##### Table of Contents



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




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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549




---

FORM 10-Q



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| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30,
2001

OR



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| | 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      |  | (Primary standard industrial |  | (I.R.S. Employer      
|of incorporation or organization) |  | classification code number)  |  | 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 
x  No 
o

The number of shares of the registrants
Common Stock, $.001 par value per share, outstanding as of
July 31, 2001 was 3,304,253.



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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                                                                
|                              | Item 3. Defaults Upon Senior Securities                                                      
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | 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)


ASSETS

|                                          |                                           |                                            |        |              |        |  |        |          |         | 
|----------------------------------------- | ----------------------------------------- | ------------------------------------------ | ------ | ------------ | ------ |  | ------ | -------- | ------- | 
|                                          |                                           | June 30,                                   |        | December 31,
|                                          |                                           | 2001                                       |        | 2000        
|                                          |                                           |                                            |        |             
|                                          |                                           | (unaudited)                                |        |             
|                                         
|                                         
|                                         
|                                         
|Current assets:                           |                                           |                                            |        |              |        |  |        |         
|                                         
|                                         
|                                         
|                                         
|                                          | Cash and cash equivalents                 |                                            | $      | 4,804        |        |  | $      | 3,513    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Restricted cash                           |                                            |        | 2,000        |        |  |        | 2,000    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts receivable, net                  |                                            |        | 12,533       |        |  |        | 28,974   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Prepaid expenses and other current assets |                                            |        | 4,847        |        |  |        | 4,816    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Cost of deferred revenue                  |                                            |        | 12,419       |        |  |        | 20,570   |        
|                                          |                                           |                                            |        |              |        |  |        |         
|                                          |                                           | Total current assets                       |        |              | 36,603 |  |        |          | 59,873  | 
|                                         
|                                         
|                                         
|                                         
|Non-current assets:                       |                                           |                                            |        |              |        |  |        |         
|                                         
|                                         
|                                         
|                                         
|Property and equipment, net               |                                           |                                            | 10,720 |              |        |  | 13,327 |         
|                                         
|                                         
|                                         
|                                         
|Deposits and other non-current assets     |                                           |                                            | 2,406  |              |        |  | 3,988  |         
|                                         
|                                         
|                                         
|                                         
|Goodwill and other intangible assets, net |                                           |                                            | 44,329 |              |        |  | 62,408 |         
|                                          |                                           |                                            |        |              |        |  |        |         
|                                          |                                           | Total assets                               |        | $            | 94,058 |  |        | $        | 139,596 | 
|                                          |                                           |                                            |        |              |        |  |        |         
|LIABILITIES AND STOCKHOLDERS EQUITY     
|                                         
|                                         
|                                         
|                                         
|Current liabilities:                      |                                           |                                            |        |              |        |  |        |         
|                                         
|                                         
|                                         
|                                         
|                                          | Accounts payable                          |                                            | $      | 5,092        |        |  | $      | 23,974   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Accrued employee expenses                 |                                            |        | 567          |        |  |        | 1,284    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Other accrued liabilities                 |                                            |        | 7,591        |        |  |        | 2,748    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Vendor note payable                       |                                            |        | 12,000       |        |  |        |         |        
|                                         
|                                         
|                                         
|                                         
|                                          | Deferred revenue                          |                                            |        | 13,497       |        |  |        | 22,025   |        
|                                          |                                           |                                            |        |              |        |  |        |         
|                                          |                                           | Total current liabilities                  |        |              | 38,747 |  |        |          | 50,031  | 
|                                         
|                                         
|                                         
|                                         
|Convertible notes payable                 |                                           |                                            | 9,003  |              |        |  | 12,373 |         
|                                         
|                                         
|                                         
|                                         
|Stockholders equity:                     |                                           |                                            |        |              |        |  |        |         
|                                         
|                                         
|                                         
|                                         
|                                          | Common stock                              |                                            |        | 309,653      |        |  |        | 305,332  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Deferred compensation                     |                                            |        | (14          | )      |  |        | (143     | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Accumulated deficit                       |                                            |        | (263,331     | )      |  |        | (227,997 | )      
|                                          |                                           |                                            |        |              |        |  |        |         
|                                          |                                           | Total stockholders equity                 |        |              | 46,308 |  |        |          | 77,192  | 
|                                          |                                           |                                            |        |              |        |  |        |         
|                                          |                                           | Total liabilities and stockholders equity |        | $            | 94,058 |  |        | $        | 139,596 | 
|                                          |                                           |                                            |        |              |        |  |        |         




|      |                                                                                                             
|----- | ------------------------------------------------------------------------------------------------------------
|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,      |         | Six Months Ended,
|                                                                                            |                                                                           |                          |         |                  
|                                                                                            |                                                                           | June 30,                 |         | June 30,          |        | June 30, |         | June 30,
|                                                                                            |                                                                           | 2001                     |         | 2000              |        | 2001     |         | 2000    
|                                                                                            |                                                                           |                          |         |                   |        |          |         |         
|Net revenues                                                                                |                                                                           | $                        | 17,349  |                   |        | $        | 31,021  |          |        | $ | 37,887  |        |        | $ | 60,581  |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Cost of revenues                                                                            |                                                                           |                          | 15,754  |                   |        |          | 26,931  |          |        |   | 34,165  |        |        |   | 52,452  |       
|                                                                                            |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       
|Gross profit                                                                                |                                                                           |                          | 1,595   |                   |        |          | 4,090   |          |        |   | 3,722   |        |        |   | 8,129   |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Operating expenses:                                                                         |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Research and development                                                  |                          |         | 1,115             |        |          |         | 1,517    |        |   |         | 2,192  |        |   |         | 5,197  |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Sales and marketing                                                       |                          |         | 4,725             |        |          |         | 9,887    |        |   |         | 9,843  |        |   |         | 26,879 |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | General and administrative                                                |                          |         | 2,749             |        |          |         | 3,169    |        |   |         | 5,888  |        |   |         | 6,869  |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Goodwill, other intangible assets and deferred
	compensation amortization |                          |         | 8,973             |        |          |         | 9,227    |        |   |         | 18,095 |        |   |         | 20,713 |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Restructuring                                                             |                          |         |                  |        |          |         |         |        |   |         |       |        |   |         | 13,707 |       
|                                                                                            |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       
|                                                                                            |                                                                           | Total operating expenses |         |                   | 17,562 |          |         |          | 23,800 |   |         |        | 36,018 |   |         |        | 73,365 | 
|                                                                                            |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       
|Loss from operations                                                                        |                                                                           |                          | (15,967 | )                 |        |          | (19,710 | )        |        |   | (32,296 | )      |        |   | (65,236 | )     
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Other expense, net                                                                          |                                                                           |                          | (1,604  | )                 |        |          | (582    | )        |        |   | (3,038  | )      |        |   | (977    | )     
|                                                                                            |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       
|NET LOSS                                                                                    |                                                                           | $                        | (17,571 | )                 |        | $        | (20,292 | )        |        | $ | (35,334 | )      |        | $ | (66,213 | )     
|                                                                                            |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       
|Basic and diluted net loss per share                                                        |                                                                           | $                        | (5.41   | )                 |        | $        | (8.01   | )        |        | $ | (11.10  | )      |        | $ | (26.44  | )     
|                                                                                            |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       
|Weighted average shares outstanding used in
	computing basic and diluted net loss per share |                                                                           |                          | 3,246   |                   |        |          | 2,534   |          |        |   | 3,184   |        |        |   | 2,504   |       
|                                                                                            |                                                                           |                          |         |                   |        |          |         |          |        |   |         |        |        |   |         |       

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)


|                                                          |                                                                              |                                                                           |                                                      |          |         |         |         |        |        |         |  
|--------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ---------------------------------------------------- | -------- | ------- | ------- | ------- | ------ | ------ | ------- | -
|                                                          |                                                                              |                                                                          
|                                                          |                                                                              | Six Months Ended                                                         
|                                                          |                                                                              |                                                                          
|                                                          |                                                                              | June 30,                                                                  |                                                      | June 30,
|                                                          |                                                                              | 2001                                                                      |                                                      | 2000    
|                                                          |                                                                              |                                                                           |                                                      |         
|Operating Activities                                      |                                                                              |                                                                           |                                                      |          |         |         |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|Net loss                                                  |                                                                              | $                                                                         | (35,334                                              | )        |         | $       | (66,213 | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Adjustments to reconcile net loss to net cash
	used in operating activities: |                                                                           |                                                      |          |         |         |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Depreciation and amortization                                             |                                                      |          | 3,329   |         |         |        | 1,788  |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Accretion of convertible notes payable                                    |                                                      |          | 1,645   |         |         |        |       |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Common shares issued for employee services                                |                                                      |          |        |         |         |        | 1,039  |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Warrant issued under legal agreement                                      |                                                      |          | 59      |         |         |        |       |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Goodwill, other intangible assets and deferred
	compensation amortization |                                                      |          | 18,095  |         |         |        | 22,099 |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Changes in assets and liabilities:                                           |                                                                           |                                                      |          |         |         |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Accounts receivable                                                       |                                                      |          | 16,441  |         |         |        | (4,627 | )      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Prepaid partnership agreements                                            |                                                      |          |        |         |         |        | 4,306  |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Prepaid expenses and other current assets                                 |                                                      |          | (363    | )       |         |        | (1,678 | )      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Cost of deferred revenue                                                  |                                                      |          | 8,151   |         |         |        | (9,504 | )      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Other noncurrent assets                                                   |                                                      |          | 997     |         |         |        | 1,578  |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Accounts payable                                                          |                                                      |          | (18,882 | )       |         |        | 18,077 |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Accrued employee expenses                                                 |                                                      |          | (717    | )       |         |        | 1,397  |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Other accrued liabilities                                                 |                                                      |          | 4,843   |         |         |        | (458   | )      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                              | Deferred revenue                                                          |                                                      |          | (8,528  | )       |         |        | 10,720 |        
|                                                          |                                                                              |                                                                           |                                                      |          |         |         |         |       
|                                                          |                                                                              |                                                                           | Net cash used in operating activities                |          |         | (10,264 | )       |        |        | (21,476 | )
|                                                         
|                                                         
|                                                         
|                                                         
|Investing Activities                                      |                                                                              |                                                                           |                                                      |          |         |         |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Sale of short-term investments, net                                          |                                                                           |                                                      |         |         |         |         | 23,985 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Costs associated with investment in SoftGallery                              |                                                                           |                                                      |         |         |         |         | (995   | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Purchases of property and equipment, net                                     |                                                                           |                                                      | (365     | )       |         |         | (1,758 | )     
|                                                          |                                                                              |                                                                           |                                                      |          |         |         |         |       
|                                                          |                                                                              |                                                                           | Net cash provided by (used in) investing
	activities |          |         | (365    | )       |        |        | 21,232  |  
|                                                         
|                                                         
|                                                         
|                                                         
|Financing Activities                                      |                                                                              |                                                                           |                                                      |          |         |         |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Payments under capital leases                                                |                                                                           |                                                      |         |         |         |         | (100   | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Net proceeds from exercise of stock options                                  |                                                                           |                                                      | 1        |         |         |         | 723    |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Net proceeds from vendor note payable                                        |                                                                           |                                                      | 12,000   |         |         |         |       |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Proceeds from sale of common stock to employees                              |                                                                           |                                                      | 10       |         |         |         | 299    |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Proceeds from sale of common stock under equity
	offering                    |                                                                           |                                                      | 106      |         |         |         |       |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cost associated with equity offering                                         |                                                                           |                                                      | (197     | )       |         |         |       |       
|                                                          |                                                                              |                                                                           |                                                      |          |         |         |         |       
|                                                          |                                                                              |                                                                           | Net cash provided by financing activities            |          |         | 11,920  |         |        |        | 922     |  
|                                                          |                                                                              |                                                                           |                                                      |          |         |         |         |       
|Net increase in cash and cash equivalents                 |                                                                              |                                                                           | 1,291                                                |          |         |         | 678     |       
|                                                         
|                                                         
|                                                         
|                                                         
|Cash and cash equivalents at beginning of period          |                                                                              |                                                                           | 3,513                                                |          |         |         | 11,539  |       
|                                                          |                                                                              |                                                                           |                                                      |          |         |         |         |       
|Cash and cash equivalents at end of period                |                                                                              | $                                                                         | 4,804                                                |          |         | $       | 12,217  |       
|                                                          |                                                                              |                                                                           |                                                      |          |         |         |         |       
|Supplemental disclosure of non-cash financing
	activities |                                                                              |                                                                           |                                                      |          |         |         |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Issuance of common stock for convertible notes,
	net                         |                                                                           | $                                                    | 5,015    |         |         | $       |       |       

See notes to Condensed Consolidated Financial
Statements.

3



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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 six-month period ended June 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 or debt securities.

Management believes that the Companys cash
and cash equivalents at June 30, 2001, should be sufficient
to meet its anticipated needs for working capital and capital
expenditures through December 30, 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, to ensure adequate funding to
execute its business plan. Management cannot assure that such
funding will be available, or, if it is available, on terms
acceptable to the Company. If funding is not available, other
actions can and will be taken to reduce costs. These actions may
entail reducing headcount, sales and marketing, research and
development and other expansion activities or discontinuing
operations. Such actions would have a materially adverse affect
on the Companys business and results of operations.

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 six months ended
June 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 current
management discovered subsequent to year end. Management brought
these stated conditions to the attention of their independent
auditors and determined that the related transaction had not
properly sold

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BEYOND.COM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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  Loss per Share

Net 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. Due to the
Companys net loss for the three and six months ended
June 30, 2001 and 2000, 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 six months ended June 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
509,049 and 520,365 shares purchasable under options and
warrants outstanding at June 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 June 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 six months ended June 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
managed by

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BEYOND.COM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 |   | Six Months Ended
|                  |                    |                    |   |                 
|                  |                    | June 30,           |   | June 30,         |        | June 30, |   | June 30,
|                  |                    | 2001               |   | 2000             |        | 2001     |   | 2000    
|                  |                    |                    |   |                  |        |          |   |         
|Net revenues:     |                    |                    |   |                  |        |          |   |          |        |  |   |        |        |  |   |       
|                 
|                 
|                 
|                 
|                  | eStores            |                    | $ | 3,573            |        |          | $ | 10,778   |        |  | $ | 9,611  |        |  | $ | 20,163 |       
|                 
|                 
|                 
|                 
|                  | Government Systems |                    |   | 12,189           |        |          |   | 14,313   |        |  |   | 24,934 |        |  |   | 22,011 |       
|                 
|                 
|                 
|                 
|                  | Website            |                    |   | 1,587            |        |          |   | 5,930    |        |  |   | 3,342  |        |  |   | 18,407 |       
|                  |                    |                    |   |                  |        |          |   |          |        |  |   |        |        |  |   |       
|                  |                    | Total              |   | $                | 17,349 |          |   | $        | 31,021 |  |   | $      | 37,887 |  |   | $      | 60,581 | 
|                  |                    |                    |   |                  |        |          |   |          |        |  |   |        |        |  |   |       
|Cost of revenues: |                    |                    |   |                  |        |          |   |          |        |  |   |        |        |  |   |       
|                 
|                 
|                 
|                 
|                  | eStores            |                    | $ | 2,875            |        |          | $ | 9,092    |        |  | $ | 7,595  |        |  | $ | 17,144 |       
|                 
|                 
|                 
|                 
|                  | Government Systems |                    |   | 11,419           |        |          |   | 13,055   |        |  |   | 23,451 |        |  |   | 20,126 |       
|                 
|                 
|                 
|                 
|                  | Website            |                    |   | 1,460            |        |          |   | 4,784    |        |  |   | 3,119  |        |  |   | 15,182 |       
|                  |                    |                    |   |                  |        |          |   |          |        |  |   |        |        |  |   |       
|                  |                    | Total              |   | $                | 15,754 |          |   | $        | 26,931 |  |   | $      | 34,165 |  |   | $      | 52,452 | 
|                  |                    |                    |   |                  |        |          |   |          |        |  |   |        |        |  |   |       

Note 5  Termination of Symantec
eStore

As of January 2, 2001, the Company
discontinued its contract to provide eStore services to
Symantec. For both the three and six months ended June 30,
2000, Symantec eStore revenues comprised approximately 21% of
total revenues.

Note 6  Comprehensive
Income

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

|                          |                                                                     |                     |         |                   |  |          |         |          |   |   |         |   |  |   |         |      |  
|------------------------- | ------------------------------------------------------------------- | ------------------- | ------- | ----------------- |  | -------- | ------- | -------- | - | - | ------- | - |  | - | ------- | ---- | -
|                          |                                                                     |                     |         |                  
|                          |                                                                     | Three Months Ended, |         | Six Months Ended,
|                          |                                                                     |                     |         |                  
|                          |                                                                     | June 30,            |         | June 30,          |  | June 30, |         | June 30,
|                          |                                                                     | 2001                |         | 2000              |  | 2001     |         | 2000    
|                          |                                                                     |                     |         |                   |  |          |         |         
|Net loss                  |                                                                     | $                   | (17,571 | )                 |  | $        | (20,292 | )        |   | $ | (35,334 | ) |  | $ | (66,213 | )   
|                         
|                         
|                         
|                         
|Other comprehensive loss: |                                                                     |                     |         |                   |  |          |         |          |   |   |         |   |  |   |         |     
|                         
|                         
|                         
|                         
|                          | Change in unrealized gain (loss) on
	available-for-sale investments |                     |         |                  |  |          |         | 138      |   |   |         |  |  |   |         | (70  | )
|                         
|                         
|                         
|                         
|                          | Change in unrealized gain (loss) on foreign
	currency translation   |                     |         |                  |  |          |         | (94      | ) |   |         |  |  |   |         | (155 | )
|                          |                                                                     |                     |         |                   |  |          |         |          |   |   |         |   |  |   |         |     
|Comprehensive loss        |                                                                     | $                   | (17,571 | )                 |  | $        | (20,248 | )        |   | $ | (35,334 | ) |  | $ | (66,438 | )   
|                          |                                                                     |                     |         |                   |  |          |         |          |   |   |         |   |  |   |         |     

Note 7  Recent Accounting
Pronouncements

Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and
Hedging Activities, (SFAS 133), SFAS 133
establishes accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS 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 SFAS 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 SFAS No. 141,
Business Combinations (FAS 141) and
SFAS No. 142, Goodwill and Other Intangible
Assets (FAS 142). FAS 141 requires
that all business combinations be accounted for under the
purchase method, and the use of the pooling-of-interests method
is

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BEYOND.COM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

prohibited 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 currently is evaluating the effect of the new standards
on its financial condition and results of operations.

Note 8  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.

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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;
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, system builders and OEMs that already had brand
recognition, but preferred to outsource their store.

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.

As part of this refocus, we reduced our workforce
by approximately 75 employees in January 2000, or approximately
20% of our total workforce, consolidated facilities and disposed
of excess capital assets. Additionally, we have terminated
marketing agreements focused on generating consumer sales with
AOL, CNET, Excite, Network Associates, Roadrunner, Yahoo! and
ZDNet at a cost of approximately $10.1 million in
termination fees and associated prepaid and intangible assets
write-offs. These costs were recorded as part of a restructuring
charge of $13.7 million in the first quarter of 2000. The
workforce reduction, facilities consolidation and termination of
marketing agreements lowered operating expenses and reduced cash
obligations in fiscal 2000 as compared to fiscal 1999. Our
workforce has decreased by approximately 64% from approximately
389 employees as of December 31, 1999 to approximately 139
employees at June 30, 2001. During the second quarter 2001,
our operating expenses were approximately 26% less than
operating expenses in the second quarter 2000. We are committed
to business process and productivity improvement and thus expect
to effect further reductions in operating expenses and cash
obligations.

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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,
Microsoft, 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 dollars 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. De-emphasis on advertising to
promote our brand and reallocation of resources to the eStore
Group has resulted in reduced revenues for the Website segment
of our business.

General

Net loss decreased from $20.3 million in the
quarter ended June 30, 2000 to $17.6 million in the
quarter ended June 30, 2001 as we continue to lower
headcount and place focus on our eStore and Government Systems
Group. However, the de-emphasis on our proprietary website and
our reallocation of resources to the eStore business resulted in
dramatically reduced revenues derived from our proprietary
website. In addition, as a result of the BuyDirect.com merger,
we recorded approximately $136.5 million in goodwill and
other intangible assets, which will be amortized through 2002,
or earlier, and will therefore adversely affect our results of
operations during that period. Based on current market
conditions, we are continuing to assess our business model and
potential future alternatives for our business. In conjunction
with this assessment, we are assessing whether the remaining
goodwill and other intangible assets are impaired. If we
determine such impairment based on this assessment, we will
record a charge for the write-down of such assets in fiscal 2001.

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 achieve
profitability and meet our obligations in 2002, we must be able
to 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

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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 Six
Months Ended June 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. Sales of software under contracts with the
U.S. Government require us to provide continuing service,
support and performance. Accordingly, the related revenues and
costs are deferred and recognized over the period that the
service, support and performance are provided. Revenues derived
from 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 $3.6 million in the
quarter ended June 30, 2001, compared to $10.8 million
in the quarter ended June 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 20.6% of total revenue in
the quarter ended June 30, 2001 compared to 34.7% of total
revenue in the quarter ended June 30, 2000.

eStore net revenue was $9.6 million in the
six months ended June 30, 2001, compared to
$20.2 million in the six months ended June 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 25.4% of total
revenue in the six months ended June 30, 2001 compared to
33.3% of total revenue in the six months ended June 30,
2000.

Government Systems net revenue was
$12.2 million in the quarter ended June 30, 2001,
compared to $14.3 million in the quarter ended
June 30, 2000. The decrease in the second quarter 2001 was
primarily the result of the reduction in contracts recognized in
the quarter. Government Systems revenue represented 70.3% of
total revenue in the quarter ended June 30, 2001 compared
to 46.1% of total revenue in the quarter ended June 30,
2000. The percentage increase was primarily due to the decreases
in website and eStore revenues.

Government Systems net revenue was
$24.9 million in the six months ended June 30, 2001,
compared to $22.0 million in the six months ended
June 30, 2000. The increase in 2001 was primarily the
result of the addition of new contracts with U.S. Government
agencies, primarily in the first quarter of 2001, including DOE,
IRS, and DoD, as well as the renewal and expansion of existing
contracts. Government Systems revenue represented 65.8% of total
revenue in the six months ended June 30, 2001 compared to
36.3% of total revenue in the six months ended June 30,
2000.

Website net revenue was $1.6 million in the
quarter ended June 30, 2001 compared to $5.9 million
in the quarter ended June 30, 2000. The decrease was
primarily the result of the change in the Companys
business focus. Website revenue represented 9.1% of total
revenue in the quarter ended June 30, 2001, compared to
19.1% of total revenue in the quarter ended June 30, 2000.

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Website net revenue was $3.3 million in the
six months ended June 30, 2001 compared to
$18.4 million in the six months June 30, 2000. The
decrease in 2001 was primarily the result of the change in the
Companys business focus. Website revenue represented 8.8%
of total revenue in the six months ended June 30, 2001,
compared to 30.4% of total revenue in the six months ended
June 30, 2000.

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 $1.6 million
in the quarter ended June 30, 2001, compared to
$4.1 million in the quarter ended June 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.

Gross profit was $3.7 million in the six
months ended June 30, 2001, compared to $8.1 million
in the six months ended June 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 13.2% in the quarter ended
June 30, 2000 to 9.2% in the quarter ended June 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 June 30, 2001, while higher margin eStore and website
sales decreased.

Our gross margin decreased from 13.4% in the six
months ended June 30, 2000 to 9.8% in the six months ended
June 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 six months ended June 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 June 30, 2000 to
$1.1 million in the quarter ended June 30, 2001,
primarily as a result of a decrease in personnel related costs.
These expenses increased as a percentage of net revenues from
4.9% in the quarter ended June 30, 2000 to 6.4% in the
quarter ended June 30, 2001.

Our research and development expenses decreased
from $5.2 million in the six months ended June 30,
2000 to $2.2 million in the six months ended June 30,
2001, primarily as a result of a decrease in personnel related
costs. These expenses decreased as a percentage of net revenues
from 8.6% in the six months ended June 30, 2000 to 5.8% in
the six months ended June 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 $9.9 million in the quarter ended June 30, 2000
to $4.7 million in the quarter ended June 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 31.9% in the quarter ended June 30, 2000 to
27.2% in the quarter ended June 30, 2001.

Our sales and marketing expenses decreased from
$26.9 million in the six months ended June 30, 2000 to
$9.8 million in the six months ended June 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 44.4% in the six months ended June 30, 2000
to 26.0% in the six months ended June 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 decreased from
$3.2 million in the quarter ended June 30, 2000 to
$2.7 million in the quarter ended June 30, 2001,
primarily due to a decrease in personnel related costs. These
expenses increased

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as a percentage of net revenues from 10.2% in the
quarter ended June 30, 2000 to 15.8% in the quarter ended
June 30, 2001, primarily due to the decrease in net
revenues and the relatively fixed nature of general and
administrative expenses.


Our general and administrative expenses decreased
from $6.9 million in the six months ended June 30,
2000 to $5.9 million in the six months ended June 30,
2001, primarily due to a decrease in personnel related costs.
These expenses increased as a percentage of net revenues from
11.3% in the six months ended June 30, 2000 to 15.5% in the
six months ended June 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,
decreased from $9.2 million in the quarter ended
June 30, 2000, to $9.0 million in the quarter ended
June 30, 2001. This decrease was due to certain intangible
assets that have become fully amortized.

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,
decreased from $20.7 million in the six months ended
June 30, 2000, to $18.1 million in the six months
ended June 30, 2001. This decrease was due to certain
intangible assets that have become fully amortized.

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 six months ended June 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, increased from $0.6 million for the quarter
ended June 30, 2000 to $1.6 million in the quarter
ended June 30, 2001. In the quarter ended June 30,
2001, interest expense includes approximately $0.4 million
related to the Companys outstanding convertible notes.
Additionally, interest expense also includes $0.7 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 June 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
June 30, 2000, interest expense totaling approximately
$1.3 million arose from our 7 1/4% Convertible
Subordinated Notes, offset by interest income totaling
approximately $0.7 million from our cash and cash
equivalents balances.

Other expense, net, increased from
$1.0 million for the six months ended June 30, 2000 to
$3.0 million in the six months ended June 30, 2001. In
the six months ended June 30, 2001, interest expense
includes approximately $0.9 million related to the
Companys outstanding convertible notes. Additionally,
interest expense also includes $1.6 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 six months ended June 30, 2001, was offset partially by
interest income totaling approximately $0.3 million earned
on our cash and cash equivalents balances. In the six months
ended June 30, 2000, interest expense totaling
approximately $2.5 million arose from our 7 1/4%
Convertible Subordinated Notes, offset by interest income
totaling approximately $1.6 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 June 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

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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
or debt securities.

As of June 30, 2001, we had approximately
$4.8 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 June 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, to ensure
adequate funding to execute its business plan. 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.

We are actively seeking new sources of capital.
We will need to sell additional equity or debt securities to
raise cash to meet all of our obligations over the next
12 months. Such sales likely would result in additional
dilution to our stockholders. In addition, we cannot assure that
financing will be available in amounts or on terms acceptable to
us, if at all.

We used net cash of $10.3 million in
operating activities in the six months ended June 30, 2001.
Our cash used in operating activities in the six months ended
June 30, 2001 was primarily comprised of the net effect of:



| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a net loss of $35.3 million offset by
	non-cash charges for depreciation and amortization of
	$3.3 million, and amortization of goodwill and deferred
	compensation of $18.1 million;
|
| |  | a decrease in accounts receivable totaling
	$16.4 million primarily related to the collection of U.S.
	Government agency receivables; and                                            
|
| |  | a decrease in accounts payable totaling
	$18.8 million.                                                                                                                              

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

We generated net cash of $11.9 million in
the six months ended June 30, 2001 from financing
activities primarily related to our forbearance agreement with a
key vendor for $12.0 million.

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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 June 30, 2001 combined with
anticipated receipts of outstanding accounts receivable, the
Vender Note 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 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, to ensure adequate
funding to execute our business plan. We may also 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
June 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 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.

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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 45% for the
six months ended June 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 Revenue Growth 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.

We Continue to Evaluate the Carrying Amount of
Our Long-Lived Assets, Including Goodwill and Other Intangible
Assets, Which Could Result in Downward Adjustments of the Value
of Those Assets on Our Balance Sheet.

We review our long-lived assets, including
goodwill and other intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. We believe that the
carrying value of our goodwill and other intangible assets do
not require adjustment at this time. If future events or changes
in circumstances occur that indicate that the carrying value of
these assets should be written down under generally accepted
accounting principles, we may make downward adjustments to the
carrying value of these assets on our balance sheet in the
future. These adjustments would adversely affect our reported
financial condition, which could negatively affect our stock
price. Based on current market conditions, we are continuing to
assess our business model and potential future alternatives for
our business. In conjunction with this assessment, we are
assessing whether the remaining goodwill and other intangible
assets are impaired. If we determine such impairment based on
this assessment, we will record a charge for the write-down of
such assets in fiscal 2001.




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.

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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

On June 26, 2001, we convened a meeting of
the holders of our common stock. At the meeting, the
stockholders elected as directors: William S. McKiernan
(with 41,377,128 voting for and 545,642 against), Ronald S.
Smith (41,381,505 voting for and 541,265 against), Ralph B.
Godfrey (41,389,050 voting for and 533,720 against),
John P. Pettitt (41,351,445 voting for and 571,325
against), and Richard Scudellari (41,381,663 voting for and
541,107 against).

The stockholders also approved an amendment to
our Certificate of Incorporation, as amended, to change the
corporate name of the Company from Beyond.com
Corporation to Beyond Corporation (with
40,952,407 shares voting for, 249,586 against and 720,777
abstaining).

The stockholders also approved an amendment to
our Certificate of Incorporation, as amended, to effect a
reverse stock split of all of the outstanding shares of Common
Stock, at a ratio between one-to-three and one-to-fifteen to be
determined at the discretion of the Board of Directors (with
38,860,869 shares voting for, 2,383,797 against and 678,104
abstaining).

The stockholders also approved the possible sale
of more than 20% of the Companys issued and outstanding
shares of common stock to Investwell Investments Limited (with
14,706,856 shares voting for, 894,861 against, 979,550
abstaining and 25,341,503 nonvoted).

The stockholders also ratified the appointment of
Ernst & Young LLP as the independent auditors for the
Company for the year ending December 31, 2001 (with
40,926,197 shares voting for, 228,008 against and 768,565
abstaining).

The votes reported do not reflect the effect of
the July 2, 2001 reverse stock split where fifteen shares
of common stock outstanding were converted into one share of
common stock.

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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
August 14, 2001.



| |                       
| | ----------------------
| | BEYOND.COM CORPORATION



| |    |                    
| | -- | -------------------
| | By | /s/ CURTIS A. CLUFF

| |                                                   
| | --------------------------------------------------
| |                                                   
| | Curtis A. Cluff                                   
| | Senior Vice President and Chief Financial
	Officer

18