<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, 2000

                                       OR

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

       For the transition period from _____________ to _____________


                        Commission file number 000-29295

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

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

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


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

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


     Indicate by check mark whether the registrant:  (1) has filed all documents
and reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

                           Yes  X    No _____
                               ---

     The number of shares outstanding of the Registrant's Common Stock, par
value $0.0001, as of May 1, 2000 was 131,615,126.
<PAGE>

                                     INDEX
                                     -----

<TABLE>
<CAPTION>
PART I      FINANCIAL INFORMATION                                                                   Page
---------------------------------                                                                   ----
<S>                                                                                                 <C>
Item 1.     Consolidated Balance Sheets at December 31, 1999 and March 31, 2000 (unaudited).......   1

            Unaudited Consolidated Statements of Operations for the Three Months Ended March 31,
            1999 and 2000.........................................................................   2

            Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31,
            1999 and 2000.........................................................................   3

            Notes to Consolidated Financial Statements............................................   4

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

Item 3.     Quantitative and Qualitative Disclosures about Market Risk............................  30

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

Item 1.     Legal Proceedings.....................................................................  31

Item 2.     Changes in Securities and Use of Proceeds.............................................  32

Item 3.     Defaults Upon Senior Securities.......................................................  33

Item 4.     Submission of Matters to a Vote of Security Holders...................................  33

Item 5.     Other Information.....................................................................  34

Item 6.     Exhibits and Reports on Form 8-K......................................................  34

            A.  Exhibits..........................................................................  34

            B.  Reports on Form 8-K...............................................................  34

Signatures........................................................................................  35
</TABLE>

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

                                       i
<PAGE>

                                 BUY.COM INC.
                                 ------------
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------
          (amounts in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                       ASSETS

                                                                                      March 31,           December 31,
                                                                                         2000                 1999
                                                                                 -----------------    -----------------
                                                                                    (unaudited)
<S>                                                                              <C>                   <C>
Current Assets:
       Cash and cash equivalents                                                  $         144,479    $          24,693
       Accounts receivable, net of allowances of $1,530 and $1,104 at
          March 31, 2000 and December 31, 1999, respectively                                 24,258               18,151
       Prepaid expenses and other current assets                                             36,938               31,605
                                                                                  -----------------    -----------------
                  Total current assets                                                      205,675               74,449
Property and equipment, net                                                                  18,543               16,607
Intangibles, net                                                                             25,516               28,156
Other noncurrent assets                                                                         661                  496
                                                                                  -----------------    -----------------
                                                                                  $         250,395    $         119,708
                                                                                  =================    =================

                           LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
       Accounts payable                                                           $          54,678    $          71,231
       Line of credit                                                                             -               12,377
       Other liabilities and accrued expenses                                                 6,211                4,768
       Deferred revenue                                                                       2,643                1,222
       Income taxes payable                                                                       3                    3
       Note Payable to stockholder                                                                -                5,000
       Current portion of long-term debt                                                        325                  321
                                                                                  -----------------    -----------------
                  Total current liabilities                                                  63,860               94,922

Long-Term Debt, net of current portion                                                        1,654                1,738
                                                                                  -----------------    -----------------

Commitments and Contingencies

Stockholders' Equity:
       Convertible Preferred stock - Series A and Series B, $0.0001 par
       value;
          Authorized shares - 150,000,000 at March 31, 2000; issued and
            outstanding--22,098,982 at December 31, 1999 and 0 at March 31,
            2000, including additional paid-in capital                                            -              104,939
       Common stock, $0.0001 par value;
          Authorized shares-850,000,000 at March 31, 2000; Issued and
            outstanding--93,041,193 at December 31, 1999; 131,615,126 at March
            31, 2000                                                                             13                   10
          Additional paid-in capital                                                        369,246               72,659
       Deferred Compensation                                                                 (5,822)              (8,850)
       Accumulated Deficit                                                                 (178,556)            (145,710)
                                                                                  -----------------    -----------------
                  Total stockholders' equity                                                184,881               23,048
                                                                                  -----------------    -----------------
                                                                                  $         250,395    $         119,708
                                                                                  =================    =================
</TABLE>

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

                                       1
<PAGE>

                                 BUY.COM INC.
                                 ------------
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     -------------------------------------
          (amounts in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                        March 31,
                                                           ---------------------------------
                                                                2000               1999
                                                           ----------------   --------------
                                                                     (unaudited)
<S>                                                        <C>                <C>
 Net revenues                                              $        207,616   $      107,932
 Cost of goods sold                                                 198,743          108,115
                                                           ----------------   --------------

 Gross profit (loss)                                                  8,873            (183)

 Operating expenses:
     Sales and marketing                                             24,520           12,322
     Product development                                              4,370              830
     General and administrative                                       6,275            3,079
     Depreciation and amortization                                    4,036              854
     Amortization of deferred compensation                            1,201            2,115
     Charge for warrants                                                170                -
                                                           ----------------   --------------
           Total operating expenses                                  40,572           19,200
                                                           ----------------   --------------

           Operating loss                                           (31,699)         (19,383)

 Other income (expense):
     Interest income                                                  1,388              114
     Other                                                             (114)              17
                                                           ----------------   --------------

           Total other income                                         1,274              131

 Net loss before equity in losses of joint ventures                 (30,425)         (19,252)

 Equity in losses of joint ventures                                   2,421                -
                                                           ----------------   --------------

 Net loss                                                  $        (32,846)  $      (19,252)
                                                           ================   ==============

 Net loss per share:
     Basic and diluted                                     $          (0.28)  $        (0.22)
                                                           ================   ==============

 Weighted average number of common shares outstanding:
     Basic and diluted                                          115,544,187       88,300,193
</TABLE>

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

                                       2
<PAGE>

                                 BUY.COM INC.
                                 ------------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                            (amounts in thousands)

<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                                  March 31,
                                                       -----------------------------
                                                          2000               1999
                                                       ----------         ----------
                                                                (unaudited)
<S>                                                   <C>                 <C>
 Cash flows from operating activities:
    Net loss                                           $ (32,846)         $ (19,252)
    Adjustments to reconcile net loss to
     net cash used in operating activities
     Depreciation and amortization                         4,036                854
     Loss on disposal of fixed assets                        161                  -
     Amortization of deferred compensation                 1,201              2,115
     Charge for warrants                                     170                  -
     Changes in assets and liabilities:
       Accounts receivable                                (6,107)            (1,877)
       Prepaid expenses and other current
        assets                                            (5,503)                903
       Other noncurrent assets                              (165)               (331)
       Accounts payable                                  (16,553)             15,614
       Accrued expenses and other liabilities              1,443                (151)
       Deferred revenue                                    1,421               1,119
                                                     -----------          ----------
        Net cash used in operating activities            (52,742)             (1,006)
                                                     -----------          ----------

 Cash flows from investing activities:
    Purchase of property and equipment                    (3,632)               (728)
    Proceeds from sale of equipment                          456                   -
                                                     -----------          ----------
        Net cash used in investing activities             (3,176)               (728)
                                                     -----------          ----------

 Cash flows from financing activities:
    Net proceeds from Initial Public Offering             192,305                  -
    Repayments to stockholder                              (5,000)                 -
    Exercise of stock options                                 856                  3
    Repayments under line of credit, mortgage and
       other obligations                                  (12,457)                (6)
                                                     ------------         ----------
        Net cash provided by (used in) financing
          activities                                      175,704                 (3)
                                                     ------------         ----------

 Net increase (decrease) in cash and cash
   equivalents                                            119,786             (1,737)

 Cash, beginning of period                                 24,693              9,221
                                                     ------------         ----------
 Cash, end of period                                  $   144,479          $   7,484
                                                     ============         ==========

 Supplemental cash flow information:
   Cash paid during the year for:
     Interest                                         $     1,295          $      26
                                                     ============         ==========
     Income taxes                                     $         6          $       -
                                                     ============         ==========

 Summary of non-cash investing and financing
   activity:
     Stock issued in connection with domain name
     purchases                                        $       316          $     430
                                                     ============         ==========
</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, golf related products, consumer
electronics and travel services.  Through nine 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 nine 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, 2000
have been prepared by BUY.COM pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") for interim financial reporting.
These consolidated statements are unaudited and, in the opinion of management,
include all adjustments (consisting of normal recurring adjustments and
accruals) necessary to present fairly the consolidated balance sheets,
consolidated operating results, and consolidated cash flows for periods
presented in accordance with generally accepted accounting principles.  The
consolidated balance sheet at December 31, 1999 has been derived from the
audited consolidated financial statements at that date.  Operating results for
the three months ended March 31, 2000 may not be indicative of the results for
the year ending December 31, 2000.  Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with the rules
and regulations of the SEC.  These consolidated financial statements should be
read in conjunction with the audited consolidated financial statements, and
accompanying notes, included in the Company's final prospectus related to its
initial public offering filed with the SEC on February 8, 2000.

                                       4
<PAGE>

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.

Cash and Cash Equivalents

       For the purposes of consolidated statements of cash flows, the Company
considers investment instruments with an original majority of three months or
less to be cash equivalents.  Cash equivalents are comprised of investments in
money market funds, government mortgage backed bonds and highly rated corporate
securities.

Revenue Recognition

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

       The Company recognizes revenue from advertising sales ratably over the
term of the advertising campaigns, which usually range from one to twelve
months. To the extent that advertising customers have paid the Company for
advertisements that have yet to be published on the Company's Web site, the
Company defers revenue recognition until such advertisements are delivered. In
1999, the Company entered into a three-year advertising contract. Under the
terms of this contract, the Company will receive monthly payments of equal
amounts. This long-term contract comprised less than 10% of the Company's
advertising revenues for the three months ended March 31, 2000. The Company has
no other advertising contract with a term in excess of one year.

Recent Accounting Pronouncements

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

3.  BUSINESS ACQUISITIONS, DISPOSITIONS, AND INVESTMENTS

Business Disposition

       In October 1999, the Company declared a common stock dividend of 75% of
the capital stock, on an "as converted" basis, of one wholly owned subsidiary,
BUYNOW INC. ("BUYNOW") to

                                       5
<PAGE>

all stockholders of record as of October 13, 1999. The Company effected the
dividend in April 2000, and on the date of the dividend, the Company owned
preferred stock representing 25% of the capital stock of BUYNOW, on an "as
converted" basis. The BUYNOW preferred stock has a liquidation preference over
the common stock and is convertible into BUYNOW common stock.

International Joint Ventures

       In 1999, the Company entered into a letter of intent with SOFTBANK
America, Inc. ("SOFTBANK America") to form three international joint ventures in
which the Company would have 50% ownership interests. The parties are currently
in discussions regarding these agreements and the ownership structure is subject
to change. For purposes of this report, the Company assumes that it has a 40%
ownership interest and will therefore not maintain sufficient voting control to
consolidate these joint ventures. The loss associated with these joint ventures
is included in the line item "Equity in losses of joint ventures" for the three
months ended March 31, 2000. In the event the final definitive agreements
provide for a different ownership interest, we would be required to adjust our
percentage of losses for the period.

4.  LONG TERM DEBT

       On February 14, 2000, the Company repaid all of the outstanding amounts
under its credit facility with a commercial bank, totaling $12.4 million. On
April 20, 2000, the Company cancelled its $15 million credit facility with this
commercial bank.

       The Company replaced its irrevocable standby letter of credit, used to
secure its office space, in the amount of $2.6 million from its previous
commercial lender with a new $2.6 million irrevocable standby letter of credit
from a new commercial bank.

       In April 2000, the Company sold an office building to a trust controlled
by Scott A. Blum (the "Founder/Shareholder") for approximately $1.3 million, the
fair market value on the date of sale. The Company used the proceeds from the
sale of the building to repay its outstanding loan for such building.

5.  STOCKHOLDER'S EQUITY

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

6.  LOSS PER SHARE

                                       6
<PAGE>

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


<TABLE>
<CAPTION>
                                                    Three months ended
                                                         March 31,

Basic:                                             2000                 1999
                                               ------------         -----------
                                                       (unaudited)
<S>                                            <C>                  <C>
Net loss...............................        $    (32,846)        $   (19,252)
Weighted average common shares.........         115,544,187          88,300,193
                                               ------------         -----------
Net loss per common share..............        $      (0.28)        $     (0.22)
                                               ============         ===========

Diluted:
Net loss...............................        $    (32,846)        $   (19,252)
Weighted average common shares.........         115,544,187          88,300,193
Stock options adjustment............                      -                   -
                                               ------------         -----------
Average common shares outstanding......         115,544,187          88,300,193
                                               ------------         -----------
Net loss per common share..............        $      (0.28)        $     (0.22)
                                               ============         ===========
</TABLE>

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

8.  COMMITMENTS AND CONTINGENCIES

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

9.  RELATED PARTY TRANSACTIONS

         Effective in January 2000, the Company cancelled an office space lease
agreement with a trust controlled by the Founder/Shareholder.

         On February 14, 2000, the Company repaid a $5.0 million loan to a trust
controlled by the Founder/Shareholder.  Interest paid in connection with this
loan was approximately $253,000.

         In April 2000, the Company sold an office building to a trust
controlled by the Founder/Shareholder for approximately $1.3 million, the fair
market value on the date of sale.

         On April 20, 2000, the Company terminated its $15 million credit
facility with a commercial bank.  Upon termination of the credit facility, the
obligations of the Founder/Shareholder's trust, as a guarantor, were terminated.

                                       7
<PAGE>

         On April 26, 2000, we effected a dividend of 75% of the capital stock,
on an "as converted" basis of BUYNOW to all of the stockholders of record as of
October 13, 1999.  As a part of the dividend, several of our officers and
directors received shares of BUYNOW common stock.  The Company also entered into
a technology and trademark license agreement to license BUYNOW its e-commerce
technology related to the BUYNOW business, and a license to use the BUYNOW
trademark and domain name rights.  The Company entered into a non-competition
agreement with BUYNOW that imposes certain restrictions on BUYNOW's business.
BUYNOW also issued the promissory note to the Company for approximately $600,000
for accrued intercompany debt.

10.  INCOME TAXES

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

                                       8
<PAGE>

PART 2.

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


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

OVERVIEW

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

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

                                       9
<PAGE>

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

          Consistent with our merchandising strategy, we have started to raise
prices on many of our products.  Since the second quarter of 1999, we have
increased our product margins without experiencing a decline in overall sales
volumes or customer levels.  Although we intend to continue these selective
price increases, under our long-term business model, we expect to maintain lower
relative product margins than many other online and offline retailers, while
generating high sales volumes.  For this reason, our ability to become and
remain profitable depends upon our ability to substantially increase our net
revenues.  We cannot be certain that our sales growth will continue or that we
will ever become profitable.

          To date, our sales of computer hardware and software products have
accounted for the vast majority of our net revenues. Our sales of products in
other categories constituted less than 15% of our net revenues for the three
months ended March 31, 2000 and for the three months ended March 31, 1999. None
of these other categories individually constituted more than 10% of our net
revenues during these periods. As we continue to expand into new product
categories, we expect sales of products other than computer hardware and
software to be an increasingly larger component of our business in the future.
Product sales, including shipping and handling, accounted for 95.1% of net
revenues for the three months ended March 31, 2000 and 98.6% of net revenues for
the three months ended March 31, 1999.

          Shipping and handling net revenues were $8.1 million for the three
months ended March 31, 2000 and  $6.3 million for the three months ended March
31, 1999. The gross profit on our shipping and handling net revenues during
these periods was $1.8 million and $3.6 million, respectively. Shipping and
handling results are a direct function of our product sales and are an integral
part of our merchandising and pricing strategy. 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.

          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 4.9% of net revenues for the three months ended March 31, 2000 and 1.4% of
net revenues for the three months ended March 31, 1999.

          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 $2.3 million, or 1.1% of net revenues, for the three

                                       10
<PAGE>

months ended March 31, 2000. We had no coupon redemptions for the three months
ended March 31, 1999.

          We are expanding our business into international markets both
independently and through joint ventures with third parties that will provide
expertise in local markets and financial resources to the joint ventures.
However, we cannot assure you that we will be successful in our efforts to
expand internationally and a number of factors may affect our ability to do so,
including our ability to staff and manage foreign operations, tariffs and other
trade barriers, and our ability to adapt to foreign regulatory requirements
affecting e-commerce.

          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 the formation of BUY.COM, as well as our
increased efforts to promote the BUY.COM brand, build market awareness, attract
new customers, recruit personnel, build operating infrastructure, and develop
and expand our Web site and related transaction-processing systems.  We intend
to continue to invest heavily in marketing and promotion, Web site development,
and technology and operating infrastructure development.  We believe that we
will continue to incur substantial operating losses for the foreseeable future.
Although we have experienced significant revenue growth in recent periods, this
growth may not be sustainable, and we may never achieve profitability.

RESULTS OF OPERATIONS

Net Revenues

          Net revenues were $207.6 million for the three months ended March 31,
2000, a 92.4% increase from $107.9 million for the three months ended March 31,
1999. The increase resulted from significant growth in our customer base and
repeat purchases from our existing customers. The increase is also due to the
launch of new online stores. Net revenues for the three months ended March 31,
2000 include the effect of $2.3 million in coupon redemptions for the quarter
compared to no coupon redemptions for the three months ended March 31, 1999.

Cost of Goods Sold

          Cost of goods sold consists primarily of the cost of products sold,
and the related distribution and fulfillment costs, including shipping.  Cost of
goods sold increased to $198.7 million for the three months ended March 31, 2000
from $108.1 million for the three months ended March 31, 1999 primarily as a
result of the significant increase in our net revenues.  Gross margin increased
to 4.3% for the three months ended March 31, 2000 from (0.2%) for the three
months ended March 31, 1999.  This increase in gross margin was primarily
attributable to more sophisticated merchandising and pricing management of the
company's product mix and an increased contribution of higher margin advertising
revenues.

Sales and Marketing Expenses

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<PAGE>

     Sales and marketing expenses consist primarily of advertising and
promotional expenses, as well as credit card fees, outsourced customer service
fees, and payroll associated with our advertising and marketing personnel. Sales
and marketing expenses increased to $24.5 million for the three months ended
March 31, 2000 from $12.3 million for the three months ended March 31, 1999.
Sales and marketing expenses as a percentage of net revenues increased to 11.8%
for the three months ended March 31, 2000 from 11.4% for the three months ended
March 31, 1999. The increase, both as a percentage of net revenues and in
absolute dollars, was primarily attributable to the expansion of our advertising
campaigns both online and in more traditional media. The increase in our sales
and marketing expenses was also due, to a lesser extent, to increased personnel
and related expenses required to implement our marketing strategy as well as the
costs associated with the sponsorship of the buy.com Tour. We intend to continue
to pursue an aggressive branding and marketing campaign in order to attract new
customers and retain existing customers. As a result, we expect marketing and
sales expenses to continue to increase in absolute dollars in future periods.

Product Development 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
increased to $4.4 million for the three months ended March 31, 2000 from
$830,000 for the three months ended March 31, 1999.  Product development
expenses as a percentage of net revenues increased to 2.1% for the three months
ended March 31, 2000 from 0.8% for the three months ended March 31, 1999.  The
increase was primarily due to increased personnel and outside consulting costs
required to enhance the features, content, and functionality of our online
stores and transaction processing systems.  We intend to continue to enhance our
technology and information systems and expect product development expenses to
continue to increase in absolute dollars in future periods.

General and Administrative Expenses

     General and administrative expenses consist primarily of payroll and
related expenses for executive and administrative personnel, facilities
expenses, professional fees, and other general corporate expenses.  General and
administrative expenses increased to $6.3 million for the three months ended
March 31, 2000 from $3.1 million for the three months ended March 31, 1999.
General and administrative expenses as a percentage of net revenues increased to
3.0% for the three months ended March 31, 2000 from 2.8% for the three months
ended March 31, 1999.  The increase was primarily attributable to increased
headcount and related expenses associated with the hiring of additional
personnel, and increased professional expenses.  We expect general and
administrative expenses to continue to increase in absolute dollars as we expand
our sales, increase our staff, and incur additional costs related to the growth
of our business.

Depreciation and Amortization Expenses

     Depreciation and amortization expenses consist primarily of the
amortization of goodwill associated with business acquisitions, as well as fixed
asset depreciation. Depreciation and

                                       12
<PAGE>

amortization increased to $4.0 million for the three months ended March 31, 2000
from $854,000 for the three months ended March 31, 1999. Depreciation and
amortization expenses as a percentage of net revenues increased to 2.0% for the
three months ended March 31, 2000 from 0.8% for the three months ended March 31,
1999. The increase is primarily attributable to the amortization of the
acquisition of BuyGolf in October 1999, which is being amortized over a three-
year period. The increase is also attributable, to a lesser extent, to
additional depreciation of fixed assets acquired during the period.

Amortization of Deferred Compensation

          Amortization of deferred compensation represents the difference
between the exercise price of stock option grants and the deemed fair value of
our stock at the time of such grants.  Such amounts are amortized over the
vesting for such grants, which is typically four years, using the double
declining balance method.  Amortization of deferred compensation decreased to
$1.2 million for the three months ended March 31, 2000 from $2.1 million for the
three months ended March 31, 1999.  Amortization of deferred compensation
decreased to 0.6% for the three months ended March 31, 2000 from 2.0% for the
three months ended March 31, 1999.  The decrease is due to fewer grants issued
below the deemed fair value of the stock and to the double declining balance
method used to account for such deferred compensation.

Charge for Warrants

          Charge for warrants represents the amortization of the warrants issued
to one of our suppliers. The charge for warrants was $170,000 and there was no
charge during the previous year.

Other Income (Expense)

          Total other income increased to $1.3 million for the three months
ended March 31, 2000 from $131,000 for the three months ended March 31, 1999.
The increase was largely due to interest income related to the net proceeds from
our initial public offering.

Equity in Losses of Joint Ventures

          Equity in losses of joint ventures represents the losses associated
with our ownership interest in our joint venture partnerships, including our
international business initiatives and Buytravel.com.  The equity in losses of
joint ventures was $2.4 million for the three months ended March 31, 2000 and
there was no charge during the three months ended March 31, 1999.  This
treatment assumes that our ownership interest in the international joint
ventures is 40% and our ownership interest in Buytravel.com is 50%.  However, we
are currently in discussions regarding our international joint venture
agreements and the ownership structure of these joint ventures is subject to
change.

                                       13
<PAGE>

Net Loss

          Our net loss increased to $32.8 million for the three months ended
March 31, 2000 from $19.3 million for the three months ended March 31, 1999.
The increase in net loss was primarily due to increased operating expenses,
increase in amortization of goodwill, and increase in equity in losses of joint
ventures.

Liquidity and Capital Resources

          At March 31, 2000, our principal sources of liquidity consisted of
$144.5 million of cash compared to $24.7 million of cash at December 31, 1999.
In February 2000, we completed an initial public offering in which the
underwriters sold to the public 16,100,000 shares of common stock, including
2,100,000 shares in connection with the exercise of the underwriters' over-
allotment option, at $13.00 per share.  Our proceeds from the offering, after
deducting underwriting discounts and commissions and other offering expenses
payable by us were approximately $192.2 million in the aggregate.  We regularly
invest in short-term government mortgage backed bonds, highly rated corporate
securities and money market funds.

          Net cash used in operating activities was $52.7 million and $1.0
million for the three months ended March 31, 2000 and 1999, respectively.  Net
operating cash flows for the three months ended March 31, 2000 were primarily
attributable to approximately $32.8 million in net losses, approximately $16.6
million in a reduction of accounts payable, and to a lesser extent, increases in
accounts receivable, payments made in connection with the sponsorship of the
buy.com Tour, and partially offset by non-cash charges for depreciation and
amortization.  Net operating cash flows for the three months ended March 31,
1999 were primarily attributable to net losses offset by an increase in accounts
payable and non-cash charges for depreciation and amortization.

          Net cash used in investing activities was $3.2 million and $728,000
for the three months ended March 31, 2000 and 1999, respectively, and primarily
consisted of purchases of fixed assets.

          Net cash provided by financing activities of $175.7 million for the
three months ended March 31, 2000 resulted primarily from net proceeds from our
initial public offering offset by the repayment of our credit facility and a
promissory note to a stockholder.

          We anticipate that we will have negative cash flows for the
foreseeable future.  We also currently anticipate that we will invest
approximately $20.0 million to $30.0 million in capital expenditures over the
next twelve months to expand our infrastructure.  These expenditures will
include enhancements in our Web site to improve functionality and navigation,
incorporating features that are intended to improve the customer shopping
experience and scalability and performance of our Web site.  We expect to fund
these expenditures with working capital, including the proceeds from our initial
public offering.

          As of March 31, 2000, our principal commitments consisted primarily of
obligations in connection with the acquisition of fixed assets and leases,
commitments for advertising and promotional arrangements and commitments related
to our joint venture with United Airlines, Inc.

          We have also entered into a binding letter of intent with SOFTBANK
America, Inc. and its affiliates to form three separate international joint
ventures in various international territories.  Under

                                       14
<PAGE>

the letter of intent we would have a 50% ownership interest in each of the joint
ventures and would commit approximately $7.7 million in connection with the
formation of these international joint ventures. However, the parties are
currently in discussions regarding this letter of intent and our ownership
structure is subject to change. Depending on the ultimate resolution of the
ownership structure, our capital contribution requirements may change. In the
event additional funding for the joint ventures is required, we may be required
to invest additional capital into one or more of the joint ventures or seek
third party investors which would dilute our ownership in the joint ventures.
There can be no assurance that additional financing for the joint ventures will
be available on acceptable terms, if at all.

          In connection with our 50% joint venture with United Airlines, Inc.,
we will make capital contributions, in proportion to our respective ownership
interests, necessary to provide advertising and marketing support for
Buytravel.com. We are required to make a $2.0 million initial capital investment
to Buytravel.com. In addition, we have each agreed to provide $18.0 million in
marketing support to Buytravel.com over three years from the effective date of
the agreement. This marketing support may be in the form of cash marketing
expenditures for Buytravel.com or other in kind co-branded marketing activities
such as promotional e-mail distributions and placement of Buytravel.com
advertisements in our marketing materials.

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

YEAR 2000

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

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<PAGE>

RISK FACTORS

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

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

          We depend on Ingram Micro, Inc. to provide all of our computer
hardware and software products and to fulfill our customers' orders.  To date, a
substantial majority of our product sales revenues 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 with them, we
would have to purchase our computer hardware and software products from other
distributors.  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. Ingram Micro's termination
of or failure to renew our contract could cause significant delays in our
ability to fulfill our customers' orders, and we may not be able to locate
another distributor that can provide comparable fulfillment, processing and
shipping services in a timely manner, on acceptable commercial terms, if at all.
Our distribution agreement with Ingram Micro terminates in March 2001.

          We are also subject to risks associated with Ingram Micro's ability to
replenish its inventory in a timely manner.  To the extent Ingram Micro
maintains computer hardware and software products in-stock, we have an
obligation to purchase these items exclusively from them.  Due to this
purchasing arrangement, our customers' orders could be significantly delayed if
we need to seek other distributors to fulfill our customers' orders.  Our
distribution agreement with Ingram Micro does not require them to set aside any
amount of inventory to fulfill our orders or to give our orders priority over
other resellers to whom they sell.  Furthermore, some vendors may decide, for
reasons outside our control, not to offer particular products for sale on the
Internet.  These vendors may also cause Ingram Micro not to sell products to us.
Ingram Micro's delay or inability to supply our orders would substantially harm
our business.

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

                                       16
<PAGE>

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, we have supply and distribution
contracts with Ingram Entertainment Inc. for videos, DVDs, games and the
purchase and fulfillment of our consumer electronics products, Nashville
Computer Liquidators L.P. for our clearance products and Valley Media, Inc. for
music products.  We do not have any long-term agreements with any of these third
parties.  We purchase all of our books from the Ingram Book Company, which are
shipped and processed by Ingram Fulfillment Services, Inc. and we use Las Vegas
Golf & Tennis, Inc. as the primary source for the golf equipment and accessories
that we sell.  In addition, our joint venture with United Airlines relies on a
third party for the supply and fulfillment of the travel services that we offer.
If we do not maintain our existing relationships with these providers on
acceptable commercial terms, we may not be able to continue to offer a broad
selection of merchandise at low prices, and customers may refuse to shop at our
online store.  In addition, manufacturers may decide, for reasons outside our
control, not to offer particular products for sale on the Internet.  Other
manufacturers have chosen not to authorize any Internet resellers or Internet
resellers without a traditional "brick and mortar" retail store.  If we are
unable to supply products to our customers, or if other product manufacturers
refuse to allow their products to be sold via the Internet, our business would
suffer severely.

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

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

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

          We have not achieved profitability since our inception, and we
incurred net losses of $130.2 million for the year ended December 31, 1999 and
$32.8 million for the three months ended March 31, 2000.  We expect to continue
to incur losses for the foreseeable future due to additional costs and expenses
related to:

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

                                       17
<PAGE>

          -  brand development, marketing and other promotional activities;

          -  the expansion of our product and service offerings;

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

          -  the development of strategic relationships; and

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

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

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

          -  our ability to generate significant advertising revenue; and

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

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

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

          -  expand our customer base;

          -  enhance our brand recognition;

          -  expand our product and service offerings;

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

          -  successfully implement our business and marketing strategy;

          -  provide superior customer service and order processing;

          -  respond effectively to competitive and technological developments;
             and

          -  attract and retain qualified personnel.

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

                                       18
<PAGE>

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:

          -  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 increase advertising revenues;

          -  our ability to maintain and expand our distribution relationships;

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

          -  increases in the cost of online or offline advertising;

          -  unexpected increases in shipping costs or delivery times;

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

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

          -  technical difficulties, system downtime or Internet brownouts;

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

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

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

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

                                       19
<PAGE>

manufacturers to discontinue sales to us as a result of our low price strategy.
If the amount of traffic to our Web site decreases due to price increases or
otherwise, we may become less attractive to our current and potential
advertisers. As a result, our margins and advertising revenues may decline.

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

          We have rapidly expanded our operations and anticipate that we must
continue to expand our operations to address potential market opportunities.  If
we are unable to manage growth effectively or if we experience disruptions
during our expansion, our operating results will suffer.  Recent increases in
our employee base and the volume of our merchandise sales have placed, and are
expected to continue to place, significant demands on our management,
operational and financial resources.  For example, we expanded from seven
employees at December 31, 1997 to 248 employees at March 31, 2000.  Our new
employees include a number of key managerial and technical employees who have
not yet been fully integrated into our management team, and we expect to add
additional key personnel in the near future.  To manage growth in our
operations, we will need to improve or replace our existing Web site, financial
systems, procedures and controls.  In addition, we will need to expand, train
and manage our increasing employee base.  We will also need to expand our
finance, administrative, technical and operations staff.

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

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

          -  prevent customers from accessing our online stores;

          -  reduce our ability to fulfill orders;

          -  reduce the number of products that we sell;

          -  cause customer dissatisfaction; or

          -  damage our reputation.

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

          Our systems and operations are also vulnerable to damage or
interruption from a number of sources, including fire, flood, power loss,
telecommunications failure, physical and electronic break-ins, earthquakes and
other similar events.  For example, all of our servers are currently located in
Southern California, a seismically active region.  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

                                       20
<PAGE>

formal disaster recovery plan in effect and do not carry sufficient business
interruption insurance to compensate us for losses that could occur.

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

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

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

Online security risks could seriously harm our business

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

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

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

                                       21
<PAGE>

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

Our recent and planned expansion into new product categories and business areas
is costly, risky and may not be profitable

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

          -  developing new Web sites;

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

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

          -  expanding our market presence through relationships with third
             parties.

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

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

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

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

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

          -  increased price competition from our competitors;

                                       22
<PAGE>

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

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

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

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

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

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

          -  the success of our advertising and promotional efforts;

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

          -  our ability to provide high quality customer service.

          To promote the BUY.COM brand in response to competitive pressures, we
may increase our marketing budget or otherwise increase our financial commitment
to creating and maintaining brand loyalty among our customers.  For example, we
spent approximately $71.3 million for the year ended December 31, 1999, and
approximately $24.5 million for the three months ended March 31, 2000 and we
expect these expenses to continue to increase for the foreseeable future.  We
cannot be certain that our advertising efforts will be a successful means of
customer acquisition or that this allocation of resources will provide
additional revenues equal to this dedication of our resources.  If we fail to
promote and maintain our brand, or if we incur excessive expenses attempting to
promote and maintain our brand, our business may suffer.

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

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

          -  rapid technological change;

                                       23
<PAGE>

          -  changes in customer requirements and preferences;

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

          -  the emergence of new industry standards and practices.

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

          -  license or acquire leading technologies useful in our business;

          -  enhance our existing online stores;

          -  enhance our network infrastructure and transaction processing
             systems;

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

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

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

If the software, hardware, computer technology and other systems and services we
use are not Year 2000 compliant, our operations could suffer and we could lose
customers

          Many existing computer systems and software products were coded to
accept only two digit entries in the date code field and did not distinguish
21st century dates from 20th century dates.  If these systems have not been
properly corrected, there could be system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.
Additionally, despite the fact that many computer systems are currently
processing 21st century dates correctly, these companies, including us, could
experience latent Year 2000 problems.  Any such latent Year 2000 problems could
result in a decrease in sales of products, an increase in allocation of
resources to address such problems without additional revenue commensurate with
such dedication of resources, or other costs which could have a material adverse
affect on our business.

We may be subject to liability for sales and other taxes

          We currently collect sales or other similar taxes on the shipment of
goods in the States of California, Massachusetts and Tennessee.  However, one or
more states could seek to impose additional income tax obligations or sales tax
collection obligations on out-of-state companies, such as ours, which engage in
or facilitate online commerce.  A number of proposals have been made at state
and local levels that could impose taxes on the sale of products and services
through the Internet or the income derived

                                       24
<PAGE>

from these sales. These proposals, if adopted, could substantially impair the
growth of e-commerce and adversely affect our ability to become profitable.
Furthermore, since our service is available over the Internet in multiple states
and in foreign countries, these jurisdictions may require us to qualify to do
business in these states and foreign countries. If we fail to qualify in a
jurisdiction that requires us to do so, we could face liabilities for taxes and
penalties.

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

          Our Internet domain names are critical to our brand recognition and
our overall success.  We have many domain names relating to our brand, including
BUY.COM and each domain name for our specific online stores and subcategories.
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, the relationship
between regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear.  Therefore, we may be unable to protect
our own 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.

                                       25
<PAGE>

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

          A key component of our business strategy is to expand our
international sales, and we intend to establish a physical presence in
international markets in the future.  For example, we have already initiated
expansion into Europe and Canada.  Conducting business in foreign countries
involves inherent risks, including, but not limited to:

          -  unexpected changes in regulatory requirements;

          -  export restrictions;

          -  tariffs and other trade barriers;

          -  difficulties in protecting intellectual property rights;

          -  difficulties in staffing and managing foreign operations;

          -  problems collecting accounts receivable;

          -  longer payment cycles;

          -  political instability;

          -  fluctuations in currency exchange rates; and

          -  potentially adverse tax consequences.

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 1999, a class action suit was filed against us in the
Orange County, California Superior Court alleging that we intentionally
mispriced products and charged for orders knowing the orders could not be
fulfilled.  Another class action suit was filed against us in Camden County, New
Jersey in March 1999 based on facts similar to the class action pending in
Orange County.

          In February 2000, an action was filed against us in Alameda County,
California Superior Court alleging that we sold gift certificates that included
an expiration date and that were not redeemable for cash in violation of
California law.

          In March 2000, a class action suit was filed against us in the U.S.
District Court for the Central District of California alleging that we provide
personal customer information to our third party advertising server without
informing our customers or seeking their approval.  In April 2000, another class
action was also filed against us in the U.S. District Court for the Central
District of California based on similar facts to the federal class action filed
in March 2000.  Another class action was filed against us in Orange County,
California Superior Court in April 2000 based on similar facts to the federal
class actions.

                                       26
<PAGE>

          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.

Because we face intense competition in various retail segments and operate in an
industry with limited barriers to entry, 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.  Because barriers to entry are
limited, current and new competitors can launch Web sites at a relatively low
cost and can expand their operations rapidly.  New technologies and the
expansion of existing technologies may also increase the competitive pressure we
face.  Increased competition may result in reduced operating margins, loss of
market share and diminished brand recognition.

          We believe that the primary competitive factors in the online market
include brand recognition, price, product selection, ease of use, customer
service, available content and value added services.  We currently compete with
a variety of online vendors that specialize in computer hardware and software
products, as well as those who sell books, music, videos, DVDs and other
entertainment products, consumer electronics, golf-related products and travel
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.

                                       27
<PAGE>

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

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

          -  fund more rapid expansion;

          -  develop new product lines or enhanced services;

          -  fund acquisitions; or

          -  respond to competitive pressures.

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

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

          In the fall of 1999, Scott A. Blum, our founder, majority stockholder
and former Chief Executive Officer and Chairman, resigned from our Board of
Directors, deposited all of his shares of our common stock into a voting trust,
and withdrew from participation in our management, business and operations.  Mr.
Blum had previously resigned as our Chief Executive Officer and terminated his
employment with us in March 1999.  As of March 31, 2000, Mr. Blum's shares
represented approximately 47% of our outstanding capital stock.  Prior to
leaving the company, Mr. Blum was primarily responsible for conceiving,
developing and implementing our business model and recruiting our Board of
Directors and our current management team.  In addition, Mr. Blum was directly
involved in the creation, development and implementation of our corporate image
and advertising strategy.  Mr. Blum's withdrawal from our business and our
inability to replace Mr. Blum could harm our business.

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

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

                                       28
<PAGE>

products and services are made available online. If we are not able to protect
our trademarks and other intellectual property, we may experience difficulties
in achieving and maintaining brand recognition and customer loyalty.

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

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

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

          SOFTBANK and its affiliates own approximately 29% of our outstanding
stock.  In addition, as a result of a voting trust agreement with our largest
stockholder, approximately 47% of our outstanding stock 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 76% of our common stock on significant corporate actions
and 29% on routine corporate governance matters.  This control by SOFTBANK and
its affiliates could have a substantial impact on matters requiring the vote of
the stockholders, including the election of our directors and most of our
corporate actions.  This control could delay, defer or prevent others from
initiating a potential merger, takeover or other change in our control, even if
these actions would benefit our stockholders and us.  This control could
adversely affect the voting and other rights of our other stockholders and could
depress the market price of our common stock.

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

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

          -  variations in our operating results;

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

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

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

                                       29
<PAGE>

          -  conditions or trends in the Internet industry;

          -  additions or departures of key personnel; and

          -  future sales of our common stock.

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

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

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Our exposure to market rate risk for changes in interest rates is
related primarily to our investment portfolio.  We have not used derivative
financial instruments in our investment portfolio.  Our short term investments
are comprised of U.S. government obligations and public corporate debt
securities with maturities of less than ninety days at the date of purchase.
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.

                                       30
<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 claim that we intentionally mispriced the monitors as a
scheme to cause more people to visit our site.  Plaintiffs also claim that we
attempted the same scheme with other products.  The plaintiffs are seeking
compensatory and punitive damages in addition to injunctive relief.  Neither
action sets forth the amount of damages sought by the plaintiffs.  The New
Jersey action alleges that the class of plaintiffs consists of all persons who
ordered the computer monitor at the mistaken price.  The California action also
focuses on the monitor error and alleges that the class of plaintiffs consists
of all individuals who have attempted to purchase computer hardware or software
and have been unable to do so because we refused to provide the product at the
agreed upon price.  The judge in the New Jersey action has granted a temporary
stay of the New Jersey action to monitor the progress of the California action.
A class has not yet been certified in either action.

          We have been contacted by the Federal Trade Commission and the New
York State Attorney General's office regarding print and Web advertisements we
ran in August and September 1999 for a particular promotion of the Compaq
Presario 5304 system.  The inquiries concern the location and sufficiency of the
information we provided about the terms of the manufacturer rebate for the
system and the advertised price.  We have reached a tentative settlement with
each agency and are awaiting their final approval of the settlements.

          On February 14, 2000 an action was filed against us in Alameda County,
California Superior Court alleging that we sold gift certificates that included
an expiration date and that were not redeemable for cash in violation of
California law.  The plaintiff has brought this action on behalf of the general
public of California and seeks injunctive relief, an unspecified amount of
restitution, attorneys' fees, and other relief.

          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

                                       31
<PAGE>

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. We
have only recently been served with these complaints and have not yet filed
responsive pleadings. The classes have not yet been certified in any of these
actions.

          Although we intend to defend ourselves vigorously, each of these class
actions could result in significant expenses and diversion of management time
and other resources.  Further, the outcome of the class 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."

          We are not currently involved in any other material legal proceedings,
nor have we been involved in any such proceeding that has had a significant
effect on our company.  We are not aware of any other material legal proceedings
pending against us.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          (c) Sales of Unregistered Securities.  During the three months ended
March 31, 2000, following the exercise of options to purchase shares of common
stock that had been granted under the 1998 Stock Option/Stock Issuance Plan by
our employees, consultants and directors, we issued an aggregate of 348,656
shares of common stock for an aggregate purchase price of approximately
$832,339.  All of such sales of common stock were made pursuant to the exemption
from the registration requirements of the Securities Act afforded by Rule 701 or
Section 4(2) promulgated under the Securities Act.

          In March of 2000, the Board of Directors approved the issuance of
1,923 shares of common stock pursuant to a Services Agreement between us and
View Designs, Inc., in consideration for their services.  The shares were issued
in April 2000 in a transaction which was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of such Act.

          In February 2000, we also issued an additional 24,375 shares of common
stock pursuant to a Domain Name Transfer Agreement between us and Clik Design
Inc. and El Cerrito Plaza Travel in partial consideration for the transfer of a
domain name.  The shares were issued pursuant to the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of such
Act.

          (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 managing underwriters in the Offering were
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear,
Stearns & Co. Inc., Hambrecht & Quist LLC and U.S Bancorp Piper Jaffray Inc.
(the "Underwriters").  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.  The Offering commenced
on February 8, 2000 and terminated on February 11, 2000 after all 16,100,000
shares of common stock registered under the Registration Statement were sold.
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.
The aggregate price of the Offering amount registered was $209,300,000.  In
connection with the Offering, we paid an aggregate of $14,651,000 in
underwriting discounts and commissions to the Underwriters.  In addition, the
following table sets forth an estimate of all expenses incurred in connection
with the Offering, other than underwriting discounts and commissions.  All
amounts shown are estimated except

                                       32
<PAGE>

for the fees payable to the SEC, National Association of Securities Dealers,
Inc. ("NASD") and Nasdaq National Market.

<TABLE>
<S>                                                       <C>
          SEC registration fee                                    $   61,700
          NASD filing fee                                             19,820
          Nasdaq National Market listing fee                          95,000
          Blue Sky fees and expenses                                   5,000
          Printing and engraving expenses                            668,500
          Legal fees and expenses                                    729,000
          Accounting fees and expenses                               545,200
          Transfer Agent fees                                          2,000
          Insurance Premiums                                         200,000
          Miscellaneous                                               94,780
                                                                  ----------
          Total                                                   $2,421,000
</TABLE>

          After deducting the underwriting discounts and commissions and the
estimated Offering expenses described above, we received net proceeds from the
Offering of approximately $192.2 million.  As of March 31, 2000, the Company had
used approximately $47.7 million of the net proceeds from the Offering for
capital expenditures associated with system upgrades and expansion, marketing
activities, including our sponsorship of the buy.com Tour, repayment of
indebtedness under our credit facility and our indebtedness to The Scott A. Blum
Separate Property Trust, 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 ours 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

          On January 7, 2000, in an Action by Written Consent of the
Stockholders, holders of a majority of our shares approved each of the following
matters:

          (i)   Special Executive Option Plan:  A new equity incentive plan for
                -----------------------------
                officers of the Company or other highly compensated individuals
                and non-employee Board members.

          (ii)  1999 Stock Incentive Plan:  A new equity incentive program for
                -------------------------
                employees (including officers), non-employee Board members and
                consultants of BUY.COM which became effective upon the Offering
                and incorporates and serves as the successor program for all of
                our predecessor equity incentive programs.

          (iii) 1999 Employee Stock Purchase Plan: A new equity incentive
                ---------------------------------
                program under which eligible employees may purchase shares of
                our common stock, at semi-annual intervals, through payroll
                deductions.

                                       33
<PAGE>

          (iv)  Reverse Stock Split:  An amendment to our Amended and Restated
                -------------------
                Certificate of Incorporation to effect a 5 for 8 reverse stock
                split.

          (v)   Amendment and Restatement of Certificate of Incorporation and
                -------------------------------------------------------------
                Bylaws:  The amendment and restatement of the our Amended and
                ------
                Restated Certificate of Incorporation and Bylaws, which, among
                other things, implemented certain anti-takeover measures.  Such
                amendment and restatement became effective upon the closing of
                the Offering.

          (vi)  Director Classification:  The appointment of directors to one of
                -----------------------
                three classes of the Board of Directors with Messrs. Richion,
                Sculley and Thorson elected as Class I directors, Messrs.
                Ingram, Kendall and Russell elected as Class II directors and
                Messrs. Burnham, Hawkins and Roszak elected as Class III
                directors. The terms of the directors expire as follows: (i)
                Class I directors at the 2001 annual meeting of stockholders;
                (ii) Class II directors at the 2002 annual meeting of
                stockholders; and (iii) Class III directors at the 2003 annual
                meeting of stockholders.

  ITEM 5.  OTHER INFORMATION

           None.

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

           A.  Exhibits

      3.1  Registrant's Amended and Restated Certificate of Incorporation
           (incorporated herein by this reference to Exhibit 3.2 of the
           Registration Statement on Form S-1 filed on October 27, 1999, as
           amended)

      3.2  Registrant's Amended and Restated Bylaws (incorporated herein by this
           reference to Exhibit 3.4 of the Registration Statement on Form S-1
           filed on October 27, 1999, as amended)

     27.1  Financial Data Schedule

           B.  Reports on Form 8-K

               None.

                                       34
<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/ Mitch C. Hill
                                                 -------------------------------
                                                   Mitch C. Hill
                                                   Chief Financial Officer
                                                   (principal financial and
                                                   accounting officer)


Dated:  May 12, 2000

                                       35
<PAGE>

                                 EXHIBIT INDEX


Exhibit Number       Description
--------------       -----------

   3.1               Registrant's Amended and Restated Certificate of
                     Incorporation (incorporated herein by this reference to
                     Exhibit 3.2 of the Registration Statement on Form S-1 filed
                     on October 27, 1999, as amended)

   3.2               Registrant's Amended and Restated Bylaws (incorporated
                     herein by this reference to Exhibit 3.4 of the Registration
                     Statement on Form S-1 filed on October 27, 1999, as
                     amended)

  27.1               Financial Data Schedule