded a provision of $15.6 million relating to the cost
of resolving any potential dispute over non-conforming computers. During 2000,
the Company reached an agreement with Ingram Micro to liquidate the non-
conforming computers, following which the Company will split the losses
associated with these computers so that it bears half of the loss and Ingram
Micro bears half of the loss. As a result of this agreement, the Company
reduced the provision by $8.0 million (included in other operating expenses) in
2000. In early 2001, the Company reached a final settlement with Ingram
Micro and paid its share of the loss. As a result of that settlement, the
Company released a portion of the remaining provision for the three months ended
March 31, 2001 related to the Distributor, included in other operating expenses.
A $1 million provision, included in other long term liabilities, remains which
the Company believes will be sufficient to cover its share of any further claim
from the OEM.

Employees
---------

The Company has employment agreements and commitments with certain executive
officers under which the employees would be entitled to receive severance
payment of $1.5 million if their employment were to be terminated under certain
conditions.

3. Borrowings under line of credit

In July 2001, the Company's credit agreement with a bank providing for a $50.0
million revolving credit facility expired. Financing under this facility was
only available for the purpose of factoring receivables owed to the Company by
Ford. The Company paid fees to the lender for the loan commitment and for
underwriting and structuring. As of June 30, 2001, the Company had no
outstanding balance under this credit facility. The outstanding balance was $5.2
million (net of issuance cost of $0.7 million) as of December 31, 2000. An
amount of $0.3 million of issuance cost was amortized during the three months
ended June 30, 2001, and the remaining unamortized balance is $0.1 million as of
June 30, 2001.

4. Warrant

On February 21, 2001, the expiration date of the warrant granted to the Ford
Motor Company to purchase 2.9 million shares of the Company's common stock at
$10 per share was extended through September 21, 2003.

5. Minority Interest in Consolidated Subsidiaries

     In June 2000, PeoplePC formed a European subsidiary, PeoplePC N.V., a
Netherlands corporation. PeoplePC and PeoplePC N.V. entered into financing and
related agreements with @viso Limited ("@viso"), a UK company and a partnership
of SOFTBANK Corp. ("SOFTBANK"), a Japanese company and Vivendi Universal S.A.
("Vivendi"), a French corporation. In the financing, PeoplePC N.V. received $50
million from @viso payable over a two month period beginning on the closing date
in exchange for its interest in PeoplePC N.V. PeoplePC received a 65% interest
in exchange for granting of an exclusive license to use and exploit its
technology and brand in Europe. The financing closed in July 2001.

     At June 30, 2001, minority shareholders hold preferred stock in
PeoplePC N.V., a Dutch company, with a par value of EUR.01 as follows:

            Series          Shares         Proceeds
          Authorized      Outstanding
                         (in thousands)
<PAGE>

     A    100,000     11,667      $35,000
     B     50,000      5,000       15,000
          -------     ------      -------

                                  $50,000
                                  =======


In connection with the issuance of series B preferred stock and series A
preferred stock to @viso, PeoplePC Europe N.V. ("PeoplePC Europe") granted
SOFTBANK Capital Partners LP a warrant to acquire 2.4 million shares of Series A
Preferred Stock, with an aggregate exercise price of $7.1 million. The warrant
will be exercisable and must be exercised (i) no sooner than six months after
the Closing Date or (ii) immediately prior to (a) an acquisition, sale or merger
of or by PeoplePC Europe resulting in a change in control of PeoplePC Europe,
(b) a merger of PeoplePC Europe with and into the Company, or acquisition of all
of PeoplePC Europe assets or shares by the Company or (c) PeoplePC Europe's
initial public offering, on terms and conditions stated in the agreement
("liquidity events"). The warrant may not be exercised after the earlier of (a)
fifteen business days following a request by PeoplePC Europe that SOFTBANK
Capital Partners LP exercise such right and (b) the occurrence of a liquidity
event.

Under a Put Option Agreement signed on May 30, 2001, @viso is entitled to sell
all or a portion of its shares of PeoplePC Europe to us in exchange for
PeoplePC stock.  Under this agreement, @viso is entitled to receive between
approximately 13.8 million and 29.1 million shares of PeoplePC common stock
based on a formula and the date of exchange.  SOFTBANK Capital Partners LP is
entitled to exercise its amended warrant to purchase convertible preferred stock
in PeoplePC Europe.  Once the amended warrant is exercised, SOFTBANK Capital
Partners LP will be entitled to sell all or a portion of its shares of PeoplePC
Europe to the Company in exchange for PeoplePC stock.  Under this arrangement,
SOFTBANK Capital Partners LP will be entitled to receive between approximately
1.9 million and 3.5 million shares of PeoplePC common stock based on a formula
and the date of exchange.

As a result of executing the Put Option Agreement, we acquired additional
control over PeoplePC Europe, free of certain restrictions contained in the
PeoplePC Europe Articles of Association and a related shareholder
agreement.  In particular, the @viso representatives to the Board of directors
of PeoplePC Europe resigned and we acquired control of the board of
directors of PeoplePC Europe.

In addition, PeoplePC Europe has the power to make loans to the Company, free of
contractual restrictions, thus allowing use of PeoplePC Europe assets for
the combined benefit of the two companies.

PeoplePC Europe has made four loans to PeoplePC.  The first, in the amount
of $15.0 million in February 2001; the second, in the amount of $6.0 million in
April 2001; the third, in the amount of $4.0 million in April 2001; and the
fourth, in the amount $8.5 million in May 2001. These notes are demand notes.
Because the Company controls the board of directors of PeoplePC Europe, the
Company has substantial discretion over the timing of demands made under these
notes.

6. Related party transactions

During June 2001, the Company entered into negotiations for a contract with
SOFTBANK, under which it will perform certain development work on a time and
material basis. The Company recognized $0.5 million in revenue for the three
months ended June 30, 2001 related to this agreement.

7. Risks and uncertainties
<PAGE>

The Company is subject to all of the risks inherent in an early stage company in
the Internet access industry.  These risks include, but are not limited to, a
limited operating history, its ability to raise capital, limited management
resources, dependence upon consumer acceptance, Internet-related security risks
and the changing nature of the electronic commerce industry. The Company's
operating results may be materially affected by the foregoing factors.

The Company has incurred substantial losses and negative cash flow from
operations since inception.  As of June 30, 2001, the Company has a net capital
deficiency of $65.9 million. The Company intends to pursue new enterprise and
other arrangements to increase its revenues and cash flow. The Company has also
taken and intends to take further steps to reduce expenses. Steps already
taken include targeting sales and marketing expenditures on channels with low
acquisition cost per member, consolidation of sales offices and a realignment
and reduction of its workforce. In an effort to further improve liquidity, in
May 2001 the Company sold substantially all of its Delta Airlines, Inc.
receivables and has signed an agreement pursuant to which it may sell future
Delta receivables.  The Company currently expects to continue to fund
operating losses,to acquire and retain customers and to restructure
agreements.  The Company currently expects that its available cash,
cash equivalents and cash flows to be generated from operations will be
sufficient to meet the targeted cash needs through approximately the end of
the year, provided that the Company achieves targeted revenues, efficiencies
and cost reductions, restructures certain partnership and other relationships
and on a timely basis, completes certain assets sales and collects certain
accounts receivables.  If the Company is unable to complete any of these
actions as scheduled or on the terms currently contemplated, the Company may
have to significantly reduce its operations and its business may be adversely
affected.

Any projections of future cash needs and cash flows are subject to substantial
uncertainty.  The Company is also subject to unanticipated developments in the
short term, such as the entry into agreements that require large cash payments,
further deterioration of the Internet access industry or the acquisition of
businesses with negative cash flows, which may necessitate additional financing.
The Company may seek to raise additional funds through public or private debt,
strategic relationships or other arrangements in order to:

   fund its operations and capital expenditures;
   take advantage of favorable business opportunities;
   acquire complementary businesses or technologies;
   develop and upgrade its technology infrastructure;
   reduce outstanding debt;
   develop new product and service offerings;
   take advantage of favorable conditions in capital markets; or
   respond to competitive pressures.

The capital markets, and in particular the public equity market for Internet
companies, have traditionally been volatile. It is difficult to predict when, if
at all, it will be possible for Internet companies to raise capital through
these markets.  The Company cannot assure that the additional financing will be
available on favorable terms, or at all. The Company may have to sell stock at
prices lower than those paid by existing stockholders, which would result in
dilution, or it may have to sell stock or bonds with rights superior to rights
of holders of common stock.  Also, any debt financing might involve restrictive
covenants that would limit the Company's operating flexibility.

<PAGE>

The Company's common stock trades on the Nasdaq National Market, which specifies
certain requirements for continued listing of common stock. One of the
requirements is that the minimum closing bid price per share of its common stock
not fall below a specified level for an extended period of time. Another is that
the market value of a Company's public float (the number of shares in public
float times the closing bid price per share) exceed a certain level.

On July 9, 2001, the Company received a notice from the staff of The Nasdaq
Stock Market the Company's common stock had failed to maintain the minimum bid
price required for continued listing on The Nasdaq National Market. The Company
has appealed the staff determination and will have an oral hearing at the end of
August 2001 to present it appeal. The result of delisting from the Nasdaq
National Market could be a reduction in the liquidity of any investment in its
common stock and may have an adverse effect on the trading price of its common
stock. Delisting could also reduce the ability of holders of its common stock to
purchase or sell shares as quickly and as inexpensively as they have done
historically. This lack of liquidity would make it more difficult for the
Company to raise capital in the future. Delisting could also adversely affect
the Company's relationships with vendors and customers.

8. Subsequent events

On June 29, 2001, Ford Motor Company agreed to reimburse PeoplePC in the amount
of $6.6 million for the costs incurred in preparing for the international roll
out of the Ford Program. The payment was received and deposited on July 18, 2001
and will be recorded as a reduction of operating expenses for the three months
ended September 30, 2001.

On July 9, 2001, the Nasdaq staff informed the Company that it was not in
compliance with Nasdaq's market value of public float requirement, and it has
until October 8, 2001 to come into compliance.

In addition, on July 10, 2001, the Company received a notice from the staff of
The Nasdaq Stock Market that the Company's common stock had failed to maintain
the minimum bid price required for continued listing on The Nasdaq National
Market. On July 17, the Company requested a hearing before Nasdaq's Listing
Qualification panel. As of the filing date of this Quarterly Report, the Company
has submitted its written appeal and expects to make an oral presentation to the
Listing Qualification Panel on August 30, 2001.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

This report contains forward-looking statements that are subject to the
assumptions and uncertainties discussed below.  A forward-looking statement is
any statement that looks to future events, including any projections of
earnings, revenues, or other financial items; any statements of plans,
strategies and objectives of management for future operations; any statements
regarding proposed new products, services or developments; any statements
regarding future economic conditions or performance; statements of belief and
any statement of assumptions underlying any of the foregoing.  These statements
may be identified by the use of words such as "expect", "anticipate",
"estimate", "believe", "intend" and "plan."

Actual results may vary from those projected in the forward-looking statements.
If the Company's assumptions about the future do not materialize or prove to be
incorrect, the Company's results could differ materially from those expressed or
implied by such forward-looking statements.

Specifically, the forward-looking statements contained herein depend on
assumptions relating to our ability to enter into new enterprise agreements and
expand our membership; our ability to provide consumer financing for the
purchase of our products and services; the willingness of third party vendors to
provide products and services on acceptable terms; our ability to meet our
obligations under enterprise agreements; our ability to contain customer
acquisition costs and the costs of providing products and services; our ability
to generate revenues from merchant partners, our ability to generate, through
operating revenues or through the proceeds of equity or debt financing,
sufficient cash to implement our business plan; the timing of acquisition of
enterprise program members; our ability to improve pricing and eliminate
acquisition discounts; our ability to generate revenues through our member
commerce program and other revenue-generating activities; our expectations
regarding the cost of expanding our international operations; and other risks
described from time to time in PeoplePC's Securities and Exchange Commission
periodic reports and filings.

The Company assumes no obligation to update these forward-looking statements to
reflect events that occur or circumstances that exist after the date on which
they were made.  Further information on potential factors that could affect
these forward looking statements and the company's financial results are
included in our filings with the Securities and Exchange Commission, including
the company's annual report on Form 10-K filed on April 2, 2001 and the
Preliminary Proxy Statement filed on April 17, 2001.
<PAGE>

The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and notes to the
financial statements included elsewhere in this report.

Overview

We were incorporated in March 1999. We began offering our products and services
on a limited basis in September 1999 and on a commercial basis in October 1999.
Until September 1999, we had no revenues and our operating activities consisted
primarily of developing relationships with vendors, suppliers and merchants.

We currently operate principally in the United States, the United Kingdom,
France and Singapore. We have established foreign subsidiaries to support our
international operations.

PeoplePC UK, our European operating subsidiary, began distributing products to
Vivendi Universal employees in France in January 2001. Planning is underway to
extend the program to Vivendi employees in seventeen additional countries
including the United Kingdom, Germany and the United States. The Vivendi
program is open to all employees of Vivendi for a nominal employee co-payment,
while the remainder of the program expenses are subsidized by Vivendi. We
receive payment for the entire membership package from Vivendi when the
package is sold to a Vivendi employee.

PeoplePC hosts and maintains a web site for Vivendi employees participating in
the program.

In February 2001, we commenced rolling out the Model E Program to up to 15,000
employees of Ford's affiliate, Hertz Corporation. We also began to offer our
program on a non-subsidized basis to employees of Ford's Certified Blue Oval
Program dealers.

The rollout of the Ford employee connectivity program is substantially complete
in the United States. On May 15, Ford Motor Company deferred further rollout of
the program. Following this action, PeoplePC and Ford amended their Model E
Program agreement to end their supply relationship for the sale of computers and
Internet connectivity. PeoplePC and Ford will continue to work together under
the terms of the agreement to provide services and support for the more than
165,000 Ford employees in the U.S., the Philippines, Canada, and the U.K who are
currently PeoplePC members. We believe that while this may negatively impact
gross sales, the impact on our cash position and margins in the near term will
be beneficial. As a result of the cancellation, on June 29, 2001, Ford Motor
Company agreed to reimburse PeoplePC in the amount of $6.6 million for the costs
incurred in preparing to roll out the Model E Program internationally. The
payment was received and deposited on July 18, 2001 and will be recorded as a
reduction in expenses during the three months ended September 30, 2001.

We began distributing products to Cinergy Services, Inc. in the United States in
June 2001.  The Cinergy program is open to all employees of Cinergy for an
employee co-payment.  In the case of employees who already own PCs, Cinergy will
subsidize the cost of ISP services for three years.

Membership revenues consist of revenues earned from the sale of membership
bundles; the related charges for shipping the systems; and revenues earned from
the sale of PeoplePC Online memberships which include all of our Internet
related services but do not include a computer system. Although we receive
revenue from the sale of membership bundles at the time of the member's
enrollment, we defer the revenue and amortize it over the life of the membership
contract due to the three-year nature of the relationship. We intend to continue
to pursue members through enterprise agreements and our consumer programs to
increase our membership revenues. We expect that memberships obtained through
enterprise agreements will provide a significant portion of membership revenues
in the future.

Other revenues consist of revenues from the sale of upgraded monitors; the sale
of printers; additional shipping revenues related to upgraded monitors and the
sale of printers; and revenues from merchants, content partners and suppliers.
We have not yet generated material revenues from merchants, content partners and
suppliers. Other revenues are recorded in the period earned as these products,
which are not requested by all members, are separately identifiable transactions
and the related earnings process is completed at that time. We expect to
increase our revenues from merchants, content partners and suppliers in the
future.
<PAGE>

In May 2001, certain programs were transitioned to a 48-month term membership
which coincided with a 48 month financing arrangement with MBNA.  This
transition also included a change in computer manufacturer from IBM to Hewlett
Packard.  The warranty on IBM products was a 3-year manufacturer's warranty.
When the product line shifted to Hewlett Packard, Service Net became the
warranty provider and the warranty became a 1-year onsite warranty.  In
addition, we began to offer 3-year warranty upgrade which, if purchased, would
bring the length of warranty in line with the membership term of 48 months.

Results of Operations

Three months ended June 30, 2001 and 2000

Revenues

Membership Revenues Earned. Membership revenues earned include membership
revenues, related shipping revenues, revenues from PeoplePC Online memberships,
and recognition of membership revenues previously deferred. Gross membership
revenues increased 33% to $55.8 million for the three months ended June 30, 2001
from $42.0 million for the three months ended June 30, 2000. Revenues recognized
from our online program included in gross membership revenues decreased by 6% to
$1.7 million for the three months ended June 30, 2001 from $1.8 million for the
three months ended June 30, 2000. Because we recognize most membership revenues
over the term of the membership agreement, $50.0 million of membership revenues
was deferred for the three months ended June 30, 2001, while $35.3 million was
deferred for the three months ended June 30, 2000. Membership revenues earned
include the recognition of $34.9 million and $1.9 million in revenues previously
deferred for the three months ended June 30, 2001 and June 30, 2000,
respectively.

Other Revenues. Other revenues consist of sales of peripherals and the
incremental cost of upgrades, the related shipping revenues and revenues from
merchants, content partners and suppliers. Other revenues decreased by 20% to
$2.0 million for the three months ended June 30, 2001, of which $1.1 million was
related to the sale of upgrades and peripherals and $.5 million was related to
services provided to SOFTBANK. For the three months ended June 30, 2000, other
revenues were $2.5 million, $2.2 million of which were related to the sales of
upgrades and peripherals. The decrease in other revenues is primarily due to the
fact that no peripherals or upgrades are offered under the Vivendi program.

Cost of Revenues

Cost of Membership Revenues Earned. Cost of membership revenues earned consists
primarily of the cost of the basic system hardware and software, fulfillment and
shipping costs and our cost of providing members with Internet connectivity.
Cost of gross membership revenue decreased to $41.7 million for the three months
ended June 30, 2001 compared to $41.9 million for the three months ended June
30, 2000. Because we recognize most system hardware and software cost of
revenues over the 36-month term of the membership agreement, $37.1 million of
cost of membership revenues was deferred for the three months ended June 30,
2001, while $32.3 million of cost of revenues was deferred for the three months
ended June 30, 2000. Cost of membership revenues earned included the recognition
of $28.4 million and $1.7 million in costs previously deferred for the three
months ended June 30 2001 and June 30, 2000, respectively. The cost of providing
Internet service to our members included in cost of membership revenue is $6.2
million and $3.2 million for the three months ended June 30, 2001 and June 30,
2000, respectively. Cost of membership revenues for the three months ended June
30, 2001 also includes a $9.5 million net amortization of acquisition discount
previously recognized, including a $6.7 million reversal of the acquisition
discount reserve resulting from a change in estimate of future costs due to
decreased ISP expenses. For the three months ended June 30, 2000, cost of
revenues includes a net provision of $2.1 million for the amount by which our
estimated cost of membership exceeds the related current and future membership
revenue.

Cost of Other Revenues. The cost of other revenues for the three months ended
June 30, 2001 increased by 58% to $4.1 million from $2.6 million for the three
months ended June 30, 2000. Cost of other revenues primarily consists of the
cost of printer and monitor peripherals, the incremental cost of upgrades, and
the related shipping expense. Cost of other revenues also includes incidental
costs incurred such as restocking fees. These costs are not significant for the
periods reported.  The increase in cost of other revenues is due to the
additional charges of $1.4 million from our warranty provider for products
previously shipped.
<PAGE>

Operating Expenses

Sales and Marketing. Sales and marketing expense includes fees paid to third-
party advertising sales agents, sales support functions, travel and related
expenses and related salaries and benefits. Sales and marketing costs are
expensed in the period incurred. Sales and marketing expense decreased by 89% to
$5.5 million for the three months ended June 30, 2001, $4.1 million of which was
related to fees paid for third-party advertising. For the three months ended
June 30, 2000, sales and marketing expense was $49.2 million, $18.7 million of
which was related to fees paid for third-party advertising, and $24.6 million of
which was related to a charge taken in connection with the warrants and rights
granted to Ford. Sales and marketing expense includes the amortization of
deferred stock-based compensation of $7,000 and $4.9 million for the three
months ended June 30, 2001 and June 30, 2000, respectively. We have shifted the
focus of our sales and marketing program to more efficient enterprise and
affinity channels and more effective targeted marketing. As a result, sales and
marketing expenses have decreased in absolute dollars and as a percentage of
revenues.


General and Administrative. General and administrative expenses includes payroll
and related expenses for management and administrative personnel, expenses
related to maintaining member relations, facilities costs, professional service
fees, travel and other general corporate expenses. General and administrative
expense increased by 8% to $23.8 million for the three months ended June 30,
2001 and included approximately $.6 million of facilities expense and $9.0
million paid to outside consultants, contractors and other professionals for
services rendered. For the three months ended June 30, 2000, general and
administrative expense was $22.1 million including approximately $.5 million of
facilities expense and $5.8 million paid to outside consultants, contractors and
other professionals for services rendered. General and administrative expense
included stock-based compensation amounting to $.2 million and $8.8 million for
the three months ended June 30, 2001 and June 30, 2000, respectively. The
increase in general and administrative expense is primarily due to the
expansion of our international operation.

Contract cancellation fee.  For the three months ended June 30, 2001, we paid
$2.6 million to cancel contracts with two original equipment manufacturers.

Other operating expenses.  For the three months ended June 30, 2001 and 2000,
these costs are not significant.

Interest expense/income, net

Interest income from cash equivalents and restricted cash was $.2 million for
the three months ended June 30, 2001. Interest expense consists of a discount of
$1.4 million related to the sale of receivables from Delta Airlines, Inc. for
the three months ended June 30, 2001. Interest income from cash equivalents and
restricted cash was $.8 million for the three months ended June 30, 2000.

Minority share interest in net loss of consolidated subsidiaries.

The minority interest in net loss of consolidated subsidiaries for the three
months ended June 30, 2001 represents 35% of $4.6 million net loss of the
consolidated subsidiaries. The Company did not have any minority interests for
the three months ended June 30, 2000.

Income Taxes

As a result of our operating losses and the uncertainties related to our ability
to recognize a benefit from our deferred tax assets, we have not recorded a
provision for income tax for the three months ended June 30, 2001. We have
provided a full valuation allowance on our deferred tax assets. In the future,
we may incur income tax expenses in certain European countries in which we are
incorporated.

Net Loss

Net loss for the three months ended June 30, 2001 decreased 63% to $26.8 million
from $73.2 million for the three months ended June 30, 2000. For the three
months ended June 30 2001, the net loss was primarily attributable to operating
expenses of $32.3 million exceeding gross profit of $5.5 million.  For the three
months ended June 30, 2000, $2.7 million
<PAGE>

of net loss was attributable to cost of revenue exceeding revenues, $13.7
million was attributable to the amortization of deferred stock-based
compensation, $2.1 million was attributable to a provision for acquisition
discounts and $24.5 million was attributable to a charge taken in connection
with the warrants and rights granted to Ford.

Six months ended June 30, 2001 and  2000

Revenues

Membership Revenues Earned. Membership revenues earned include membership
revenues, related shipping revenues, revenues from PeoplePC Online memberships,
and recognition of membership revenues previously deferred. Gross membership
revenues increased 67% to $126.8 million for the six months ended June 30, 2001
from $75.8 million for the six months ended June 30, 2000. Revenues recognized
from our online program included in gross membership revenues increased by 35%
to $3.5 million for the six months ended June 30, 2001 from $2.6 million for the
six months ended June 30, 2000. Because we recognize most membership revenues
over the term of the membership agreement, $116.7 million of membership revenues
was deferred for the six months ended June 30, 2001, while $66.5 million was
deferred for the six months ended June 30, 2000. Membership revenues earned
include the recognition of $65.2 million and $3.8 million in revenues previously
deferred for the six months ended June 30, 2001 and June 30, 2000, respectively.

Other Revenues. Other revenues consist of sales of peripherals and the
incremental cost of upgrades, the related shipping revenues and revenues from
merchants, content partners and suppliers. Other revenues decreased by 19% to
$4.8 million for the six months ended June 30, 2001, of which $3.2 million was
related to the sale of upgrades and peripherals. For the six months ended June
30, 2000, other revenues were $5.9 million, $5.5 million of which were related
to the sales of upgrades and peripherals and $.5 million was related to services
provided to SOFTBANK. The decrease in other revenues is primarily due to the
fact that no peripherals or upgrades are offered under the Vivendi program.

Cost of Revenues

Cost of Membership Revenues Earned. Cost of membership revenues earned consists
primarily of the cost of the basic system hardware and software, fulfillment and
shipping costs and our cost of providing members with Internet connectivity.
Cost of gross membership revenue increased by 41% to $107.4 million for the six
months ended June 30, 2001 most from $76.2 million for the six months ended June
30, 2000. Because we recognize most system hardware and software cost of
revenues over the term of the membership agreement, $94.7 million of cost of
membership revenues was deferred for the three months ended June 30, 2001, while
$60.5 million of cost of revenues was deferred for the six months ended June 30,
2000. Cost of membership revenues earned included the recognition of $56.9
million and $3.3 million in costs previously deferred for the six months ended
June 30, 2001 and June 30, 2000, respectively. The cost of providing Internet
service to our members included in cost of membership revenue is $12.8 million
and $5.1 million for the six months ended June 30, 2001 and June 30, 2000,
respectively. Cost of revenues for the six months ended June 30, 2001 also
includes a $10.5 million net amortization of acquisition discount previously
recognized, and includes a $6.7 million reversal of the acquisition discount
reserve resulting from a change in estimate of future costs due to decreased ISP
expenses. For the six months ended June 30, 2000, cost of revenues includes a
net provision of $4.6 million for the amount by which our estimated current and
future cost of membership exceeds the related current membership revenue.

Cost of Other Revenues. The cost of other revenues for the six months ended June
30, 2001 decreased by 7% to $5.5 million from $5.9 million for the six months
ended June 30, 2000. Cost of other revenues primarily consists of the cost of
printer and monitor peripherals, the incremental cost of upgrades, and the
related shipping expense. Cost of other revenues also includes incidental costs
incurred such as restocking fees. These costs are not significant for the
periods reported. The decrease in cost of other revenues is primarily due to the
fact that no peripherals or upgrades are offered under the Vivendi program.

Operating Expenses

Sales and Marketing. Sales and marketing expense includes fees paid to third-
party advertising sales agents, sales support functions, travel and related
expenses and related salaries and benefits. Sales and marketing costs are
expensed in the period incurred. Sales and marketing expense decreased by 79% to
$13.7 million for the six months ended June 30, 2001,
<PAGE>

$9.3 million of which was related to fees paid for third-party advertising. For
the six months ended June 30, 2000, sales and marketing expense was $66.5
million, $31.8 million of which was related to fees paid for third-party
advertising and $26.0 million of which was related to a charge taken in
connection with the warrants and rights granted to Ford and Delta. Sales and
marketing expense includes the amortization of deferred stock-based compensation
of $1.2 million and $7.6 million for the six months ended June 30, 2001 and June
30, 2000, respectively. We have shifted the focus of our sales and marketing
program to more efficient enterprise and affinity channels and more effective
targeted marketing. As a result, we expect sales and marketing expenses to
decrease in absolute dollars and as a percentage of revenues.


General and Administrative. General and administrative expense includes payroll
and related expenses for management and administrative personnel, expenses
related to maintaining member relations, facilities costs, professional service
fees, travel and other general corporate expenses. General and administrative
expense increased by 54% to $55.2 million for the six months ended June 30, 2001
and included approximately $1.1 million of facilities expense and $18.1 million
paid to outside consultants, contractors and other professionals for services
rendered. For the six months ended June 30, 2000, general and administrative
expense was $35.9 million including approximately $1.0 million of facilities
expense and $11.4 million paid to outside consultants, contractors and other
professionals for services rendered. General and administrative expense included
stock-based compensation amounting to $4.8 million and $12.8 million for the six
months ended June 30, 2001 and June 30, 2000, respectively. The increase in
general and administrative expense is primarily due to the expansion of our
international operations.


Other operating expenses. For the period ended June 30, 2001, other operating
expenses consists of a credit adjustment to a loss reserve established in 1999
to cover any potential exposure related to non-conforming computers held on our
behalf by our distributor in the amount of $3.4 million and other operating
expenses of $1.5 million.


Interest expense/income, net

Interest income from cash equivalents and restricted cash was $.7 million for
the six months ended June 30, 2001. Interest expense was $2.7 million, $1.4
million of which was attributable to a discount related to the sale of
receivables from Delta Airlines, Inc. and $.8 million was related to the Chase
Manhattan Bank line of credit for the six months ended June 30, 2001. Net
interest income from cash equivalents and restricted cash was $1.4 million for
the six months ended June 30, 2000.

Minority interest in net loss of consolidated subsidiaries

The minority interest in net loss of consolidated subsidiaries of $4.1 million
for the six months ended June 30, 2001 represents 35% of the $11.6 million net
loss of the consolidated subsidiaries. The Company did not have any minority
interests for the six months ended June 30, 2000.

Income Taxes

As a result of our operating losses and the uncertainties related to our ability
to recognize a benefit from our deferred tax assets, we have not recorded a
provision for income tax for the six months ended June 30, 2001. We have
provided a full valuation allowance on our deferred tax assets. In the future we
may incur income tax expenses in certain European countries in which we are
incorporated.

Net Loss

Net loss for the six months ended June 30, 2001 decreased 41% to $63.0 million
from $107.0 million for the three months ended June 30, 2000. Significant
components of net loss for the three months ended June 30, 2001 were revenues
exceeding cost of revenues by $4.9 million, amortization of deferred stock-based
compensation of $6.0 million, and the net amortization of acquisition discount
of $10.5 million. For the six months ended June 30, 2000, $5.9 million of net
loss was attributable to cost of revenue exceeding revenues, $20.4 million was
attributable to the amortization of deferred stock-based compensation, $4.6
million was attributable to a provision for acquisition discounts and $26.0
million was attributable to a charge taken in connection with the warrants and
rights granted to Ford and Delta.
<PAGE>

  Liquidity and Capital Resources
  -------------------------------

  As of June 30, 2001, our sources of liquidity consisted of $28.6 million in
  cash and cash equivalents, including $5.2 million in restricted cash. Our net
  accounts receivable balance as of June 30, 2001 was $16.8 million.

  Net cash used in operating activities was $68.1 million for the six months
  ended June 30, 2001. Cash provided by operating activities for this period
  consisted primarily of membership fees. Cash used in operating activities for
  these periods consisted primarily of advertising expenses, general and
  administrative expenses, costs of our computer systems and peripherals,
  payroll and other employee-related expenses, and a decrease in accrued
  liabilities.

  Net cash provided by investing activities was $16.2 million for the six months
  ended June 30, 2001. Net cash provided by investing activities for this period
  consisted primarily of a decrease of $17.7 million in accounts collateralizing
  letter of credit agreements (securing future inventory, and $1.5 million for
  the purchase of property and equipment).

  Net cash provided by financing activities was $9.2 million for the six
  months ended June 30, 2001. Net cash received from financing activities for
  this period consisted of $14.5 million for the sale of Delta Airlines, Inc.
  receivables and a $4.7 million repayment of borrowings under our line of
  credit.

  Except where we contract directly with equipment manufacturers, we rely on
  Ingram Micro to distribute computer systems and peripherals from our suppliers
  to our customers. Our computer suppliers ship their products directly to
  Ingram Micro's distribution centers around the country. When a customer
  application is approved, products are picked from inventory, packed and
  shipped to our customers from the distribution center closest to the shipping
  address. Ingram Micro purchases inventory on our behalf based on sales
  projections made by us. We are obligated to purchase inventory held by Ingram
  Micro purchased on our behalf. Our agreement with Ingram Micro expired on
  February 28, 2001. The term of the agreement has not been extended. However,
  the parties currently continue their business relationship. At June 30, 2001,
  we had approximately $4.7 million in noncancelable purchase commitments with
  Ingram Micro.

  During 1999, Ingram Micro purchased on our behalf approximately 29,000
  computers from Toshiba, which proved to be non-conforming. We recorded a
  provision of $15.6 million relating to the cost of resolving any potential
  dispute over such non-conforming computers. During fiscal 2000, we reached an
  agreement with Ingram Micro to liquidate the non-conforming computers and to
  split the parties' combined losses equally. As a result of this agreement, we
  reduced the provision by $8 million in December 2000. In early 2001, we
  reached a final settlement with Ingram Micro and paid our share of the loss.
  As a result of that settlement, we have reduced the remaining provision
  (included in other operating expenses) to $1 million. We believe the $1
  million will be sufficient to cover our share of any future claim from the
  OEM.

  In June 2000, we formed a European subsidiary, PeoplePC Europe N.V. (PeoplePC
  Europe), a Netherlands corporation. We and PeoplePC Europe entered into
  financing and related agreements with @viso Limited, a partnership of SOFTBANK
  Corp., a Japanese company, and Vivendi Universal S.A., a French corporation.
  In the financing, PeoplePC Europe received $50.0 million from @viso payable
  over a two month period beginning on the closing date in exchange for 35% of
  PeoplePC Europe's outstanding capital stock in the form of convertible
  preferred stock, and we retained 65% of PeoplePC Europe's outstanding capital
  stock in the form of common stock. We received our 65% interest in exchange
  for our grant of an exclusive license to use and exploit our technology and
<PAGE>

  brand in Europe. We have retained the rights to our technology and brand in
  the rest of the world. The financing closed in July 2000. In addition,
  PeoplePC Europe issued a warrant to acquire convertible preferred stock to
  SOFTBANK Capital Partners LP representing 5% of PeoplePC Europe's shares
  outstanding as of the closing of the financing, this warrant was amended on
  May 30, 2001 in connection with the execution of the Put Option Agreement
  described below. PeoplePC Europe has the exclusive right and obligation to
  fulfill, market and sell PeoplePC products to and receive buyer's club
  revenues from European members including the European employees of enterprises
  such as Ford and Delta. We have comparable rights worldwide, including with
  respect to any enterprise agreement entered into by PeoplePC Europe with a
  European multinational operation. PeoplePC Europe will pay us, and we will pay
  PeoplePC Europe $100 for each member acquired in our respective territories as
  a result of the other party entering into an enterprise agreement.

  Under a Put Option Agreement signed on May 30, 2001, @viso is entitled to sell
  all or a portion of its shares of PeoplePC Europe to us in exchange for
  PeoplePC stock. Under this agreement, @viso is entitled to receive between
  13.8 million and 29.1 million shares of PeoplePC common stock based on a
  formula and the date of exchange. SOFTBANK Capital Partners LP is entitled to
  exercise its amended warrant to purchase convertible preferred stock in
  PeoplePC Europe. Once the amended warrant is exercised, SOFTBANK Capital
  Partners LP will be entitled to sell all or a portion of its shares of
  PeoplePC Europe to us in exchange for PeoplePC stock. Under this arrangement,
  SOFTBANK Capital Partners LP will be entitled to receive between 1.9 million
  and 3.5 million shares of PeoplePC capital stock based on a formula and the
  date of exchange.


  As a result of executing the Put Option Agreement, we acquired additional
  control over PeoplePC Europe, free of certain restrictions contained in the
  PeoplePC Europe Articles of Association and a related shareholder agreement.
  In particular, the @viso representatives to the board of directors of PeoplePC
  Europe resigned and we acquired control of the board of directors of PeoplePC
  Europe. In addition, PeoplePC Europe has the power to make loans to us, free
  of structural or contractual restrictions, thus allowing use of PeoplePC
  Europe assets for the combined benefit of the two companies.

  In July 2001, our credit agreement with The Chase Manhattan Bank providing for
  a $50 million revolving credit facility expired. The facility was to be used
  in connection with the financing of receivables owed to us by Ford. We paid
  fees to the lender for the loan commitment and for underwriting and
  structuring. As of June 30, 2001, there was no balance outstanding in regard
  to this credit facility.

<PAGE>


  We have incurred substantial losses and negative cash flow from operations
  since inception. As of June 30, 2001, we had a net capital deficiency of $65.9
  million. We intend to pursue new enterprise and other arrangements to increase
  its revenues and cash flow. We also have taken and intend to take further
  steps to reduce expenses. Steps already taken include targeting sales and
  marketing expenditures on channels with low acquisition cost per member,
  consolidation of sales offices and a realignment and reduction of our
  workforce. In an effort to further improve liquidity, we sold in May 2001
  substantially all of our Delta Airlines, Inc. receivables and have signed an
  agreement pursuant to which we may sell future Delta receivables. We currently
  expect to continue to fund operating losses, to acquire and retain customers
  and to restructure agreements. We currently expect that our available cash,
  cash equivalents and cash flows to be generated from operations will be
  sufficient to meet the targeted cash needs through approximately the end of
  2001, provided that we achieve target revenues, efficiencies and cost
  reductions, restructure certain partnership and other relationships and on a
  timely basis, complete certain assets sales and collect certain accounts
  receivables. If we are unable to complete any of these actions as scheduled or
  on the terms currently contemplated, we may have to significantly reduce our
  operations and our business may be adversely affected.

  Any projections of future cash needs and cash flows are subject to substantial
  uncertainty. We are also subject to unanticipated developments in the short
  term, such as the entry into agreements that require large cash payments,
  further deterioration of the Internet industry or the acquisition of
  businesses with negative cash flows, which may necessitate additional
  financing. We may seek to raise additional funds through public or private
  debt, strategic relationships or other arrangements in order to; fund our
  operations and capital expenditures; take advantage of favorable business
  opportunities; acquire complementary businesses or technologies; develop and
  upgrade our technology infrastructure; reduce outstanding debt; develop new
  product and service offerings; take advantage of favorable conditions in
  capital markets; or respond to competitive pressures.

  The capital markets, and in particular the public equity market for Internet
  companies, have traditionally been volatile. It is difficult to predict when,
  if at all, it will be possible for Internet companies to raise capital through
  these markets. We cannot assure that the additional financing will be
  available on favorable terms, or at all. We may have to sell stock at prices
  lower than those paid by existing stockholders, which would result in
  dilution, or it may have to sell stock or bonds with rights superior to rights
  of holders of common stock. Also, any debt financing might involve restrictive
  covenants that would limit our operating flexibility.

  The non-cancelable purchase commitments at June 30, 2001 included
  approximately $4.7 million to Ingram Micro. In the ordinary course of our
  business we make commitments to purchase computers in order to make timely
  deliveries to new members as they sign up for our membership package. However,
  we normally pay for the computers no sooner than two days after the time of
  shipment to the member, although we are required to maintain a deposit at
  Ingram Micro, adjusted weekly, equal to approximately 25% of outstanding
  purchase orders and unshipped inventory. On June 30, 2001, this deposit
  amounted to approximately $.6 million.

  Under our typical consumer financing arrangements with MBNA, we receive
  promptly a lump sum payment from MBNA that completely pays for the purchase
  price of the membership. We generally receive this payment from MBNA before we
  are obligated to pay our computer system suppliers. Therefore, these
  arrangements enable us to use a relatively small amount of capital because the
  number of computers purchased and not paid for or financed at any given time
  will be only a fraction of the total purchase commitment that will typically
  extend over several months. Our enterprise connectivity programs typically
  provide for payment by the enterprise on a monthly or semi-monthly basis;
  payments due from employees are typically collected at the time the order is
  placed with the distributor.

  Effects of Recent Accounting Pronouncements

  In July 2001, the FASB issued two Statements; Statement 141, Business
  Combinations (SFAS No. 141), and Statement 142, Goodwill and Other Intangible
  Assets (SFAS No. 142). SFAS No. 141 revises accounting treatment for business
  combinations requiring the use of purchase accounting and prohibiting the use
  of pooling-of-interests method for all business combinations initiated after
  June 30, 2001. SFAS No. 142 revises the accounting for goodwill and other
  intangible assets by not allowing amortization of goodwill and establishing
  accounting for impairment of goodwill and other intangible assets. SFAS No.
  142 will be effective for fiscal years beginning after December 15, 2001 or
  the beginning of our fiscal year 2002. We have not yet evaluated the effects
  of these changes on our consolidated financial statements.


Item 3.   Qualitative and Quantitative Disclosure about Market Risk

We are exposed to fluctuations in interest rates and market values of our
investments. Our exposure to fluctuations in interest rates and market values of
our investments relates primarily to our short-term investment portfolio, which
is included in cash and cash equivalents and short-term investments. We have not
used derivative financial instruments in our investment portfolio. We invest our
excess cash in highly liquid commercial paper and U.S. Government debt
securities with maturities of less than one year, and, by policy, we limit the
amount of credit exposure to any one issuer. Due to the short-term nature of our
investments, the impact of interest rate changes would not generally be expected
to have a significant impact on the value of these investments. The effect of
interest rate and investment risk on us has not been significant.

Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.

We have limited our investments to short-term, highly rated, fixed income
facilities such as repurchase agreements collateralized by government securities
and A-1/P-1 commercial paper. We intend to maintain our current investment
policy, which is designed to preserve principal while at the same time
maximizing the after-tax income we receive from our investments without
significantly increasing risk. Some of the securities that we may invest in may
be subject to
<PAGE>

market risk. This means that a change in prevailing interest rates may cause the
principal amount of the investment to fluctuate. For example, if we hold a
security that was issued with a fixed interest rate at the then-prevailing rate
and the prevailing interest rate later rises, the principal amount of our
investment will probably decline. To minimize this risk in the future, we intend
to maintain our portfolio of cash equivalents and short-term investments in a
variety of securities, including commercial paper, money market funds,
government and non-government debt securities.

Based on our average outstanding credit balance and the fact that we hold no
derivative instruments, changes in interest rates or currency exchange rates do
not generally have a significant effect on our financial position. Foreign
currency exchange rates, however, may affect the cost of our personal computers,
printers and monitors purchased from our foreign suppliers, thereby indirectly
affecting consumer demand for our products and our net revenues. In addition, to
the extent that changes in interest rates and currency exchange rates affect
general economic conditions, we would also be affected by such changes.

Risk Factors That May Affect Future Results
-------------------------------------------

You should carefully consider the following risks and uncertainties before
making an investment decision. The following listing is not comprehensive, but
rather describes those risks and uncertainties that we currently consider
material. If any of the following risks are resolved adversely to the Company,
our business, financial condition or operating results could be seriously
harmed. If this happens, the trading price of our common stock could decline,
and you may lose all or part of your investment.

Risks Related to Our Business
-----------------------------

We have a limited operating history.
-----------------------------------

The Company's business prospects are difficult to predict because of our limited
operating history, unproven business model and rapidly evolving business
strategies and markets. The Company was incorporated in March 1999 and began
doing business in October 1999.

Enterprise connectivity programs are important to our success; our ability to
-----------------------------------------------------------------------------
close and execute on such programs is not assured.
-------------------------------------------------

We expect that a significant portion of our future revenues will come from
connectivity programs directed at employees and customers of large companies. A
company's willingness to undertake a connectivity program may be affected by
general economic conditions and by particular business conditions affecting the
company. Connectivity program deals are complex and the sales cycle is long. And
companies may be reluctant to enter into long-term relationships with companies
like ours having limited financial resources. Further, the success of a
connectivity program depends on satisfactory resolution of contractual issues
such as the willingness of a company to subsidize an employee purchase, purchase
prices and terms, vendor relationships, financing arrangements, levels of
service to be provided, taxation of employee benefits, logistical arrangements
and other factors. The execution of a connectivity program is subject to
operational risks such as delivery arrangements, supply forecasting, Customer
Care experience, and many other factors. These operational factors affect our
costs and the speed with which a program may be implemented. There is no
assurance that we will be able to close and execute connectivity programs at the
rates and with the results envisioned by our business model.

The income tax treatment of connectivity programs where enterprises provide
computers to their employees on a subsidized basis is uncertain with regard to
both the enterprise and its employees and depends on a number of factors. To the
extent a program is not tax-free, the entire amount of the subsidy could be
considered taxable wages, subject to applicable withholding rules. Our inability
to structure an enterprise program that is both tax-free in a particular country
and desirable to an enterprise could hinder our ability to enter into new
connectivity program agreements, particularly in some countries outside the
United States where we are unfamiliar with, and have not operated under, the
local tax laws. There is no guarantee that we will be able to find satisfactory
solutions everywhere, and we may experience unexpected delays in structuring and
implementing our programs. In countries where the tax cost of an employee
program is too high, local enterprises may be unwilling to enter into agreements
with us.
<PAGE>

Our business would be harmed if we are unable to generate anticipated member
----------------------------------------------------------------------------
commerce and other revenues.
---------------------------

Our business model assumes that we will derive revenues from member commerce and
other revenue-producing activities. The opportunities for generating revenues
from Internet advertising and commerce have diminished industry-wide since
December 2000. It is not certain that we will be able to generate the member
commerce and other revenues envisioned by our business model.

We rely on MBNA to provide consumer financing; our business would be harmed if
------------------------------------------------------------------------------
MBNA discontinued providing financing and we could not find a replacement
-------------------------------------------------------------------------
consumer finance vendor.
-----------------------


Our acquisition of expected new consumer members depends on our ability to
provide a source of consumer financing. MBNA America Bank, N.A. is currently our
sole provider of consumer financing. Our agreement may be terminated by either
party upon 90 days notice. Either party may terminate our agreement for a
material breach following a 45-day cure period. If MBNA terminated our agreement
and we were unable to find alternative financing arrangements, our consumer
programs will suffer.

We rely on Ingram Micro for distribution services; our business would be harmed
-------------------------------------------------------------------------------
if Ingram Micro stopped providing distribution services and we could not find
--------------------------------------------------------------------------
a replacement distributor.
-------------------------


We rely on Ingram Micro, Inc. to provide some of our computer products, maintain
inventory, process orders, prepare merchandise for shipment and distribute our
products to individual consumer customers in a timely and accurate manner.
Ingram Micro's failure to supply and fulfill our computer products could reduce
our revenues and harm our business. We work actively with Ingram Micro and third
party computer suppliers to identify the types of computers, the specifications
and prices of the computers that will be offered to our members. Ingram Micro's
termination of or failure to renew or otherwise deliver computers under our
contract could cause significant delays in our ability to fulfill our customers'
orders, and we may not be able to locate another distributor that can provide
comparable fulfillment, processing and shipping services in a timely manner, on
acceptable commercial terms, if at all. Our agreements with Ingram Micro
expired on February 28, 2001. The term of the agreement has not been extended.
However, the parties currently continue their business relationship.

We rely on OEMs to supply and deliver computers; our business would be harmed if
--------------------------------------------------------------------------------
they failed to perform.
----------------------

From time to time, we may enter into agreements with computer suppliers
providing for the supplier to direct ship to our members. If the supplier is
unable or unwilling to supply sufficient numbers of computers to meet our
requirements, or fails to ship our orders on a timely basis, our reputation and
our revenues may be harmed. In the past, this type of failure on the part of
OEMs has caused us to experience problems with shipment of computers and
customers have cancelled their memberships and requested refunds.

We rely on outside vendors for many of the services we provide to members; our
------------------------------------------------------------------------------
business would be harmed if any of the vendors failed to perform.
----------------------------------------------------------------

We rely on UUNET Technologies, Inc., an MCI WorldCom company, Genuity Solutions,
Inc. and others to provide Internet access service to our members in the United
States. If UUNET, Genuity or any other Internet access provider in the future
does not provide our members with reliable Internet access, our business would
be harmed. Our agreement with UUNET expires in April 2002, but will be renewed
for an additional year unless either party provides notice of its intent not to
renew 60 days prior to the end of the term. Either party may terminate the
agreement at any time for material breach, provided that the other party is
provided a 60-day cure period. Our agreement with Genuity expires in July 2003.
Either Genuity or we may terminate the agreement at any time for material
breach, provided that the other party is provided a 30-day cure period. Both
UUNET and Genuity may suspend performance if their user policies are violated.

We rely on multiple third parties to provide customer service and technical
support as well as a hardware warranty covering parts and labor and in-home
technical service. If these parties do not provide reliable, high-quality
service, and we are unable to satisfactorily replace these services in a
reasonable time, our reputation and our business will be harmed.

We depend on third-party computer suppliers to supply and sometimes ship
computers to members. If existing suppliers
<PAGE>

cannot or will not provide the products we require at commercially reasonable
prices and reasonable payment terms and we are not able to find suitable
alternative suppliers, our business would be harmed. Moreover, we may not be
able to monitor or control effectively the quality of the computers manufactured
by our suppliers or the speed and accuracy of their distribution. Low-quality
products, slow distribution or similar inadequacies may harm our reputation and
brand name, and demand for our products would decline. In addition, we may need
to spend money and expend other resources to remedy these problems.

We may be required to expand internationally faster than would be desirable.
---------------------------------------------------------------------------

We do not currently offer our products and services in all of the countries in
which we are contractually required to offer our products and services. Some of
our connectivity program agreements require us to provide our products and
services on a worldwide basis. While international expansion is an important
part of our business strategy, the global nature of these agreements may require
us to expand our operations into international markets on an accelerated time
frame. We may encounter difficulties with our international expansion, including
high costs, unreliable Internet access, complex international operations and
differing regulatory and tax requirements.

We may not be able to generate sufficient cash flow to fund our operations, and
-------------------------------------------------------------------------------
may need to seek additional capital.
-----------------------------------

We do not expect to generate positive cash flow from operations until at least
the fourth quarter of 2001, and the timing of our reaching cash flow positive
status may be affected by a number of the risk factors described in this report.
If we are unable to generate sufficient positive cash and our cash reserves are
insufficient to fund our continuing operations, we may need to raise additional
funds. Such funds may not be available on acceptable terms, if at all. If we are
unable to raise additional funds as needed or the expected sources of additional
borrowed funds are not available, our ability to operate our business will be
materially harmed.

If we issue additional equity securities to raise funds, the ownership
percentage of our existing stockholders would be reduced. New investors may
demand rights, preferences or privileges senior to those of existing holders of
our common stock. If we issue debt securities to raise funds, the debt would be
senior to equity in its claim on assets. The terms of any debt issued could
impose restrictions on our operations.

We may need infusions of additional capital as our enterprise business expands.
------------------------------------------------------------------------------

Ingram Micro purchases and HP separately manufactures inventory on our behalf
based on sales projections made by us. We are obligated to purchase inventory
held by Ingram Micro or manufactured by HP on our behalf. At June 30, 2001, we
had approximately $4.7 million in noncancelable purchase commitments with Ingram
Micro and HP. Our capital commitments may increase as we obtain additional
members under enterprise programs. To the extent we are not able to obtain such
financing or payment terms, our capital requirements may increase substantially
and our business would be harmed.

Our business would be harmed if we are unable to generate anticipated revenues
------------------------------------------------------------------------------
from our private label and co-branded ISP business.
--------------------------------------------------

We expect that an important source of future revenues will be offerings of
private label or co-branded ISP services through enterprise partners. The
private label or co-branded ISP service line of business is a relatively new
type of business arrangement. It is not certain that we will be able to conclude
significant private label ISP deals with large companies. The speed with which
such programs could be implemented is also uncertain. If we are unable to
conclude such deals, or the implementation of the programs is delayed, our
revenues and operating results will suffer.

Our business is subject to competition.
--------------------------------------

The markets for personal computers, Internet access and other online services
are highly competitive. Existing or future competitors may develop or offer
products or services that are comparable or superior to ours at a lower price,
which could significantly harm our business. We compete for customers with the
following types of companies:

  o  providers of online services, such as AOL, MSN, and Earthlink;

  o  vendors that offer product and services bundles that
<PAGE>

  include a computer, Internet access and customer service in a single offering
  and provide a multi- year payment plan, such as Gateway;

  o vendors of personal computers that integrate Internet access and service
  with their products, such as Apple, Compaq, Dell and Gateway; and

  o combinations of computer vendors and Internet service and content
  providers.

Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources and
substantially larger customer bases than we do. In addition, many of our
competitors have nationally known brands, well-established relationships and
extensive knowledge of the markets in which we compete. Our competitors may be
able to use these advantages to expand their offerings more quickly, adapt to
new or emerging technologies more quickly, enter commercial relationships to
bundle products and services or address consumer needs, devote greater resources
to the marketing and sale of their offerings and adopt more aggressive pricing
and incentive programs.

Our quarterly operating results are unpredictable resulting in volatility in the
--------------------------------------------------------------------------------
trading price of our common stock.
---------------------------------

Our quarterly operating results may vary significantly from quarter to quarter
due to a number of factors. Slight variations in the costs of our computer
systems, Internet access or our other operating expenses could significantly
affect our operating margins in future periods. In addition, because our
operating expenses are based on our expectations of future revenues, unexpected
quarterly fluctuations in revenue could significantly harm our operating
results, particularly if our revenues are lower than anticipated. If our
operating results in any future period do not meet the expectations of
investors, the price of our common stock could decline. Further, these adverse
results could have both short- and long-term effects on our stock price and
could affect the long-term viability of our enterprise. Some of the factors that
could affect our quarterly and long-term operating results include:

  o  our ability to achieve and maintain a low-cost business model and manage
  the third-party relationships necessary to do so;. our ability to generate
  additional revenues from commerce opportunities with our member base;
  o  the popularity of the computer systems we sell;. our key suppliers'
  ability to manufacture sufficient quantities of the computer systems we offer;
  and
  o  general economic conditions, as well as those specific to the Internet,
  technology and related industries.

The foregoing factors are only partially within our control and, in the case of
external factors such as general economic conditions and market- specific
conditions, are not within our control. Our limited operating history makes it
difficult for us to predict trends accurately in our business and to plan our
operations accordingly.

Seasonal fluctuations may also affect our quarterly operating results.
Historically, demand for personal computers and consumer retail sales over the
Internet have been significantly stronger in the fourth quarter of each year and
weaker in the first and second quarters of each year. Because we expect to
derive most of our revenue from the sale of membership packages that include
computer systems and related services and from the sale of products and services
by merchants participating in our member commerce program, we believe our
business could be subject to the seasonal impact of this cycle.

Our business is affected by varying telecommunications infrastructures.
----------------------------------------------------------------------

Our business model depends on our ability to offer our customers a membership
that includes Internet access. The telecommunications infrastructure in
countries in which we wish to conduct business may make it difficult to provide
Internet access as part of an integrated offering. Alternatively, the
telecommunications infrastructure in foreign countries may encourage free
Internet access, which may result in numerous competitors and decrease the value
of our offering to consumers.

Our operating results may be affected by exchange rate fluctuation and legal and
--------------------------------------------------------------------------------
regulatory requirements in the different countries in which we operate.
----------------------------------------------------------------------

If we are compensated for our services overseas in U.S. dollars, we may need to
convert these funds into the local currency in order to pay our employees and
certain foreign taxes. Alternatively, if we are compensated for our services in
the applicable local currency, we may need to convert that currency into U.S.
dollars in order to pay costs that we incur in
<PAGE>

U.S. dollars and U.S. taxes. In either event, fluctuations in currency exchange
rates could adversely affect our revenues and operating margins.

We may incur expenses to comply with foreign laws and our intellectual property
-------------------------------------------------------------------------------
may have less protection due to the differing regulatory requirements of
------------------------------------------------------------------------
countries in which we may conduct business.
------------------------------------------

The legal and regulatory requirements of countries in which we may conduct
business in the future may differ from those in the United States, particularly
in the areas of communications, data-protection privacy, lending, tax and labor
laws. As a result, we may incur additional legal expenses to comply with these
laws and regulations. In addition, laws relating to the protection and
enforcement of intellectual property rights in many countries are not as
advanced and offer significantly less protection than those in the United
States.

Our business could be affected by adverse political and economic events in the
------------------------------------------------------------------------------
countries in which we operate.
-----------------------------

Several countries in which we wish to conduct business have experienced
political and economic instability in the past and may continue to experience
such instability in the future. Such instability could slow our growth in
countries in which we would like to do business.

Tariffs, high taxes and trade barriers may harm our international operations.
----------------------------------------------------------------------------

There may be tariffs, high taxes or trade barriers in certain countries in which
we wish to do business that may significantly increase our operating costs,
reduce our revenues or make our products unattractive in these countries. If the
operating costs in these countries are too high, we may need to revise our
business model, and we may be unable to compete successfully in these markets.

Fluctuations in our workforce and management structure could have an adverse
----------------------------------------------------------------------------
effect on our business.
----------------------

Our growth has placed, and will continue to place, a significant strain on our
management systems, infrastructure, resources and planning and management
processes. We will not be able to implement our business strategy without an
effective planning and management process. In addition, we will not be able to
increase revenues or control costs unless we continue to improve our
operational, financial and managerial controls and reporting systems and
procedures, expand, train and manage our work force and manage multiple
relationships with third parties. Some of our senior management have no prior
management experience at public companies, and we cannot be sure that we will be
able to manage our expansion effectively.

On the other hand, we have recently undergone several reductions in force, as we
have tailored our workforce to the fluctuating demands of our business.  In some
cases, these reductions have been accompanied by restructuring of our operations
and management.  Such reductions in force and restructuring also place a
significant strain on our management systems, infrastructure, resources and
planning and management processes.

If we lose senior management and key personnel or are unable to attract and
---------------------------------------------------------------------------
retain skilled employees when needed, we may not be able to implement our
-------------------------------------------------------------------------
business strategy.
-----------------

Our future success depends on the skills, experience and performance of our
senior management and key personnel, particularly of our Chief Executive
Officer, Nick Grouf, and our Chief Operating Officer, Daniel Kohler. We must
retain these individuals and be able to attract and retain additional key
personnel when needed in the future. Competition for individuals with business
and technical expertise is high, especially in the San Francisco Bay Area where
our operations are located. If we lose key personnel or if we are not able to
attract and retain additional personnel when needed, we may be unable to
successfully introduce new products and services or otherwise implement our
business strategy.

We need to refresh the Company's products and services as technology changes.
----------------------------------------------------------------------------

The personal computer and Internet access markets are both characterized by
rapid ongoing technological change, changes in user requirements and preferences
and frequent new service introductions involving new processes and technologies
and evolving industry standards that could render our existing products and
services obsolete. As a result, we must
<PAGE>

regularly introduce new products and services, including new personal computer
configurations and enhanced Internet services, to maintain consumer interest in
our products and services. There can be no assurance that any new computer
products or services that we introduce will be accepted by the market. In
addition, the introduction of new products or services by us or our competitors
may adversely affect the sale of, or revenue from, our existing products or
services. If we do not have access to new technology in the future, we may not
be able to effectively incorporate new technology into our products or deliver
new products or features in a timely and cost-effective manner, which could
adversely affect demand for our products and services.

Our business may be harmed if the security of our systems is compromised.
------------------------------------------------------------------------

The secure transmission of confidential information over the Internet is
essential to maintaining consumer confidence in our business. Any
misappropriation of confidential information, whether during the transmission of
data or while it is stored on our servers or the servers of merchants
participating in our member commerce program, could damage our reputation,
expose us to a risk of loss, litigation or liability, and deter people from
using the Internet. We currently ask consumers to provide us with registration
and other information and we rely on encryption and authentication technology to
transmit this confidential information securely. Our computer servers may be
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. We incur substantial expense to protect against and remedy security
breaches and their consequences, but we may not be able to prevent such security
breaches. Our insurance policies may not be adequate to reimburse us for losses
caused by security breaches.

Our business may be harmed if our servers are damaged by natural disasters, etc.
-------------------------------------------------------------------------------

We depend on the efficient and uninterrupted operations of our Web servers and
other hardware systems. Most of our Web servers and other hardware systems are
not redundant and are located at the facilities of a third party in Sunnyvale,
California. Our Web servers and other hardware systems are vulnerable to damage
from earthquakes, fire, floods, power loss, telecommunications failures and
similar events. If any of these events results in damage to our Web servers or
other hardware systems, we may be unable to deliver our services to our
customers until the damage is repaired. In such a case, we may lose customers
and participating merchants, as well as incur substantial costs in repairing any
damage.

Our business may be harmed if we are unable to protect our intellectual
-----------------------------------------------------------------------
property.
--------

We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to establish and protect our intellectual property.
These afford only limited protection. We have filed for U.S. trademark
registrations for "PeoplePC" and 12 other trademarks. We also have applied to
register marks in 27 countries. We may be unable to secure these registrations.
It is also possible that our competitors or others will adopt service names
similar to ours, thereby impeding our ability to build brand identity and
possibly leading to customer confusion. In addition, there could be potential
trade name or trademark infringement claims brought by owners of other
registered trademarks or trademarks that incorporate variations of the term
PeoplePC or our other trademark applications. Enforcement of trademark rights
against unauthorized use, particularly over the Internet and in other countries,
may be impractical or impossible.

We may be required to enforce our intellectual property rights in litigation,
-----------------------------------------------------------------------------
which may be costly and time-consuming.
--------------------------------------

Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to obtain and use information that we regard as proprietary, such as
technology used to operate our Web site, our content, our trademarks and our
domain names. Litigation may be necessary to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Further, our operations providers and the
merchants participating on our Web site may be engaged in litigation in the
future that would require our involvement.

We may become subject to claims by third parties that we have infringed their
intellectual property rights. We could be involved in these claims even in
instances where our connection with the intellectual property in dispute arises
only as a licensee from other companies. In addition, third parties may assert
lawsuits or claims against us, including those related to product liability,
Internet content, privacy, safety and health and employment matters. Litigation
is expensive and time consuming regardless of the merits of the claim and could
divert management's attention from our business. Moreover, we cannot predict the
outcome of any litigation. Lawsuits, claims or proceedings may result in
liability to us.
<PAGE>

Our business may be harmed if defects occur in the products we sell.
-------------------------------------------------------------------

The design and production of personal computer components is highly complex. We
rely on third-party suppliers to provide us with high-quality products. If any
of the personal computers or peripherals we distribute contain defective
components, we could experience delays in shipment of these products and
increased costs. Further, the design of software is highly complex, and software
often contains defects that may be undiscovered for long periods of time. If our
third-party software providers fail to design effective software, or if defects
in the software or in the personal computer products we distribute are
discovered after we have shipped our products in volume, our business could be
harmed.

Amortization of stock-based compensation will increase future losses.
--------------------------------------------------------------------

For financial reporting purposes, we have determined that the estimated value of
common stock was in excess of the exercise price, which exercise price was
considered to be the fair market value as of the date of grant for 21.6 million
options issued to employees through June 30, 2001. In connection with the grant
of such options, we have recorded net deferred stock-based compensation of $21.7
million during fiscal 1999 and $63.5 million during fiscal 2000. Stock-based
compensation expense will decrease our earnings over the period of amortization.
Deferred stock-based compensation will be amortized over the vesting period
which is generally 48 months from the date of grant. $3.0 million was expensed
in the period ended December 31, 1999 and $43.1 million was expensed in the year
ended December 31, 2000. We recognized stock-based compensation of $0.3 million
and $5.9 million, net of $4.9 million and $8.1 million reversal of stock-based
compensation amortized related to unvested shares for terminated employees for
three and six months ended June 30, 2001. We recorded reductions in deferred
stock-based compensation relating to terminated employees of $9.7 million and
$19.8 million for the three and six months ended June 30, 2001. As of June 30,
2001, the Company had an aggregate of $13.0 million of deferred stock-based
compensation remaining to be amortized.

The balance is expected to be amortized as follows:


                                      Deferred Stock-Based
Period                                Compensation
------                                ------------

Remainder of year ending
December 31, 2001                     $5.2 million
2002                                  $5.8 million
2003                                  $1.9 million
2004 and thereafter                   $0.1 million

In April 2000, we raised $49.7 million in gross proceeds from the sale of
9,468,252 shares of series C preferred stock. Ford Motor Company purchased
4,765,650 shares of series C preferred stock in connection with this financing
and other investors purchased 4,702,602 shares. Ford also received the right to
purchase 1,905,000 shares of common stock in a private placement effected at the
closing of our initial public offering at the same price per share as our
initial public offering. Ford exercised this right in full. Because Ford
exercised this right, Ford also received a warrant to purchase 2,857,500 shares
of common stock, exercisable at the same price per share as our initial public
offering of $10.00, at any time for a period of 200 days following the date of
our initial public offering, August 21, 2000. On February 21, 2001, the
expiration of the warrant issued to Ford Motor Company was extended to September
21, 2003. In relation to Ford, the value of the right, the warrant and the
excess of the value of the common stock into which the series C preferred stock
is exercisable over the price paid for the series C preferred stock is $24.5
million, and has been charged to sales and marketing expense in the second
quarter of 2000. These rights and equity have been granted to Ford in order to
gain access to Ford's employees as potential members and to entice Ford to
purchase membership packages. As Ford has no future performance requirements and
no minimum purchase commitments with respect to the membership packages, the
charge has been expensed when incurred. The series C preferred stock converted
into common stock on a 1-to-1 basis upon the closing of our initial public
offering on August 21, 2000. In the fiscal year ended December 31, 2000, we
incurred a dividend of $22.0 million as a result of a beneficial conversion
feature of preferred stock issued to the other investors. This dividend has been
calculated as the difference between the price paid by the investors and our
initial public offering price per share of $10.00.


<PAGE>
Risks Related to Our Industry
-----------------------------

Our business model assumes continued demand for personal computers.
------------------------------------------------------------------

Our business model depends in part on the continued strong demand for personal
computers. The personal computer market is characterized by rapid new product
and technology introductions and generally declining prices for existing
products. Demand for personal computers may be significantly reduced if
consumers perceive little technological advantage in new products or believe
that the price of a new product is not worth the perceived technical advantage.
Alternatively, if individuals view anticipated changes as significant, such as
the introduction of a new operating system or microprocessor architecture,
overall market demand for personal computers may decline because potential
members may postpone their purchases until release of the new product or in
anticipation of lower prices on existing products following the introduction of
new models. Reduced demand could result in excessive inventories and it could
take several quarters to sell this inventory, which could delay the introduction
of new products.

Our business could be harmed by unforeseen legal developments or regulation of
------------------------------------------------------------------------------
the Internet.
------------

The law relating to our Internet business and operations is evolving, and no
clear legal precedents have been established. For example, tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in electronic commerce, and new state tax regulations may
subject us to additional state sales or other taxes. The adoption of any new
Internet laws and regulations or the application of existing laws and
regulations to the Internet and electronic commerce could decrease the demand
for our products and services, increase the cost of doing business or prevent
our transaction of business in specific jurisdictions. In addition, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. We could be found
in violation of federal, state or foreign civil or criminal law and, even if we
could successfully defend such claims, our defense could occupy significant
amounts of management's time, harm our business reputation and negatively affect
our operating results and financial condition.

Risks Related to Market Volatility
----------------------------------

We cannot guarantee that an active market will develop for our stock.
--------------------------------------------------------------------

We cannot predict the extent to which an active market for our common stock will
develop or how liquid that market will eventually become. Since the initial
public offering of our common stock, the volume of our common stock traded on
the Nasdaq National Market has decreased to very low levels. Low trading volumes
may cause the price of our common stock to fall.

If we fail to maintain our listing on The Nasdaq National Market, the ability to
--------------------------------------------------------------------------------
buy or sell our common stock may be materially impaired.
-------------------------------------------------------

Our common stock trades on the Nasdaq National Market, which specifies certain
requirements for the continued listing of common stock. One of these
requirements is that the minimum closing bid price per share not fall below a
specified level for an extended period of time. Another is that the market value
of a company's public float (the number of shares in public float times the
closing bid price per share) exceed a certain level.

On July 9, 2001, the Nasdaq staff informed us that we were not in compliance
with Nasdaq's market value of public float requirement, and that we have until
October 8, 2001 to come into compliance.

In addition, on July 10, 2001, we received a notice from the staff of The Nasdaq
Stock Market that our common stock had failed to maintain the minimum bid price
required for continued listing on The Nasdaq National Market. On July 17, we
requested a hearing before Nasdaq's Listing Qualification panel. As of the
filing date of this Quarterly Report, we have submitted our written appeal and
expect to make an oral presentation to the Listing Qualification Panel on
August 30.

There can be no assurance that the Panel will decide to allow us to remain
listed or that our actions will prevent the delisting of our common stock. We
will not be notified until the Panel makes a formal decision. Until then, our
common stock will continue to trade on the Nasdaq National Market. In the event
our shares are delisted from the Nasdaq National Market, we may attempt to have
our common stock traded on the NASD over-the-counter Bulletin Board. If our
common stock is delisted, it would seriously limit the liquidity of our common
stock and impair our potential to raise future capital through the sale of our
common stock, which could have a material adverse effect on our business.
Delisting could also reduce the ability of holders of our common stock to
purchase or sell shares as quickly and as inexpensively as they have done
historically, and may have an adverse effect on the trading price of our common
stock. Delisting could also adversely affect our relationships with vendors and
customers.

Our stock price has declined and may continue to be depressed and volatile in
-----------------------------------------------------------------------------
the future.
----------

The stock markets in general, and the Nasdaq National Market and technology
companies in particular, have experienced extreme price and volume fluctuations.
Since the initial public offering of our common stock, our stock price has
declined from its initial public offering price of $10.00 per share in August
2000 to $0.19 per share on July 2, 2001. These factors may seriously impact the
market price and volatility of our common stock in the future, regardless of our
actual operating performance. We may also be sued in a securities class action
lawsuit, which could be costly, divert our resources and seriously harm our
business.
<PAGE>

Our principal stockholders can exercise a controlling influence over our
------------------------------------------------------------------------
business and affairs.
--------------------

As of June 30, 2001, our directors, executive officers and 10% or greater
principal stockholders together controlled approximately 60.5% of our common
stock. In addition, on February 16, 2001, we entered into a memorandum of
agreement with certain of our principal stockholders providing them with an
option to put shares of PeoplePC Europe N.V. held by them to PeoplePC in
exchange for PeoplePC stock. The transaction was finalized when the parties
entered into the Put Option Agreement and collateral agreements on May 30,
2001.If these options were fully exercised, our directors, executive officers
and principal stockholders could control as much as 69.2% of our common stock.
If these stockholders acted or voted together, they would have the power to
elect our directors and to exercise a controlling influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may delay
or prevent a change in control of our company, even when a change may be in the
best interests of our stockholders. In addition, the interests of these
stockholders may not always coincide with our interests as a company or the
interests of other stockholders. Accordingly, these stockholders could cause us
to take action or omit to take action, even if doing otherwise would benefit our
stockholders as a whole.

Substantial future sales of our common stock in the public market may depress
-----------------------------------------------------------------------------
our stock price.
---------------

Our stockholders hold a substantial number of shares of our common stock that
they will be able to sell in the public market in the future. As of June 30,
2001, 96,891,356 shares were eligible or will be eligible in the future for sale
in the public market, in some cases subject only to the volume, manner of sale
and notice requirements of Rule 144 of the Securities Act of 1933. In addition,
holders of put options pursuant to the Put Option Agreement dated May 30, 2001
may acquire up to approximately 32.6 million shares of PeoplePC common stock in
exchange for shares of PeoplePC N.V. After August 15, 2001, these holders may
require PeoplePC to register the shares so they can be sold in the public
market. Sales of a substantial number of shares of our common stock could cause
our stock price to fall, especially if the trading volume of our stock remains
low. In addition, the sale of these shares in the public market could impair our
ability to raise capital through the sale of additional stock.

Our charter documents and Delaware law could make it more difficult for a third
-------------------------------------------------------------------------------
party to acquire us, and discourage a takeover.
----------------------------------------------

Provisions of our certificate of incorporation, bylaws, and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be of benefit to our stockholders.

PART II

Item 1.  Legal Proceedings

We may from time to time become a party to various legal proceedings arising in
the ordinary course of our business.  We are not currently involved in any
material legal proceedings.

Item 2.  Changes in Securities

Recent Sales of Unregistered Securities

Under the Put Option Agreement dated May 30, 2001, @viso Limited is entitled to
sell all or a portion of its shares of PeoplePC Europe N.V. to us in exchange
for PeoplePC stock. Under this arrangement, @viso is entitled to receive between
13,750,000 and 29,146,132 shares of PeoplePC capital stock based on a formula
and the date of exchange. SOFTBANK Capital Partners LP is entitled to exercise
its amended warrant to purchase convertible preferred stock in PeoplePC Europe.
Once the amended warrant is exercised, SOFTBANK Capital Partners LP will be
entitled to sell all or a portion of its shares of PeoplePC Europe to us in
exchange for PeoplePC stock. Under this arrangement, SOFTBANK Capital Partners
LP will be entitled to receive between 1,850,000 and 3,481,928 shares of
PeoplePC capital stock based on a formula and the date of exchange. These put
options will terminate in April 2006. These securities were exempt from
registration under Rule 506 of the Securities Act since the sale was to
accredited investors, as defined in Rule 501 of the Securities Act.
<PAGE>

Item 3.  Default Upon Senior Securities

         None

Item 4.  Submission of Matters to a Vote by Stockholders

We held our Annual Meeting of Stockholders on May 31, 2001 for the purposes of
electing our directors, to ratify the appointment of PricewaterhouseCoopers LLP
as our independent accountants for the 2001 fiscal year and to approve the
issuance of 32,628,060 shares of common stock.

All nominees for directors were elected and the appointment of auditors was
ratified and the issuance of common stock was approved.

Election of the Directors of the Company.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Nominee                                      For                              Withheld
-------                                      ---                              --------
--------------------------------------------------------------------------------------------------
<S>                             <C>                               <C>
Michael J. Price                             87,758,505                       57,500
--------------------------------------------------------------------------------------------------
Bradley A. Feld                              87,758,505                       57,500
--------------------------------------------------------------------------------------------------
</TABLE>

Proposal to appoint PricewaterhouseCoopers LLP as independent accountants for
the 2001 fiscal year.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
For                                         Against                           Abstain
---                                         -------                           -------
--------------------------------------------------------------------------------------------------
<S>                                         <C>                               <C>
61,891,868                                  408,957                           22,553
--------------------------------------------------------------------------------------------------
</TABLE>

Proposal to approve the issuance of 32,628,060 shares of common stock.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
For                                         Against                           Abstain
---                                         -------                           -------
--------------------------------------------------------------------------------------------------
<S>                                         <C>                               <C>
85,706,481                                  2,106,924                         2,600
--------------------------------------------------------------------------------------------------
</TABLE>


Item 5.  Other Information

     None

Item 6.  Exhibits

EXHIBIT INDEX

Exhibit                         Description
                                -----------
Number
------
 3.1*     Certificate of Designation of Rights, Preferences and Privileges of
          series A preferred stock of PeoplePC

10.1+     Memorandum of Agreement by and among PeoplePC, PeoplePC Europe N.V.,
          SOFTBANK Technology Venture IV LP, SOFTBANK Technology Advisors Fund
          LP, @viso Limited, SOFTBANK Capital Partners LP, SOFTBANK Capital
          Advisors Fund LP and Nick Grouf

10.2++    Promissory Note from PeoplePC Inc. to PeoplePC Europe N.V. dated
          February 22, 2001

10.3      Amendment No. 3 dated July 18, 2001 to Master Agreement dated April 5,
          2001, between PeoplePC, Inc. and Ford Motor Company

10.4      Put Option Agreement dated May 30, 2001 by and among PeoplePC,
          PeoplePC Europe N.V., SOFTBANK Technology Venture IV LP, SOFTBANK
          Technology Advisors Fund LP, @viso Limited, SOFTBANK Capital Partners
          LP, SOFTBANK Capital Advisors Fund LP and Nick Grouf

10.5      Retention Agreement between PeoplePC and Nick Grouf dated June 29,
          2001

10.6      Retention Agreement between PeoplePC and Dan Kohler dated June 29,
          2001

10.7      Retention Agreement between PeoplePC and Wayne Gattinella dated June
          29, 2001

10.8      Retention Agreement between PeoplePC and Chuck Ortmeyer dated June 29,
          2001

<PAGE>

10.9      Retention Agreement between PeoplePC and Mary Humiston dated June 29,
          2001

10.10     Retention Agreement between PeoplePC and Michael Glogowsky dated June
          29, 2001

*  Incorporated by reference to previously filed exhibit to the Annual Report on
   Form 10-K (File No. 000-31299) of PeoplePC Inc. on April 2, 2001.
+  Incorporated by reference to previously filed Annex A to the Schedule 14A
   Information Proxy Statement (File No. 000-31299) of PeoplePC Inc. on
   April 30, 2001.
++ Incorporated by reference to previously filed exhibit to the Quarterly Report
   on Form 10-Q (File No. 000-31299) of PeoplePC Inc. on May 15, 2001.

Reports on Form 8-K

     Current report on Form 8-K filed July 24, 2001.

     Amendment to Form 8-K filed July 24, 2001, filed July 25, 2001.
<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Act of 1934, this report has been
signed and thereunto duly authorized, in the City of San Francisco, State of
California, on August 14, 2001.

PEOPLEPC, INC

                                By: /s/     NICK GROUF
                                    ---     ----------

                                            Nick Grouf
                                            President and Chief
                                            Executive Officer

                                By: /s/     MICHAEL GLOGOWSKY
                                    ---     -----------------

                                            Michael Glogowsky
                                            Acting Chief Financial
                                            Officer