<PAGE>

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

                                   FORM 10-Q

(Mark One)
   [x] QUARTERLY REPORT UNDER SECTION 13 OR 5(d) OF THE SECURITIES EXCHANGE ACT
       OF 1934

   [_] For the quarterly period ended September 30, 2000

                                      OR

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

       For the transition period from _____________ to _____________


                       Commission file number 000-29295

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

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

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

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

                                      N/A
    (Former name, former address and former fiscal year, if changed since
                                 last report)


     Indicate by check mark whether the registrant: (1) has filed all documents
and 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 of the Registrant's Common Stock, par value
$0.0001, as of November 8, 2000 was 134,441,956
<PAGE>

                                     INDEX
                                     -----

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
PART I  FINANCIAL INFORMATION
-----------------------------

Item 1.  Consolidated Financial Statements.................................. 1

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations.............................................. 10

Item 3.  Quantitative and Qualitative Disclosures about Market Risk......... 29

PART II OTHER INFORMATION
-------------------------

Item 1.  Legal Proceedings.................................................. 30

Item 2.  Changes in Securities and Use of Proceeds.......................... 30

Item 3.  Defaults Upon Senior Securities.................................... 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

         A.  Exhibits....................................................... 31

         B.  Reports on Form 8-K............................................ 31

Signatures.................................................................. 32
</TABLE>

          In this Report, "BUY.COM" the "Company," "we," "us" and "our"
collectively refers to BUY.COM INC. and its subsidiaries.

                                       i
<PAGE>

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

<TABLE>
<CAPTION>
                                        ASSETS
                                        ------
                                                                              September 30,    December 31,
                                                                                  2000             1999
                                                                              -------------    ------------
                                                                               (unaudited)
<S>                                                                           <C>              <C>
Current Assets:
       Cash and cash equivalents                                              $     104,074    $     24,693
       Marketable securities                                                          5,992               -
       Accounts receivable, net of allowances of $2,641 and $1,104 at
          September 30, 2000 and December 31, 1999, respectively                     24,763          17,882
       Prepaid expenses and other current assets                                     10,065          31,605
                                                                              -------------    ------------
                  Total current assets                                              144,894          74,180
Property and equipment, net                                                          17,497          16,607
Intangibles, net                                                                     27,300          28,156
Other noncurrent assets                                                                 392             663
                                                                              -------------    ------------

                                                                              $     190,083    $    119,606
                                                                              =============    ============

                            LIABILITIES AND STOCKHOLDERS' EQUITY
                            ------------------------------------
Current Liabilities:
       Accounts payable                                                       $      54,778    $     71,057
       Line of credit                                                                     -          12,377
       Other liabilities and accrued expenses                                         3,123           4,771
       Deferred revenue                                                               3,141           1,222
       Note Payable to stockholder                                                        -           5,000
       Obligation to minority interest, net                                           6,768              72
       Current portion of long-term debt                                                260             321
                                                                              -------------    ------------
                  Total current liabilities                                          68,070          94,820

Long-term debt, net of current portion                                                  356           1,738

Commitments and Contingencies

Stockholders' Equity:
       Convertible Preferred stock - Series A and Series B, $0.0001 par value;
          Authorized shares - 150,000,000
            Issued and outstanding--0 at September 30, 2000 and 22,098,982
            at December 31, 1999, including additional paid-in capital                   -         104,939
       Common stock, $0.0001 par value;
          Authorized shares - 850,000,000
            Issued and outstanding--134,048,395 at September 30, 2000;
            93,041,193 at December 31, 1999                                              13              10
          Additional paid-in capital                                                367,449          72,659
       Deferred compensation                                                         (3,111)         (8,850)
       Accumulated deficit                                                         (242,694)       (145,710)
                                                                              -------------    ------------
                  Total stockholders' equity                                        121,657          23,048
                                                                              -------------    ------------
                                                                              $     190,083    $    119,606
                                                                              =============    ============
</TABLE>

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

                                       1
<PAGE>

                                 BUY.COM INC.
                                 ------------
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     -------------------------------------

                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 Quarter Ended                 Nine Months Ended
                                                                 September 30,                   September 30,
                                                         -----------------------------    ----------------------------
                                                             2000             1999            2000            1999
                                                         -------------    ------------    ------------    ------------
<S>                                                      <C>              <C>             <C>             <C>
Net revenues                                             $     190,150    $    158,960    $    590,965    $    396,172
Cost of goods sold                                             177,437         159,094         557,622         401,426
                                                         -------------    ------------    ------------    ------------
Gross profit (loss)                                             12,713            (134)         33,343          (5,254)

Operating expenses:
  Sales and marketing                                           21,229          15,560          67,768          42,453
  Product development                                            7,097           1,795          17,252           3,851
  General and administrative                                     6,642           5,293          20,263          12,875
  Depreciation                                                   1,176             357           3,539             702
  Amortization of goodwill and other intangibles                 3,237             831           9,050           2,307
  Amortization of deferred compensation and warrants               660           8,467           2,542          12,438
                                                         -------------    ------------    ------------    ------------
     Total operating expenses                                   40,041          32,303         120,414          74,626
                                                         -------------    ------------    ------------    ------------

     Operating loss                                            (27,328)        (32,437)        (87,071)        (79,880)

Other income (expense):
  Interest income (expense)                                      2,015            (796)          5,715            (721)
  Other                                                             30              49            (792)             74
                                                         -------------    ------------    ------------    ------------

     Total other income (expense)                                2,045            (747)          4,923            (647)

Net loss before equity in losses of joint ventures             (25,283)        (33,184)        (82,148)        (80,527)

Equity in losses of joint ventures, net                          5,221               -          14,836               -
                                                         -------------    ------------    ------------    ------------

Net loss                                                 $     (30,504)   $    (33,184)   $    (96,984)   $    (80,527)
                                                         =============    ============    ============    ============

Net loss per share:
  Basic and diluted                                      $       (0.23)   $      (0.37)   $      (0.77)   $      (0.91)
                                                         =============    ============    ============    ============

Weighted average number of common shares outstanding:
  Basic and diluted                                        132,547,388      89,231,521     126,461,752      88,801,360
</TABLE>

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

                                       2
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                 Nine Months Ended
                                                                   September 30,
                                                             -------------------------
                                                                2000           1999
                                                             ---------       ---------
<S>                                                          <C>             <C>
OPERATING ACTIVITIES:
Net Loss                                                     $ (96,984)      $ (80,527)

Adjustments to reconcile net loss to cash
    used in operating activities:
   Depreciation                                                  3,539             701
   Amortization of deferred compensation and warrants            2,542          12,438
   Equity in losses of joint ventures                           14,836               -
   Amortization of goodwill and other intangibles                9,050           2,308
   Loss from the disposal of property and equipment                909            (249)
   Changes in assets and liabilities:
   Accounts receivable                                          (6,642)        (11,076)
   Prepaid expenses and other assets                            14,147            (164)
   Other noncurrent assets                                         271            (478)
   Accounts payable                                            (17,920)         52,185
   Accrued expenses and other liabilities                       (1,648)          3,257
   Deferred revenues                                             1,919          (1,469)
                                                             ---------       ---------

   Net cash used in operating activities                       (75,981)        (23,074)
                                                             ---------       ---------

INVESTING ACTIVITIES:
  Purchase of marketable securities                             (5,992)              -
  Purchase of property and equipment                            (7,146)         (2,728)
  Proceeds from sale of property and equipment                   1,893             735
  Acquisition of domain names                                        -            (380)
  Net proceeds received in connection with acquisition             221               -
  Investments in equity method investees                       (11,390)              -
                                                             ---------       ---------

   Net cash used in investing activities                       (22,414)         (2,373)
                                                             ---------       ---------

FINANCING ACTIVITIES
  Net proceeds from Initial Public Offering                    192,095               -
  Purchase of treasury stock                                        (5)              -
  Proceeds from issuance of common stock                             -           1,974
  Borrowings from (repayments to) stockholder                   (5,000)          5,000
  Exercise of stock options                                      1,256              21
  Borrowings from joint venture partner                          3,250               -
  Repayments under line of credit and other obligations        (13,820)              -
  Borrowings under line of credit and other obligations              -          12,462
                                                             ---------       ---------

   Net cash provided by financing activities                   177,776          19,457
                                                             ---------       ---------
Net increase (decrease) in cash and cash equivalents            79,381          (5,990)
Cash and cash equivalents at beginning of period                24,693           9,221
                                                             ---------       ---------
Cash and cash equivalents at end of period                   $ 104,074       $   3,231
                                                             =========       =========
</TABLE>

                                       3
<PAGE>

<TABLE>
<S>                                                                 <C>          <C>
Supplemental cash flow information:
  Cash paid during the year for:
       Interest                                                     $  1,358     $   306
                                                                    ========     =======
       Income Taxes                                                 $     13     $     7
                                                                    ========     =======

   Summary of non-cash investing and financing activity:

       Equipment acquired under capital lease                       $     -      $   850
                                                                    ========     =======
       Stock issued in connection with domain name purchases        $    316     $   861
                                                                    ========     =======

       Reduction in value of stock issued to PGA Tour               $ (7,151)    $    -
                                                                    ========     =======
</TABLE>

ACQUISITION

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

  The following table outlines the assets acquired, liabilities assumed and cash
  received:

<TABLE>
   <S>                                                              <C>          <C>
   Fair value of assets acquired                                    $  8,470     $    -
   Less:
     Liabilities assumed                                              (1,641)         -
     Fair value of common stock issued                                (7,050)         -
                                                                    --------     -------

   Cash received in connection with acquisition                     $    221     $    -
                                                                    ========     =======
</TABLE>

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

                                       4
<PAGE>

                                 BUY.COM, INC

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

1.   COMPANY BACKGROUND

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

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Information

     The interim consolidated financial statements as of September 30, 2000 have
been prepared by BUY.COM pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC") for interim financial reporting. These
consolidated statements are unaudited and, in the opinion of management, include
all adjustments (consisting of normal recurring adjustments and accruals)
necessary to present fairly the consolidated balance sheets, consolidated
operating results, and consolidated cash flows for periods presented in
accordance with generally accepted accounting principles. The consolidated
balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date. Operating results for the
quarter and nine month period ended September 30, 2000 may not be indicative of
the results for the year ending December 31, 2000. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the rules and regulations of the SEC. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements, and accompanying notes, included in the Company's final
prospectus related to its initial public offering filed with the SEC on February
8, 2000. Certain prior period amounts have been reclassified to conform to the
current period presentation.

Use of Estimates

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

                                       5
<PAGE>

Cash and Cash Equivalents

     For the purposes of the consolidated statements of cash flows, the Company
considers investment instruments with an original maturity of three months or
less to be cash equivalents. The carrying amount of cash equivalents
approximates fair value because of the short-term maturity of those instruments.
Cash and cash equivalents include restricted cash of $26.2 million as of
September 30, 2000 and $0 at December 31, 1999.

Revenue Recognition

     Net revenues include product sales net of returns and allowances,
advertising sales, warranty sales net of amounts paid to the national insurance
provider, and gross outbound shipping and handling charges. The Company
recognizes revenue from product sales, net of discounts, coupon redemption and
estimated sales returns, when the products are shipped to customers. Gross
outbound shipping and handling charges are included in net sales. The Company
provides an allowance for sales returns, which is based on historical
experience. In certain cases, credit card companies require the Company to
charge customers' credit cards to obtain authorization. In such cases, the
Company defers revenue recognition until it has confirmed shipment of the goods
to the customer. For all product sales transactions with its customers, the
Company acts as a principal, takes title to all products sold upon shipment,
bears credit risk, and bears inventory risk for returned products that are not
successfully returned to suppliers, although these risks are mitigated through
arrangements with credit card issuers, shippers and suppliers.

     The Company recognizes revenue from advertising sales ratably over the term
of the advertising campaigns, which usually range from one to twelve months. To
the extent that advertising customers have paid the Company for advertisements
that have yet to be published on the Company's Web site, the Company defers
revenue recognition until such advertisements are delivered.

     The Company receives activation commissions from wireless carriers for each
new wireless phone subscription sold by the Company. New subscription activation
fees and commissions are fully refundable if the subscriber cancels service
within the minimum period of continuous active service required by the wireless
carrier (generally 90 to 180 days). Revenue from activation fees and commissions
is deferred until such minimum service period expires.

Recent Accounting Pronouncements

     On December 3, 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. While SAB No. 101 provides a framework by which to recognize revenue
in the financial statements, the Company believes that adherence to this SAB
will not have a material impact on the Company's financial statements.

     In March 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on EITF Issue 00-2, "Accounting
for Web Site Development Costs." This consensus provides guidance on what types
of costs incurred to develop Web sites should be capitalized or expensed. The
consensus is effective for Web site development costs incurred for fiscal
quarters beginning after June 30, 2000. The Company adopted this consensus on
July 1, 2000 and the effect of the adoption was immaterial. During the three
months ended September 30, 2000, the Company capitalized $869,000 of web site
development costs. Such costs are included in "Property and equipment, net" and
will be depreciated over three years.

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

                                       6
<PAGE>

3.   BUSINESS ACQUISITIONS, DISPOSITIONS, AND INVESTMENTS

Business Acquisition

     In August 2000, the Company acquired all of the outstanding common stock of
Telstreet.com, Inc. ("Telstreet") for approximately $7.1 million. The
consideration for the acquisition consisted of 1,358,683 shares of common stock
with an estimated value of $5.19 per share, based upon the average of the fair
market value of the stock during the fifteen calendar days immediately preceding
the execution date of the merger agreement. Telstreet is an online retailer of
wireless products and services. The acquisition was accounted for under the
purchase method of accounting, with approximately $7.9 million allocated to
goodwill. The goodwill will be amortized over a 3-year period from the issuance
of the stock.


Business Disposition

     In October 2000, the Company decided to discontinue the business and
operations of Buytravel.com LLC, its joint venture with United Airlines, Inc.
for travel services. The costs associated with discontinuance of the
buytravel.com Web site and the operations of Buytravel.com LLC are expected to
be minimal and will be allocated equally between the Company and United
Airlines.


International Joint Ventures

     In 1999, the Company entered into a letter of intent with SOFTBANK America,
Inc. ("SOFTBANK America") to form three international joint ventures in which
the Company would have 50% ownership interests. The parties are currently
discussing these agreements and the ownership structure and funding requirements
are subject to change with respect to the joint ventures in the United Kingdom
and Australia. The Company decided to discontinue operations of its joint
venture in continental Europe and is currently in discussions to formalize the
termination of such business operations. For purposes of this report, the
Company assumes that it has a 50% ownership interest in the losses to date and
will therefore not maintain sufficient voting control to consolidate these joint
ventures. The loss associated with these joint ventures is included in the line
item "Equity in losses of joint ventures" for the quarter and nine month period
ended September 30, 2000 and is included in "Obligations to minority interest
net" on the balance sheet, offset by capital contributions. In the event the
final definitive agreements for the Australian and United Kingdom joint ventures
provide for a different ownership interest, we would be required to adjust our
percentage of losses for the period. The Company did not incur any charge for
the costs associated with the discontinuance of the continental European joint
venture for the quarter ended September 30, 2000.

4.   MARKETABLE SECURITIES

     Marketable securities are classified as available for sale investments and
     are carried at fair value. The cost of these securities approximate fair
     value, therefore, any unrealized gain or losses are immaterial. Marketable
     securities consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                             SEPTEMBER 30,  DECEMBER 31,
                                                  2000          1999
                                             -------------  ------------
                                              (UNAUDITED)
     <S>                                     <C>            <C>
     Agency securities                          $  1,453      $      -
     Corporate bonds                               4,539             -
                                                --------      ---------
           Total marketable securities          $  5,992      $      -
                                                ========      =========
</TABLE>

                                       7
<PAGE>

5.   STOCKHOLDER'S EQUITY

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

     In October 1999, the Company issued 1,125,000 shares of common stock to the
PGA Tour as partial consideration for its five-year sponsorship. The shares were
originally valued at $9.07 per share for a total consideration of $10.2 million
which was recorded as "prepaids and other current assets". The fair market value
at September 30, 2000 was $2.78 per share or $3.1 million. Accordingly,
"additional paid-in-capital" and "prepaids and other current assets" were
reduced by the change in value.

6.   LOSS PER SHARE

     Basic loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and common equivalent shares outstanding during the period.

     The following represents the calculations for basic and diluted net loss
per share (amounts in thousands, except share and per share data):

<TABLE>
<CAPTION>
                                             Quarter Ended                  Nine Months Ended
                                             September 30,                    September 30,
Basic:                                   2000             1999           2000              1999
                                     ------------      -----------   ------------       -----------
                                              (unaudited)                      (unaudited)
<S>                                  <C>               <C>           <C>                <C>
Net loss...........................  $    (30,504)     $   (33,184)  $    (96,984)      $   (80,527)
Weighted average common shares.....   132,547,388       89,231,521    126,461,752        88,801,360
                                     ------------      -----------   ------------       -----------
Net loss per common share..........  $      (0.23)     $     (0.37)  $      (0.77)      $     (0.91)
                                     ============      ===========   ============       ===========


Diluted:
Net loss...........................  $    (30,504)     $   (33,184)  $    (96,984)      $   (80,527)
Weighted average common shares.....   132,547,388       89,231,521    126,461,752        88,801,360
Stock options adjustment...........             -                -              -                 -
                                     ------------      -----------   ------------       -----------
Average common shares outstanding..   132,547,388       89,231,521    126,461,752        88,801,360
                                     ------------      -----------   ------------       -----------
Net loss per common share..........  $      (0.23)     $     (0.37)  $      (0.77)      $     (0.91)
                                     ============      ===========   ============       ===========
</TABLE>

All of the Company's stock options and warrants are excluded from diluted loss
per share since their effect is antidilutive.

                                       8
<PAGE>

7.  AMORTIZATION OF DEFERRED COMPENSATION AND WARRANTS

    The following table shows the amounts of amortization of deferred
compensation and warrants that would have been recorded under the following
income statement categories had amortization of deferred compensation and
warrants not been separately stated in the statements of operations.

<TABLE>
<CAPTION>
                                        QUARTER ENDED               NINE MONTHS ENDED
                                        SEPTEMBER 30,                 SEPTEMBER 30,
                                    ----------------------        ---------------------
                                      2000         1999             2000         1999
                                    --------     --------         --------     --------
                                        (IN THOUSANDS)               (IN THOUSANDS)
   <S>                              <C>          <C>              <C>          <C>
   Sales and marketing              $     85     $     96         $    (65)    $    254
   Product development                   (55)        (125)             (93)         133
   General and administrative            630        8,496            2,700       12,051
                                    --------     --------         --------     --------
                                    $    660     $  8,467         $  2,542     $ 12,438
                                    ========     ========         ========     ========
</TABLE>

8.   COMMITMENTS AND CONTINGENCIES

     Please refer to "Part II - Other Information - Item 1" of this report for a
discussion of Legal Proceedings.

9.   INCOME TAXES

     The Company incurred taxable losses for federal and state purposes for the
quarter and nine month period ended September 30, 2000 and the quarter and nine
month period ended September 30, 1999. Accordingly, the Company did not incur
any federal income tax expense for those periods other than the minimum required
taxes for certain state and local jurisdictions.

                                       9
<PAGE>

PART 2.

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This report on Form 10-Q contains forward-looking statements based on our
current expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us that are based on our current
expectations, assumptions, estimates and projections about us and our industry.
Words such as "anticipates," "expects," "intends," "plans," "believes," "may,"
"estimates" and similar expressions are intended to identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. Such statements include,
but are not limited to, statements concerning strategic relationships and
distribution arrangements, the ability to sustain growth and expand resources,
the occurrence of system failures, the need for additional capital, projected
operating losses, the amount of product and advertising revenues, the growth of
gross product margin and other key financial and operational metrics, expansion
into and integration of new businesses and new product categories, international
operations, pending legal proceedings, the growth and retention of our customer
base, potential contractual, intellectual property or employment issues,
attraction and retention of key executives, technical personnel and other
property or employment issues. Such statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statements as a result
of various factors. Further, the information contained in this Form 10-Q is not
a complete description of our business or the risks associated with an
investment in our common stock. The section entitled "Risk Factors" set forth in
this Form 10-Q and similar discussions in our prospectus related to our initial
public offering filed with the SEC on February 8, 2000 and our quarterly report
on Form 10-Q for the quarter ended June 30, 2000, discuss some of the important
risk factors that may affect our business, results of operations and financial
condition. You should carefully consider those risks, in addition to the other
information in this report and in our other filings with the SEC, before
deciding to invest in our company or to maintain or increase your investment. We
undertake no obligation to revise or update publicly any forward-looking
statements for any reason.

OVERVIEW

     BUY.COM is a leading multi-category Internet superstore based on our net
revenues and the amount of traffic to our Web site. We offer a comprehensive
selection of brand name computer hardware and peripherals, software, books,
videos, DVDs, computer games, music, consumer electronics, golf-related
products, office supplies and products, sporting goods and wireless products and
services at everyday low prices. BUY.COM was organized as a California limited
liability company in June 1997 under the name BuyComp LLC and was incorporated
in Delaware as Buy Corp. in August 1998. In November 1998, we changed our name
to BUY.COM INC.

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

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

     Consistent with our merchandising strategy, we have started to raise prices
on many of our products. Although we intend to continue these selective price
increases, under our long-term business model, we expect to maintain lower
relative product margins than many other online and offline retailers, while
generating high sales volumes. For this

                                       10
<PAGE>

reason, our ability to become and remain profitable depends upon our ability to
substantially increase our net revenues. Over recent quarters we have not
achieved revenue growth and we cannot be certain that our sales growth will
continue or that we will ever become profitable.

     To date, our sales of computer hardware and software products have
accounted for the vast majority of our net revenues. Our sales of products in
other categories constituted less than 18% of our net revenues for the quarter
and nine month period ended September 30, 2000, and for the quarter and nine
month period ended September 30, 1999. None of these other categories
individually constituted more than 10% of our net revenues during these periods.
In the future, we expect sales of products other than computer hardware and
software to be an increasingly larger component of our business. Product sales,
including shipping and handling, accounted for 95.9% and 95.8% of net revenues
for the quarter and nine month period ended September 30, 2000, respectively,
and 97.8% and 98.2% of net revenues for the quarter and nine month period ended
September 30, 1999, respectively.

     Shipping and handling net revenues were $6.8 million and $21.6 million for
the quarter and nine month period ended September 30, 2000, respectively, and
$8.0 million and $21.0 million for the quarter and nine month period ended
September 30, 1999, respectively. Shipping and handling results are a direct
function of our product sales and are an integral part of our merchandising and
pricing strategy and may fluctuate based on promotional programs. Accordingly,
we believe shipping and handling net revenues and the corresponding gross profit
on these net revenues cannot be viewed independent of product sales and gross
profit. The gross profit on our shipping and handling net revenues was $176,000
and $3.2 million for the quarter and nine month period ended September 30, 2000,
respectively, and $5.0 million and $11.5 million for the quarter and nine month
period ended September 30, 1999, respectively.

     We currently generate additional revenues from vendor co-op advertising as
well as media advertising. Vendor co-op advertising is a standard practice in
the retailing sector, where product vendors set aside certain amounts of
advertising funds to be paid to retailers in exchange for specific marketing and
in-store placement of their products. We also generate advertising media revenue
from click-through advertisements that direct the customer to the advertiser's
Web site. These media advertising revenues are generally derived from short-term
advertising contracts in which we typically guarantee a minimum number of
advertising impressions to be delivered to users over a specified period of time
for a fixed fee. In the cases where we guarantee a minimum number of advertising
impressions, we defer a portion of the advertising revenues until the minimum
number of impressions has been achieved. Advertising sales accounted for 5.9%
and 5.5% of net revenues for the quarter and nine month period ended September
30, 2000, respectively, and 2.7% and 2.2% of net revenues for the quarter and
nine month period ended September 30, 1999, respectively.

     Our net revenues are also net of coupon redemptions. Coupon redemptions
result in a reduction of gross revenues in the period the coupons are redeemed
by an amount equal to the value of the coupons redeemed. Coupon redemptions were
$3.4 million and $7.8 million, or 1.8% and 1.3% of net revenues, for the quarter
and nine month period ended September 30, 2000, respectively, and $889,000 and
$1.4 million, or 0.5% and 0.4% of net revenues, for the quarter and nine month
period ended September 30, 1999, respectively.

     We have expanded our business into international markets both independently
and through joint ventures with third parties that are expected to provide
expertise in local markets and financial resources to the joint ventures.
However, we cannot assure you that we will be successful in our international
operations and a number of factors may affect our ability to do so, including
our ability to staff, manage and fund these foreign operations, tariffs and
other trade barriers, and our ability to adapt to foreign regulatory
requirements affecting e-commerce. In fact, due to the inability to secure
adequate third party financing, we have recently decided to discontinue the
operations of our joint venture in continental Europe.

     We have incurred significant losses since our inception and our cost of
sales and operating expenses have increased dramatically. This trend reflects
the costs associated with our increased efforts to promote the BUY.COM brand,
build market awareness, attract new customers, recruit personnel, build
operating infrastructure, and develop and expand our Web site and related
transaction-processing systems. We intend to continue to invest heavily in
marketing and promotion, Web site development, and technology and operating
infrastructure development. We believe that we will continue to incur
substantial operating losses for the foreseeable future, and we may never
achieve profitability.

                                       11
<PAGE>

RESULTS OF OPERATIONS

Net revenues

<TABLE>
<CAPTION>
                         QUARTER ENDED                                         NINE MONTHS ENDED
                         SEPTEMBER 30,                                           SEPTEMBER 30,
              ---------------------------------                    -------------------------------------
                 2000                   1999         % CHANGE            2000                   1999           % CHANGE
              -------------      --------------    -------------   -----------------    ----------------     ------------
                 (DOLLARS IN THOUSANDS)                                    (DOLLARS IN THOUSANDS)
<S>           <C>                <C>               <C>             <C>                  <C>                  <C>
Net revenues   $190,150               $158,960          20%            $590,965              $396,172            49%
</TABLE>

     Growth in net revenues in the periods indicated reflect a significant
increase in the number of units sold. This increase in product sales is
primarily due to the growth of our customer base and repeat purchases from our
existing customers and the launch of our new online stores. At September 30,
2000, our cumulative customer accounts reached 3.1 million compared with 2.8
million at June 30, 2000 and 2.4 million and 1.9 million at March 31, 2000 and
December 31, 1999, respectively.

Gross profit (loss)

<TABLE>
<CAPTION>
                                  QUARTER ENDED                                         NINE MONTHS ENDED
                                   SEPTEMBER 30,                                           SEPTEMBER 30,
                         ------------------------------                        ---------------------------------
                           2000               1999             % CHANGE             2000                1999            % CHANGE
                         -----------     --------------     --------------     --------------     ---------------     ------------
                           (DOLLARS IN THOUSANDS)                                    (DOLLARS IN THOUSANDS)

<S>                      <C>             <C>                <C>                <C>                <C>                 <C>
Gross profit (loss)          $12,713          $(134)             9587%            $33,343           $(5,254)               735%
Gross margin                     6.7%          -0.1%                                  5.6%             -1.3%
</TABLE>


     Gross profit is calculated as net revenue less the cost of sales which
includes the cost of products sold, shipping costs, and the related distribution
and fulfillment costs. For the quarter and nine month period ended September 30,
2000, gross profit and gross margin increased over the same periods in 1999,
primarily due to more sophisticated merchandising and pricing management of our
product mix and an increased contribution of higher margin advertising revenues.

Sales and marketing

<TABLE>
<CAPTION>
                                       QUARTER ENDED                                NINE MONTHS ENDED
                                       SEPTEMBER 30,                                   SEPTEMBER 30,
                              ----------------------------                     -------------------------
                                  2000          1999             % CHANGE          2000          1999           % CHANGE
                              ------------     -----------    --------------   -----------     ---------      -------------
                                  (DOLLARS IN THOUSANDS)                         (DOLLARS IN THOUSANDS)
<S>                           <C>              <C>            <C>              <C>             <C>            <C>
Sales and marketing                $21,229       $15,560           36%            $67,768        $42,453           60%
Percentage of net revenues            11.2%          9.8%                            11.5%          10.7%
</TABLE>


     Sales and marketing expenses consist primarily of advertising and
promotional expenses, as well as credit card fees, outsourced customer service
fees and payroll associated with our advertising and marketing personnel.  Sales
and marketing expenses increased during the quarter and nine month period ended
September 30, 2000 both as a percentage of net revenues and in absolute dollars
compared to the same periods in 1999.  The increase was primarily attributable
to the expansion of our online advertising campaigns and the expansion of our
affiliate program.  As of September 30, 2000 we had signed up over 18,600
affiliates.  The increase in our sales and marketing expenses was also due, to a
lesser extent, to increased personnel and related expenses required to implement
our marketing strategy as well as the costs associated with the sponsorship of
the buy.com Tour. We intend to continue to pursue an aggressive

                                       12
<PAGE>

branding and marketing campaign in order to attract new customers and retain
existing customers. As a result, we expect marketing and sales expenses to
continue to increase in absolute dollars in future periods.

Product development

<TABLE>
<CAPTION>
                                      QUARTER ENDED                                       NINE MONTHS ENDED
                                      SEPTEMBER 30,                                         SEPTEMBER 30,
                           ---------------------------------                  -------------------------------------
                              2000                   1999        % CHANGE           2000                   1999        % CHANGE
                           -------------      --------------   -------------  -----------------    ----------------  ------------
                              (DOLLARS IN THOUSANDS)                                  (DOLLARS IN THOUSANDS)
<S>                        <C>                <C>              <C>            <C>                  <C>               <C>
Product development           $7,097               $1,795           295%           $17,252              $3,851          348%
Percentage of net revenues       3.7%                 1.1%                             2.9%                1.0%
</TABLE>


     Product development expenses consist primarily of personnel costs,
facilities expenses, and other related expenses associated with developing and
enhancing our Web site, and costs of acquired content.  Product development
expenses increased during the quarter and nine month period ended September 30,
2000 both as a percentage of revenue and in absolute dollars compared to the
same periods in 1999 due to increased personnel and outside consulting costs
required to enhance the features, content, and functionality of our online
stores and transaction processing systems. We intend to continue to enhance our
Web site and technology and information systems and expect product development
expenses to continue to increase in absolute dollars in future periods. In
accordance with authoritative guidance, certain costs are capitalized and
amortized over the estimated useful lives of the applicable assets.

General and administrative

<TABLE>
<CAPTION>
                                      QUARTER ENDED                                       NINE MONTHS ENDED
                                      SEPTEMBER 30,                                         SEPTEMBER 30,
                           ---------------------------------                  -------------------------------------
                              2000                   1999        % CHANGE           2000                   1999        % CHANGE
                           -------------      --------------   -------------  -----------------    ----------------  ------------
                              (DOLLARS IN THOUSANDS)                                  (DOLLARS IN THOUSANDS)
<S>                        <C>
General and administrative     $6,642              $5,293            25%            $20,263             $12,875           57%
Percentage of net revenues        3.5%                3.3%                              3.4%                3.2%
</TABLE>


     General and administrative expenses consist primarily of payroll and
related expenses for executive and administrative personnel, facilities
expenses, professional fees, and other general corporate expenses.  General and
administrative expenses increased during the quarter and nine month period ended
September 30, 2000 both as a percentage of revenue and in absolute dollars
compared to the same periods in 1999 due to increased headcount and related
expenses associated with the hiring of additional personnel and increased
professional expenses.  We expect general and administrative expenses to
continue to increase in absolute dollars as we expand our sales, increase our
staff and incur additional costs related to the growth of our business.

Depreciation

<TABLE>
<CAPTION>
                                QUARTER ENDED                           NINE MONTHS ENDED
                                SEPTEMBER 30,                             SEPTEMBER 30,
                     ---------------------------------      -------------------------------------
                        2000                   1999               2000                   1999
                     -------------      --------------      -----------------    ----------------
                        (DOLLARS IN THOUSANDS)                      (DOLLARS IN THOUSANDS)
<S>                  <C>                <C>                 <C>                  <C>
Depreciation            $1,176              $ 357               $3,539                 $ 702
</TABLE>


     Depreciation consists primarily of amortization of property and equipment.
Depreciation increased due to additional property and equipment acquired during
the quarter and nine month period ended September 30, 2000, compared to the same
periods in 1999.

                                       13
<PAGE>

Amortization of goodwill and other intangibles

<TABLE>
<CAPTION>
                                          QUARTER ENDED             NINE MONTHS ENDED
                                          SEPTEMBER 30,               SEPTEMBER 30,
                                     ------------------------    ------------------------
                                        2000          1999          2000          1999
                                     ----------    ----------    ----------    ----------
                                      (DOLLARS IN THOUSANDS)      (DOLLARS IN THOUSANDS)
<S>                                  <C>           <C>           <C>           <C>
Amortization of goodwill
and other intangibles                $    3,237    $      831    $    9,050    $    2,307
</TABLE>

     Amortization of goodwill and other intangibles increased in the periods
indicated due to amortization charges resulting from the acquisition of
Buygolf.com and Telstreet.com. It is likely that we will continue to expand our
business through acquisitions and investments which would cause amortization of
goodwill to increase.

Amortization of deferred compensation and warrants

<TABLE>
<CAPTION>
                                          QUARTER ENDED             NINE MONTHS ENDED
                                          SEPTEMBER 30,               SEPTEMBER 30,
                                     ------------------------    ------------------------
                                        2000          1999          2000          1999
                                     ----------    ----------    ----------    ----------
                                      (DOLLARS IN THOUSANDS)      (DOLLARS IN THOUSANDS)
<S>                                  <C>           <C>           <C>           <C>
Amortization of deferred
compensation and warrants            $      660    $    8,467    $    2,542    $   12,438
</TABLE>

     Amortization of deferred compensation represents the difference between the
exercise price of stock option grants and the deemed fair value of our stock at
the time of such grants.  Such amounts are amortized over the vesting periods
for such grants, which is typically four years, using the double declining
balance method.  Amortization of deferred compensation decreased due to fewer
grants issued below the deemed fair value of our stock, the double declining
balance method used to account for such deferred compensation and cancellations
during the quarter and nine month period ended September 30, 2000.  The charge
for warrants for the quarter and nine months ended September 30, 1999 primarily
represented the cost of warrants granted to United Air Lines.  There was no
similar charge during the current year.

Other income (expense)

<TABLE>
<CAPTION>
                                          QUARTER ENDED             NINE MONTHS ENDED
                                          SEPTEMBER 30,               SEPTEMBER 30,
                                     ------------------------    ------------------------
                                        2000          1999          2000          1999
                                     ----------    ----------    ----------    ----------
                                      (DOLLARS IN THOUSANDS)      (DOLLARS IN THOUSANDS)
<S>                                  <C>           <C>           <C>           <C>
Interest income (expense)            $    2,015    $     (796)   $    5,715    $     (721)
Other income (expense)                       30            49          (792)           74
</TABLE>


     Interest income on cash and marketable securities increased in the periods
indicated due to higher balances resulting from our financing activities,
principally the net proceeds from our initial public offering in February 2000.
Interest expense for the quarter and nine month period ended September 30, 2000
consists of interest on asset acquisitions financed through capital leases.  In
addition, interest expense for the nine month period ended September 30, 2000
also includes interest on our line of credit incurred during the first quarter
of 2000.  Other income and expense is comprised of net gains and losses on sales
of property and equipment and other miscellaneous items.

                                       14
<PAGE>

Equity in losses of joint ventures, net

<TABLE>
<CAPTION>
                                             QUARTER ENDED           NINE MONTHS ENDED
                                             SEPTEMBER 30,             SEPTEMBER 30,
                                        ------------------------  ------------------------
                                           2000          1999        2000          1999
                                        ----------    ----------  ----------    ----------
                                         (DOLLARS IN THOUSANDS)    (DOLLARS IN THOUSANDS)
<S>                                     <C>           <C>         <C>           <C>
Equity in losses of joint ventures, net $    5,221            -   $   14,836    $       -
</TABLE>

     Equity in losses of joint ventures represents the losses associated with
our ownership interest in our joint venture partnerships, including our
international business initiatives and Buytravel.com LLC. Our accounting
treatment assumes that our ownership interest in the international joint
ventures and Buytravel.com LLC is 50%. However, we are currently in discussions
regarding our international joint ventures in the United Kingdom and Australia,
and the ownership structure of these joint ventures is subject to change. Our
joint ventures in Australia and the United Kingdom are at an early stage of
their operations and are incurring net losses. Therefore, we expect to continue
to record net losses on these equity method investments. Further, we have
recently decided to discontinue the operations of our joint venture in
continental Europe and are in discussions to determine the costs associated with
discontinuing these operations. We expect to incur costs associated with the
discontinuance of our continental European joint venture during the fourth
quarter of 2000.

Liquidity and Capital Resources

     As of September 30, 2000, our principal sources of liquidity consisted of
$104.1 million of cash and $6.0 million of marketable securities compared to
$24.7 million of cash at December 31, 1999. As of September 30, 2000,
approximately $26.2 million of such amounts is characterized as restricted cash
to secure our obligations under several letters of credit.

     In February 2000, we completed an initial public offering in which our
underwriters sold to the public 16,100,000 shares of common stock, including
2,100,000 shares in connection with the exercise of the underwriters' over-
allotment option, at $13.00 per share. Our proceeds from the offering, after
deducting underwriting discounts and commissions and other offering expenses
payable by us were approximately $192.1 million in the aggregate. We regularly
invest in short-term government mortgage backed bonds, highly rated corporate
securities, money market funds, and long term agency securities and corporate
bonds.

     Net cash used in operating activities was $76.0 million and $23.1 million
for the nine months ended September 30, 2000 and 1999, respectively. Net
operating cash flows were primarily attributable to quarterly net losses,
increases in accounts receivable, decreases in accounts payable and accrued
expenses, partially offset by non-cash charges for depreciation and amortization
and equity in losses of joint ventures as well as decreases in prepaid expenses
and increases in deferred revenues.

     Net cash used in investing activities was $22.4 million and $2.4 million
for the nine months ended September 30, 2000 and 1999, respectively, and
primarily consisted of net purchases of marketable securities, purchases of
property and equipment, and cash paid for investments in equity method
investees, partially offset by proceeds from the sale of property and equipment.

     Net cash provided by financing activities was $177.8 million for the nine
months ended September 30, 2000 as a result of the net proceeds from our initial
public offering, borrowings from our international joint venture partners, and
proceeds from the exercise of stock options, and partially offset by the
repayment of our credit facility and a promissory note to a stockholder. Net
cash provided by financing activities was $19.5 million for the nine months
ended September 30, 1999, and was a result of proceeds from a loan by a
stockholder, proceeds from the issuance of common stock, and proceeds from our
credit facility.

                                       15
<PAGE>

     We anticipate that we will have negative cash flows for the foreseeable
future. We also currently anticipate that we may invest approximately $10.0
million to $20.0 million in capital expenditures over the next twelve months to
expand our infrastructure. These expenditures will include enhancements in our
Web site to improve functionality and navigation, incorporating features that
are intended to improve the customer shopping experience and scalability and
performance of our Web site. We expect to fund these expenditures with working
capital, including the proceeds from our initial public offering.

     As of September 30, 2000, our principal commitments consisted primarily of
obligations in connection with the acquisition of fixed assets and leases,
commitments for advertising and promotional arrangements and commitments related
to our joint venture with United Airlines, Inc. and our international joint
ventures.

     However, in connection with our 50% joint venture with United Airlines,
Inc., we recently decided to discontinue the business operations of this joint
venture. Although we will no longer be obligated to fund the operations or
contribute to the marketing of BuyTravel.com, we expect to incur immaterial
costs associated with the discontinuance of its business and operations during
the fourth quarter of 2000.

     We have also entered into a binding letter of intent with SOFTBANK America,
Inc. and its affiliates to form three separate international joint ventures in
various international territories. Under the letter of intent we would have a
50% ownership interest in each of the joint ventures and would commit
approximately $7.7 million in connection with the formation of these
international joint ventures. However, the parties are currently in discussions
regarding this letter of intent and our ownership structure and capital
contribution requirements are subject to change. For example, we have elected to
terminate the joint venture for continental Europe and are currently in
discussions with our joint venture partner to complete the discontinuance of
this joint venture's operations. In the United Kingdom and Australia, we are
currently working with our joint venture partner in an effort to secure
independent funding for these joint ventures. In the event third party funding
for the joint ventures is not available, we will not be in a position to invest
additional capital and we may reduce or discontinue operations of such joint
ventures or pursue other strategic alternatives. There can be no assurance that
additional financing for the joint ventures will be available on acceptable
terms, if at all. If we elect to discontinue the operations in the United
Kingdom and Australia, we would be required to fund half of the costs associated
with discontinuing the operations and we would also be required to repay
outstanding loans to our joint venture partners.

     We believe that our current cash balances will be sufficient to meet our
anticipated operating cash needs for at least the next 12 months. However, any
projections of future cash needs and cash flows are subject to substantial
uncertainty. If current cash that may be generated from operations is
insufficient to satisfy our liquidity requirements, we may seek to sell
additional equity securities, obtain a line of credit or seek other ways to fund
our operations. There can be no assurance that financing will be available in
the necessary amounts or on acceptable terms, if at all. In addition, we will
periodically consider the acquisition of or investment in complimentary
businesses, products, services and technologies which may impact our liquidity
requirements or cause us to issue additional equity securities.

YEAR 2000

     Many existing computer systems and software were coded to accept only two
digit entries in the date code field and did not distinguish 21st century dates
from 20th century dates. Prior to January 1, 2000, there was a great deal of
concern regarding this inability of computer systems and software to adequately
distinguish such dates, which induced companies, including us, to complete
various compliance and remediation work leading up to the Year 2000. To date, we
have not experienced any Year 2000 problems in our computer systems or
operations. However, other companies, including us, could experience latent Year
2000 problems such as system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability of our third
party systems to provide access to our Web site and transaction processing
systems and a failure of our credit card processing agent to process our orders.
Any such latent Year 2000 problems could result in a decrease in product sales,
an increase in allocation of resources to address such problems without
additional revenue commensurate with such dedication of resources, or other
costs which could have a material adverse affect on our business.

RISK FACTORS

                                       16
<PAGE>

     Before deciding to invest in us or to maintain or increase your investment,
you should carefully consider the risks described below. The risks and
uncertainties described below, in addition to the other information in this
report and our other filings with the SEC, including our prospectus filed with
the SEC on February 8, 2000 and our quarterly report filed on Form 10-Q for the
second quarter of 2000 are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations. If any of the following risks actually
occur, our business, results of operations and financial condition could be
materially and adversely affected, the value of our stock could decline, and you
may lose all or part of your investment.

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

     We depend on Ingram Micro, Inc. to provide the majority of our computer
hardware and software products and to fulfill such customers' orders, and we
have only used Tech Data, Inc. to a limited degree to supply and fulfill product
orders for computer hardware and software products. To date, a substantial
majority of our product sales revenue has been derived from computer hardware
and software products acquired from Ingram Micro. We cannot guarantee that
Ingram Micro will continue to supply a sufficient quantity of inventory on a
timely basis to satisfy our order requirements. If Ingram Micro were to
terminate or refuse to renew our distribution arrangement, we would have to
purchase our computer hardware and software products from other distributors. In
such event we cannot be certain that Tech Data or other distributors could be
effectively and efficiently integrated into our distribution systems to provide
comparable fulfillment, processing and shipping services to our customers in a
timely manner. In addition, in the event we do not purchase at least $350.0
million of products from Ingram Micro during the term of our agreement with
them, our current pricing schedules could be revised. Our distribution agreement
with Ingram Micro terminates in March 2001.

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

     Our future success also depends on our ability to provide timely and
accurate order fulfillment. We depend on Ingram Micro to process and ship
substantially all of the computer hardware and software products that we sell to
our customers. However, we have limited control over their shipping and
processing procedures. Ingram Micro's systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
physical and electronic break-ins, earthquakes and similar events. We do not
carry sufficient business interruption insurance to compensate us for any losses
that could occur as a result of Ingram Micro's inability to perform for any
reason.

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

     We are currently dependent on our distribution and fulfillment providers to
manage inventory, process orders and distribute products to our customers in a
timely manner. In addition to our contract with Ingram Micro for computer
hardware and software products and for the fulfillment of our consumer
electronics products, we have supply and distribution contracts with Ingram
Entertainment Inc. for videos, DVDs and games, Nashville Computer Liquidators
L.P. for our clearance products, Valley Media, Inc. for music products, Global
Trade, Inc. for consumer electronics products and United Stationers Supply Co.
for office products and supplies. We do not have long-term agreements with any
of these third parties. We purchase all of our books from the Ingram Book
Company, which are shipped and processed by Ingram Fulfillment Services, Inc.,
we use Las Vegas Golf & Tennis, Inc. as the primary source for the golf
equipment and accessories that we sell and we use Global Sports, Inc. for our
other sporting goods products. We are also dependent on various supply and
fulfillment partners, including Brightpoint, Inc., and various wireless service
providers for the products

                                       17
<PAGE>

and services offered in our wireless store. If we do not maintain our existing
relationships with these providers on acceptable commercial terms, we may not be
able to continue to offer a broad selection of merchandise at low prices, and
customers may refuse to shop at our online store. In addition, manufacturers may
decide, for reasons outside our control, not to offer particular products for
sale on the Internet. Other manufacturers have chosen not to authorize any
Internet resellers or Internet resellers without a traditional "brick and
mortar" retail store. If we are unable to supply products to our customers, or
if other product manufacturers refuse to allow their products to be sold via the
Internet, our business would suffer severely.

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

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

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

     We have not achieved profitability since our inception, and we incurred net
losses of $130.2 million for the year ended December 31, 1999 and $97.0 million
for the nine months ended September 30, 2000. We expect to continue to incur
losses for the foreseeable future due to additional costs and expenses related
to:

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

       -  brand development, marketing and other promotional activities;

       -  the integration and operation of our new product categories;

       -  the expansion of our existing product and service offerings;

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

       -  the development of strategic relationships; and

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

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

       -  our ability to generate and sustain substantially higher net sales
          with improved gross margins while maintaining reasonable operating
          expense levels;

       -  our ability to generate significant advertising revenue; and

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

                                       18
<PAGE>

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

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

       -  expand our customer base;

       -  enhance our brand recognition;

       -  expand our product and service offerings;

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

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

       -  successfully implement our business and marketing strategy;

       -  provide superior customer service and order processing;

       -  respond effectively to competitive and technological developments; and

       -  attract and retain qualified personnel.

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

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

       -  prevent customers from accessing our online stores;

       -  reduce our ability to fulfill orders;

       -  reduce the number of products that we sell;

       -  cause customer dissatisfaction; or

       -  damage our reputation.

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

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

                                       19
<PAGE>

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

     Based on our current operating plan, we anticipate that our currently
available funds, will be sufficient to satisfy our anticipated needs for working
capital, capital expenditures and business expansion for at least the next
twelve months. After that time, we may need additional capital. Alternatively,
we may need to raise additional funds sooner to:

       -  fund more rapid expansion;

       -  develop new product lines or enhanced services;

       -  fund acquisitions; or

       -  respond to competitive pressures.

     If we raise additional funds by issuing equity or convertible debt
securities, the percentage ownership of our stockholders will be diluted.
Furthermore, any new securities could have rights, preferences and privileges
senior to those of our common stock. We currently do not have any commitments
for additional financing. We cannot be certain that additional financing will be
available when and to the extent required, or that, if available, it will be on
acceptable terms. If adequate funds are not available on acceptable terms, we
may not be able to fund our expansion, develop or enhance our products or
services or respond to competitive pressures.

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

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

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

       -  our ability to increase advertising revenues;

       -  our ability to build and maintain customer loyalty;

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

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

       -  the success of our brand building and marketing campaigns;

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

       -  our ability to maintain and expand our distribution relationships;

       -  increases in the cost of online or offline advertising;

       -  unexpected increases in shipping costs or delivery times;

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

                                       20
<PAGE>

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

       -  technical difficulties, system downtime or Internet brownouts;

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

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

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

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

Our recent growth has strained our resources, and if we are unable to manage and
sustain our growth, our operating results will be impaired

     We have rapidly expanded our operations and anticipate that we must
continue to expand our operations to address potential market opportunities. If
we are unable to manage growth effectively or if we experience disruptions
during our expansion, our operating results will suffer. For example, since the
completion of the Telstreet.com acquisition in August 2000, we have been working
to assimilate substantially all of Telstreet's operations into our operations
without disrupting our existing operations.

     Additionally, recent increases in our employee base and the volume of our
merchandise sales have placed, and are expected to continue to place,
significant demands on our management, operational and financial resources. For
example, we expanded from seven employees at December 31, 1997 to 249 employees
at September 30, 2000. Our new employees include a number of key managerial and
technical employees who have not yet been fully integrated into our management
team, and we expect to add additional key personnel in the near future. To
manage growth in our operations, we will need to improve or replace our existing
Web site, financial systems, procedures and controls. In addition, we will need
to expand, train and manage our increasing employee base. We will also need to
expand our finance, administrative, technical and operations staff.

We rely on a relatively new management team and need additional personnel to
grow our business

     Several of our executive officers are relatively new, and we intend to
continue to hire key management personnel. We may experience difficulty
assimilating our recently hired managers, and we may not be able to successfully
locate, hire, assimilate and retain other qualified key management and technical
personnel. Our future success also depends in part on the continued services of
Gregory J. Hawkins, our Chief Executive Officer, and Mitch C. Hill, our Chief
Financial Officer. Further, our business is largely dependent on the personal
efforts and abilities of other members of senior management, as well as other
key personnel. Any of our officers or employees can terminate their employment
relationship at any time. We do not maintain key person life insurance on any
member of our management team. The loss of any key employee or our inability to
attract or retain other qualified employees could harm our business and results
of operations.

                                       21
<PAGE>

     Our future success depends on our ability to attract, retain and motivate
highly skilled technical, managerial, editorial, merchandising, marketing and
customer service personnel. Competition for technical and other types of
personnel is intense, particularly in the Internet industry. As a result, we may
be unable to successfully attract or retain qualified personnel.

Online security risks could seriously harm our business

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

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

     Our future success will depend in part on the willingness of product
manufacturers and other advertisers to advertise on our Web site. There is
significant uncertainty about the demand for and market acceptance of Internet
advertising. In addition, the number of Web sites that offer advertising
opportunities has dramatically increased in the last year, thus increasing the
competition for available advertising revenue. We cannot assure you that the
market for Internet advertising will expand, become sustainable or that we will
be able to continue to provide an attractive forum for advertisers. If the
market for Internet advertising fails to develop, develops more slowly than we
expect or if we do not provide an attractive forum for advertisers, our business
may not achieve profitability.

     Because our advertising revenues carry higher gross margins than our
product sales, any decline in our advertising revenues would have a
disproportionate impact on our overall gross margin. If our current and
potential advertisers find Internet advertising to be less effective for
promoting their products and services than traditional advertising, they may
choose to decrease or discontinue advertising on the Internet or on our Web
site. If our advertising revenues decline, we may not be able to replace these
revenues through other programs or through our product sales.

Expansion into new product categories and business areas is costly, risky and
may not be profitable

     We have pursued an aggressive expansion strategy in the past year, opening
several new online stores and acquiring BuyGolf.com and Telstreet.com.
Continued expansion of our operations requires substantial expenses and
development, operations and editorial resources, and strains our management,
financial and operational resources.  We may choose to continue to expand our
operations by:

       -  developing new Web sites;

       -  pursuing new or complementary products, services or sales formats;

       -  expanding the breadth and depth of the products and services that we
          offer; or

       -  expanding our market presence through relationships with third
          parties.

     If we expand into other product or service offerings, we risk diluting our
brand name, confusing customers and decreasing interest from our advertisers.
In addition, we could be exposed to additional or unexpected risks if we enter
into new business areas and may be forced to abandon our current business model
or alter our strategic plans.  If any of our expansion efforts are unsuccessful,
our business may suffer, and we may lose potential market opportunities.

                                      22
<PAGE>

     In addition, we recently acquired Telstreet.com and entered into the online
market for wireless products and services. There can be no assurance that we
will succeed in this new business. The online market for wireless products and
services is new and uncertain and may not develop. Our ability to obtain and
retain customers will depend on, among other things, the attractiveness and
competitiveness of our product and service offerings and on our customer service
capabilities. If we fail to successfully integrate Telstreet.com, or experience
significant system, customer service, security or other problems after we
integrate this business into our Web site, customers may stop purchasing
wireless products and services from us. In addition, wireless service carriers
may terminate or limit their relationships with us if we do not represent an
attractive channel for them to sell their products and services. The occurrence
of these problems could have an adverse effect on our business and we may lose
potential market opportunities.

     In addition, we may pursue the acquisition of new or complementary
businesses or technologies, however, we have no present understandings,
commitments or agreements with respect to any material acquisitions or
investments.  We may not be able to expand our efforts and operations in a cost
effective or timely manner and these efforts may not achieve market acceptance.
Furthermore, any new business or Web site that we launch that is not favorably
received by customers could damage our reputation or the BUY.COM brand.

The integration of Telstreet.com into our operations will present significant
challenges. We may not be able to realize the benefits we anticipate from the
acquisition of Telstreet.com

     We face significant challenges in integrating the operations, technology,
and products and services of Telstreet.com into our operations in a timely and
efficient manner.  Cost synergies, revenue growth, technological development and
other synergistic benefits may not materialize. Diversion of our management's
attention, loss of highly qualified Telstreet.com employees, and an inability to
integrate the systems and operations of these two companies may all result from
the acquisition. The failure to integrate our company and Telstreet.com
successfully and to manage the challenges presented by the integration process
may result in our company and Telstreet.com not achieving the anticipated
potential benefits of the acquisition. Delays encountered in the transition
process could have a material adverse effect on our business.

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

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

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

       -  increased price competition from our competitors;

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

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

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

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

                                      23
<PAGE>

     Maintaining and strengthening the BUY.COM brand is an important factor in
attracting new customers, building customer loyalty and attracting advertisers.
Accordingly, we intend to continue to pursue an aggressive promotional strategy
to enhance our brand. These initiatives have involved, and are expected to
continue to require, significant expenditures. If we are unsuccessful in our
promotional efforts, we may never be able to recover these expenses or increase
our revenues or margins. We also believe potential customers and advertisers are
driven to our online store because of our strong brand recognition. If
advertisers do not believe our Web site is an effective marketing and sales
channel for their merchandise, or if customers do not perceive us as offering a
desirable way to purchase merchandise, our branding efforts will suffer and we
may lose customers.

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

       -  our ability to allocate the necessary marketing spend on our
          advertising and promotional efforts given our financial position;

       -  the success of our advertising and promotional efforts;

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

       -  our ability to provide high quality customer service.

     To promote the BUY.COM brand in response to competitive pressures, we may
increase our marketing budget or otherwise increase our financial commitment to
creating and maintaining brand loyalty among our customers. For example, we
spent approximately $71.3 million for the year ended December 31, 1999, and
approximately $67.8 million for the nine months ended September 30, 2000 and we
expect these expenses to continue to increase for the foreseeable future. We
cannot be certain that our advertising efforts will be a successful means of
customer acquisition or that this allocation of resources will provide
additional revenues equal to this dedication of our resources. If we fail to
promote and maintain our brand, or if we incur excessive expenses attempting to
promote and maintain our brand, our business may suffer.

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

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

       -  rapid technological change;

       -  changes in customer requirements and preferences;

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

       -  the emergence of new industry standards and practices.

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

       -  license or acquire leading technologies useful in our business;

       -  enhance our existing online stores;

       -  enhance our network infrastructure and transaction processing systems;

                                      24
<PAGE>

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

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

     Future advances in technology may not be beneficial to, or compatible with
our business.  Furthermore, we may not use new technologies effectively or adapt
our Web site and transaction processing systems to customer requirements or
emerging industry standards on a timely basis.  Our ability to remain
technologically competitive may require substantial expenditures and lead time.
If we are unable to adapt to changing market conditions or user requirements in
a timely manner, our stores may become obsolete and we will lose customers.

We may be subject to liability for sales and other taxes

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

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

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

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

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

       -  user privacy;

       -  pricing, usage fees and taxes;

       -  content;

       -  copyrights;

       -  distribution;

       -  characteristics and quality of products and services; and


                                      25
<PAGE>

       -  online advertising and marketing.

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

Our growth and operating results could be impaired by the risks associated with
our international operations

     We have expanded our international sales operations into the United
Kingdom, Australia and Canada.  Conducting business in foreign countries
involves inherent risks, including, but not limited to:

       -  difficulties in staffing, funding and managing foreign operations;

       -  unexpected or unknown changes in customer demand for e-commerce;

       -  unexpected changes in regulatory requirements;

       -  export restrictions;

       -  tariffs and other trade barriers;

       -  difficulties in protecting intellectual property rights;

       -  problems collecting accounts receivable;

       -  longer payment cycles;

       -  political instability;

       -  fluctuations in currency exchange rates; and

       -  potentially adverse tax consequences.

     If we were to experience any of these, or other difficulties, our
international operations and financial condition may suffer and cause us to
reduce or discontinue our international operations. For example, we are
currently working with our joint venture partner in an effort to secure
independent funding for our Australia and United Kingdom joint ventures. In the
event third party funding for the joint ventures is not available, we will not
be in a position to invest additional capital into these joint ventures and we
may reduce or discontinue operations of the joint ventures or explore other
strategic alternatives. There can be no assurance that additional financing for
the joint ventures will be available on acceptable terms, if at all. Further, if
we elect to discontinue operations in the United Kingdom and Australia, we would
be required to fund half of the costs associated with the discontinuance of such
operations and we would also be required to repay outstanding loans to our joint
venture partners.

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

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

                                      26
<PAGE>

against us in the U.S. District Court for the Central District of California
based on similar facts to the federal class action filed in March 2000. Another
class action was filed against us in Orange County, California Superior Court in
April 2000 based on similar facts to the federal class actions.

     Defending against these lawsuits may involve significant expense and
diversion of management's resources. Furthermore, due to the inherent
uncertainties of litigation, we may not prevail in these actions. In addition,
our ongoing operations may continue to subject us to significant litigation and
costs in the future. For a more detailed description of these legal actions, see
"Part II, Item 1, Legal Proceedings."

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

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

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

     The e-commerce market is new, rapidly evolving and intensely competitive.
Many of our current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing, technical, management and other resources than we do. Some
of our competitors have and may continue to use aggressive pricing or inventory
availability practices and devote substantially more resources to Web site and
system development than us. We expect that competition will further intensify in
the future. New technologies and the expansion of existing technologies may also
increase the competitive pressure we face. Increased competition may result in
reduced operating margins, loss of market share and diminished brand
recognition.

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

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

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

     In the fall of 1999, Scott A. Blum, our founder, majority stockholder and
former Chief Executive Officer and Chairman, resigned from our Board of
Directors, deposited all of his shares of our common stock into a voting trust,
and withdrew from participation in our management, business and operations. Mr.
Blum had previously resigned as our Chief

                                      27
<PAGE>

Executive Officer and terminated his employment with us in March 1999. As of
September 30, 2000, Mr. Blum's shares represented approximately 46% of our
outstanding capital stock. Prior to leaving the company, Mr. Blum was primarily
responsible for conceiving, developing and implementing our business model and
recruiting our Board of Directors and our current management team. In addition,
Mr. Blum was directly involved in the creation, development and implementation
of our corporate image and advertising strategy. If we are unable to
successfully transition our leadership, our business could suffer.

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

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

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

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

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

     SOFTBANK and its affiliates own approximately 29% of our outstanding stock
as of September 30, 2000. In addition, as a result of a voting trust agreement
with our largest stockholder, approximately 46% of our stock outstanding as of
September 30, 2000 must be voted by the trustees to mirror the voting of all
shares that are not subject to the terms of the voting trust agreement on
significant stockholder actions, as defined in the voting trust agreement. On
routine stockholder actions, the trustees have the discretion to vote the trust
shares in any manner determined by a majority of the trustees. Because SOFTBANK
and its affiliates will control a majority of the shares not subject to the
voting trust, they will effectively control the votes of approximately 75% of
our common stock on significant corporate actions and 29% on routine corporate
governance matters as of September 30, 2000. This control by SOFTBANK and its
affiliates could have a substantial impact on matters requiring the vote of the
stockholders, including the election of our directors and most of our corporate
actions. This control could delay, defer or prevent others from initiating a
potential merger, takeover or other change in our control, even if these actions
would benefit our stockholders and us. This control could adversely affect the
voting and other rights of our other stockholders and could depress the market
price of our common stock.

Our stock price may be volatile, which may result in losses to our stockholders

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

       -  variations in our operating results;

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

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

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

       -  conditions or trends in the Internet industry;

       -  additions or departures of key personnel; and

       -  future sales of our common stock.

     Domestic and international stock markets often experience significant price
and volume fluctuations. These fluctuations, as well as general economic and
political conditions unrelated to our performance, may adversely affect the
price of our common stock. In particular, the market prices for stocks of
Internet and technology-related companies often reach levels that bear no
established relationship to the operating performance of these companies. These
market prices are generally not sustainable, could vary widely and may be
especially volatile.

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

     A substantial number of our common stock have recently, and may continue
to, become eligible for resale in the near future upon the expiration of time
restrictions imposed by law and by contract. Sales of such additional shares in
the public market could reduce the market price of our common stock. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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                           PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     In March 1999, a class action suit was filed against us in the Orange
County, California Superior Court alleging breach of contract, fraud and
violation of consumer protection laws based on an error in the pricing of a
computer monitor that was offered for sale on our Web site.  Shortly thereafter
in March 1999, a similar class action case was filed in Camden County, New
Jersey. Both actions claim that we intentionally mispriced the monitors as a
scheme to cause more people to visit our site. Plaintiffs also claim that we
attempted the same scheme with other products. The plaintiffs are seeking
compensatory and punitive damages in addition to injunctive relief. Neither
action sets forth the amount of damages sought by the plaintiffs. In September
2000, we received preliminary approval from the Orange County Superior Court to
settle both lawsuits for an aggregate of $575,000. The New Jersey case has been
dismissed and may only be reinstated if final court approval is not given by the
Orange County Superior Court. We expect to receive final approval in the first
quarter of 2001.

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

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

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c)  Sales of Unregistered Securities. On August 16, 2000, we issued an
aggregate of 1,358,683 shares of our common stock to the shareholders of
Telstreet.com, Inc. in connection with our acquisition of Telstreet.com, Inc.
The shares were issued in a transaction which was exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of such Act and Rule 506 promulgated thereunder.

(d)  Use of Proceeds from Sales of Registered Securities. On February 11, 2000,
we completed an initial public offering (the "Offering") of our common stock,
$0.0001 par value. The shares of common stock sold in the Offering were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (the "Registration Statement") (Reg. No. 333-89737) that
was declared effective by the SEC on February 7, 2000. All 16,100,000 shares of
common stock registered under the Registration Statement (including 2,100,000
shares sold pursuant to the exercise of the

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Underwriters' over-allotment option) were sold at a price of $13.00 per share.
After deducting the underwriting discounts and commissions and Offering
expenses, we received net proceeds from the Offering of approximately $192.1
million. As of September 30, 2000, we had used approximately $82.0 million of
the net proceeds from the Offering for capital expenditures associated with
system upgrades and expansion, marketing activities, including our sponsorship
of the buy.com Tour, repayment of certain indebtedness, investments in our joint
ventures, and to fund operating losses and for working capital all as described
elsewhere in this report. Except for the repayment of a $5.0 million debt to The
Scott A. Blum Separate Property Trust, none of the net proceeds of the Offering
were paid directly or indirectly to any director, officer, general partner of
our or their associates, persons owning 10% or more of any class of equity
securities, or an affiliate of ours, other than in the form of wages or salaries
and bonuses paid out in the ordinary course of business.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

     In August, 2000 we completed the acquisition of Telstreet.com, a privately-
held company located in Indianapolis, Indiana. We issued an aggregate of
1,358,683 shares of our common stock in exchange for all of the outstanding
capital stock and options of Telstreet.com.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.   Exhibits

     27.1  Financial Data Schedule

B.   Reports on Form 8-K

     None.

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                                  SIGNATURES

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

                              BUY.COM INC.
                              (Registrant)



                              By:  /s/ Mitch C. Hill
                                 -----------------------------------------------
                                   Mitch C. Hill
                                   Chief Financial Officer (principal financial
                                   and accounting officer)

Dated: November 9, 2000

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                                 EXHIBIT INDEX

Exhibit Number                     Description

27.1   Financial Data Schedule

                                       33