##### Table of Contents



Filed with the Securities and Exchange
Commission on November 14, 2001



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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549




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Form 10-Q



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|   |  |                                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended
	September 30, 2001                                        
|  
|or
|  
|o  |  | 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 0-24457

Beyond.com Corporation

(Exact name of Registrant as specified in its
charter)


|                                                                |  |                                                           |  |                                         
|--------------------------------------------------------------- |  | --------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                        |  | 7375                                                      |  | 94-3212136                              
|(State or other jurisdiction
	of incorporation or organization) |  | (Primary standard industrial
	classification code number) |  | (I.R.S. Employer
	Identification Number)

3200 Patrick Henry Drive

Santa Clara, California 94054


(408) 855-3000


(Address, including zip code, and telephone
number, including area code, of registrants principal
executive offices)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and 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 
þ
          No 
 o

The number of shares of the registrants
Common Stock, $.001 par value per share, outstanding as of
October 31, 2001 was 3,305,271.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities -- Not Applicable                                              
|                              | Item 3. Defaults Upon Senior Securities -- Not Applicable                                    
|                              | Item 4. Submission of Matters to a Vote of Security Holders -- Not applicable.               
|                              | Item 5. Other Information -- Not Applicable                                                  
|                              | Item 6. Exhibits, Financial Statement Schedules, and Reports of Form 8-K                     
|SIGNATURES                   



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION




Item 1.     Financial Statements

BEYOND.COM CORPORATION






CONDENSED CONSOLIDATED BALANCE
SHEETS


(In thousands)


|                                          |                                           |                                            |       |              |        |   |        |          |         | 
|----------------------------------------- | ----------------------------------------- | ------------------------------------------ | ----- | ------------ | ------ | - | ------ | -------- | ------- | 
|                                          |                                           | September 30,                              |       | December 31,
|                                          |                                           | 2001                                       |       | 2000        
|                                          |                                           |                                            |       |             
|                                          |                                           | (Unaudited)                                |       |             
|ASSETS                                   
|Current assets:                           |                                           |                                            |       |              |        |   |        |         
|                                          | Cash and cash equivalents                 |                                            | $     | 3,806        |        |   | $      | 3,513    |        
|                                          | Restricted cash                           |                                            |       | 2,000        |        |   |        | 2,000    |        
|                                          | Accounts receivable, net                  |                                            |       | 14,353       |        |   |        | 28,974   |        
|                                          | Prepaid expenses and other current assets |                                            |       | 4,168        |        |   |        | 4,816    |        
|                                          | Cost of deferred revenue                  |                                            |       | 7,684        |        |   |        | 20,570   |        
|                                          |                                           |                                            |       |              |        |   |        |         
|                                          |                                           | Total current assets                       |       |              | 32,011 |   |        |          | 59,873  | 
|Property and equipment, net               |                                           |                                            | 9,243 |              |        |   | 13,327 |         
|Deposits and other non-current assets     |                                           |                                            | 2,246 |              |        |   | 3,988  |         
|Goodwill and other intangible assets, net |                                           |                                            |      |              |        |   | 62,408 |         
|                                          |                                           |                                            |       |              |        |   |        |         
|                                          |                                           | Total assets                               |       | $            | 43,500 |   |        | $        | 139,596 | 
|                                          |                                           |                                            |       |              |        |   |        |         
|LIABILITIES AND STOCKHOLDERS
	EQUITY    
|Current liabilities:                      |                                           |                                            |       |              |        |   |        |         
|                                          | Accounts payable                          |                                            | $     | 12,605       |        |   | $      | 23,974   |        
|                                          | Accrued employee expenses                 |                                            |       | 824          |        |   |        | 1,284    |        
|                                          | Other accrued liabilities                 |                                            |       | 7,443        |        |   |        | 2,748    |        
|                                          | Vendor note payable                       |                                            |       | 11,000       |        |   |        |         |        
|                                          | Deferred revenue                          |                                            |       | 8,171        |        |   |        | 22,025   |        
|                                          |                                           |                                            |       |              |        |   |        |         
|                                          |                                           | Total current liabilities                  |       |              | 40,043 |   |        |          | 50,031  | 
|Convertible notes payable                 |                                           |                                            | 9,652 |              |        |   | 12,373 |         
|Stockholders equity:                     |                                           |                                            |       |              |        |   |        |         
|                                          | Common stock                              |                                            |       | 309,644      |        |   |        | 305,332  |        
|                                          | Deferred compensation                     |                                            |       | (2           | )      |   |        | (143     | )      
|                                          | Accumulated deficit                       |                                            |       | (315,837     | )      |   |        | (227,997 | )      
|                                          |                                           |                                            |       |              |        |   |        |         
|                                          |                                           | Total stockholders equity                 |       |              | (6,195 | ) |        |          | 77,192  | 
|                                          |                                           |                                            |       |              |        |   |        |         
|                                          |                                           | Total liabilities and stockholders equity |       | $            | 43,500 |   |        | $        | 139,596 | 
|                                          |                                           |                                            |       |              |        |   |        |         



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|      |                                                                                                             
|----- | ------------------------------------------------------------------------------------------------------------
|Note: | The balance sheet at December 31, 2000 has
	been derived from the audited financial statements at that date.

See notes to Condensed Consolidated Financial
Statements.

1



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##### Table of Contents



BEYOND.COM CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(In thousands, except per share
amounts)


(Unaudited)


|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |        |        | 
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | ------------------------ | ------- | ------------------ | ------ | ------------- | ------- | ------------- | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                           |                                                                           |                          |         |                   
|                                                                                           |                                                                           | Three Months Ended,      |         | Nine Months Ended,
|                                                                                           |                                                                           |                          |         |                   
|                                                                                           |                                                                           | September 30,            |         | September 30,      |        | September 30, |         | September 30,
|                                                                                           |                                                                           | 2001                     |         | 2000               |        | 2001          |         | 2000         
|                                                                                           |                                                                           |                          |         |                    |        |               |         |              
|Net revenues                                                                               |                                                                           | $                        | 23,304  |                    |        | $             | 29,488  |               |        | $ | 61,191  |        |        | $ | 90,070  |       
|Cost of revenues                                                                           |                                                                           |                          | 21,477  |                    |        |               | 25,419  |               |        |   | 55,642  |        |        |   | 77,871  |       
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|Gross profit                                                                               |                                                                           |                          | 1,827   |                    |        |               | 4,069   |               |        |   | 5,549   |        |        |   | 12,199  |       
|Operating expenses:                                                                        |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|                                                                                           | Research and development                                                  |                          |         | 953                |        |               |         | 1,548         |        |   |         | 3,145  |        |   |         | 6,746  |       
|                                                                                           | Sales and marketing                                                       |                          |         | 4,966              |        |               |         | 8,450         |        |   |         | 14,808 |        |   |         | 35,328 |       
|                                                                                           | General and administrative                                                |                          |         | 2,689              |        |               |         | 2,452         |        |   |         | 8,577  |        |   |         | 9,322  |       
|                                                                                           | Goodwill, other intangible assets and deferred
	compensation amortization |                          |         | 44,331             |        |               |         | 9,128         |        |   |         | 62,427 |        |   |         | 29,841 |       
|                                                                                           | Restructuring                                                             |                          |         |                   |        |               |         |              |        |   |         |       |        |   |         | 13,707 |       
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|                                                                                           |                                                                           | Total operating expenses |         |                    | 52,939 |               |         |               | 21,578 |   |         |        | 88,957 |   |         |        | 94,944 | 
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|Loss from operations                                                                       |                                                                           |                          | (51,112 | )                  |        |               | (17,509 | )             |        |   | (83,408 | )      |        |   | (82,745 | )     
|Other expense, net                                                                         |                                                                           |                          | (1,394  | )                  |        |               | (1,523  | )             |        |   | (4,432  | )      |        |   | (2,500  | )     
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|NET LOSS before extraordinary income                                                       |                                                                           | $                        | (52,506 | )                  |        | $             | (19,032 | )             |        | $ | (87,840 | )      |        | $ | (85,245 | )     
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|Extraordinary income                                                                       |                                                                           |                          |        |                    |        |               | 45,176  |               |        |   |        |        |        |   | 45,176  |       
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|NET INCOME (LOSS)                                                                          |                                                                           | $                        | (52,506 | )                  |        | $             | 26,144  |               |        | $ | (87,840 | )      |        | $ | (40,069 | )     
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|Basic net income (loss) per share                                                          |                                                                           | $                        | (15.89  | )                  |        | $             | 10.25   |               |        | $ | (27.08  | )      |        | $ | (15.90  | )     
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|Diluted net income (loss) per share                                                        |                                                                           | $                        | (15.89  | )                  |        | $             | 6.67    |               |        | $ | (27.08  | )      |        | $ | (15.90  | )     
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|Weighted average shares outstanding used in
	computing basic net income (loss) per share   |                                                                           |                          | 3,305   |                    |        |               | 2,550   |               |        |   | 3,244   |        |        |   | 2,519   |       
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       
|Weighted average shares outstanding used in
	computing diluted net income (loss) per share |                                                                           |                          | 3,305   |                    |        |               | 3,920   |               |        |   | 3,244   |        |        |   | 2,519   |       
|                                                                                           |                                                                           |                          |         |                    |        |               |         |               |        |   |         |        |        |   |         |       

See notes to Condensed Consolidated Financial
Statements.

2



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##### Table of Contents



BEYOND.COM CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


(Unaudited)


|                                                          |                                                                              |                                                                           |                                                      |               |         |         |         |        |         |         |  
|--------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ---------------------------------------------------- | ------------- | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                                          |                                                                              |                                                                          
|                                                          |                                                                              | Nine Months Ended                                                        
|                                                          |                                                                              |                                                                          
|                                                          |                                                                              | September 30,                                                             |                                                      | September 30,
|                                                          |                                                                              | 2001                                                                      |                                                      | 2000         
|                                                          |                                                                              |                                                                           |                                                      |              
|Operating Activities                                      |                                                                              |                                                                           |                                                      |               |         |         |         |       
|Net loss                                                  |                                                                              | $                                                                         | (87,840                                              | )             |         | $       | (40,069 | )     
|                                                          | Adjustments to reconcile net loss to net cash
	used in operating activities: |                                                                           |                                                      |               |         |         |         |        |        
|                                                          |                                                                              | Depreciation and amortization                                             |                                                      |               | 4,981   |         |         |        | 3,313   |        
|                                                          |                                                                              | Accretion of convertible notes payable                                    |                                                      |               | 2,294   |         |         |        | 556     |        
|                                                          |                                                                              | Common shares issued for employee services                                |                                                      |               |        |         |         |        | 1,147   |        
|                                                          |                                                                              | Extraordinary gain on debt exchange                                       |                                                      |               |        |         |         |        | (45,176 | )      
|                                                          |                                                                              | Warrant issued under legal agreement                                      |                                                      |               | 59      |         |         |        |        |        
|                                                          |                                                                              | Goodwill, other intangible assets and deferred
	compensation amortization |                                                      |               | 62,427  |         |         |        | 31,228  |        
|                                                          | Changes in assets and liabilities:                                           |                                                                           |                                                      |               |         |         |         |        |        
|                                                          |                                                                              | Accounts receivable                                                       |                                                      |               | 14,621  |         |         |        | (2,984  | )      
|                                                          |                                                                              | Prepaid expenses and other current assets                                 |                                                      |               | 252     |         |         |        | 3,155   |        
|                                                          |                                                                              | Cost of deferred revenue                                                  |                                                      |               | 12,886  |         |         |        | (3,673  | )      
|                                                          |                                                                              | Other noncurrent assets                                                   |                                                      |               | 1,069   |         |         |        | 1,368   |        
|                                                          |                                                                              | Accounts payable                                                          |                                                      |               | (11,369 | )       |         |        | 267     |        
|                                                          |                                                                              | Accrued employee expenses                                                 |                                                      |               | (461    | )       |         |        | 1,220   |        
|                                                          |                                                                              | Other accrued liabilities                                                 |                                                      |               | 4,695   |         |         |        | (1,174  | )      
|                                                          |                                                                              | Deferred revenue                                                          |                                                      |               | (13,854 | )       |         |        | 4,806   |        
|                                                          |                                                                              |                                                                           |                                                      |               |         |         |         |       
|                                                          |                                                                              |                                                                           | Net cash used in operating activities                |               |         | (10,240 | )       |        |         | (46,016 | )
|Investing Activities                                      |                                                                              |                                                                           |                                                      |               |         |         |         |       
|                                                          | Sale of short-term investments, net                                          |                                                                           |                                                      |              |         |         |         | 54,228 |        
|                                                          | Costs associated with investment in SoftGallery                              |                                                                           |                                                      |              |         |         |         | (1,004 | )      
|                                                          | Purchases of property and equipment, net                                     |                                                                           |                                                      | (365          | )       |         |         | (3,035 | )      
|                                                          |                                                                              |                                                                           |                                                      |               |         |         |         |       
|                                                          |                                                                              |                                                                           | Net cash provided by (used in) investing
	activities |               |         | (365    | )       |        |         | 50,189  |  
|Financing Activities                                      |                                                                              |                                                                           |                                                      |               |         |         |         |       
|                                                          | Payments under capital leases                                                |                                                                           |                                                      |              |         |         |         | (128   | )      
|                                                          | Net proceeds from exercise of stock options                                  |                                                                           |                                                      | 1             |         |         |         | 772    |        
|                                                          | Net proceeds from vendor note payable                                        |                                                                           |                                                      | 11,000        |         |         |         |       |        
|                                                          | Proceeds from sale of common stock to employees                              |                                                                           |                                                      | 11            |         |         |         | 295    |        
|                                                          | Proceeds from sale of common stock under equity
	offering                    |                                                                           |                                                      | 106           |         |         |         |       |        
|                                                          | Cost related to debt exchange                                                |                                                                           |                                                      |              |         |         |         | (2,168 | )      
|                                                          | Cost associated with equity offering                                         |                                                                           |                                                      | (220          | )       |         |         |       |        
|                                                          |                                                                              |                                                                           |                                                      |               |         |         |         |       
|                                                          |                                                                              |                                                                           | Net cash provided by (used in) financing
	activities |               |         | 10,898  |         |        |         | (1,229  | )
|                                                          |                                                                              |                                                                           |                                                      |               |         |         |         |       
|Net increase in cash and cash equivalents                 |                                                                              |                                                                           | 293                                                  |               |         |         | 2,944   |       
|Cash and cash equivalents at beginning of period          |                                                                              |                                                                           | 3,513                                                |               |         |         | 11,539  |       
|                                                          |                                                                              |                                                                           |                                                      |               |         |         |         |       
|Cash and cash equivalents at end of period                |                                                                              | $                                                                         | 3,806                                                |               |         | $       | 14,483  |       
|                                                          |                                                                              |                                                                           |                                                      |               |         |         |         |       
|Supplemental disclosure of non-cash financing
	activities |                                                                              |                                                                           |                                                      |               |         |         |         |       
|                                                          | Issuance of common stock for convertible notes,
	net                         |                                                                           | $                                                    | 5,015         |         |         | $       | 1,116  |        
|                                                          | Common stock issued for investment in SoftGallery                            |                                                                           |                                                      |              |         |         |         | 445    |        

See notes to Condensed Consolidated Financial
Statements.

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##### Table of Contents



BEYOND.COM CORPORATION






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


Note 1  Basis of
Presentation

The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements as well
as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. In the opinion of Management, all adjustments
(consisting primarily of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 2001
are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001. For further
information, refer to the consolidated financial statements and
footnotes thereto included in Beyond.com Corporations
Annual Report on Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange
Commission on April 19, 2001.

Beyond.com Corporation (the Company
or Beyond.com) has incurred operating losses since
inception and anticipates continued losses. In April 2001, the
Company entered into a forbearance agreement with a key vendor
relating to $12 million in trade payables that were
restructured to a note payable (the Vendor Note).
The agreement includes two payments of $1 million each in
principal plus interest due on July 2, 2001 and
October 1, 2001 with the balance plus interest due
January 2, 2002. Interest accrues on the Vendor Note at a
rate of prime plus 1%. The Company is committed to repay the
Vendor Note on an accelerated basis to the extent that the
Company borrows money under a non-current borrowing arrangement
(other than any revolving credit line or agreement previously
existing on the date hereof) from any party other than the payee
and to the extent that the Company raises capital through the
sale of equity, debt securities or the sale of assets in excess
of $14 million. The Company has not yet made its
October 1, 2001 payment due under the Vendor Note, but has
reached agreement with the vendor to make this payment in the
future in conjunction with other payables due to the vendor.

Management believes that the Companys cash
and cash equivalents at September 30, 2001, should be
sufficient to meet its anticipated needs for working capital and
capital expenditures through December 31, 2001, assuming
the collection of all accounts receivables currently due and the
liquidation of other current assets. However, the Companys
working capital may not be sufficient to support its anticipated
needs for working capital and capital expenditures through
December 31, 2001, if there is any significant negative
impact resulting from poor collection performance or the
inability to liquidate other current assets. Therefore, the
Company is actively seeking new sources of working capital and
exploring strategic alternatives, which may include the sale of
part or all of the Companys businesses. Management cannot
assure that such funding will be available, or, if it is
available, on terms acceptable to the Company. In addition,
management cannot assure that the Company will be successful in
effecting a strategic transaction such as a sale of part or all
of its businesses. Even if the Company secures additional
capital or effects a strategic transaction, no assurances can be
given that the Company will be able to continue to conduct its
business.

In the quarter ended December 31, 2000, the
Company adopted FASBs Emerging Issues Task
Force 00-10 Accounting for Shipping and Handling Fees
and Costs (EITF 00-10), which provides
guidance for the classification of revenues and costs for
shipping and handling fees. All fiscal 2000 revenue and cost of
revenue amounts have been reclassified to conform with the
adoption of EITF 00-10. The adoption of EITF 00-10 had
no impact on gross profit or net loss.

Net Revenues in the nine months ended
September 30, 2000 have been restated to exclude
$2.5 million in Government System sales. The restatement
decreased gross profit and increased net loss by $138,000 in the
period. The exclusion relates to stated conditions in the terms
of a single sales transaction that the Companys

4



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##### Table of Contents



BEYOND.COM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

current management discovered subsequent to
fiscal 2000. Management brought these stated conditions to the
attention of its independent auditors and determined that the
related transaction had not properly sold through and therefore
should not be treated as a sale in accordance with generally
accepted accounting principles.

Note 2  Restructuring
Costs

During the quarter ended March 31, 2000, the
Company recorded a restructuring charge of $13.7 million.
This was a result of a plan to refocus the Companys
business from a consumer retail focused company to a
business-to-business e-commerce services company. As part of
this refocus, the Company reduced its workforce by approximately
75 employees in January 2000, or approximately 20% of its total
workforce, consolidated facilities and disposed of excess
capital assets. Additionally, the Company terminated its
existing marketing agreements focused on generating consumer
sales with AOL, CNET, Excite, Network Associates, Roadrunner,
Yahoo! and ZDNet. The restructuring charges were comprised of
approximately $10.1 million in termination fees and
associated prepaid and intangible assets write-offs related to
certain marketing agreements, $2.0 million in employee
termination costs, $0.9 million for the write-off of
prepaid royalties and consultation expenses related to the
Companys change in business focus and $0.7 million
for the write-off of excess equipment and facilities
consolidation. No amounts related to the restructuring were
accrued at December 31, 2000 as all amounts had been paid
during fiscal year 2000.

Note 3  Income (Loss) per
Share

Net income (loss) per share is presented under
Statement of Financial Accounting Standards No. 128,
Earnings Per Share (FAS 128). Basic earnings
per share is computed using the weighted average number of
common shares outstanding during the period and excludes any
dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is computed using the
weighted average number of common and dilutive common shares
outstanding during the period. For all periods that the Company
reported a net loss, potentially dilutive securities have been
excluded from the computation as their effect is antidilutive.

On July 2, 2001, the Company completed a
reverse stock split where fifteen shares of common stock
outstanding were converted into one share of common stock. All
current and prior period share and loss per share amounts
presented reflect this reverse stock split.

If the Company had reported net income, diluted
earnings per share for the nine months ended September 30,
2001 and 2000 would have included the shares used in the
computation of net loss per share as well as the effect of
approximately 509,000 and 466,000 shares purchasable under
options and warrants outstanding at September 30, 2001 and
2000, respectively. The number of common equivalent shares from
options and warrants would be determined on a weighted average
basis using the treasury stock method. The convertible notes
outstanding as of September 30, 2001 and 2000 were also
excluded from the common equivalent share calculation, as they
would have been antidilutive.

Note 4  Segment Reporting

Under Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of an Enterprise
and Related Information (FAS 131), the Company
reports its operations as three segments: eStores, Government
Systems and Website Groups. The following table presents net
revenues and cost of revenues of the Companys three
segments for the three and nine months ended September 30, 2001
and 2000. There were no inter-business unit sales or transfers.
The Company does not report operating expenses, depreciation and
amortization, interest income (expense), income taxes, capital
expenditures, or identifiable assets by its industry segments to
the Chief Executive Officer. The Companys Chief Executive
Officer reviews the revenues from each of the Companys
reportable segments, and all of the Companys expenses are

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BEYOND.COM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

managed by and reported to the Chief Executive
Officer on a consolidated basis. Net revenues and cost of
revenues are as follows (in thousands):

|                  |                    |                    |   |                   |        |               |   |               |        |  |   |        |        |  |   |        |        | 
|----------------- | ------------------ | ------------------ | - | ----------------- | ------ | ------------- | - | ------------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                  |                    |                    |   |                  
|                  |                    | Three Months Ended |   | Nine Months Ended
|                  |                    |                    |   |                  
|                  |                    | September 30,      |   | September 30,     |        | September 30, |   | September 30,
|                  |                    | 2001               |   | 2000              |        | 2001          |   | 2000         
|                  |                    |                    |   |                   |        |               |   |              
|Net revenues:     |                    |                    |   |                   |        |               |   |               |        |  |   |        |        |  |   |       
|                  | eStores            |                    | $ | 5,351             |        |               | $ | 11,676        |        |  | $ | 14,962 |        |  | $ | 31,840 |       
|                  | Government Systems |                    |   | 17,593            |        |               |   | 14,389        |        |  |   | 42,527 |        |  |   | 36,400 |       
|                  | Website            |                    |   | 360               |        |               |   | 3,423         |        |  |   | 3,702  |        |  |   | 21,830 |       
|                  |                    |                    |   |                   |        |               |   |               |        |  |   |        |        |  |   |       
|                  |                    | Total              |   | $                 | 23,304 |               |   | $             | 29,488 |  |   | $      | 61,191 |  |   | $      | 90,070 | 
|                  |                    |                    |   |                   |        |               |   |               |        |  |   |        |        |  |   |       
|Cost of revenues: |                    |                    |   |                   |        |               |   |               |        |  |   |        |        |  |   |       
|                  | eStores            |                    | $ | 4,559             |        |               | $ | 9,866         |        |  | $ | 12,154 |        |  | $ | 27,009 |       
|                  | Government Systems |                    |   | 16,634            |        |               |   | 12,929        |        |  |   | 40,085 |        |  |   | 33,056 |       
|                  | Website            |                    |   | 284               |        |               |   | 2,624         |        |  |   | 3,403  |        |  |   | 17,806 |       
|                  |                    |                    |   |                   |        |               |   |               |        |  |   |        |        |  |   |       
|                  |                    | Total              |   | $                 | 21,477 |               |   | $             | 25,419 |  |   | $      | 55,642 |  |   | $      | 77,871 | 
|                  |                    |                    |   |                   |        |               |   |               |        |  |   |        |        |  |   |       

Note 5  Termination of Symantec
eStore

As of January 2, 2001, the Company
discontinued its contract to provide eStore services to
Symantec. For the three and nine months ended September 30,
2000, Symantec eStore revenues comprised approximately 37% and
30% of total revenues, respectively.

Note 6  Comprehensive Income
(Loss)

The components of comprehensive income (loss) for
the three and nine months ended September 30, 2001 and 2000
are as follows (in thousands):

|                            |                                                                     |                     |         |                    |  |               |        |               |   |   |         |   |  |   |         |      |  
|--------------------------- | ------------------------------------------------------------------- | ------------------- | ------- | ------------------ |  | ------------- | ------ | ------------- | - | - | ------- | - |  | - | ------- | ---- | -
|                            |                                                                     |                     |         |                   
|                            |                                                                     | Three Months Ended, |         | Nine Months Ended,
|                            |                                                                     |                     |         |                   
|                            |                                                                     | September 30,       |         | September 30,      |  | September 30, |        | September 30,
|                            |                                                                     | 2001                |         | 2000               |  | 2001          |        | 2000         
|                            |                                                                     |                     |         |                    |  |               |        |              
|Net income (loss)           |                                                                     | $                   | (52,506 | )                  |  | $             | 26,144 |               |   | $ | (87,840 | ) |  | $ | (40,069 | )   
|Other comprehensive loss:   |                                                                     |                     |         |                    |  |               |        |               |   |   |         |   |  |   |         |     
|                            | Change in unrealized gain (loss) on
	available-for-sale investments |                     |         |                   |  |               |        | (199          | ) |   |         |  |  |   |         | (269 | )
|                            | Change in unrealized gain (loss) on foreign
	currency translation   |                     |         |                   |  |               |        | 60            |   |   |         |  |  |   |         | (95  | )
|                            |                                                                     |                     |         |                    |  |               |        |               |   |   |         |   |  |   |         |     
|Comprehensive income (loss) |                                                                     | $                   | (52,506 | )                  |  | $             | 26,005 |               |   | $ | (87,840 | ) |  | $ | (40,433 | )   
|                            |                                                                     |                     |         |                    |  |               |        |               |   |   |         |   |  |   |         |     

Note 7  Impairment of Goodwill and
Other Intangible Assets

In August 2001, the Company launched the
Beyond.com Mall, an evolution of its online store, which
provides increased marketing opportunities for eStore clients
and generates sales commissions from affiliate partners. As a
result of this evolution, the Company will no longer take
consumer orders through its website. Also, as part of this
evolution, the Company closed its Portland office and
discontinued the use of a legacy system that included software
code acquired in the acquisition of BuyDirect.com in 1999. As a
result of these events, the Company performed an assessment of
the carrying value of the Companys goodwill recorded in
connection with the acquisition of BuyDirect.com. The assessment
was performed pursuant to Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Based on the above indicators and that the
Companys website will no

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BEYOND.COM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

longer have incoming cash flows, the Company
recorded an impairment charge of $35.4 million to write-off
the remaining balance of goodwill.

Note 8  Recent Accounting
Pronouncements

Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and
Hedging Activities (FAS 133), establishes accounting
and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for
hedging activities. FAS 133 requires all companies to
recognize derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. This statement is effective for all fiscal quarters
of fiscal years beginning after July 1, 2000. The adoption
of FAS 133 on January 1, 2001 did not have an effect
on the Companys statement of operations or financial
position.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, Business
Combinations (FAS 141), and No. 142,
Goodwill and Other Intangible Assets
(FAS 142). FAS 141 requires that all
business combinations be accounted for under the purchase method
and prohibits the use of the pooling-of-interests method for
business combinations initiated after June 30, 2001.
FAS 141 also establishes criteria for the separate
recognition of intangible assets acquired in a business
combination. FAS 142 requires that goodwill no longer be
amortized to earnings, but instead be subject to periodic
testing for impairment. FAS 142 is effective for fiscal years
beginning after December 15, 2001, with earlier application
permitted only in specified circumstances. The Company has
assessed the potential impact FAS 142 will have on the
Companys financial statements and does not expect that the
adoption of FAS 142 will have a material effect on its
financial position or results of operations.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Impairment or
Disposal of Long-Lived Assets (FAS 144),
which is applicable to financial statements issued for fiscal
years beginning after December 15, 2001. The provisions of
this statement provide a single accounting model for impairment
of long-lived assets. The Company is in process of determining
the impact, if any, of adopting FAS 144.

Note 9  Equity Line
Drawdown

On October 30, 2000 the Company entered into
a common stock purchase agreement with Investwell Investments
Limited (Investwell). Under the common stock
purchase agreement (the Agreement), Investwell has
committed to purchase up to $40.0 million of the
Companys common stock upon drawdown requests by the
Company over a 12 month period, which the Company has the
right to extend for an additional 12 months. As part of the
Agreement, the Company issued stock purchase warrants to
purchase 40,000 shares of the Companys common stock at an
exercise price of $13.476 per share based on 125% of the closing
stock price on October 27, 2000. Shares of the
Companys common stock acquired by Investwell pursuant to
the Agreement are able to be resold pursuant to a Registration
Statement on Form S-1 filed with the Securities Exchange
Commission and effective as of January 26, 2001.

In March 2001, the Company issued a drawdown
notice to Investwell in connection with the Agreement. This
notice offered to sell up to $200,000 of the Companys
common stock to Investwell based on the formula in the
Agreement. The Company restricted the offer by setting a minimum
purchase price of $4.80 per share. As a result of the drawdown,
Investwell purchased a total of 22,267 shares of the
Companys common stock at an average purchase price of
$4.899 per share in April 2001. As a result of these purchases,
Investwell paid and released from escrow to the Company
aggregate proceeds of approximately $106,000. There have been no
additional drawdowns since March 2001.

Note 10  Subsequent
Events

In November 2001, the Company reduced its
workforce by 28 employees, or approximately 22% of its total
workforce.

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

Certain statements in this Quarterly Report on
Form 10-Q are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as
amended. When used in this report or elsewhere by management
from time to time, the words believes,
anticipates, intends, plans,
estimates, and similar expressions are
forward-looking statements. Such forward-looking statements
contained herein include but are not limited to statements
regarding our expectations, objectives, anticipations, plans,
beliefs, intentions and strategies regarding the future, and
specifically the statements relating to the possibility of
profit potential; higher per transaction revenues; sustaining
growth; our ability to effect a strategic transaction; our
ability to continue operations; lower future operating expenses
and reduced cash obligations; the possibility of raising
additional working capital and the potential for higher gross
margins.

Although we believe that the expectations
reflected in the forward-looking statements contained herein are
reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place
undue reliance on these forward-looking statements. Future
financial condition and results of operations, as well as any
forward-looking statements, are subject to known and unknown
risks and inherent uncertainties, including but not limited to
the factors described under Factors That May Affect Future
Operating Results below and the reasons described
elsewhere in this report. All forward-looking statements and
reasons why results may differ included in this report are made
as of the date hereof, and we assume no obligation to update any
such forward-looking statement or reason why actual results
might differ.

For a more detailed discussion of these and other
business risks, see our Annual Report on Form 10-K prepared
pursuant to Section 13 or 15(d) of the Securities Act of
1934, as filed with the Securities and Exchange Commission on
April 19, 2001.

Overview

In January of 2000, we announced a strategic
decision to refocus our Companys eStore business from a
consumer-retail focused company in the business-to-consumer
(B2C) market to a business-to-business
(B2B) e-commerce services company. Thus, instead of
high-cost advertising, aimed at building Beyond.com as a
consumer brand, we refocused resources for the designing,
building, and operating of online stores for clients, software
publishers, systems builders and OEMs that already had brand
recognition, but preferred to outsource their stores.

A new senior management team was recruited during
the second and third quarters of 2000 to drive this strategic
transition from B2C to B2B. We are now focused on two key
businesses: eStores and Government Systems. eStores is a
business where we design, build, operate and manage online
stores for enterprises that wish to extend their selling reach
through the Internet or outsource portions of their existing
e-commerce strategy. Our Government Systems business provides
digitally downloadable software to U.S. Government
agencies, and manages software licenses on behalf of those
agencies.

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eStore Group

Beyond.coms eStore Group designs, builds
and manages online sites that enable software developers,
hardware manufacturers and systems OEMs to launch a full-service
web store at a substantially lower total cost than they would
incur if they had developed a similar system internally.
Businesses can choose from an array of services, including
website design and construction, transaction processing,
physical and electronic order fulfillment, customer support,
marketing, merchandising support, fraud management, tax payment,
currency conversion and reporting. Our current eStore customers
include Act Software, Borland, Electric Rain, McAfee.com, PGP,
Pharos, Salsa Systems and Sonic.

We derive revenue for our eStore Group from two
different business models. The first model, where we earn
revenues by reselling the products of our eStore customers, is a
traditional reseller model that is characterized by higher per
transaction revenue but lower margins. The second model, where
we are paid fees based on the transactions that we complete and
the services that we render, is a transaction and services
model, which typically has lower revenues per transaction but a
potential for higher gross margins. In the near term, we expect
our gross margins to fluctuate around recent historical levels,
depending on the mix of these two models in any given period. It
is our policy to allow each client to select which of the two
business models, traditional reseller or the transaction model,
to use for their online store. This selection process makes it
difficult to forecast revenues and therefore, we intend to focus
on gross margin profit as the key metric in measuring the
sustainable growth of our Company.

Government Systems Group

Beyond.coms Government Systems Group
provides digitally downloadable software, digital asset
management, and related services to a growing list of
U.S. Government agencies including the Internal Revenue
Service (IRS), Office of the Comptroller of the Currency (OCC),
Bureau of Engraving and Printing (BEP), Office of Thrift
Supervision (OTS), Defense Logistics Agency (DLA), National
Imagery and Mapping Agency (NIMA), Patent and Trademark Office
(PTO), US Mint, Fleet Law Enforcement Training Center (FLETC),
the Department of Energy (DOE), and the Department of Defense
(DOD).

Website

Beyond.coms online store (www.beyond.com),
offers customers a comprehensive selection of software and
computer related products, customer reviews, customer service,
and competitive prices. We deliver software to customers over
the Internet via digital download or by physically delivering
the shrink-wrap software package. Since our strategic refocus in
January 2000, the de-emphasis on advertising to promote our
brand and the reallocation of resources to the eStore Group, has
resulted in reduced revenues for the Website segment of our
business. In August 2001, we launched the Beyond.com Mall
thereby redirecting our website traffic and product orders to
our eStore clients and affiliates. This represents an evolution
of our online store by providing increased marketing
opportunities for eStore clients and generating sales
commissions from affiliate partners. As a result, we will no
longer take consumer orders through our website, thus no
additional revenue is expected from our Website segment in
future periods.

General

Net loss before extraordinary income increased
from a loss of $19.0 million in the quarter ended
September 30, 2000 to a loss of $52.5 million in the
quarter ended September 30, 2001. This increase was due to
a one-time non-cash goodwill impairment charge of
$35.4 million recorded in the third quarter of 2001. This
charge was the result of our launch of the Beyond.com Mall, an
evolution of our online store, which provides increased
marketing opportunities for eStore clients and generates sales
commissions from affiliate partners. As part of this evolution,
we closed our Portland office and discontinued the use of a
legacy system that included software code acquired in the
BuyDirect.com acquisition. It was from the BuyDirect.com
acquisition in 1999 that we recorded all of our goodwill.
Excluding the one-time goodwill impairment charge, net loss
before extraordinary income would have been $17.1 million
in the quarter ended September 30, 2001.

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Our ability to become profitable depends on our
ability to manage expenses and to generate and sustain higher
gross margin dollars. If we do achieve profitability, we cannot
assure you that we will sustain or increase profitability on a
quarterly or annual basis in the future. In order to continue to
attempt to achieve profitability, meet our obligations in 2002
and continue operations, we must raise additional capital in
2001. Current and future expense levels, which are largely
fixed, are based upon operating plans and estimates of future
revenues. In view of the rapidly evolving nature of the
industries in which we are engaged, our limited operating
history and the current economic uncertainties it is difficult
to reliably forecast revenues. Therefore, we believe that
period-to-period comparisons of financial results are not
necessarily meaningful and should not be relied upon as the sole
indicator of our future performance. If we cannot achieve and
sustain operating profitability or positive cash flows from
operations, we may be unable to meet our debt service
obligations or working capital requirements, which would
adversely affect our business.

Results of Operations for the Three and Nine
Months Ended September 30, 2001 and 2000

Net Revenues.Revenues from the sale of
software, net of estimated returns, are recognized when
persuasive evidence of an arrangement exists, shipment of the
physical product or delivery of the electronic product has
occurred, fees are fixed and determinable, and collectibility is
considered probable. Some of our sales of software under
contracts with the U.S. Government require us to provide
continuing service, support and performance. Accordingly, with
respect to such sales the related revenues and costs are
deferred and recognized over the period that the service,
support and performance are provided. Revenues derived from
product resales, website hosting and transaction processing are
recognized as the services are provided. Cost of deferred
revenue relates to software licenses purchased from software
developers for sales to U.S. Government agencies.

In the quarter ended December 31, 2000, we
adopted FASBs Emerging Issues Task Force 00-10
Accounting for Shipping and Handling Fees and Costs
(EITF 00-10), which provides guidance for the
classification of revenues and costs for shipping and handling
fees. All fiscal 2000 revenue and cost of revenue amounts have
been reclassified to conform with the adoption of
EITF 00-10. The adoption of EITF 00-10 had no impact
on our gross profit or net loss.

Beyond.coms revenues can be categorized
into the following three segments:

eStore net revenue was $5.4 million in the
quarter ended September 30, 2001, compared to
$11.7 million in the quarter ended September 30, 2000.
The decrease was primarily the result of the termination of our
relationship with Symantec, partially offset by the addition of
new eStore customers. eStore revenue represented 23.0% of total
revenue in the quarter ended September 30, 2001 compared to
39.6% of total revenue in the quarter ended September 30,
2000.

eStore net revenue was $15.0 million in the
nine months ended September 30, 2001, compared to
$31.8 million in the nine months ended September 30,
2000. The decrease was primarily the result of the termination
of our relationship with Symantec, partially offset by the
addition of new eStore customers. eStore revenue represented
24.5% of total revenue in the nine months ended
September 30, 2001 compared to 35.4% of total revenue in
the nine months ended September 30, 2000.

Government Systems net revenue was
$17.6 million in the quarter ended September 30, 2001,
compared to $14.4 million in the quarter ended
September 30, 2000. The increase in the third quarter 2001
was primarily the result of an increase in revenues recognized
in the quarter from new contracts. Government Systems revenue
represented 75.5% of total revenue in the quarter ended
September 30, 2001 compared to 48.8% of total revenue in
the quarter ended September 30, 2000. The percentage
increase was primarily due to the decreases in website and
eStore revenues.

Government Systems net revenue was
$42.5 million in the nine months ended September 30,
2001, compared to $36.4 million in the nine months ended
September 30, 2000. The increase in 2001 was primarily the
result of the addition of new contracts with
U.S. Government agencies, including DOE, IRS and DOD, as
well as the renewal and expansion of existing contracts.
Government Systems revenue represented 69.5% of

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total revenue in the nine months ended
September 30, 2001 compared to 40.4% of total revenue in
the nine months ended September 30, 2000.


Website net revenue was $0.4 million in the
quarter ended September 30, 2001 compared to
$3.4 million in the quarter ended September 30, 2000.
The decrease was primarily the result of the change in the
Companys business focus and the August 2001 launch of
the Beyond.com Mall, which redirects traffic and product orders
to our eStore clients and affiliates. Website revenue
represented 1.5% of total revenue in the quarter ended
September 30, 2001, compared to 11.6% of total revenue in
the quarter ended September 30, 2000. No additional revenue
is expected from our Website segment in future periods.

Website net revenue was $3.7 million in the
nine months ended September 30, 2001 compared to
$21.8 million in the nine months September 30, 2000.
The decrease in 2001 was primarily the result of the change in
the Companys business focus. Website revenue represented
6.0% of total revenue in the nine months ended
September 30, 2001, compared to 24.2% of total revenue in
the nine months ended September 30, 2000. No additional
revenue is expected from our Website segment in future periods.

Gross Profit and Gross Margin.Gross profit consists of revenues
net of direct costs of sales, which consist primarily of the
costs of software and software licenses sold to consumer and
corporate customers, related credit card processing fees, and
the costs of software licenses and software updates provided to
U.S. Government agencies. Gross profit was
$1.8 million in the quarter ended September 30, 2001,
compared to $4.1 million in the quarter ended
September 30, 2000. This decrease was primarily the result
of the termination of our relationship with Symantec and its
corresponding decrease in revenues, as well as, an increase in
lower gross margin Government sales.

Gross profit was $5.5 million in the nine
months ended September 30, 2001, compared to
$12.2 million in the nine months ended September 30,
2000. This decrease was primarily the result of the termination
of our relationship with Symantec and its corresponding decrease
in revenues, as well as, continued decreases in Website sales as
a result of our change in business focus.

Our gross margin (gross profit as a percentage of
net revenues) decreased from 13.8% in the quarter ended
September 30, 2000 to 7.8% in the quarter ended
September 30, 2001. This decrease was primarily the result
of a change in sales mix, as the lower margin Government Systems
sales business grew to a larger overall portion of sales during
the quarter ended September 30, 2001, while higher margin
eStore and website sales decreased.

Our gross margin decreased from 13.5% in the nine
months ended September 30, 2000 to 9.1% in the nine months
ended September 30, 2001. This decrease was primarily the
result of a change in sales mix, as the lower margin Government
Systems sales business grew to a larger overall portion of sales
during the nine months ended September 30, 2001, while
higher margin eStore and website sales decreased.

Research and Development Expenses.Our research and development expenses
primarily consist of personnel and other expenses associated
with developing and enhancing our eStore software functionality,
as well as associated facilities related expenses. Our research
and development expenses decreased from $1.5 million in the
quarter ended September 30, 2000 to $1.0 million in
the quarter ended September 30, 2001, primarily as a result
of a decrease in personnel related costs. These expenses
decreased as a percentage of net revenues from 5.2% in the
quarter ended September 30, 2000 to 4.1% in the quarter
ended September 30, 2001.

Our research and development expenses decreased
from $6.7 million in the nine months ended
September 30, 2000 to $3.1 million in the nine months
ended September 30, 2001, primarily as a result of a
decrease in personnel related costs. These expenses decreased as
a percentage of net revenues from 7.5% in the nine months ended
September 30, 2000 to 5.1% in the nine months ended
September 30, 2001.

Sales and Marketing Expenses.Our sales and marketing expenses
consist primarily of costs associated with promoting our
websites and eStore services, including personnel and related
expenses. Our sales and marketing expenses decreased from
$8.4 million in the quarter ended September 30, 2000
to $5.0 million in the quarter ended September 30,
2001, primarily as a result of a decrease in personnel related
costs. These

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expenses decreased as a percentage of net
revenues from 28.7% in the quarter ended September 30, 2000
to 21.3% in the quarter ended September 30, 2001.


Our sales and marketing expenses decreased from
$35.3 million in the nine months ended September 30,
2000 to $14.8 million in the nine months ended
September 30, 2001, primarily as a result of terminating
existing marketing agreements during the restructuring and a
decrease in personnel related costs. These expenses decreased as
a percentage of net revenues from 39.2% in the nine months ended
September 30, 2000 to 24.2% in the nine months ended
September 30, 2001.

General and Administrative Expenses.Our general and administrative
expenses consist primarily of personnel expenses, legal and
accounting expenses, and corporate facility-related expenses.
Our general and administrative expenses increased from
$2.5 million in the quarter ended September 30, 2000
to $2.7 million in the quarter ended September 30,
2001, primarily due to an increase in allowance for doubtful
accounts, partially offset by a decrease in personnel related
costs. These expenses increased as a percentage of net revenues
from 8.3% in the quarter ended September 30, 2000 to 11.5%
in the quarter ended September 30, 2001, primarily due to
the decrease in revenues and increase in allowance for doubtful
accounts.

Our general and administrative expenses decreased
from $9.3 million in the nine months ended
September 30, 2000 to $8.6 million in the nine months
ended September 30, 2001, primarily due to a decrease in
personnel related costs. These expenses increased as a
percentage of net revenues from 10.3% in the nine months ended
September 30, 2000 to 14.0% in the nine months ended
September 30, 2001, primarily due to the decrease in net
revenues and the relatively fixed nature of general and
administrative expenses.

Amortization of Goodwill, Other Intangible
Assets and Deferred Compensation.Expenses associated with the
amortization of goodwill and deferred compensation related to
the acquisition of BuyDirect.com in March 1999 and the grant of
stock options, increased from $9.1 million in the quarter
ended September 30, 2000 to $44.3 million in the
quarter ended September 30, 2001. This increase was due to
a $35.4 million one-time goodwill impairment charge.

Expenses associated with the amortization of
goodwill and deferred compensation related to the acquisition of
BuyDirect.com in March 1999 and the grant of stock options,
increased from $29.8 million in the nine months ended
September 30, 2000, to $62.4 million in the nine
months ended September 30, 2001. This increase was due to a
$35.4 million one-time goodwill impairment charge taken in the
third quarter of 2001.

Restructuring.The
$13.7 million of restructuring charges recorded in the
quarter ended March 31, 2000 were primarily comprised of
approximately $10.1 million in termination fees and
associated prepaid and intangible assets write-offs related to
certain marketing agreements, $2.0 million in employee
termination costs, $0.9 million of other expenses related
to the write-off of prepaid royalties and consultation expenses
related to the Companys change in business focus and
$0.7 million for the write-off of excess equipment and
facilities consolidation. No restructuring charges were recorded
in the nine months ended September 30, 2001.

Other Expense, Net.Other expense, net, primarily consists
of earnings on our cash and cash equivalents, net of interest
costs related to our financing obligations. Other expense, net,
decreased from $1.5 million for the quarter ended
September 30, 2000 to $1.4 million in the quarter
ended September 30, 2001. In the quarter ended
September 30, 2001, interest expense includes approximately
$0.4 million related to the Companys outstanding
convertible notes. Additionally, interest expense also includes
$0.6 million in note accretion related to the accretion of
our 10  7/8% Convertible Subordinated Notes from the
initial recorded fair market value to the face value at
maturity. Interest expense in the quarter ended
September 30, 2001, was offset partially by interest income
totaling approximately $0.1 million earned on our cash and
cash equivalents balances. In the quarter ended
September 30, 2000, interest expense totaling approximately
$1.1 million arose from our 7  1/4% Convertible
Subordinated Notes, offset by interest income totaling
approximately $0.3 million from our cash and cash
equivalents balances.

Other expense, net, decreased from
$2.5 million for the nine months ended September 30,
2000 to $4.4 million in the nine months ended
September 30, 2001. In the nine months ended
September 30, 2001, interest expense includes approximately
$1.3 million related to the Companys outstanding
convertible notes.

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Additionally, interest expense also includes
$2.3 million in note accretion related to the accretion of
our 10  7/8% Convertible Subordinated Notes from the
initial recorded fair market value to the face value at
maturity. Interest expense in the nine months ended
September 30, 2001, was offset partially by interest income
totaling approximately $0.4 million earned on our cash and
cash equivalents balances. In the nine months ended
September 30, 2000, interest expense totaling approximately
$3.4 million arose from our 7  1/4% Convertible
Subordinated Notes, offset by interest income totaling
approximately $1.8 million from our cash and cash
equivalents balances.


Income Taxes.No
provision for income taxes has been recorded due to operating
losses with no current tax benefit.

Liquidity and Capital Resources

From inception through September 30, 2001,
we financed our operations primarily through private sales of
preferred stock, our initial public offering in June 1998 of
5,750,000 shares (post-split 383,333 shares) of our common
stock, our second public offering in April 1999 of
3,000,000 shares (post-split 200,000) of our common stock,
and the sale of convertible notes in November and December 1998.
We raised cumulative net cash proceeds totaling
$14.8 million through private sales of preferred stock. In
June 1998, we received net proceeds of $48.8 million from
our initial public offering and a concurrent sale of common
stock to AOL. In 1998, we also raised net cash proceeds totaling
approximately $63.3 million through the sale of our 7 
1/4% Convertible Subordinated Notes (7  1/4
Notes). In April 1999 we received net proceeds of
$98.5 million from our second public offering. On
September 11, 2000, we consummated an offer to exchange our
10  7/8% Convertible Subordinated Notes (10  7/8
Notes) for our outstanding 7  1/4% Notes. The
exchange resulted in approximately $62.3 million of 7 
1/4% Notes being exchanged for approximately $41.6 million
of 10  7/8% Notes. The 10  7/8% Notes were recorded at
fair market value on the date of exchange on our balance sheet.

In April 2001, we entered into a forbearance
agreement with a key vendor relating to $12 million in
trade payables that were restructured to a note payable (the
Vendor Note). The agreement includes two payments of
$1 million each in principal plus interest due on
July 2, 2001 and October 1, 2001 with the balance plus
interest due January 2, 2002. Interest accrues on the
Vendor Note at a rate of prime plus 1%. We are committed to
repay the Vendor Note on an accelerated basis to the extent that
we borrow money under a non-current borrowing arrangement from
any party other than the payee (other than any revolving credit
lines or agreements previously existing on the date hereof) and
to the extent that we raise capital through the sale of equity,
debt securities or the sale of assets in excess of $14 million.
The Company has not yet made its October 1, 2001 payment
due under the Vendor Note, but has reached agreement with the
vendor to make this payment in the future in conjunction with
other payables due to the vendor.

As of September 30, 2001, we had
approximately $3.8 million of cash and cash equivalents
compared to $3.5 million of cash and cash equivalents at
December 31, 2000. We believe that our cash and cash
equivalents at September 30, 2001, should be sufficient to
meet our anticipated needs for working capital and capital
expenditures through December 31, 2001, assuming the
collection of all accounts receivable currently due and the
liquidation of other current assets. However, our working
capital will not be sufficient to support our anticipated needs
for working capital and capital expenditures through
December 31, 2001, if there is any significant negative
impact resulting from poor collection performance or the
inability to liquidate other current assets. Additionally, the
sufficiency of our projected working capital is dependent on our
financial outlook as well as our ability to maintain vendor
credit lines. Therefore, we are actively seeking new sources of
working capital and exploring strategic alternatives, which may
include the sale of part or all of the Companys
businesses. No assurances can be given that we will be
successful in obtaining new sources of working capital or
consummating a strategic alternative transaction, such as, a
sale of part or all of the Company. Even if the Company secures
additional capital or effects a strategic transaction, no
assurance can be given that the Company will be able to continue
to conduct its business.

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We used net cash of $10.2 million in
operating activities in the nine months ended September 30,
2001. Our cash used in operating activities in the nine months
ended September 30, 2001 was primarily comprised of the net
effect of:



| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a net loss of $87.8 million offset by
	non-cash charges for depreciation and amortization of
	$5.0 million, and amortization of goodwill and deferred
	compensation of $62.4 million;
|
| |  | a decrease in accounts receivable totaling
	$14.6 million primarily related to the collection of U.S.
	Government agency receivables; and                                            
|
| |  | a decrease in accounts payable totaling
	$11.4 million.                                                                                                                              

We used net cash of $0.4 million from
investing activities primarily related to the purchase of
property, plant and equipment in the nine months ended
September 30, 2001.

We generated net cash of $10.9 million in
the nine months ended September 30, 2001 from financing
activities primarily related to our forbearance agreement with a
key vendor for $12.0 million.

Factors That May Affect Future Operating
Results:

This quarterly report on Form 10-Q contains
forward-looking statements, which involve risks and
uncertainties. Our actual results could differ materially from
those anticipated by such forward looking statements as a result
of such factors, including those set forth below.

For a more detailed discussion of these and other
business risks, see our Annual Report on Form 10-K prepared
pursuant to Section 13 or 15(d) of the Securities Act of
1934, as filed with the Securities and Exchange Commission on
April 19, 2001.



| |                                                
| | -----------------------------------------------
| | We Will Need Additional Capital in the
	Future.

We currently anticipate that our available cash
and cash equivalents at September 30, 2001 combined with
anticipated receipts of outstanding accounts receivable and
liquidation of other current assets should be sufficient to meet
our anticipated needs for working capital and capital
expenditures through December 31, 2001. However, if there
is any significant negative impact resulting from poor
collection performance or the inability to liquidate other
current assets, our working capital will not be sufficient to
support our anticipated needs for working capital and capital
expenditures through December 31, 2001. We will also need
additional external funding to meet payment obligations under
the Vendor Note becoming due in the beginning of 2002.
Additionally, the sufficiency of our projected working capital
is dependent on our financial outlook as well as our ability to
maintain vendor credit lines. Therefore, we are actively seeking
new sources of working capital and exploring strategic
alternatives, which may include the sale of part or all of the
Companys businesses. We may not be able to obtain
additional financing from other sources on terms favorable to
us, if at all, and we may not be successful in consummating a
strategic alternative transaction. If adequate funds are not
available or are not available on terms favorable to us, we may
not be able to continue to operate our business pursuant to our
business plan or we may have to discontinue our operations.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Our Stock Price May Decline if We Draw on
	the Equity Drawdown Facility Established by the Common Stock
	Purchase Agreement.

If we draw on the equity drawdown facility, then
Investwell will have the right to resell the shares purchased in
connection with the drawdown. Sales by Investwell of our common
stock in the public market could cause our stock price to
decline. Investwell and Ladenburg could purchase and resell up
to approximately 17% of our common stock outstanding at
September 30, 2001 during the 12 months following the
effectiveness of the registration statement. Our stockholders
approved the possible sale of more than 20% of our issued and
outstanding shares of common stock to Investwell, which
effectively eliminated any limitation on the maximum number of
shares that we can sell to Investwell under the equity drawdown
facility provided that Investwell agrees to amend the equity
drawdown facility to allow these sales. Sales of a substantial
number of shares of our common stock could cause our stock price
to decline. In addition, the sale

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of these shares could impair our ability to raise
capital through the sale of additional stock. Furthermore, to
the extent the price of our common stock decreases, we will be
required to issue more shares of common stock to Investwell for
any given dollar amount that we draw from the equity drawdown
facility. This downward pressure on the stock price could
encourage short sales, which could place additional downward
pressure on the price of our common stock.




| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | The Issuance of Shares to Investwell Under
	the Equity Drawdown Facility May Cause Significant Dilution in
	the Value of Our Common Stock.

The shares of our common stock issuable to
Investwell under the equity drawdown facility will be issued at
a 5% discount to the volume-weighted average daily price of our
common stock during the applicable drawdown period. The issuance
of shares to Investwell will therefore dilute the equity
interest of existing stockholders and could have an adverse
effect on the market price of our common stock. Depending on the
extent to which we draw on the equity drawdown facility, we may
be required to register additional shares for resale, which
could have a further dilutive effect on the value of our common
stock.



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Our Financial Condition May Be Affected
	Adversely If We Do Not Secure and Maintain Future Contracts with
	U.S. Government Agencies.

We have several contracts with U.S. Government
agencies, which accounted for approximately 14% of our net
revenues in 1999, approximately 25% of our net revenues in the
year ended December 31, 2000 and approximately 59% for the
nine months ended September 30, 2001. Each of these
contracts is subject to annual review and renewal by the
government, and may be terminated at any time. Each government
contract, option and extension is only valid if the government
appropriates enough funds for expenditure on such contract,
option or extension. Accordingly, we might fail to derive any
revenue from sales of software to the U.S. Government in any
given future period. If the U.S. Government fails to renew or
terminates any of these contracts, then it would adversely
affect our business and results of operations.



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Our Revenues May Be Adversely Affected by
	the Loss of Some of Our eStore Clients.

Management intends to evaluate each of its
current contracts with eStore clients as they come up for
renewal to help ensure that every eStore provides an acceptable
contribution margin to the Company. During this process we will
seek to either renegotiate any contract which is judged to
provide an unacceptable contribution margin or discontinue the
business relationship at the end of its stated term. Should we
be unsuccessful in renegotiating any contract, thereby losing a
particular customer at the end of its contract term, or should a
customer choose not to renew a contract of their own accord, the
result may have a negative impact on our revenue, future revenue
growth, and in certain instances, our profitability and results
of operations.



| |                                          
| | -----------------------------------------
| | Potential Delisting of Our Common
	Stock.

Our common stock trades on the Nasdaq National
Market (Nasdaq), which has certain compliance
requirements for continued listing of common stock. In the past,
we have had difficulty maintaining compliance with the
Nasdaqs continued listing requirements. The result of
delisting from the Nasdaq National Market could be a reduction
in the liquidity of any investment in our common stock and an
adverse effect on the trading price of our common stock.
Delisting could also reduce the ability of holders of our common
stock to purchase or sell shares as quickly and as inexpensively
as they have done historically. This lack of liquidity would
make it more difficult for us to raise capital in the future.
Currently, we have not been notified of any non-compliance with
Nasdaqs continued listing requirements, however, we cannot
guarantee that we will maintain compliance with these listing
requirements.

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Item 3.     Quantitative and Qualitative Disclosures About Market
Risk

Interest Rate Risk.We are exposed to the impact of
interest rate changes, foreign currency fluctuations, and change
in the market values of our investments.

We have no cash flow exposure due to rate changes
on either of our convertible subordinated notes and no other
significant investments or debt instruments are tied to valuable
interest rates.

Foreign Currency Risk.To date we have not experienced
material risks associated with foreign currencies as a result of
our operations. However, with our planned expansion
internationally, we may be exposed to risks associated with
fluctuations in foreign currencies during future periods.

Investment Risk.To
date, we have not invested in equity instruments of companies.




PART II.     OTHER
INFORMATION




Item 1.     Legal Proceedings

On July 7, 2000, Softmat, LLC
(Softmat) filed a complaint against the Company in
the United States District Court, Central District of California
(the Court), alleging that the Companys
merchandising systems for computer software infringes upon a
patent held by Softmat. The complaint sought monetary damages,
treble damages, injunctive relief and attorneys fees for
willful infringement. The Company settled this matter with
Softmat for a cash payment of approximately $25,000 and a
warrant to purchase 13,333 shares of our common stock at a price
of $5.10 per share. The warrant expires in April 2004. The
settlement was entered by the Court on May 4, 2001.




Item 2.     Changes in Securities  Not Applicable




Item 3.     Defaults Upon Senior Securities  Not
Applicable




Item 4.     Submission of Matters to a Vote of Security Holders 
Not applicable.




Item 5.     Other Information  Not Applicable




Item 6.     Exhibits, Financial Statement Schedules, and Reports of
Form 8-K

(a)  Exhibits

None.

(b)  Reports of Form 8-K

None.

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this quarterly report on
Form 10-Q to be signed on its behalf by the undersigned,
thereunto duly authorized, in Santa Clara, California, on
November 14, 2001.



| |                                                           
| | ----------------------------------------------------------
| | BEYOND.COM CORPORATION                                    
|
| | BY  /s/ CURTIS A. CLUFF                                   
| | _______________________________________ 
	 Curtis A. Cluff
| | Senior Vice President and Chief Financial
	Officer        

17