FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended March 31, 1999

                                       OR

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

For the transition period from ________ to ___________

                        Commission file number: 000-25689

                               Value America, Inc.
             (Exact name of Registrant as specified in its charter)

                    Virginia                        330712568
         (State or other jurisdiction of        (I.R.S. Employer
          incorporation or organization)       Identification No.)

              1560 Insurance Lane, Charlottesville, Virginia 22911
               (Address of principal executive offices) (Zip code)

                                 1(804)817-7700
               (Registrant's telephone number including area code)

                                 Not applicable
              (Former name, former address, and former fiscal year,
                         if changed since last report)

         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  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 ____ No X


        As of May 10, 1999, there were 44,337,540 shares of common stock
outstanding.


                                                        1
<PAGE>
<TABLE>


                                                Value America, Inc.

                                                     FORM 10-Q
                                       For the Quarter Ended March 31, 1999

                                                       INDEX

<S> <C>
                                                                                                     Page
                                                                                                     ----
Part I - Financial Information......................................................................   3
      Item 1.  Financial Statements.................................................................   3
      Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
               Operations...........................................................................   8
      Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........................  19
Part II - Other Information.........................................................................  20
      Item 1.  Legal Proceedings....................................................................  20
      Item 2.  Changes in Securities and Use of Proceeds............................................  20
      Item 3.  Defaults Upon Senior Securities......................................................  21
      Item 4.  Submission of Matters to a Vote of Security Holders..................................  21
      Item 5.  Other Information....................................................................  22
      Item 6.  Exhibits and Reports on Form 8-K.....................................................  22




                                                        2

<PAGE>
Part I.  Financial Information

Item 1.  Financial Statements

                               VALUE AMERICA, INC.
                                 BALANCE SHEETS
                                                                               March 31,           December 31,
                                                                                 1999                  1998
                                                                         ------------------    ------------------
                                                                              (unaudited)
                               ASSETS
CURRENT ASSETS:
      Cash and cash equivalents.......................................   $     58,580,503      $     20,126,707
      Restricted cash.................................................          3,500,000             5,000,000
      Accounts receivable, net of allowance of $1,553,400 and                   
      $1,021,000......................................................          7,299,807             3,010,963
      Debt issuance costs.............................................         17,764,337            26,095,090
      Inventory.......................................................            416,120               639,613
      Other current assets............................................             48,876                    --
                                                                         ------------------    ------------------
         TOTAL CURRENT ASSETS.........................................         87,609,643            54,872,373
                                                                         ------------------    ------------------
Equipment, furniture and fixtures, net................................          3,283,334             2,061,801
Restricted cash.......................................................          1,500,000             1,500,000
Deferred offering costs...............................................          2,096,232             1,368,884
Note receivable from officer..........................................            250,000               250,000
Other assets..........................................................            146,057                44,608
                                                                         ------------------    ------------------
         TOTAL ASSETS.................................................   $     94,885,266      $     60,097,666
                                                                         ==================    ==================

                              LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
                                       AND STOCKHOLDERS'EQUITY (DEFICIT)

CURRENT LIABILITIES:
      Accounts payable................................................   $     15,324,020      $     15,568,171
      Accrued expenses................................................          4,987,491             4,514,531
      Deferred revenue................................................          1,846,128             2,204,270
      Accrued stock-based compensation................................          1,777,475             1,372,416
      Notes payable...................................................         34,024,444            29,024,444
      Other current liabilities.......................................            108,669               142,841
                                                                         ------------------    ------------------
         TOTAL CURRENT LIABILITIES....................................         58,068,227            52,826,673
                                                                         ------------------    ------------------
      Deferred revenue................................................          1,189,066               930,101
      Other liabilities...............................................             85,050                83,383
                                                                         ------------------    ------------------
         TOTAL LIABILITIES............................................         59,342,343            53,840,157
                                                                         ------------------    ------------------
Commitments and contingencies
MANDATORILY REDEEMABLE PREFERRED STOCK:
      Series A, without par value, convertible, 5% cumulative
          dividend; 5,000,000 shares authorized, issued and
          outstanding; redeemable for $4.00 per share.................         15,928,094            14,439,832
      Series B, without par value, convertible, 5% cumulative
          dividend; 617,979 shares authorized, issued and
          outstanding; redeemable for $60.94 per share................         26,930,652            23,381,772
      Series C, without par value, convertible, 5% cumulative dividend;
          6,000,000 shares authorized, issued and outstanding at March 
          31, 1999 and 0 authorized, issued and outstanding at December 
          31, 1998; redeemable for $20.00 per share...................         72,923,150                    --
STOCKHOLDERS'EQUITY (DEFICIT):
      Preferred Stock, without par value; 25,000,000 shares
          authorized (0 at December 31, 1998); 0 shares issued and
          outstanding.................................................
      Common stock, without par value, 500,000,000 shares authorized and
          23,797,700 shares issued and outstanding at March 31, 1999;
          100,000,000 shares authorized and 23,777,700 shares issued and
          outstanding at December 31, 1998............................          7,681,718             7,481,718
      Warrants........................................................         42,523,797            26,584,714
      Accumulated deficit.............................................       (130,444,488)          (65,630,527)
                                                                         ------------------    ------------------
         TOTAL STOCKHOLDERS'EQUITY (DEFICIT)..........................        (80,238,973)          (31,564,095)
                                                                         ------------------    ------------------
         TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
             AND STOCKHOLDERS'EQUITY (DEFICIT)........................   $     94,885,266      $     60,097,666
                                                                         ==================    ==================

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

                                                        3
<PAGE>


                               VALUE AMERICA, INC.
                            STATEMENTS OF OPERATIONS
                                   (unaudited)

                                                                      Quarter Ended             Quarter Ended
                                                                     March 31, 1999             March 31, 1998
                                                                --------------------       -------------------

TOTAL REVENUES.................................................  $       28,002,235         $       2,238,569
TOTAL COST OF REVENUES.........................................          26,944,525                 2,372,843
                                                                --------------------       -------------------
GROSS MARGIN (LOSS)............................................           1,057,710                  (134,274)
                                                                --------------------       -------------------
OPERATING EXPENSES:
      Sales, advertising and marketing.........................          17,831,532                 2,289,292
      General and administrative...............................           3,453,993                   840,706
      Technical and system development.........................           2,334,558                   373,215
                                                                --------------------       -------------------
         Total operating expenses..............................          23,620,083                 3,503,213
                                                                --------------------       -------------------
OPERATING LOSS.................................................         (22,562,373)               (3,637,487)
OTHER INCOME AND EXPENSES:
      Interest (expense) income, net...........................         (11,895,964)                   98,006
                                                                ---------------------      -------------------
NET LOSS.......................................................         (34,458,337)               (3,539,481)
      Accretion and dividends on Series A, Series B and
      Series C redeemable preferred stock......................          10,555,624                 1,159,967
      Beneficial conversion feature on Series C redeemable
      preferred stock..........................................          19,800,000                         --
                                                                --------------------       -------------------
NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS.....................  $      (64,813,961)        $      (4,699,448)
                                                                ====================       ===================
NET LOSS PER COMMON SHARE:
      Basic....................................................  $            (2.72)        $           (0.20)
                                                                ====================       ===================
      Diluted..................................................  $            (2.72)        $           (0.20)
                                                                ====================       ===================
WEIGHTED AVERAGE NUMBER OF SHARES:
      Basic....................................................          23,796,410                23,152,500
                                                                ====================       ===================
      Diluted..................................................          23,796,410                23,152,500
                                                                ====================       ===================




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

                                                         4
<PAGE>

                               VALUE AMERICA, INC.
                            STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                                                        Quarter Ended         Quarter Ended
                                                                        March 31, 1999       March 31, 1998
                                                                       -----------------     ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss........................................................  $   (34,458,337)     $   (3,539,481)
      Adjustments to reconcile net loss to net cash used in
      operating activities:
         Depreciation and amortization................................         415,787               48,652
         Stock-based compensation.....................................         405,059               74,000
         Amortization of debt issuance costs..........................      12,869,836                   --
      Changes in assets and liabilities:
         Accounts receivable..........................................      (4,288,844)            (677,065)
         Inventory....................................................         223,493             (347,200)
         Other assets.................................................        (150,325)             (82,011)
         Accounts payable.............................................        (244,151)           2,087,936
         Accrued expenses.............................................         472,960               98,971
         Deferred revenue.............................................         (99,177)           1,105,129
         Other liabilities............................................               --              16,359
                                                                       -----------------     ----------------
NET CASH USED IN OPERATING ACTIVITIES.................................      24,853,699)          (1,214,710)
                                                                       -----------------     ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Restricted cash.................................................       1,500,000           (1,000,000)
      Capital expenditures............................................      (1,637,320)            (428,914)
                                                                       -----------------     ----------------
NET CASH USED IN INVESTING ACTIVITIES.................................        (137,320)          (1,428,914)
                                                                       -----------------     ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Principal payments under capital lease obligations..............         (32,505)             (16,359)
      Proceeds from issuance of common stock..........................         200,000                    --
      Proceeds from issuance of preferred stock and warrants..........      60,000,000                    --
      Payment of offering costs.......................................      (1,722,680)            (529,271)
      Proceeds from issuance of debt and warrants.....................       5,000,000                    --
      Dividends paid..................................................               --            (144,865)
                                                                       -----------------     ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES...................      63,444,815             (753,495)
                                                                       -----------------     ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................      38,453,796           (3,397,119)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................      20,126,707           10,340,987
                                                                       -----------------     ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..............................  $   58,580,503        $   6,943,868
                                                                       =================     ================
Non-cash investing and financing transactions:
      Accretion and dividends on redeemable preferred stock...........  $   10,555,624        $   1,159,967
                                                                       =================     ================ 
      Beneficial conversion feature related to issuance of preferred
      Stock...........................................................  $   19,800,000        $          --
                                                                       =================     ================ 
      Issuance of warrants with notes payable.........................  $    4,539,083        $          --
                                                                       =================     ================ 

                    The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                      5
<PAGE>
                               VALUE AMERICA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                 March 31, 1999
                                   (unaudited)
1.       Description of Business

         Value  America,   Inc.   ("Value  America"  or  the  "Company")  is  an
Internet-based retailer that sells a large selection of high quality, brand name
products and services at competitive  prices to both  consumers and  businesses.
Additionally,   Value  America   develops  and  maintains   custom   multi-media
presentations  for the products  and  services  featured on its online store and
offers opportunities for advertising on its online store.

2.       Basis of Presentation

         The accompanying  unaudited financial  statements have been prepared in
accordance with generally accepted accounting  principles and, in the opinion of
management,  reflect  all  adjustments  (consisting  only  of  normal  recurring
adjustments)  considered  necessary to fairly present Value America's  financial
position,  results of operations and cash flows for the periods presented. These
financial  statements  should be read in conjunction with the Company's  audited
financial  statements  for the year ended  December  31, 1998 and notes  thereto
included  in the  Company's  Registration  Statement  on Form S-1 filed with the
Securities and Exchange  Commission  (the "SEC").  The results of operations for
the quarter ended March 31, 1999 are not  necessarily  indicative of the results
to be expected for any  subsequent  quarter or for the year ending  December 31,
1999. Certain prior years' information has been reclassified to conform with the
current year's presentation.

3.       Debt

         Value America entered into a Revolving Credit  Agreement  ("Agreement")
with a preferred shareholder and additional  participants in October 1998, which
was amended in November  and  December  1998 and January  1999.  As of March 31,
1999,  $34.0 million was outstanding  under the Agreement.  Borrowings under the
Agreement  bear interest at 11% annually with interest and principal  payable on
August 17, 1999. Upon a qualifying public offering,  principal amounts under the
Agreement are repayable through the exercise of common stock warrants.

         In January  1999,  in  accordance  with the  Agreement,  Value  America
borrowed  $5.0  million  and issued  60,000 Type A warrants  and 500,000  Type B
warrants.  Value America allocated the $4.5 million fair value of the Type A and
B warrants, as determined by an independent  valuation,  to stockholders' equity
and is amortizing the resulting  debt issuance  costs as interest  expense using
the effective  interest  method until  maturity or  conversion.  As of March 31,
1999,  Value  America  had issued  408,000  Type A  warrants,  3,400,000  Type B
warrants and 325,000 Type C warrants in  connection  with the  amendments to the
Agreement.

         As of April 13,  1999,  the  closing  date of Value  America's  initial
public  offering  ("IPO"),  the principal  amount of the debt was repaid through
exercise of the Type B warrants for common stock. The unamortized portion of the
debt  issuance  costs  attributable  to the Type B warrants  was recorded in the
equity  accounts  and  the  unamortized  portion  of  the  debt  issuance  costs
attributable to the Type A and Type C warrants was recorded as interest  expense
(Note 7). This amortization will not affect Value America's cash flows.

4.       Mandatorily Redeemable Preferred Stock and Stockholders' Equity

         On  January  12,  1999,  Value  America  sold  6,000,000  shares  of 5%
Cumulative  Convertible  Series C preferred  stock ("Series C") and warrants for
$60.0 million.  Value America sold 5,000,000 of the Series C shares to a related
party and  1,000,000  of the  Series C shares to third  party  investors.  Value
America  issued  1,800,000 Type D common stock  warrants,  473,724 Type E common
stock  warrants and 37,843 Type F common stock  warrants in connection  with the
Series C stock.  These  Series C shares  are  convertible  at the  option of the
holder  into an equal  number  of shares of common  stock  upon the  earlier  of
January 12, 2000, a qualifying public offering or a change in control.  Series C
stockholders  are entitled to the number of votes equal to the largest number of
common shares into which the shares can be converted.

                                        6
<PAGE>

         Unless full redemption is elected by the stockholder,  2,000,000 shares
of Series C Preferred Stock are mandatorily  redeemable in each of January 2003,
2004  and  2005 at a price of  $20.00  per  share  plus  any  unpaid  dividends.
Dividends  accrue daily and are due  quarterly on April 1, July 1, October 1 and
January 1. The carrying amount of these securities will periodically be adjusted
to increase  the carrying  value to the  redemption  value of $120.0  million at
January 15, 2001.

         At the completion of a successful  public offering of equity securities
with  aggregate  gross  proceeds  of at least  $25.0  million and with a minimum
common share price of $3.82,  the Series C Preferred  Shares will  automatically
convert to common shares, with certain registration rights.

         The Type D  warrants  have an  exercise  price of  $10.00  per share of
common stock and are exercisable  upon issuance until the earlier of January 15,
2009 or three  calendar years  following a qualifying  public  offering.  If the
aggregate  fair value of Value  America's  capital  stock does not exceed $600.0
million on or before the "Evaluation  Date" (as defined),  the exercise price of
the warrants changes to $0.01. The exercise price is payable in cash or by Value
America not issuing  that number of shares  having a fair market  value equal to
the exercise price.

         The Type E warrants are only  exercisable on the  "Evaluation  Date" if
the aggregate fair value of Value America's  common stock does not exceed $600.0
million on the "Evaluation Date," and otherwise expire.  Type E warrants have an
exercise  price of $0.01  per share of  common  stock  and,  if  exercisable  as
described  in the  preceding  sentence,  are  exercisable  until the  earlier of
January 15, 2009 or three calendar years following a qualifying public offering.
The  exercise  price is payable in cash or by Value  America  not  issuing  that
number of shares having a fair market value equal to the exercise price.

         The Type F warrants have an exercise price of $0.01 per share of common
stock and are  exercisable  upon issuance  until January 15, 2009.  The exercise
price is payable in cash or by Value  America not issuing  that number of shares
having a fair market value equal to the exercise price.

         Value America  allocated $11.4 million for the Type D, E and F warrants
to stockholders' equity and $48.6 million to the Series C preferred stock, based
upon their relative fair values.  Value America  recorded the Series C preferred
stock's  beneficial  conversion  feature  of $19.8  million at  issuance,  which
represents  the  difference  between the Series C conversion  price and the fair
market value of the common stock times the 6,000,000 shares issued.

         As of April 13,  1999,  the closing  date of Value  America's  IPO, the
Series C preferred stock converted into common stock (Note 7).

         Value America paid  finders' fees of $1.0 million to a stockholder  for
the  placement  of the Series C preferred  stock.  This amount was recorded as a
reduction of the related proceeds.

         In January  1999,  Value  America sold 20,000 shares of common stock at
$10 per share to third parties.

5.   Net Loss Available for Common Stockholders

         Net loss  available  for common  stockholders  is comprised of net loss
plus accretion,  dividends and the beneficial conversion feature on the Series C
redeemable  preferred stock. Net loss available for common  shareholders for the
quarter  ended March 31, 1999,  was $64.8  million or $2.72 per share.  Net loss
prior to  consideration  of accretion,  dividends and the beneficial  conversion
feature on the Series C redeemable  preferred  stock was $34.5  million or $1.45
per share for the quarter  ended March 31, 1999,  $24.7  million for the quarter
ended  December 31, 1998 and $3.5 million for the quarter  ended March 31, 1998.
The  accretion  and  dividends  on Series A,  Series B and  Series C  redeemable
preferred  stock  represents  the  recording  of the  periodic  increases in the
carrying  value of these  securities to increase  their value to the  redemption
value by the  redemption  date.  The recording of accretion  does not affect the
Company's  cash flows.  The  beneficial  conversion  feature on preferred  stock
represents  the  difference  between the fair market  value of the common  stock
underlying the Series C redeemable  preferred  stock issued on January 12, 1999,
and the conversion price of the preferred stock. The recording of the beneficial
conversion feature does not affect the Company's cash flows.

                                       7
<PAGE>

6.   Commitments and Contingencies

         From time to time, Value America may be involved in litigation relating
to claims  arising out of its  operations in the normal  course of business.  On
March 24, 1999, Coupons, Inc., a Georgia corporation allegedly doing business as
"Value  America,"  filed a complaint  against Value America in the United States
District  Court for the Northern  District of Georgia,  Atlanta  Division.  This
action  relates  to the use of the mark  "Value  America"  by Value  America  in
connection  with its  marketing  plan. A third party  granted  Value  America an
option to obtain an assignment of the "Value  America" mark in December 1997. In
March 1998,  Value America  exercised  this option and obtained an assignment of
the mark.  In  connection  with this  assignment,  the third party  retained the
exclusive right to use the "Value America" mark for preparing and  disseminating
advertising  matter,   including  direct  mail  advertising.   The  third  party
subsequently  assigned his retained  rights to Coupons,  Inc. In the  complaint,
Coupons,  Inc.  alleges that Value  America's use of the "Value America" mark in
its marketing activities is violative of Coupons,  Inc.'s retained rights to the
mark. The complaint alleges that Value America's actions  constitute  violations
of federal  trademark  law,  state law and common law.  Coupons,  Inc. seeks all
profits from Value  America's use of the mark,  restitution  for an  unspecified
amount of damages,  as well as punitive damages in the amount of $1,000,000.  In
addition, Coupons, Inc. requests the court to issue an injunction preventing use
of the  "Value  America"  mark and order  the  cancellation  of Value  America's
trademark  registration for the "Value America" mark. Except as described above,
Value  America  is  not  currently  party  to  any  litigation  or  other  legal
proceedings,  nor is Value  America  aware of any planned  legal action by third
parties, the adverse outcome of which,  individually or in the aggregate,  would
have a material adverse effect on Value America's business,  financial condition
and results of operations.


7.   Subsequent Events

         On April 13, 1999 the Company closed its initial  public  offering with
the sale of 5,500,000 shares of common stock at an initial public offering price
of $23 share.  Upon the closing of the initial  public  offering  the  following
events occurred:

          o    all of the  outstanding  shares  of Value  America's  convertible
               preferred stock converted into 10,737,162 shares of common stock,

          o    $34.0  million  principal  amount of notes  payable was cancelled
               through the exercise of Type B warrants resulting in the issuance
               of 3,400,000 shares of common stock,

          o    unamortized  debt issuance costs of $3.7 million were expensed as
               interest  expense and $12.6  million was  reclassified  to common
               stock, upon cancellation of the $34.0 million principal amount of
               notes payable, and

          o    accrued   dividends  of  approximately   $1.9  million  on  Value
               America's  Series A, B and C  convertible  preferred  stock  were
               paid.

         The net  proceeds to the Company  from the  Offering,  after  deducting
underwriting discounts,  commissions and estimated expenses were $114.8 million.
The  proceeds  of the  offering,  which will be used by the  Company for working
capital  and other  general  corporate  purposes,  have been  invested  in money
market,  commercial paper with at least an A1P1 rating and government securities
with maturity dates not exceeding 90 days.

                                       8
<PAGE>

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


         The  following  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations"contains forward-looking statements based on
current  expectations,  estimates and projections about the Company's  industry,
management's beliefs and certain assumptions made by management. All statements,
trends,  analyses and other  information  contained  in this report  relative to
trends in net sales,  gross margin,  anticipated  expense levels,  liquidity and
capital resources, as well as other statements,  including,  but not limited to,
words   such   as    "anticipate,""believe,""plan,""estimate,""expect,""seek"and
"intend,"and other similar expressions,  constitute forward-looking  statements.
These  forward-looking  statements involve risks and  uncertainties,  and actual
results  may differ  materially  from those  anticipated  or  expressed  in such
statements.  Potential risks and uncertainties  include, among others, those set
forth in  "Overview,""Liquidity  and Capital Resources,"and  "Additional Factors
That May Affect Future  Results"included  in this  "Management's  Discussion and
Analysis  of  Financial  Condition  and Results of  Operations"and  in the "Risk
Factors"section of the Company's  prospectus filed with the SEC pursuant to Rule
424(b)(1)  on  April  8,  1999.  Particular  attention  should  be  paid  to the
cautionary  statements  involving the Company's limited operating  history,  the
unpredictability  of its future revenues,  the unpredictable and evolving nature
of its business  model,  the intensely  competitive  online  commerce and retail
industries,  and  the  risks  associated  with  capacity  constraints,   systems
development,   management  of  growth,   acquisitions,   any  new  products  and
international  or domestic  business  expansion.  Except as required by law, the
Company  undertakes  no  obligation  to update  any  forward-looking  statement,
whether as a result of new  information,  future events or  otherwise.  Readers,
however,  should  carefully  review the  factors  set forth in other  reports or
documents that the Company files from time to time with the SEC.

OVERVIEW

         In 1996 and 1997,  Value  America's  primary  activities  related  to
establishing  relationships with manufacturers,  creating product presentations,
and developing internal systems and operating procedures. Value America has been
selling merchandise on the Internet since the third quarter of 1997.

         Currently,  revenues  are  derived  from  three  sources:  (a) sales of
products   through  Value  America's  online  store,  (b)  fees  collected  from
manufacturers  for the  preparation  and  hosting of product  presentations  and
listing of manufacturers'  products  available for purchase on the online store,
and (c) advertising on the online store.  Value America's  vendors ship products
directly  to the  customer  typically  within  one to two days  after a customer
places an order.  Revenues from product sales are recognized  upon shipment from
the vendor. Value America is responsible for selling the merchandise, collecting
payment from the customer,  ensuring that the shipment  reaches the customer and
processing  returns.  Value  America  generally  takes  title to  products  upon
shipment and bears the risk of loss for  collection,  delivery  and  merchandise
returns from customers.  Value America occasionally  purchases merchandise prior
to receiving  customer  orders and records such  merchandise as inventory  until
shipped to  customers.  Value America  accrues a reserve for  estimated  product
returns at the time of sale.

         Value  America has  contractual  agreements  with many of its suppliers
under  which  Value   America   develops  and  maintains   multi-media   product
presentations on Value America's online store.  These agreements provide for the
development  of the  presentations,  the  posting of the  presentations  and the
listing  of the  manufacturers'  products  on  Value  America's  Internet  site,
typically for a specified period.  For agreements  entered into prior to January
1, 1998, the listing  period  generally  extended for 36 months;  for agreements
entered into after that date,  the period  generally  has been 12 months.  Value
America recognizes the costs of developing presentations and listing products on
its  Internet  site as incurred  and  recognizes  the product  presentation  and
listing revenues ratably over the period of the related agreement.  Amounts that
are  billed  under  the  terms  of these  agreements,  but not yet  earned,  are
reflected  as  deferred  revenue.  Certain  of  these  agreements  provide  that
suppliers  pay a renewal fee to  continue  product  listings  beyond the initial
listing  periods.  Revenues from these renewal fees are recognized  ratably over
the renewal term.

                                       9
<PAGE>

         Value America sells  advertising  space to vendors on its online store.
Innovative  multimedia  advertisements  highlight  products and their  benefits.
Additionally,  Value America sends  Electronic  Direct  Messages  ("EDM") to its
members to keep them informed about special  promotions.  Advertising revenue is
recognized over the period in which the related  advertisement is offered on the
online  store or when the EDM is sent.  Value  America  recognizes  the costs of
developing these advertisements and EDMs as incurred.

         To date, payments for products purchased through Value America's online
store have been  primarily  made with  credit  cards.  Value  America  generally
receives payment from a customer's credit card within one to four business days.
In the third quarter of fiscal 1998,  Value America began to extend trade credit
terms,  typically net 30 days, to certain large customers that Value America has
evaluated for  creditworthiness.  Value America  typically  pays its vendors for
goods within 30 to 60 days.

         Value  America  expects  that  its  operating  expenses  will  increase
significantly  during  the  foreseeable  future  as the  result of its plans to:
increase expenditures on marketing,  advertising and promotion,  hire additional
personnel,  enhance  existing store  operations and establish  strategic  vendor
relationships.  Value America expects to incur substantial  operating losses for
the  foreseeable  future.  Although  Value America has  experienced  significant
growth in revenue,  there can be no assurance that Value America's  revenue will
continue at its current level or increase. Value America has a limited operating
history  upon which to base an  evaluation  of Value  America and its  business.
Value America's business and prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in early stages of
development,  particularly companies in new and rapidly evolving markets such as
electronic commerce.

RESULTS OF OPERATIONS

     Revenues

         Revenues  primarily  consist of product sales  through Value  America's
online store, product  presentation and listing fees,  advertising and shipping.
For the quarter  ended March 31, 1999,  revenues  totaled  $28.0 million up from
$2.2 million for the first  quarter of 1998.  Revenues  from product  sales were
$26.5 million for the quarter ended March 31, 1999, compared to $2.0 million for
the quarter  ended March 31,  1998.  The growth in product  sales  reflects  the
growth  of  Value  America's  customer  base,  repeat  purchases  from  existing
customers,  increases in the volume of merchandise  sold and an overall increase
in demand for Value America's expanding array of merchandise.

         Revenues from  advertising  and other were $1.5 million for the quarter
ended March 31, 1999,  compared to $0.2 million for the quarter  ended March 31,
1998. The increase in advertising  revenues is driven by two new  initiatives in
the first quarter of 1999:  advertising  on Value  America's web site and direct
advertising through EDM. Value America recognized  approximately $1.1 million in
web site  advertising  and EDM  advertising in the quarter ended March 31, 1999,
compared to $0 in the quarter ended March 31, 1998. Product presentation listing
fees,  which are also included in  advertising  and other  revenue  increased to
approximately $407,000 in the first quarter of 1999, compared to $206,000 in the
first  quarter of 1998.  This  increase  in product  presentation  listing  fees
reflects the increase in brand offerings on Value America's online store.

         To  provide  a better  comparison  with  similar  companies'  reporting
practices, charges to customers for shipping, which represent approximately $0.9
million and $28,000 of revenue for the  quarters  ended March 31, 1999 and 1998,
respectively,  have been  reclassified  to revenue.  In prior  periods,  revenue
generated  from  shipping  was  recorded as a reduction  of the related  cost of
shipping.  For the quarters ended March 31, 1999 and 1998,  product  returns and
cancellations, including product returns resulting from malfunctioning products,
erroneous shipments and other quality-related  issues, as a percentage of sales,
were approximately 4.1% and 6.4%, respectively.

                                       10
<PAGE>

     Cost of Revenues

         Cost  of  revenues  primarily  consists  of  payments  to  third  party
suppliers for merchandise and shipping.  Value America incurred $27.0 million of
cost of revenues  for the quarter  ended March 31, 1999.  For the quarter  ended
March  31,  1998,  cost of  revenues  totaled  $2.4  million.  Cost of  revenues
represent 96.2% and 106.0% of revenues for the quarters ended March 31, 1999 and
1998,  respectively.  Revenues  in the  quarter  ended  March 31,  1999  include
approximately $400,000 of products sales for which the products were shipped and
the related cost of sales were recorded in 1998.

         Value  America's gross margin has increased from a loss of $0.1 million
for the quarter  ended March 31, 1998 to income of $1.1  million for the quarter
ended  March 31,  1999.  This  increase is due to the strong  margins  earned on
advertising  revenues.  The Company  incurred a negative product sales margin of
$348,000  and  $10,000  for  the  quarters   ended  March  31,  1999  and  1998,
respectively.  The  negative  product  gross  margin  is due to Value  America's
continued  short-term  strategy to selectively  accept narrow margins on product
sales to attain  increased  volumes and brand  awareness  and losses on shipping
charges.

     Sales, Advertising and Marketing

         Sales,  advertising and marketing  expenses consist of costs associated
with promoting Value America's online store to potential  customers and vendors,
as well as payroll and related expenses and credit card fees. Sales, advertising
and marketing  expenses  increased from $2.3 million for the quarter ended March
31, 1998 to $17.8  million for the quarter  ended March 31,  1999.  The increase
primarily reflected the commencement of Value America's  advertising campaign in
late January 1998, an increase in the number of  merchandising,  advertising and
promotion  department  employees,  and a general  increase in the level of Value
America's promotional activities. Advertising and promotional expenses increased
from $1.9 million for the quarter  ended March 31, 1998 to $13.7 million for the
quarter ended March 31, 1999, net of cooperative advertising of approximately $0
for the  quarter  ended March 31,  1998 and $2.6  million for the quarter  ended
March 31, 1999.  Payroll  expenses  relating to  merchandising,  advertising and
promotion  departments  increased  from $0.2 million for the quarter ended March
31, 1998 to $2.2  million for the quarter  ended March 31, 1999.  Value  America
intends to increase its sales,  advertising and marketing expenses significantly
for the foreseeable future, as it continues to expand its operations.

     General and Administrative

         General and administrative expenses consist of management and executive
compensation,  professional  services, bad debts and general corporate expenses,
such as rent,  depreciation and telephone  expenses.  General and administrative
expenses  increased  from $0.8  million for the quarter  ended March 31, 1998 to
$3.5 million for the quarter ended March 31, 1999.  This increase  reflected the
hiring of additional  management and customer service personnel,  the incurrence
of increased  facilities charges and substantially  increased activity levels to
support the expansion of Value America's operation, all of which were undertaken
in late 1997 and continued into 1998 and 1999.  Bad debt expense  increased from
$0.1 million in the quarter  ended March 31, 1998 to $0.5 million in the quarter
ended March 31, 1999. The increase is due in part to allowances recorded against
Value America's increasing receivable balance. This growth in receivables is due
to an  increase  in  sales  on  credit  terms  and  additional  vendors  signing
agreements for product  presentations.  Payroll expenses relating to general and
administrative personnel increased from $0.2 million for the quarter ended March
31, 1998 to $0.9  million in the quarter  ended March 31,  1999.  Value  America
expects  that  general and  administrative  expenses  will  continue to increase
significantly  for  the  foreseeable  future,  as it  continues  to  expand  its
operations.

                                       11
<PAGE>

     Technical and System Development

         Technical and system development expenses consist primarily of expenses
incurred for the development and maintenance of the software required to support
Value America's online store,  including  employee  compensation and the cost of
designing,  developing  and  improving  store  content,  Internet  connectivity,
operations  and  reporting.  Due to the  rapid  rate of  changes  in  associated
technology  and  Value  America's  business,  these  expenses  are  expensed  as
incurred.  Technical and system development expenses increased from $0.4 million
for the quarter ended March 31, 1998 to $2.3 million for the quarter ended March
31, 1999.  This increase  principally  reflected  higher  payroll and consulting
expenses. Payroll expenses related to technical and system development increased
from $0.2  million for the quarter  ended March 31, 1998 to $0.9 million for the
quarter  ended March 31,  1999.  Payments to outside  consultants  totaled  $0.1
million  for the quarter  ended March 31, 1998 and $0.7  million for the quarter
ended  March  31,  1999.  Value  America  expects  that  technical  and  systems
development expenses will continue to increase for the foreseeable future.

     Interest Income (Expense), Net

         Interest  expense of $11.9 million for the quarter ended March 31, 1999
consisted  primarily of the amortization of $12.9 million in debt issuance costs
related to the $34.0 million note payable,  which was offset by interest  income
earned on the proceeds from the debt and preferred stock issuances in the fourth
quarter of 1998 and the first quarter of 1999.  This charge has no effect on the
Company's cash flows.

     Income Taxes

         Value America provided $0 for income taxes for the quarters ended March
31, 1999 and 1998, since it incurred a net loss for those periods.

      Net Loss Available for Common Stockholders

         Net loss  available  for common  stockholders  is comprised of net loss
plus accretion,  dividends and the beneficial conversion feature on the Series C
redeemable  preferred stock. Net loss available for common  shareholders for the
quarter  ended March 31, 1999,  was $64.8  million or $2.72 per share.  Net loss
prior to  consideration  of accretion,  dividends and the beneficial  conversion
feature on the Series C redeemable  preferred  stock was $34.5  million or $1.45
per share,  $24.7  million  for the  quarter  ended  December  31, 1998 and $3.5
million for the quarter  ended March 31, 1998.  The  accretion  and dividends on
Series A,  Series B and  Series C  redeemable  preferred  stock  represents  the
recording of the periodic increases in the carrying value of these securities to
increase  their  value to the  redemption  value  by the  redemption  date.  The
recording of accretion does not affect the Company's cash flows.  The beneficial
conversion feature on preferred stock represents the difference between the fair
market value of the common stock  underlying  the Series C redeemable  preferred
stock  issued on January 12, 1999,  and the  conversion  price of the  preferred
stock.  The recording of the beneficial  conversion  feature does not affect the
Company's cash flows.

Liquidity and Capital Resources

         Since  inception,  Value America has financed its operations  primarily
from capital  contributions  from  stockholders and from amounts paid by vendors
for  product  presentations.  During the year ended  December  31,  1997,  Value
America received  proceeds of $11.0 million from the sale of Series A redeemable
preferred stock,  common stock and warrants.  During the year ended December 31,
1998, Value America issued:

          o    $18.8 million of Series B redeemable preferred stock;

          o    $29.0 million of notes  payable and related  warrants to purchase
               3,573,000 shares of common stock; and

          o    625,200  shares of common stock and related  warrants to purchase
               118,320 shares of common stock for $6.3 million.

                                       12
<PAGE>

In the quarter ended March 31, 1999, Value America issued:

          o    $60.0 million of Series C redeemable  preferred stock and related
               warrants to purchase 2,311,567 shares of common stock;

          o    $5.0  million of notes  payable and related  warrants to purchase
               560,000 shares of common stock; and

          o    20,000 shares of common stock for $200,000.

         On April 13, 1999,  Value  America  closed its IPO,  issuing  5,500,000
shares of common stock at $23 per share. The proceeds to the Company were $114.8
million, net of underwriting discounts, commissions and estimated expenses. Upon
the closing of the IPO,  the Series A, B and C redeemable  preferred  stock were
converted into 10,737,162  shares of common stock and the $34.0 million of notes
payable were cancelled  with the exercise of warrants  resulting in the issuance
of 3,400,000 shares of common stock.

         In  connection  with the 1998 and 1999  issuance of notes payable Value
America  allocated $31.1 million to warrants which  represents their fair value.
The resulting debt issuance costs have been amortized as interest  expense until
the earlier of maturity or conversion.

         As of April 13,  1999,  the  outstanding  principal  amount of the note
payable was converted into common stock.  Interest  expense of $3.7 million will
be  recorded in the second  quarter of 1999  representing  amortization  of debt
issuance costs. Value America recorded $12.6 million to equity, representing the
unamortized  issuance costs on Type B warrants.  The charge to interest  expense
will not affect Value America's cash flows.

         In connection  with the January 1999 issuance of the Series C preferred
stock and warrants,  Value America  allocated  $11.4 million for the warrants to
stockholders'  equity and $48.6 million to the Series C preferred  stock,  based
upon their relative fair values. Value America records accretion to periodically
increase the carrying value of the preferred  stock to its  redemption  value of
$120.0 million by the redemption  date.  Value America will record  accretion of
$1.3 million in the second  quarter of 1999 on the Series A, Series B and Series
C preferred stock. The recording of accretion will not affect the Company's cash
flows.

         Net cash used in operating  activities was $1.2 million for the quarter
ended March 31, 1998,  and $24.9  million for the quarter  ended March 31, 1999.
Net cash used in operating  activities  in the quarter  ended March 31, 1999 was
due  primarily  to (a) the net  loss of  $34.5  million  and (b) a $4.3  million
increase in accounts receivable, both associated with the growth in revenues and
increased cash required to fund operating  activities.  The increase in accounts
receivable was offset by an increase in  amortization  of debt issuance costs of
$12.9 million.  Value America has historically financed its operating activities
primarily through the aforementioned  capital  contributions by stockholders and
other parties.

         Value  America has a $5.0  million line of credit from  Wachovia  Bank,
N.A. The line of credit provides for cash advances evidenced by short-term notes
and secured by cash  deposits.  This line bears  interest  on advanced  funds at
LIBOR plus 1.75% and expires on May 31, 1999.

         Value  America  has  obtained  stand-by  letters  of credit in favor of
vendors totaling $3.5 million. Each letter of credit is secured by a certificate
of deposit.  These standby  letters of credit expire through August 1999 and are
callable  if Value  America  defaults in the  payments of trade  payables to the
secured vendors.

         Additionally, Value America has a two-year agreement with a credit card
processor in which the credit card processor,  to cover potential  charge backs,
has a first  priority lien and security  interest in a $1.5 million cash deposit
account. The agreement, which expires in April 2000, may be terminated by either
party and the credit card  processor  can require  Value America to maintain the
cash deposit account for up to 10 months following termination.

                                       13
<PAGE>

         Value  America  incurred  capital  expenditures  of $1.6 million in the
quarter  ended March 31, 1999,  compares to $429,000 in the quarter  ended March
31, 1998. These increases in expenditures  are primarily for computer  equipment
and  furniture  and  fixtures  associated  with Value  America's  continued  new
employee growth, move to new facilities and continued systems development.

         Value America plans to increase its operating expenses significantly in
order to:

          o    increase the size of its staff,

          o    expand its marketing and advertising efforts,

          o    increase its technical and systems development efforts,

          o    improve and maintain its controls, systems and procedures and

          o    support its growing infrastructure.

         As a result,  Value America may  experience  substantial  quarterly net
losses for the foreseeable future.

         Value America believes that its existing capital  resources,  including
the net proceeds from its IPO will be sufficient to fund its  operations  for at
least 12 months.  Thereafter,  if cash generated from operations is insufficient
to satisfy Value  America's  liquidity  requirements,  Value America may seek to
sell additional  equity or convertible debt securities or obtain a larger credit
facility.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

         In addition to the factors discussed in the "Overview"  section of this
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations",  including among others,  the Company's limited operating  history,
the  unpredictability  of its future revenues and the unpredictable and evolving
nature of its business model,  the following  additional  factors may affect the
Company's future results.

         Continued  rapid growth,  changes in our business model or the addition
of a significant  number of new or revised business  relationships  will present
additional  challenges and could require further  modification of our accounting
and  reporting  systems.  Any  breakdown or  deficiencies  in our  financial and
control systems could cause unplanned costs and inaccurate  financial reporting,
the  results of which could  include  damaged  credibility  with  investors  and
litigation  against us. Moreover,  if we fail to maintain an effective system of
internal  controls,  the SEC may seek to  deregister  and  thereby  suspend  the
trading of our common stock.

         If the Company  does not improve its  operational  systems and customer
service  capabilities,  it could lose  customers and damage its  reputation.  To
support an increase in purchases from our online store, the Company must improve
automated  systems to track the delivery of products  from vendors to customers,
provide additional  customer service and efficiently handle product returns.  If
the Company fails to maintain and improve these systems,  system disruptions and
slower  response  times may impair the quality of our customer  service and slow
the Company's  product  fulfillment.  These  problems  could cause  customers to
cancel  orders or to decide  not to shop at our store in the  future.  We use an
internally  developed system for our Internet site,  product  presentations  and
substantially  all aspects of order  fulfillment,  including  order  management,
purchasing and shipping.  This system is integrated with our accounting  system.
If the integration fails, we may find it difficult to produce accurate financial
reports on a timely basis.  If we fail to establish and use reliable  electronic
data interchange,  or EDI,  connections with vendors, we could experience delays
in product ordering,  shipping,  confirmations  and fulfillment.  Any such delay
could  lead to  customer  dissatisfaction  and  could  harm  our  business.  Our
agreements  with product  vendors  generally  require us to place product orders

                                       14
<PAGE>

through EDI. We have not yet integrated  all vendors onto our EDI platform,  and
we may not be able to integrate all of our current and prospective  vendors.  In
addition,  if we fail to enhance our existing  customer  service,  we could lose
customers  and  damage  our  reputation.  To date a  significant  portion of our
business depended upon telephone ordering,  telephone support and e-mail replies
to customer  questions.  We have had periods  during  which our  employees  were
unable to meet targeted  response times for customer  service calls or questions
or otherwise to respond satisfactorily to the needs of our customers.

         If the  Company's  online  store  became  unavailable,  we  could  lose
customers. The Company could lose existing or potential customers if they do not
have  ready  access to our  online  store or if our  online  store,  transaction
processing  systems  and  computer  systems do not perform  reliably  and to our
customers'  satisfaction.  Any network  interruptions  or other computer  system
shortcomings, such as inadequate capacity, could:

          o    prevent customers from accessing our online store,

          o    reduce our ability to fulfill orders,

          o    reduce the attractiveness of our product offerings,

          o    reduce   the  number  of   products   sold,   

          o    cause customer dissatisfaction or

          o    seriously damage our reputation.

         The Company has experienced brief computer system  interruptions in the
past, and these  interruptions  may recur from time to time. If traffic  through
our online  store or the number of orders  that our  customers  place  increases
substantially,  we will need to expand and upgrade the technology underlying our
online store.  We may be unable to predict  accurately  changes in the volume of
customer  traffic and orders and  therefore  may be unable to expand and upgrade
our systems and infrastructure in time to avoid system interruptions. All of our
computer   and   communications   equipment   is   located   at  two   sites  in
Charlottesville,  Virginia.  This  equipment is  vulnerable to  interruption  or
damage from fire, flood, power loss,  telecommunications failure and earthquake.
Some of the  components  of our computer and  communication  systems do not have
immediate  automatic  backup  equipment.  The failure of any of these components
could  result in down time for our online  store and cause us to lose  potential
sales. Our property damage and business  interruption  insurance may not protect
us from any loss that we may suffer. Our computer and communications systems are
also vulnerable to computer viruses,  physical or electronic break-ins and other
disruptions. These problems could lead to interruptions, delays, loss of data or
the ineffective operation of our online store.

         The Company  may be unable to attract  customers  and process  sales if
management does not maintain and build relationships with manufacturers, vendors
and other third parties.  The Company is entirely  dependent upon  manufacturers
and  distributors  to provide  merchandise  for sale in our online store. In the
first quarter of 1999, goods  manufactured by IBM represented  approximately 45%
of  our  net  sales  and  goods  manufactured  by  Hewlett-Packard   represented
approximately 13% of net sales. If we do not maintain our existing relationships
with product  vendors on acceptable  commercial  terms or if we do not establish
similar relationships with vendors of other products that our customers want, we
may not be able to offer a desirable  selection of merchandise and customers may
choose not to shop at our online  store.  In addition,  vendors may decide,  for
reasons outside our control,  not to offer  particular  products for sale on the
Internet.  For example, in February 1999 Compaq Computer  temporarily  suspended
sales of its Presario line of computers  through companies that sell exclusively
over the Internet,  including Value America.  We believe Compaq took this action
in order to give it time to address pricing  concerns of traditional  resellers.
We rely on product vendors to fulfill a number of traditional  retail functions,
such  as  maintaining   inventory,   accepting  product  returns  and  preparing
merchandise for shipment to individual customers. Our vendors may not be willing
to provide these services at competitive rates. In addition,  vendors may refuse
to develop the communication technology necessary to support our direct shipment
infrastructure.  We have no effective  means to ensure that our vendors  perform
these services to our satisfaction.  Our customers could become dissatisfied and
cancel  their  orders or decline to make future  purchases  if we or our vendors
fail to: 

          o    arrange for the timely delivery of products,

          o    accept product returns,

          o    provide good customer service or

          o    prepare merchandise properly for shipment to customers.

                                       15
<PAGE>

         Our product  vendors have no obligation to make any products  available
for sale to our customers and may terminate their  relationships  with us at any
time  without  penalty.  Because  we have  not  established  regular  purchasing
patterns with most of our product vendors,  a vendor with limited  inventory may
not give us priority in  allocating  its available  inventory.  We cannot always
determine  whether  an item is  available  for sale  before  we accept an order.
Consequently,  we may accept  customer  orders for certain  products that we are
unable to provide on a timely basis.  We have  long-term  agreements to purchase
certain types of office and other  products  exclusively  from certain  vendors.
These agreements do not obligate the vendors to make  merchandise  available for
sale in our online  store,  to continue  particular  payment  terms or to extend
credit to us. These  agreements may preclude us from obtaining such  merchandise
on the best terms.  Our  operations  also depend  heavily upon a number of other
third  parties,  including  Internet  service  providers  and  product  delivery
services.  We cannot control the actions of these third  parties,  and we do not
have long-term contractual  relationships with any of them. For example, we rely
on MCI WorldCom to connect our online store to the Internet. Our agreements with
our Internet service  providers limit our ability to obtain recompense from them
for their  failure to  maintain  our  connection  to the  Internet.  We also use
third-party  delivery  services,  including  United  Parcel  Service and Roadway
Express,  to deliver all of our  products  to our  customers.  Increases  in our
delivery costs or  inefficient  delivery as a result of strikes or other reasons
could seriously harm our profitability. We have agreed with The Union Labor Life
Insurance Company to use union-represented delivery services unless they are not
reasonably  available.  This  agreement  may limit our  ability  to use the most
cost-effective or readily available delivery services.

         Customers may be unwilling to use the Internet to purchase  goods.  Our
long-term  future depends heavily upon the general  public's  willingness to use
the  Internet  as a means to  purchase  goods.  The  failure of the  Internet to
develop into an effective commercial tool would seriously damage our operations.
Internet  commerce is a new concept,  and large  numbers of customers  may never
begin or continue to use the  Internet  to  purchase  goods.  The demand for and
acceptance  of products  sold over the  Internet are highly  uncertain,  and few
Internet  commerce  businesses  have more than a short track  record.  If either
manufacturers or consumers are unwilling to use the Internet to conduct business
and exchange information,  our business may not develop profitably. The Internet
may not succeed as a medium of commerce because of delays in developing elements
of the needed Internet  infrastructure,  such as a reliable network,  high-speed
modems,   high-speed   communication  lines  and  other  enabling  technologies.
Moreover,  the number of Internet users has been increasing  dramatically in the
recent  past.  The  Internet  may not expand  effectively  to meet new levels of
demand. In addition,  delays in the development or adoption of new standards and
protocols or increased governmental regulation could stop or delay the growth of
the Internet as a means to purchase  goods and services.  Other  considerations,
including  security,  reliability,  accessibility  and quality of  service,  may
adversely affect the growth of the Internet. These considerations have not been,
and may  never be,  resolved  to the  satisfaction  of many  potential  Internet
customers.

         We face intense  competition  from many  participants in the electronic
commerce industry. The electronic commerce industry is new, rapidly evolving and
extremely  competitive.  We expect  competition  in our  industry  to  increase.
Barriers  to entry  into the  electronic  commerce  market are  relatively  low.
Moreover,  all of the products  that we sell in our online  store are  available
through  traditional  retail  outlets.  Accordingly,  we must  compete with both
companies  in the  electronic  commerce  market  and in the  traditional  retail
industry.  Most  of  our  competitors  and  potential  competitors  have  longer
operating histories, more customers, greater brand recognition and substantially
larger  financial and other  resources than we do. Our  competitors  may receive
investments from or establish  commercial or other business  relationships  with
larger,  well-financed  companies.  Our  competitors  may  be  able  to  acquire
merchandise from vendors on more favorable  terms. In addition,  our competitors
may be able to respond  more quickly to changes in customer  preferences,  spend
more on marketing and promotional  campaigns,  adopt more aggressive pricing and
inventory policies, and devote more resources to developing their online stores.
For example, a number of Internet companies offer search engines and other tools
that locate multiple vendors of particular products.  The pervasive use of these
search  engines  could  result  in  severe  price  competition.  This  level  of
competition  could reduce our revenues and result in increased losses or reduced
profits. Some of our competitors have exclusive or semi-exclusive rights to sell
certain popular  products.  The number of these exclusive  vendor  relationships
could  increase and could permit  competitors  to rapidly  acquire a significant
portion  of  the  market.   In  addition,   companies  that  provide  access  to
transactions through network access or Web browsers could grant exclusive access
rights to our  competitors or charge us substantial  fees to obtain such rights.
New technologies may also increase the competitive pressures we face.

                                       16
<PAGE>

         The security risks of electronic commerce may discourage customers from
purchasing goods from us. In order for the electronic commerce market to develop
successfully,  we and  other  market  participants  must  be  able  to  transmit
confidential  information securely over public networks.  Third parties may have
the  technology  or know-how to breach the security of our customer  transaction
data. Any such breach could cause  customers to lose  confidence in the security
of our online  store and choose not to shop at our online  store.  If someone is
able to  circumvent  our  security  measures,  he or she could  destroy or steal
valuable  information  or disrupt the operation of our online  store.  We expect
that we will need to  dedicate  substantial  resources  to prevent or remedy any
security  breach.  Concerns about the security and privacy of transactions  over
the Internet could inhibit the growth of the Internet and  electronic  commerce.
Our  security  measures  may not  effectively  prohibit  others  from  obtaining
improper  access to the  information  in our online store.  Any security  breach
could expose us to risks of loss,  litigation and liability and could  seriously
disrupt our operations.

         The technology of the internet is changing rapidly and could render our
online store obsolete. The technology of the Internet and electronic commerce is
evolving rapidly for many reasons, including:

          o    customers frequently change their requirements and preferences,

          o    competitors frequently introduce new products and services and

          o    industry  associations  and others create new industry  standards
               and practices.

         These  changes  could render our existing  online store  obsolete.  Our
ability to attract customers could be seriously impaired if we do not accomplish
the following tasks:

          o    continually enhance and improve our online store,

          o    identify,  select and obtain leading  technologies  useful in our
               business,

          o    enhance our existing services,

          o    develop  new   technologies   that   address   the   increasingly
               sophisticated needs of our customers and potential customers and

          o    respond to technological advances and emerging industry standards
               in a cost-effective manner and on a timely basis.

         The administrative burdens of collecting additional taxes may adversely
affect our business.  We do not  currently  collect sales or other taxes for the
sale of goods into states other than  Virginia.  If we establish  operations  in
other  states,  we will need to collect  sales and other taxes  imposed by those
states. Other governmental authorities may require us to collect taxes for sales
into the areas they control.  These taxes could discourage customers from making
purchases through our online store. If any additional  governmental  authorities
require us to collect  and remit  taxes,  the  administrative  burdens  could be
cumbersome and expensive.

         We may be unable to protect  our  proprietary  technology.  Our success
depends to a  significant  degree upon our  protection of our software and other
proprietary   intellectual   property   rights.   We  may  be  unable  to  deter
misappropriation  of our proprietary  information,  detect  unauthorized use and
take  appropriate  steps  to  enforce  our  intellectual  property  rights.  Our
competitors   could,   without   violating  our  proprietary   rights,   develop
technologies  that  are as  good  as or  better  than  our  technology.  We have
registered  various  forms of the  "Value  America"  service  mark in the United
States for  limited  uses and have  applied  to  register  another  form of that
service mark in the United States.  Our application could be denied,  and issued
registrations could be challenged.  The legal protection for these service marks
that we are able to obtain may not be sufficient for our business purposes.  For
example, other companies could use the name "Value America" and similar names to
identify their  products and services.  Any such use could confuse our customers
and impair our ability to build our brand identity.  If we are unable to protect
the name "Value  America" or any of the other  names that we use,  our  business
could suffer serious harm. On March 24, 1999, a party filed a lawsuit against us
alleging  violations  of federal  trademark  law,  state law and common law. The

                                       17
<PAGE>

party seeks monetary damages,  an injunction  barring use of the "Value America"
mark and  cancellation  of our trademark  registration  for the "Value  America"
mark. Because the protection of intellectual property rights is often critically
important to the success of companies in our industry, our competitors or others
could  assert  additional  claims  that  our use of  proprietary  rights  or our
technologies infringe their proprietary rights. We may not have the resources to
pursue  any  litigation  to a  final  judgment  and we may not  prevail  in such
litigation.  In defending such litigation,  we could incur significant legal and
other  expenses  and our  management  could be  distracted  from  our  principal
business  operations.  If any party making a claim against us were to prevail in
litigation against us, we may have to pay substantial  damages.  The court could
also grant  injunctive  or other  equitable  relief  that could  prevent us from
offering our products and services  without a license or other  permission  from
others.

         Government  regulation and legal uncertainties may adversely affect our
business.  The application of existing laws to the Internet,  particularly  with
respect to property  ownership,  the payment of sales taxes, libel, and personal
privacy,  is uncertain  and may take years to resolve.  Because the Internet and
electronic commerce are becoming increasingly  popular,  various governments may
seek to adopt  laws  and  regulations  to  control  their  use.  These  laws and
regulations could apply to privacy,  pricing and the characteristics and quality
of products and services.  The growth and development of electronic commerce may
also prompt calls for more stringent  consumer  protection  laws. These laws may
impose additional  burdens on companies  conducting  business over the Internet.
The  adoption of any of these laws or  regulations  may reduce  Internet  usage,
which,  in turn,  could  decrease  the demand for our  products or increase  our
costs. Several telecommunications carriers have asked the Federal Communications
Commission,  or the FCC,  to  regulate  telecommunications  over  the  Internet,
regulate  Internet  service  providers and online  service  providers and impose
access fees on those providers.  If the FCC grants these requests,  the costs of
communicating on the Internet could increase  substantially,  which could reduce
Internet  usage.  Any  relief  granted by the FCC could  harm our  business.  In
addition, U.S. and foreign laws regulate our ability to use customer information
and to develop,  buy and sell mailing lists. New restrictions in this area could
limit our  ability to operate as planned  and result in  significant  compliance
costs

Year 2000 Compliance

         Many currently  installed  computer  systems and software  products are
programmed to assume that the century  portion of a date is "19" to conserve the
use of storage  and  memory.  This  assumption  results in the use of two digits
rather than four to define an applicable  year.  Accordingly,  computer  systems
that rely on two digits to define an applicable  year may recognize a date using
"00" as the year 1900,  rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations,  including,  among
other  things,  a temporary  inability to process or transmit  data or engage in
normal business activities. Value America's ability to operate is dependent upon
the delivery of accurate, electronic information via the Internet. To the extent
that Year 2000 issues result in the long-term  inoperability  of the Internet or
Value America's online store, Value America's results of operation and financial
condition would be materially and adversely affected.

         Value America has completed its assessment of its Year 2000  readiness.
This  assessment  included  a review  of Value  America's  internal  information
technology systems,  non-information technology systems and the systems of third
parties upon which Value America may rely. For its proprietary computer systems,
Value America  conducts Year 2000  compliance  verification  and validation with
internal  resources.  No  internal  information  technology  projects  have been
deferred due to Value  America's Year 2000  remediation  program.  Value America
believes that the  remediation  program will have no material  adverse effect on
current or anticipated internal information technology projects.  Although Value
America has developed its proprietary  computer systems to specifically  address
Year 2000 issues,  there can be no assurance that Value America's systems,  as a
whole, are Year 2000 compliant.

         Value America utilizes  third-party  equipment and software that may or
may not be Year 2000 compliant. Consequently, Value America's ability to address
Year  2000  issues  is,  to a  large  extent,  dependent  upon  the  remediation
activities of third parties. Value America has requested statements of Year 2000
compliance from third party technology providers associated with Value America's
core information systems infrastructure.

                                       18
<PAGE>

         Value  America is in the process of  initiating  formal  communications
with all of the  manufacturers  and  distributors  presented in Value  America's
online store to determine  the extent to which Value  America is  vulnerable  to
those third parties'  failures to remediate their own Year 2000 issues.  In some
cases,  corporate  systems or EDI mappings have been designed to avoid Year 2000
problems.  For other  suppliers  with which Value  America  communicates  order,
invoice, and inventory information via EDI, Value America is switching to a Year
2000  compliant  standard  format.  Beginning in January 1999,  Value America is
encouraging  its  suppliers  to migrate to the Year 2000  compliant  EDI format.
Value America  believes that its current  vendors either are in compliance  with
Year 2000 requirements,  or efforts will be undertaken to ensure their Year 2000
compliance by June 30, 1999.  In the event Year 2000  compliance is not achieved
by some  manufacturers  offering products in Value America's online store, these
manufacturers may be unable to effectively operate. Consequently,  Value America
may seek additional  manufacturers of quality products to replace those burdened
with Year 2000  remediation  difficulties.  In the event Year 2000 compliance is
not achieved by some distributors,  Value America may seek to identify alternate
distributors for the affected products. Because Value America's order processing
systems can transparently  maintain multiple  distributors for products,  it can
obtain  contingency  distributors with only minor  administrative  and EDI setup
costs.

         In addition, Value America is evaluating Year 2000 compliance by credit
card processors and other financial  intermediaries  through which  transactions
are processed when Value America's customers purchase goods from Value America's
online store. Due to the complexity of these transaction  processing systems and
the fact that Value America has no direct control over them, Value America is in
the process of securing a secondary source for financial transaction  processing
as a backup measure. Value America has a contingency plan for switching to a new
processor in the event its current  credit card processor is not able to be Year
2000  compliant  by the  middle of fiscal  1999.  This  contingency  plan can be
implemented in a matter of hours, as the proprietary  computer systems have been
designed to interface with payment service providers through a generic interface
that can be easily modified. Value America believes that appropriate transaction
processing  relationships will be pre-established by June 30, 1999, and that the
effort required to implement switching to a new processor, if necessary, will be
primarily administrative.

         Value America funds  remediation costs internally from existing working
capital. To date, the incremental costs of Value America's Year 2000 remediation
program  have been  approximately  $55,000.  Additional  costs for  hardware and
outside staffing resources for Year 2000 integration testing  environments could
amount up to $75,000.  Value America has contracted with GE Information  Systems
to test and validate Value America's  primary EDI trading partners for Year 2000
readiness  and  produce  a  findings  report.  The  cost of this  engagement  is
approximately  $35,000.  There are currently no identified Year 2000 issues that
will require equipment to be replaced;  however, the Windows 95 operating system
on Value America's  internal  desktop devices will be upgraded to Windows 98 and
there may be software upgrades associated with other equipment. The upgrades are
covered under current licensing  agreements at no cost, and administrative costs
of the upgrades are expected to be less than $25,000.  Value  America  estimates
that the  additional  incremental  costs  related  to its Year 2000  remediation
program will not exceed  $250,000 and will not  represent  more than 2% of Value
America's operating and capital  information  technology budget for 1999. In any
event,  Value America  believes that such costs will not have a material adverse
effect upon its results of operation or financial condition.


Item 3.  Changes in Information About Market Risk

         Not applicable

                                       19
<PAGE>

                           Part II. Other Information

Item 1.  Legal Proceedings


         From time to time, Value America may be involved in litigation relating
to claims  arising out of its  operations in the normal  course of business.  On
March 24, 1999, Coupons, Inc., a Georgia corporation allegedly doing business as
"Value  America,"  filed a complaint  against Value America in the United States
District  Court for the Northern  District of Georgia,  Atlanta  Division.  This
action  relates  to the use of the mark  "Value  America"  by Value  America  in
connection  with its  marketing  plan. A third party  granted  Value  America an
option to obtain an assignment of the "Value  America" mark in December 1997. In
March 1998,  Value America  exercised  this option and obtained an assignment of
the mark.  In  connection  with this  assignment,  the third party  retained the
exclusive right to use the "Value America" mark for preparing and  disseminating
advertising  matter,   including  direct  mail  advertising.   The  third  party
subsequently  assigned his retained  rights to Coupons,  Inc. In the  complaint,
Coupons,  Inc.  alleges that Value  America's use of the "Value America" mark in
its marketing activities is violative of Coupons,  Inc.'s retained rights to the
mark. The complaint alleges that Value America's actions  constitute  violations
of federal  trademark  law,  state law and common law.  Coupons,  Inc. seeks all
profits from Value  America's use of the mark,  restitution  for an  unspecified
amount of damages,  as well as punitive damages in the amount of $1,000,000.  In
addition, Coupons, Inc. requests the court to issue an injunction preventing use
of the  "Value  America"  mark and order  the  cancellation  of Value  America's
trademark  registration for the "Value America" mark. Except as described above,
Value  America  is  not  currently  party  to  any  litigation  or  other  legal
proceedings,  nor is Value  America  aware of any planned  legal action by third
parties, the adverse outcome of which,  individually or in the aggregate,  would
have a material adverse effect on Value America's business,  financial condition
and results of operations.

  Item 2.  Changes in Securities and Use of Proceeds

         (a)      Not applicable.

         (b)      Not applicable.

         (c) On January 12,  1999,  Value  America sold  6,000,000  shares of 5%
Cumulative  Convertible  Series C preferred  stock ("Series C") and warrants for
$60.0  million.  Value  Americsa  sold 500,000 of the Series C shares and issued
150,000 Type D warrants each to third party  investors,  Mr. Frederick Smith and
FDX Corporation,  and sold 5,000,000 of the Series C shares and issued 1,500,000
Type D warrants,  473,724  Type E warrants and 37,843 Type F warrants to related
party investors, Vulcan Ventures.

         The Type D  warrants  have an  exercise  price of  $10.00  per share of
common stock and are exercisable  upon issuance until the earlier of January 15,
2009 or three  calendar years  following a qualifying  public  offering.  If the
aggregate  fair value of Value  America's  capital  stock does not exceed $600.0
million on or before the "Evaluation  Date" (as defined),  the exercise price of
the warrants changes to $0.01. The exercise price is payable in cash or by Value
America not issuing  that number of shares  having a fair market  value equal to
the exercise price.

         The Type E warrants are only  exercisable on the  "Evaluation  Date" if
the aggregate fair value of Value America's  common stock does not exceed $600.0
million on the "Evaluation Date," and otherwise expire.  Type E warrants have an
exercise  price of $0.01  per share of  common  stock  and,  if  exercisable  as
described  in the  preceding  sentence,  are  exercisable  until the  earlier of
January 15, 2009 or three calendar years following a qualifying public offering.
The  exercise  price is payable in cash or by Value  America  not  issuing  that
number of shares having a fair market value equal to the exercise price.

                                       20
<PAGE>

         The Type F warrants have an exercise price of $0.01 per share of common
stock and are  exercisable  upon issuance  until January 15, 2009.  The exercise
price is payable in cash or by Value  America not issuing  that number of shares
having a fair market value equal to the exercise price.

         The  Series C  Preferred  Stock  and the  warrants  were  sold  without
registration in reliance on the exemption for private  transactions  provided in
Section 4(2) of the Securities Act of 1933, as amended.

         Pursuant  to the terms of the Series C Preferred  Stock,  all shares of
Series C preferred stock were automatically converted into an aggregate of
6,000,000  shares of common  stock at the time of the April 13, 1999  closing of
Value America's IPO.

         Value America paid  finders' fees of $1.0 million to a stockholder  for
the placement of the Series C preferred stock and warrants.

         In January  1999,  Value  America sold 20,000 shares of common stock at
$10 per share (an aggregate of $200,000) to third-party  business  associates or
family  members of  directors  and  officers.  The common stock was sold without
registration in reliance on the exemption for private  transactions  provided in
Section 4(2) of the Securities Act of 1933, as amended.

         In January 1999,  Value America  issued $5.0 million of notes  payable,
60,000 Type A warrants and 500,000 Type B warrants to third party investors,
DBD Investors.  The notes payable, Type A warrants and Type B warrants were sold
without  registration  in reliance  on the  exemption  for private  transactions
provided in Section 4(2) of the Securities Act of 1933, as amended.

         Type A  warrants  have an  exercise  price of $0.01 per share of common
stock.  The  exercise  price is payable in cash or by Value  America not issuing
that number of shares having a fair value equal to the exercise price.

         Type B warrants  have an  exercise  price of $10.00 per share of common
stock. The Type B warrants were exercised upon the closing of the initial public
offering on April 13, 1999.

         (d) The  Company's  registration  statements  on Form  S-1  (File  Nos.
333-70961 and 333-75873)  relating to the offer and sale of 5,500,000  shares of
common stock were declared  effective by the Securities and Exchange  Commission
on April 6,  1999 in the case of File No.  333-70961  and  automatically  became
effective  on  filing on April 8,  1999 in the case of File No.  333-75873.  The
offering commenced on April 8, 1999, and was completed on the same day upon sale
of  all  offered  shares.  The  managing  underwriters  for  the  offering  were
BancBoston   Robertson   Stephens,   Volpe  Brown   Whelan  &  Company  and  The
Robinson-Humphrey  Company. The registration  statements covered an aggregate of
6,325,000  shares  (including  825,000 shares issued by certain of the Company's
officers upon exercise of the underwriters  overallotment option). The aggregate
price of the offering amount registered was $145,475,000  (including $18,975,000
registered  for  sale by  certain  of the  Company's  officers  pursuant  to the
overallotment   option)  and  the  aggregate   price  of  the  amount  sold  was
$145,475,000  (including  $18,975,000 sold by certain of the Company's  officers
pursuant to the  overallotment  option).  The expenses  incurred in the offering
were as follows:

         Underwriting commissions:  $8,855,000
         Underwriting commissions on overallotment:  $1,328,250
         Estimated other expenses:  $2,800,000
         Total expenses (including commissions paid by certain officers of the 
         Company pursuant to the overallotment option):  $12,983,250

         None of the  expenses  were  paid to any  director  or  officer  of the
Company or any of their associates, to persons owning ten percent of more of any
class of equity securities of the issuer or to affiliates of the issuer.

         The net  proceeds of the offering to the Company  after these  expenses
were $114.8  million.  The net  proceeds of the offering  have been  invested in
money market funds, commercial paper with at least an A1P1 rating and government
agency securities with maturity dates not exceeding 90 days, and will be applied
to working capital as set forth in the registration  statement.  None of the net
proceeds  were paid to any  director  or officer of the  Company or any of their
associates,  to  persons  owning  ten  percent  of more of any  class of  equity
securities of the issuer or to affiliates of the issuer.

                                       21
<PAGE>

Item 3.  Defaults Upon Senior Securities
sss
         Not applicable



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

         Not applicable



Item 5.  Other Information

         Not applicable



Item 6.  Exhibits and Reports on Form 8-K

         Exhibit 27.1 Financial Data Schedule - March 31, 1999
         Exhibit 27.2 Revised Financial Data Schedule - March 31, 1998

                                       22
<PAGE>



                                   SIGNATURES

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

                                Value America, Inc.

May 19, 1999                    By: /s/ Dean M. Johnson
------------                    -----------------------
Date                            Dean M. Johnson, Executive Vice President, 
                                Chief Financial Officer and Director

                                       23