<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 March 31, 2001

                                       OR

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

       For the transition period from _____________ to _____________


                       Commission file number 000-29295

                                 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 May 8, 2001 was 136,469,718.

<PAGE>

                                     INDEX
                                     -----

PART I      FINANCIAL INFORMATION                                          Page
------      ---------------------

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

Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations......................................  9

Item 3.     Quantitative and Qualitative Disclosures about Market Risk..... 25

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

Item 1.     Legal Proceedings.............................................. 26

Item 2.     Changes in Securities and Use of Proceeds...................... 27

Item 3.     Defaults Upon Senior Securities................................ 27

Item 4.     Submission of Matters to a Vote of Security Holders............ 27

Item 5.     Other Information.............................................. 27

Item 6.     Exhibits and Reports on Form 8-K............................... 27

            A.  Exhibits................................................... 27

            B.  Reports on Form 8-K........................................ 27

Signatures................................................................. 28


          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)

                                     ASSETS

<TABLE>
<CAPTION>
                                                       March 31, December 31,
                                                         2001       2000
                                                     ----------- ------------
                                                     (unaudited)
<S>                                                  <C>         <C>
Current Assets:
  Cash and cash equivalents, including
   restricted cash of $20,000 and $27,000            $   32,213   $  56,656
  Marketable securities                                   1,502      10,769
  Accounts receivable, net of allowances
   of $2,519 and $2,813                                  12,923      19,424
  Prepaid expenses and other current assets               8,306       7,141
                                                     ----------   ---------
    Total current assets                                 54,944      93,990
                                                     ----------   ---------
Property and equipment, net                              14,573      18,500
Intangibles, net                                          8,046      23,622
Other noncurrent assets                                     142         392
                                                     ----------   ---------
                                                     $   77,705   $ 136,504
                                                     ==========   =========
   LIABILITIES AND STOCKHOLDERS' EQUITY
 Current Liabilities:
  Accounts payable                                   $   15,460   $  38,682
  Other liabilities and accrued expenses                 18,097       3,460
  Deferred revenue                                        2,278       3,400
  Obligation to joint ventures, net                       2,072       7,156
  Current portion of long-term debt                         255         250
                                                     ----------   ---------
Total current liabilities                                38,162      52,948
                                                     ----------   ---------
Long-term debt, net of current portion                      241         324
                                                     ----------   ---------
                                                         38,403      53,272
                                                     ----------   ---------
Commitments and Contingencies

Stockholders' Equity:
 Common stock, $0.0001 par value;
  Authorized shares--850,000,000
   Issued and outstanding--136,262,793
    and 134,941,776 at March 31, 2001
    and December 31, 2000, respectively                      13         13
  Additional paid-in capital                            365,210    368,970
 Deferred compensation                                   (2,017)    (7,019)
 Accumulated deficit                                   (323,904)  (278,732)
                                                     ----------  ---------
    Total stockholders' equity                           39,302     83,232
                                                     ---------   ---------
                                                      $  77,705  $ 136,504
                                                      =========  =========
</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)
<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                 ------------------------------------
                                                                     March 31,          March 31,
                                                                       2001               2000
                                                                 ---------------      ---------------
                                                                             (unaudited)
<S>                                                              <C>                  <C>
 Net revenues                                                     $    124,601         $    207,616
 Cost of goods sold                                                    110,200              198,743
                                                                 ---------------      ---------------

 Gross profit                                                           14,401                8,873

 Operating expenses:
      Sales and marketing                                               13,190               24,520
      Product development                                                4,265                4,370
      General and administrative                                        12,324               11,682
      Restructuring charge                                              34,678                  -
                                                                 ---------------      ---------------
          Total operating expenses                                      64,457               40,572
                                                                 ---------------      ---------------

          Operating loss                                               (50,056)             (31,699)

 Other income (expense):
      Interest income                                                      701                1,388
      Other                                                                125                 (114)
                                                                 ---------------      ---------------
          Total other income (expense)                                     826                1,274
                                                                 ---------------      ---------------

 Net loss before equity in income (losses) of joint ventures           (49,230)             (30,425)

 Equity in income (losses) of joint ventures, net                        4,058               (2,421)
                                                                 ---------------      ---------------

 Net loss                                                         $    (45,172)        $    (32,846)
                                                                 ===============      ===============
 Net loss per share:
      Basic and diluted                                           $      (0.33)        $      (0.28)
                                                                 ===============       ==============
 Weighted average number of common
   shares outstanding:
      Basic and diluted                                            135,239,182          115,544,187
                                                                 ===============       ==============

</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>
                                                                    Three Months Ended
                                                              -------------------------------
                                                              March 31, 2001   March 31, 2000
                                                              --------------   --------------
<S>                                                           <C>              <C>
OPERATING ACTIVITIES
Net Loss                                                         $(45,172)        $(32,846)
Adjustments to reconcile net loss to cash used in operating
 activities:
   Depreciation                                                     1,498            1,079
   Amortization of deferred compensation and warrants               1,388            1,371
   Equity in (income) losses of joint ventures, net                (4,058)           2,421
   Amortization of goodwill and other intangibles                   2,805            2,957
   Non-cash restructuring charge                                   15,912              -
   Loss from the disposal of property and equipment                    13              161
   Changes in assets and liabilities:
   Accounts receivable                                              5,688           (4,078)
   Prepaid expenses and other current assets                       (1,335)          (5,503)
   Other noncurrent assets                                            250                8
   Accounts payable                                               (23,222)         (16,379)
   Other liabilities and accrued expenses                          14,407           (1,831)
   Deferred revenues                                               (1,122)           1,421
                                                                ----------       ----------
   Net cash used in operating activities                          (32,948)         (51,219)
                                                                ----------       ----------
INVESTING ACTIVITIES
  Redemption of marketable securities                               9,267              -
  Purchase of property and equipment                                 (412)          (3,632)
  Proceeds from sale of property and equipment                        -                456
  Investments in equity method investees                             (296)          (1,523)
                                                                ----------       ----------
   Net cash provided by (used in) investing activities              8,559           (4,699)
                                                                ----------       ----------
FINANCING ACTIVITIES
  Net proceeds from initial public offering                           -            192,305
  Repayments to stockholder                                           -             (5,000)
  Net proceeds from exercise of stock options                          24              856
  Repayments under line of credit and other obligations               (78)         (12,457)
                                                                ----------       ----------
   Net cash (used in) provided by financing activities                (54)         175,704
                                                                ----------       ----------
Net (decrease) increase in cash and cash equivalents              (24,443)         119,786
Cash and cash equivalents at beginning of period                   56,656           24,693
                                                                ----------       ----------
Cash and cash equivalents at end of period                       $ 32,213         $144,479
                                                                ==========       ==========
Supplemental cash flow information:
    Cash paid for interest                                       $      9         $  1,295
                                                                ==========       ==========
    Stock issued in connection with domain purchases             $    -           $    316
                                                                ==========       ==========
    Assumption of liabilities in connection with acquisition     $   (313)        $    -
                                                                ==========       ==========
    Net settlement of joint venture receivable                   $    730         $    -
                                                                ==========       ==========
</TABLE>

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

                                       3
<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, consumer electronics, wireless
products and services and office supplies and products. Through ten 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
ten 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 March 31, 2001 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, 2000 has been derived from the audited
consolidated financial statements at that date.  Operating results for the three
months ended March 31, 2001 may not be indicative of the results for the year
ending December 31, 2001.  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 Form 10-K for the year ended
December 31, 2000.  Certain prior period amounts have been reclassified to
conform to the current year 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.

                                       4
<PAGE>

Cash and Cash Equivalents

For the purposes of consolidated statements of cash flows, the Company considers
investment instruments with an original maturity of three months or less to be
cash equivalents. The carrying amount of cash equivalents approximates fair
value because of the short-term maturity of those instruments. Cash equivalents
are comprised of investments in money market funds, government mortgage backed
bonds and highly rated corporate securities. Cash and cash equivalents include
restricted cash of $20.0 million as of March 31, 2001, and $27.0 million as of
December 31, 2000.

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 the
Company is not able to return to suppliers, although these risks are mitigated
through arrangements with credit card issuers, shippers and suppliers.

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

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

     The Company believes it operates under one segment.

Recent Accounting Pronouncements

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

     On December 3, 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 was adopted during the quarter ended December 31, 2000.
The Company believes that its revenue recognition policies are in conformity
with SAB No. 101.

                                       5
<PAGE>

     In April 2001, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF Issue 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products."  The consensus provides guidance on the
income statement classification of costs that are incurred by a vendor to or on
behalf of a customer in connection with the customer's purchase or promotion of
the vendor's products. The consensus is effective for quarters beginning after
December 15, 2001.  Management believes the impact of the adoption of this
consensus will be immaterial.

3.  BUSINESS ACQUISITIONS, DISPOSITIONS, AND INVESTMENTS

International Joint Ventures

     On March 7, 2001, the Company sold its interest in its United Kingdom joint
venture for $4.0 million to the John Lewis Partnership, a large retailer in the
United Kingdom.  In connection with the sale, the Company applied its proceeds
to the repayment of the Company's loan obligations to its joint venture partner.
The income recorded in the line item "Equity in income (losses) of joint
ventures, net" represents the Company's 50% share of joint venture losses that
the Company recorded during 1999 and 2000. Upon sale, the Company's recorded
losses in 1999 and 2000 were greater than the Company's liability required to
fund such losses.

Restructuring Charge

     During the first quarter 2001, the Company initiated a restructuring of its
business and implemented a new operating plan. The Company recorded a $34.7
million charge associated with such restructuring plan. The charge is
substantially attributable to the impairment of goodwill associated with the
BuyGolf acquisition of $13.1 million, payment of severance and benefits for the
employees that were terminated during the first quarter of $2.1 million, the
write off of certain assets of $2.8 million, the write off of contract and lease
cancellation fees of $1.8 million and the remaining sponsorship fees related to
the Buy.com Tour of $14.9 million, as the Company does not believe that any
further benefits will be derived from its sponsorship agreement with the PGA
Tour.

4.  MARKETABLE SECURITIES

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

5.  COMMITMENTS AND CONTINGENCIES

     On March 13, 2000 a class action suit was filed against the Company in the
U.S. District Court for the Central District of California alleging that it
collects, uses and discloses personally identifiable customer information to its
third party advertising server and other advertisers without first informing its
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 the Company collects, uses and discloses
personally identifiable information of its consumers without first informing
them or obtaining their consent. The complaint seeks unspecified statutory
damages, compensatory damages, punitive damages, attorneys' fees and costs, plus
declaratory, injunctive and other equitable relief, including disgorgement of
all profits and restitution of all monies acquired by means of any act or
practice declared to be unlawful. The classes have not yet been certified in any
of these actions and such actions are in their early stages.

                                       6
<PAGE>

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

    Although the Company is not aware of any other material legal proceedings
against it, the Company is from time to time subject to ordinary course
litigation and disputes from its customers, employees and others.

6.  LOSS PER SHARE

     Basic loss per share is computed by dividing the net loss applicable
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>
                                                       Three Months Ended
                                                ------------------------------
                                                  March 31,         March 31,
                                                    2001              2000
                                                ------------      ------------
                                                         (unaudited)
<S>                                             <C>              <C>
Basic and diluted:
Net loss                                        $    (45,172)     $    (32,846)
Weighted average common shares                   135,239,182       115,544,187
                                                ------------      ------------
Net loss per common share                       $      (0.33)     $      (0.28)
                                                ============      ============
</TABLE>

7.  INCOME TAXES

     The Company incurred taxable losses for federal and state purposes for the
three months ended March 31, 2001 and the three months ended March 31, 2000.
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.

     At March 31, 2001, the Company has net operating loss carryforwards related
to federal and state income taxes for which the Company has established a
valuation allowance for the corresponding tax assets.

8.  STOCKHOLDERS' EQUITY

    Restricted Stock Program

     During the first quarter of 2001, the Company recorded a reversal of
deferred compensation of approximately $2.5 million due to the termination of
certain of its employees. The deferred compensation was related to restricted
stock awards that were designated, and reserved for issuance subject to
individual vesting schedules, for certain employees. The Company terminated the
employment of approximately 115 employees during the first quarter 2001, and as
a result, approximately 3.5 million shares that were reserved for issuance under
the Company's Restricted Stock Program were forfeited by employees. The Company
also incurred an additional expense of $269,000 related to the acceleration of
the vesting schedules for two employees' restricted stock awards. The remaining
deferred compensation charge related to the Company's Restricted Stock Program
is approximately $1.2 million, which is being amortized using the straight-line
method over the remaining seven quarters of vesting. As of March 31, 2001,
approximately 1.8 million shares were reserved for issuance under the Restricted
Stock Program.

                                       7
<PAGE>

     The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans.  Accordingly, no deferred compensation charge is
recognized for any of its stock options when the exercise price of each option
equals or exceeds the fair value of the underlying common stock as of the grant
date for each stock option.  The Company records deferred compensation for the
difference at the grant date between the exercise price and the fair value of
the common stock underlying the options.  This amount is being amortized over
the vesting period of the individual options, which is generally 3 to 4 years.

                                       8
<PAGE>

ITEM 2.

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

     This report contains forward-looking statements which include, but are not
limited to, statements concerning our ability to operate the business to
positive operating cash flow, the ability to successfully execute our operating
plan, the need for additional capital, the ability to raise additional working
capital on acceptable terms, the ability to retain key employees, management
personnel and our Board of Directors, the ability to effectively transition a
new management team, the ability to maintain the support of our distributor and
vendor partners, the ability to maintain other key corporate relationships, the
ability to achieve our revenue goals in light of softening demand for consumer
products, projected revenues, expenses, gross profit and income and the success
of pending litigation. These forward-looking statements are based on our current
expectations, estimates and projections about our industry, management's
beliefs, and certain assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will"
and variations of these words or similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ materially and adversely
from those expressed in any forward-looking statements as a result of various
factors. The section entitled "Risk Factors" set forth at the end of Part I,
Item 2 of this report, the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this report and similar discussions in
our other filings with the Securities and Exchange Commission ("SEC") discuss
some of the important risk factors that may affect our business, results of
operations and financial condition. You should carefully consider those risks,
in addition to the other information in this report and in our other filings
with the SEC, before deciding to invest in 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 multi-category Internet superstore that offers a broad
selection of brand name computer hardware and peripherals, software, books,
videos, DVDs, computer games, music, clearance products, consumer electronics,
office supplies and products, and wireless products and services at everyday low
prices. BUY.COM was organized as a California limited liability company in June
1997 under the name BuyComp LLC and was incorporated in Delaware as Buy Corp. in
August 1998. In November 1998, we changed our name to BUY.COM INC.

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

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

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

                                       9
<PAGE>

     To date, our sales of computer hardware and software products have
accounted for the vast majority of our net revenues. Our sales of products in
other categories constituted less than 20% of our net revenues for the three
months ended March 31, 2001 and for the three months ended March 31, 2000.  None
of our other product categories individually constituted more than 10% of our
net revenues during these periods.  Product sales, including shipping and
handling, accounted for 94.1% and 96.2% of net revenues for the three months
ended March 31, 2001 and March 31, 2000, respectively.

     Shipping and handling net revenues were $5.4 million and $8.1 million for
the three months ended March 31, 2001 and March 31, 2000, 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 $609,000 and $1.8 million for the three
months ended March 31, 2001 and March 31, 2000, 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 6.9%
and 4.9% of net revenues for the three months ended March 31, 2001 and March 31,
2000, 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
$1.2 million, or 1.0% of net revenues, for the three months ended March 31, 2001
and $2.3 million, or 1.1% of net revenues, for the three months ended March 31,
2000.

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

RESULTS OF OPERATIONS

Net revenues

     Net revenues were $124.6 million and $207.6 million for the three months
ended March 31, 2001 and 2000, respectively, representing a 40.0% decrease.  We
believe the decrease in net revenues is primarily attributable to decreased
product sales as a result of the price increases on many of our products.  We
intend to continue selective price increases, and as a result, we may experience
continued decreased sales volumes.

Gross  profit

     Gross profit is calculated as net revenue less the cost of sales which
includes the cost of products sold, shipping costs, and the related distribution
and fulfillment costs.  Gross profits were $14.4 million and $8.9 million for
the three months ended March 31, 2001 and 2000, respectively, representing an
increase of 62.3%.  We believe the increase in gross profit was primarily due to
the price increases on many of our product sales.

                                       10
<PAGE>

Sales and marketing expenses

     Sales and marketing expenses consist primarily of advertising and
promotional expenses, as well as credit card fees, outsourced customer service
fees, and payroll associated with our advertising and marketing personnel.
Sales and marketing expenses were $13.2 million and $24.5 million for the three
months ended March 31, 2001 and 2000, respectively, representing a decrease of
46.2%.  Sales and marketing expenses as a percentage of net revenues decreased
to 10.6% for the three months ended March 31, 2001 as compared to 11.8% for the
three months ended March 31, 2000.  The decrease, both as a percentage of net
revenues and in absolute dollars, was primarily attributable to the reduction of
our advertising campaigns consistent with our restructuring plan implemented
during the first quarter of 2001.  We expect marketing and sales expenses to
continue to decrease in absolute dollars as compared to the same periods in the
previous year.

Product development expenses

     Product development expenses consist primarily of personnel and other
expenses associated with developing and enhancing our Web site, as well as
associated facilities and related expenses.  Product development expenses were
$4.3 million and $4.4 million for the three months ended March 31, 2001 and
2000, respectively, representing a decrease of 2.4%.  Product development
expenses as a percentage of net revenues increased to 3.4% for the three months
ended March 31, 2001 as compared to 2.1% for the three months ended March 31,
2000.  The decrease in absolute dollars was primarily due to a decrease in
outside consulting costs.  We intend to continue to enhance our Web site and
technology and information systems, however consistent with our restructuring
plan, we expect product development expenses to decrease in absolute dollars as
compared to the same periods in the previous year.  Also, in accordance with
authoritative guidance, certain costs are capitalized and amortized over the
estimated useful lives of the applicable assets.

General and administrative expenses

     General and administrative expenses consist primarily of payroll and
related expenses for executive and administrative personnel, facilities
expenses, professional fees, depreciation and amortization, and other general
corporate expenses.  General and administrative expenses were $12.3 million and
$11.7 million for the three months ended March 31, 2001 and 2000, respectively,
representing an increase of 5.5%.  General and administrative expenses as a
percentage of net revenues increased to 9.9% for the three months ended March
31, 2001 as compared to 5.6% for the three months ended March 31, 2000.  The
increase was primarily attributable to increased professional expenses and other
general corporate expenses.  Consistent with our restructuring plan, we expect
general and administrative expenses to decrease in absolute dollars, as compared
to the same periods in the previous year, due to our staff reduction and our
reduction of other general and corporate expenses.

Restructuring expense

     We incurred a restructuring expense of $34.7 million for the three months
ended March 31, 2001 which was related to a one time charge associated with the
restructuring of our business and the implementation of our new operating plan.
The charge is primarily attributable to the impairment of the goodwill
associated with the BuyGolf acquisition of $13.1 million, payment of severance
and benefits for the employees that were terminated during the first quarter of
$2.1 million, the write off of certain assets of $2.8 million, the write off of
contract and lease cancellation fees of $1.8 million, and the remaining
sponsorship fees related to the Buy.com Tour of $14.9 million, as we do not
believe that any further benefits will be derived from the sponsorship with the
PGA Tour.

Other income (expense)

     Total other income was $826,000 and $1.3 million for the three months ended
March 31, 2001 and 2000, respectively.  The decrease was largely due to the
decrease in interest income during the three months ended March 31, 2001 as a
result of lower cash balances in our accounts.

                                       11
<PAGE>

Equity in income (losses) of joint ventures, net

     Equity in income (losses) of joint ventures, net, was $4.1 million and
negative $2.4 million for the three months ended March 31, 2001 and 2000,
respectively.  During 2000, we decided to discontinue our joint venture in
Australia, and in March 2001, we sold our United Kingdom joint venture. The
income during the three months ended March 31, 2001 relates to the amounts
previously expensed during 1999 and 2000 as our share of the operating losses
for the joint venture, which upon the sale of the United Kingdom joint venture,
was greater than the amount required to fund these joint ventures.  The losses
during the three months ended March 31, 2000 consisted of 50% of the losses of
the international joint ventures and BuyTravel.com LLC during that period.  The
joint ventures were at an early stage of operations and were incurring net
losses, which we recorded as an equity method investment.

Liquidity and Capital Resources

     As of March 31, 2001, our principal sources of liquidity consisted of $32.2
million of cash and $1.5 million of marketable securities compared to $56.7
million of cash and $10.8 million of marketable securities at December 31, 2000.
As of March 31, 2001, approximately $20.0 million of our cash is characterized
as restricted to secure our obligations under several letters of credit.

     Net cash used in operating activities was $32.9 million and $51.2 million
for the three months ended March 31, 2001 and 2000, respectively.  Net operating
cash flows for the three months ended March 31, 2001 were primarily attributable
to the net losses of $45.2 million partially offset by non-cash charges of $17.5
million related to depreciation and amortization, equity in income (losses) of
joint ventures, and a non-cash restructuring charge, as well as $5.2 million of
cash used in changes in operating assets and liabilities and the loss from the
disposal of property and equipment. Cash used in changes in operating assets and
liabilities is primarily a function of a decrease in our accounts payable, an
increase in prepaid expenses and a decrease in deferred revenues, offset by a
decrease in accounts receivable and an increase in other liabilities and accrued
expenses relating to our restructuring accrual.  Net operating cash flows for
the three months ended March 31, 2000 were primarily attributable to the net
losses, an increase in accounts receivable, an increase in prepaid expenses and
other current assets, and a decrease in accounts payable, other liabilities and
accrued expenses, partially offset by non-cash depreciation and amortization and
an increase in deferred revenues.

     Net cash provided by investing activities was $8.6 million for the three
months ended March 31, 2001 and primarily consists of the redemption of
marketable securities offset by purchases of property and equipment and cash
paid for investments in equity method investees. Net cash used in investing
activities for the three months ended March 31, 2000 was $4.7 million and
primarily consisted of purchase of property and equipment and cash paid for
investments in equity method investees, partially offset by the proceeds from
the sale of property and equipment.

     Net cash used in financing activities was $54,000 for the three months
ended March 31, 2001 and primarily consists of repayments under credit
obligations offset by proceeds from the exercise of stock options.  Net cash
provided by financing activities was $175.7 million for the three months ended
March 31, 2000 as a result of the net proceeds from our initial public offering
in February 2000 and proceeds from the exercise of stock options, partially
offset by the repayment of our credit facility and a promissory note to a
stockholder.

     As of March 31, 2001, our principal commitments consisted primarily of
obligations in connection with our capital and operating leases.  We also have a
commitment for the sponsorship of the buy.com TOUR, pursuant to which we have
secured a $14.9 million letter of credit. Pursuant to the terms of the letter of
credit, the PGA TOUR may draw upon such remaining balance in May 2001.

     In March 2001, we sold our interest in our United Kingdom joint venture to
the John Lewis Partnership. We incurred minimal costs associated with the sale
of such joint venture.  In November 2000, we also terminated our Australian
joint venture and incurred only minimal costs associated with such termination.

     In 1999 and 2000, we focused significant efforts and financial resources on
sales and marketing activities to build our brand, increase customer traffic to
our Web site and enhance our customer loyalty.  We also committed significant

                                       12
<PAGE>

financial resources to the development of our Web site, transaction processing
systems and network infrastructure.  However, during the first quarter in 2001,
we initiated a restructuring of our business and implemented a new operating
plan designed to accelerate our ability to achieve positive operating cash flow.
As part of the plan, we significantly reduced the size of our workforce and made
further expense reductions for the business in the areas of marketing and
advertising, product development and general and administrative.  Our new
operating plan also requires us to refine our gross margin strategy and continue
to increase prices on many of our products.  As a result, we expect that our
sales volumes for 2001 will be significantly less than our sales volumes for
2000.

     As a result of our new operating plan and financial model, we expect our
current cash balances will be sufficient to meet our cash needs for the next 12
months.  However, there can be no assurance that we will not need to raise
additional working capital sooner than otherwise expected, and we may seek to
sell additional equity securities, obtain a line of credit or seek other ways to
fund our operations. We currently do not have any commitments for additional
financing and we cannot be certain that additional financing will be available
when and to the extent required, or that, if available, it will be on acceptable
terms. We have also received a notice from the Nasdaq National Market that our
common stock has failed to maintain the required minimum bid price of $1.00 over
a period of 30 consecutive trading days. As a result, we have 90 calendar days,
or until May 31, 2001, to regain compliance with this requirement or be delisted
from trading. If our common stock were delisted from the Nasdaq National Market,
the ability of any potential or future investors to achieve liquidity from our
common stock would be severely limited and will inhibit, if not preclude, our
ability to raise additional working capital on acceptable terms, if at all.

RISK FACTORS

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

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

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

     Our new operating plan is based on assumptions made by management regarding
various revenue, gross margin and operating expense items.  We cannot guarantee
that the assumptions that we have relied upon in developing our operating plan
will be accurate, or that future events or results will conform to our
expectations or assumptions.  If our assumptions are inaccurate, or our
expectations prove to be erroneous in light of future events, or if we are
unable to maintain the support of our vendors, distributors, third party
advertisers and other key corporate relationships regardless of the success of
our new operating plan, we will need to raise additional working capital before
we achieve positive

                                       13
<PAGE>

operating cash flow. We currently do not have any commitments for additional
financing, and we cannot be certain that additional financing will be available
when and to the extent required, or that, if available, it will be on acceptable
terms. If adequate funds are not available on acceptable terms, we may not be
able to fund our operations and our business could fail.

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

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

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

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

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

     We have not achieved profitability since our inception, and we incurred net
losses of $45.2 million and $32.8 million for the quarters ended March 31, 2000
and 2001, respectively.  Although we recently initiated a restructuring of our
business designed, in part, to significantly reduce costs in a number of areas,
we expect to continue to incur substantial costs and expenses related to:

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

   -  brand development, marketing and other promotional activities;

   -  the expansion of our existing product and service offerings;

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

   -  the development of strategic relationships; and

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

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

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

                                       14
<PAGE>

   -  our ability to maintain reasonable operating expense levels;

   -  our ability to generate significant advertising revenue; and

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

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

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

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

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

   -  our ability to maintain other key corporate relationships; and

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

     We may also seek to sell additional equity securities, obtain a line of
credit or seek other ways to fund our operations in the event we require
additional working capital to operate our business. We currently do not have any
commitments for additional financing and we cannot be certain that additional
financing will be available when and to the extent required, or that, if
available, it will be on acceptable terms. If adequate funds are not available
on acceptable terms, we may not be able to fund our operations, and our business
will fail.  Further, if we raise additional funds by issuing equity or
convertible debt securities, the percentage ownership of our stockholders will
be diluted. Also, any new securities could have rights, preferences and
privileges senior to those of our common stock.

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

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

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

     In January and February 2001, we initiated a restructuring of our business
and terminated the employment of approximately 115 employees. This reduction in
workforce may negatively impact our ability to conduct business and serve our
customers, distributors and vendor partners in a manner comparable with past
practice, which could cause our business to

                                       15
<PAGE>

suffer significantly. For example, we recently changed our customer support
organization to discontinue telephone support to our customers and only provide
e-mail customer support. Although we believe our new customer support program is
adequate, there can be no assurance that our customers will not become
dissatisfied and choose to shop at another destination. Further, our workforce
reduction and loss of key management personnel could cause concern among our
distributors, vendors, third party advertisers and other critical corporate
relationships.

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

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

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

     Our future success also depends on our ability to provide timely and
accurate order fulfillment. We depend on Ingram Micro to process and ship
substantially all of the computer hardware and software products that we sell to
our customers. However, we have limited control over their shipping and
processing procedures. Ingram Micro's systems 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 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, Direct Source Distributing, Inc.
for our clearance products, Valley Media, Inc. for music products, Global Trade,
Inc. and DBL Distributing, 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 are also dependent on various supply and fulfillment partners,
including Brightpoint, Inc., and various wireless service providers for the
products and services offered in our wireless store. If we do not maintain our
existing relationships with these providers on acceptable commercial terms, we
may not be able to continue to offer a broad selection of merchandise at low
prices, and customers may refuse to shop at our online store. In addition,
manufacturers may decide, for reasons outside our control, not to offer
particular products for sale on the Internet. Other manufacturers have chosen
not to authorize any Internet resellers or Internet resellers without a
traditional "brick and mortar" retail store. If we are unable to supply products
to our customers, or if other product manufacturers refuse to allow their
products to be sold via the Internet, our business will suffer severely.

                                       16
<PAGE>

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

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

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

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

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

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

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

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

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

  -  expand our customer base;

  -  enhance our brand recognition;

  -  expand our product and service offerings;

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

  -  successfully implement our business and marketing strategy;

                                       17
<PAGE>

  -  provide high quality customer service and order processing;

  -  respond effectively to competitive and technological developments; and

  -  attract and retain qualified personnel.

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

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

  -  prevent customers from accessing our online stores;

  -  reduce our ability to fulfill orders;

  -  reduce the number of products that we sell;

  -  cause customer dissatisfaction; or

  -  damage our reputation.

     We have experienced brief computer system interruptions in the past, and
these interruptions may recur.  In the future, we may 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 the number of customers visiting our Web site.

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

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

     We are subject to risks due to the unproven and evolving nature of our
business model and aggressive pricing strategy. The success of our business
model depends on the volume of customers that visit our Web site and purchase
our products, as well as our ability to generate significant online advertising
revenues. To this end, we have worked hard to build our brand name and enhance
our customer loyalty by selling our products at extremely low prices and
maintaining very low, and sometimes negative, gross margins on our product
sales. We have implemented various strategies to improve our gross margins,
including raising prices on many of the products we sell.  Raising the prices on
our merchandise could cause product sales to decline.  If the amount of traffic
to our Web site decreases due to price increases, a reduced marketing budget, a
weakening demand for technology and entertainment products or otherwise, we may
become less attractive to our current and potential advertisers. As a result,
our margins and advertising revenues may decline.

     Our ability to achieve profitability also depends on our ability to
effectively manage our operating costs.  To this end, we have implemented a
restructuring plan that requires less headcount to operate our business, less
resources dedicated to the development of our system infrastructure, operating
systems and other capital expenditures and a more efficient use of the resources
dedicated to marketing and promoting our Web site.  If we are unable to manage
our operating expenses, while at the same time increasing our gross margins, and
without experiencing a significant deterioration in our sales volumes, we will
be unable to achieve profitability.  Further, since our new operating plan

                                       18
<PAGE>

requires significantly less resources focused on the operation of our business,
we may not be able to achieve high levels of customer satisfaction, and
consequently, we may lose existing and potential customers.

Online security risks could seriously harm our business

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

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

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

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

  -  increased price competition from our competitors;

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

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

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

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

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

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

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

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

                                       19
<PAGE>

     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.

     Our marketing budget has been significantly reduced as a result of our
effort to achieve positive operating cash flow.  We cannot be certain that our
reduced marketing budget will successfully drive customer acquisition or that
this allocation of resources will provide additional revenues equal to this
dedication of our resources.  If we fail to promote and maintain our brand, or
if we incur excessive expenses attempting to promote and maintain our brand, our
business may suffer.

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

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

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

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

  -  our ability to generate significant advertising revenues;

  -  our ability to build and maintain customer loyalty;

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

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

  -  the success of our brand building and marketing campaigns;

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

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

  -  increases in the cost of online or offline advertising;

  -  unexpected increases in shipping costs or delivery times;

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

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

  -  technical difficulties, system downtime, power outages or Internet
     brownouts;

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

                                       20
<PAGE>

     operations and infrastructure; and

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

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

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

  -  rapid technological change;

  -  changes in customer requirements and preferences;

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

  -  the emergence of new industry standards and practices.

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

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

  -  license or acquire leading technologies useful in our business;

  -  enhance our existing online stores;

  -  enhance our network infrastructure and transaction processing systems;

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

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

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

We may be subject to liability for sales and other taxes

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

                                       21
<PAGE>

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

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

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

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

  -  user privacy;

  -  pricing, usage fees and taxes;

  -  content;

  -  copyrights;

  -  distribution;

  -  characteristics and quality of products and services; and

  -  online advertising and marketing.

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

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

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

     In March 2001, the PGA Tour filed a counterclaim against us in the federal
district court in the Central District of California.  The counterclaim alleges
that we breached our contract with them by declaring our sponsorship agreement
to be terminated, by demanding that the PGA Tour cease all uses of our
trademark, by breaching the confidentiality provisions of

                                       22
<PAGE>

our agreement with them and by taking action that adversely affects the goodwill
of the Buy.Com Tour. The PGA Tour seeks damages in excess of $75,000 and
attorneys' fees.

     Defending against these lawsuits may involve significant expense and
diversion of management's resources. Furthermore, due to the inherent
uncertainties of litigation, we may not prevail in these actions. In addition,
our ongoing operations may continue to subject us to significant litigation and
costs in the future. For a more detailed description of these legal actions, see
"Part 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, office supplies and products and
wireless products and services. Moreover, all of the products we sell in our
online stores are typically available from traditional retailers. Consequently,
we must compete with companies in the online commerce market as well as the
traditional retail industry.

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

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

     We regard our trademarks, trade secrets and similar intellectual property
as critical to our success. We rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with employees,
customers, providers and others to protect our proprietary rights. We cannot be
certain that we have taken adequate steps to protect our proprietary rights,
especially in countries where the laws may not protect our rights as fully as in
the United States. In addition, third parties may infringe or misappropriate our
proprietary rights, and we could be required to incur significant expenses to
preserve them. We have applied for the registration of some of our trademarks
and service marks in

                                       23
<PAGE>

the United States and some other countries. Even if we are able to register
these names, registration may not adequately protect us against infringement by
others. Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which our products and services are
made available online. If we are not able to protect our trademarks and other
intellectual property, we may experience difficulties in achieving and
maintaining brand recognition and customer loyalty.

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

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

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

     SOFTBANK and its affiliates own approximately 28% of our outstanding stock
as of March 31, 2001.  In addition, as a result of a voting trust agreement with
our largest stockholder, approximately 44% of our stock outstanding as of March
31, 2001 must be voted by the trustees to mirror the voting of all shares that
are not subject to the terms of the voting trust agreement on significant
stockholder actions, as defined in the voting trust agreement. On routine
stockholder actions, the trustees have the discretion to vote the trust shares
in any manner determined by a majority of the trustees. Because SOFTBANK and its
affiliates will control a majority of the shares not subject to the voting
trust, they will effectively control the votes of approximately 72% of our
common stock on significant corporate actions and 28% on routine corporate
governance matters as of March 31, 2001.  This control by SOFTBANK and its
affiliates could have a substantial impact on matters requiring the vote of the
stockholders, including the election of our directors and most of our corporate
actions. This control could delay, defer or prevent others from initiating a
potential merger, takeover or other change in our control, even if these actions
would benefit our stockholders and us. This control could adversely affect the
voting and other rights of our other stockholders and could depress the market
price of our common stock.

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

     In the fall of 1999, Scott A. Blum, our founder, majority stockholder and
former Chief Executive Officer and Chairman, resigned from our Board of
Directors, deposited all of his shares of our common stock into a voting trust,
and withdrew from participation in our management, business and operations. Mr.
Blum had previously resigned as our Chief Executive Officer and terminated his
employment with us in March 1999.  As of March 31, 2001, Mr. Blum's shares
represented approximately 44% of our outstanding capital stock. Prior to leaving
the company, Mr. Blum was primarily responsible for conceiving, developing and
implementing our business model and recruiting our Board of Directors and our
management team. In addition, Mr. Blum was directly involved in the creation,
development and implementation of our corporate image and advertising strategy.
If we are unable to successfully transition our leadership while maintaining the
support of Mr. Blum within the limits of the voting trust, our business could
suffer.

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

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

  -  variations in our operating results, such as our inability to meet our
     estimated revenue targets for the quarters ended June 30, 2000, September
     30, 2000, December 31, 2000 and March 31, 2001;

                                       24
<PAGE>

  -  the delisting of our common stock from the Nasdaq National Market;

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

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

  -  changes in our business model and operating strategies;

  -  our ability to attract and retain members to our Board of Directors

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

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

  -  conditions or trends in the Internet industry;

  -  additions or departures of key personnel; and

  -  future sales of our common stock.

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

     From February 8, 2000 (the first day of public trading of our common
stock), through March 31, 2001, the high and low sales prices for our common
stock fluctuated between $27.50 and $0.22.  In the past, following periods of
volatility in the market price of their securities, many companies have been the
subject of securities class action litigation.  If we were sued in a securities
class action, it could result in substantial costs and a diversion of
management's attention and resources and would cause the price of our common
stock to fall.

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

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

ITEM 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.

                                       25
<PAGE>

                         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 claimed that we intentionally mispriced the monitors as a
scheme to cause more people to visit our site.  Plaintiffs also claimed that we
attempted the same scheme with other products. The plaintiffs were seeking
compensatory and punitive damages in addition to injunctive relief.  Neither
action set forth the amount of damages sought by the plaintiffs.  In September
2000, we received preliminary approval from the Orange County Superior Court to
settle both lawsuits for an aggregate of $575,000.  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 received final approval from the court on
December 15, 2000 and the entire settlement amount was covered by our insurance
carrier.

     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.

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

     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.

                                       26
<PAGE>

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

(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 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 March 31, 2001, we had used
approximately $158.4 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

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.  Exhibits

    2.1    Share Purchase Agreement dated March 7, 2001 by and between Buy.Com
           Inc. and JLP Victoria Limited

    10.1*  Supply and Fulfillment agreement between Buy.Com Inc. and Direct
           Source Distributors, Inc. dated March 19, 2001

    10.2*  Technology and Trademark License Agreement dated March 7, 2001 by
           and between Buy.Com Inc., and JLP Victoria Limited

    10.3   Deed of Covenant dated March 7, 2001 by and between Buy.com, Inc.,
           Buy.com Limited and JLP Victoria Limited

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

B.  Reports on Form 8-K

    None.


                                       27
<PAGE>

                                   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/ ROBERT R. PRICE
                                    --------------------------------------------
                                    Robert R. Price
                                    Chief Financial Officer (principal financial
                                    and accounting officer)


Dated:  May 14, 2001

                                       28
<PAGE>

                                 EXHIBIT INDEX

    Exhibit Number               Description

A.  Exhibits

    2.1    Share Purchase Agreement dated March 7, 2001 by and between Buy.Com
           Inc. and JLP Victoria Limited

    10.1*  Supply and Fulfillment agreement between Buy.Com Inc. and Direct
           Source Distributors, Inc. dated March 19, 2001

    10.2*  Technology and Trademark License Agreement dated March 7, 2001 by
           and between Buy.Com Inc., and JLP Victoria Limited

    10.3   Deed of Covenant dated March 7, 2001 by and between Buy.com, Inc.,
           Buy.com Limited and JLP Victoria Limited

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


B.  Reports on Form 8-K

    None.

                                       29