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 June 30, 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 X No ___


         As of August 9, 1999,  there  were  44,430,393  shares of common  stock
outstanding.
                                       1


<PAGE>
<TABLE>



                               Value America, Inc.

                                    FORM 10-Q
                       For the Quarter Ended June 30, 1999

                                      INDEX
<S> <C>
                                                                                                     Page
Part I - Financial Information...................................................................      3
      Item 1.  Consolidated Financial Statements....................................................   3
      Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
      Operations....................................................................................
                                                                                                       9
      Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........................  18
Part II - Other Information......................................................................     19
      Item 1.  Legal Proceedings....................................................................  19
      Item 2.  Changes in Securities and Use of Proceeds............................................  19
      Item 3.  Defaults Upon Senior Securities......................................................  19
      Item 4.  Submission of Matters to a Vote of Security Holders..................................  19
      Item 5.  Other Information....................................................................  19
      Item 6.  Exhibits and Reports on Form 8-K.....................................................  19



                                       2


<PAGE>



Part I.  Financial Information
Item 1.  Consolidated Financial Statements
                               VALUE AMERICA, INC.
                           CONSOLIDATED BALANCE SHEETS
                  (in thousands of dollars, except share data)

                                                                                    June 30,           December
                                                                                     1999             31, 1998
                                                                                  -------------     -------------
                                                                                   (unaudited)
                               ASSETS
Current Assets:
      Cash and cash equivalents.................................................  $    111,645       $    20,127
      Restricted cash...........................................................         2,250             5,000
      Short-term investments....................................................        31,397                --
      Accounts receivable, net of allowance of $1,534 and $1,021................         7,334             3,011
      Debt issuance costs.......................................................            --            26,095
      Inventory.................................................................         2,014               639
      Other current assets......................................................         2,691                --
                                                                                  -------------      ------------
         Total Current Assets...................................................       157,331            54,872
                                                                                  -------------      ------------
Equipment, furniture and fixtures, net..........................................         6,331             2,061
Restricted cash.................................................................         1,500             1,500
Deferred offering costs.........................................................            --             1,369
Notes receivable from officers..................................................           700               250
Other assets....................................................................           326                45
                                                                                  =============      ============
         Total Assets...........................................................  $    166,188       $    60,097
                                                                                  =============      ============

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

Current Liabilities:
      Accounts payable..........................................................  $     15,893       $    15,568
      Accrued expenses..........................................................         5,413             4,515
      Deferred revenue..........................................................         3,586             2,204
      Accrued stock-based compensation..........................................         1,649             1,372
      Notes payable.............................................................            --            29,024
      Other current liabilities.................................................           270               143
                                                                                  -------------      ------------
         Total Current Liabilities..............................................        26,811            52,826
                                                                                  -------------      ------------
Deferred revenue................................................................           697               930
Other liabilities...............................................................           343                83
                                                                                  -------------      ------------
         Total Liabilities......................................................        27,851            53,839
                                                                                  -------------      ------------
Commitments and contingencies
Mandatorily Redeemable Preferred Stock:
      Series  A,  without  par  value,  convertible,   5%  cumulative  dividend;
          5,000,000 shares authorized, 0 and 5,000,000 issued and outstanding at
          June 30, 1999 and  December  31, 1998,  respectively;  redeemable  for
          $4.00 per share.......................................................            --            14,440
      Series B, without par value, convertible,  5% cumulative dividend; 617,979
          shares  authorized,  0 and 617,979 issued and  outstanding at June 30,
          1999 and December 31, 1998,  respectively;  redeemable  for $60.94 per
          share................................................................             --            23,382
      Series  C,  without  par  value,  convertible,   5%  cumulative  dividend;
          6,000,000  shares  authorized (0 at December 31,  1998),  0 issued and
          outstanding; redeemable for $20.00 per share..........................            --               --
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
          44,421,203 shares issued and outstanding at June 30, 1999; 100,000,000
          shares  authorized  and  23,777,700  shares issued and  outstanding at
          December 31, 1998.....................................................       289,190             7,482
      Warrants..................................................................        14,926            26,585
      Unrealized loss on securities available-for-sale..........................           (41)               --
      Accumulated deficit.......................................................      (165,738)          (65,631)
                                                                                  -------------      ------------
         Total Stockholders'Equity (Deficit)....................................       138,337           (31,564)
                                                                                  -------------      ------------
         Total Liabilities, Mandatorily Redeemable Preferred Stock
             and Stockholders'Equity (Deficit)..................................
                                                                                  $    166,188       $    60,097
                                                                                  =============      ============

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

                                                                3
<PAGE>

                                                       VALUE AMERICA, INC.
                                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (in thousands of dollars, except per share data)
                                                          (unaudited)

                                              Three Months Ended June 30,         Six Months Ended June 30,
                                             -------------------------------    -------------------------------
                                                 1999              1998             1999              1998
                                             -------------     ------------     -------------     ------------
Total Revenues.............................. $     35,804      $     5,113      $     63,806      $     7,352
Total Cost of Revenues......................       34,516            4,677            61,460            7,050
                                             -------------     ------------     -------------     ------------
Gross Margin (loss).........................        1,288              436             2,346              302
                                             -------------     ------------     -------------     ------------
Operating Expenses:
      Sales, advertising and marketing......       21,588            6,845            39,420            9,135
      General and administrative............        4,552            1,154             8,006            1,995
      Technical and system development......        3,236              622             5,571              995
      Professional fee......................           --            1,700                --            1,700
                                             -------------     ------------     -------------     ------------
         Total operating expenses...........       29,376           10,321            52,997           13,825
                                             -------------     ------------     -------------     ------------
Operating loss..............................      (28,088)          (9,885)          (50,651)         (13,523)
Other Income and Expenses:
      Interest (expense) income, net........       (3,683)              50           (15,579)             148
                                             -------------     ------------     -------------     ------------
Net Loss....................................      (31,771)          (9,835)          (66,230)         (13,375)
      Accretion and dividends on Series
      A, Series B and Series C
      redeemable preferred stock............        1,606            1,254            12,162            2,414
      Beneficial conversion feature on
      Series C redeemable preferred
      stock.................................           --               --            19,800               --
                                             -------------     ------------     -------------     ------------
Net loss available for common
stockholders................................ $    (33,377)     $   (11,089)     $    (98,192)     $   (15,789)
                                             ==============    =============    ==============    =============
Net Loss Per Common Share:
      Basic................................. $      (0.79)     $     (0.48)     $      (2.97)     $     (0.68)
                                             ==============    =============    ==============    =============
      Diluted............................... $      (0.79)     $     (0.48)     $      (2.97)     $     (0.68)
                                             ==============    =============    ==============    =============
Weighted Average Number of Shares:
      Basic.................................       42,316           23,153            33,056           23,153
                                             ==============    =============    ==============    =============
      Diluted...............................       42,316           23,153            33,056           23,153
                                             ==============    =============    ==============    =============



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

                                                                     4
<PAGE>



                               VALUE AMERICA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  (in thousands of dollars, except share data)
                                   (unaudited)

                                                                          Six Months Ended June 30,
                                                                        ------------------------------
                                                                            1999             1998
                                                                        -------------    -------------
Cash Flows From Operating Activities:
      Net loss........................................................  $   (66,230)     $   (13,375)
      Adjustments to reconcile net loss to net cash used in
      operating activities:
         Depreciation and amortization................................        1,037              185
         Stock-based compensation.....................................          277              291
         Amortization of debt issuance costs..........................       19,454            1,700
      Changes in assets and liabilities:
         Accounts receivable..........................................       (4,323)          (1,541)
         Inventory....................................................       (1,375)              (5)
         Notes receivable from officers...............................         (450)              --
         Other assets.................................................       (2,972)              13
         Accounts payable.............................................          325            6,832
         Accrued expenses.............................................          898               --
         Deferred revenue.............................................        1,149            2,616
         Other liabilities............................................           21               --
                                                                        ------------     ------------
Net Cash Used In Operating Activities.................................      (52,189)          (3,284)
                                                                        ------------     ------------
Cash Flows From Investing Activities:
      Restricted cash.................................................        2,750           (2,250)
      Purchases of short-term investments.............................      (31,438)               --
      Capital expenditures............................................       (4,852)          (1,085)
                                                                        ------------     ------------
Net Cash Used In Investing Activities.................................      (33,540)          (3,335)
                                                                        ------------     ------------
Cash Flows From Financing Activities:
      Principal payments under capital lease obligations..............          (89)             (35)
      Proceeds from issuance of common stock..........................      126,700               --
      Proceeds from issuance of preferred stock and warrants..........       60,000           18,830
      Proceeds from exercise of common stock warrants.................           10               --
      Proceeds from exercise of common stock options..................          675               --
      Payment of offering costs.......................................      (13,134)          (2,119)
      Proceeds from issuance of debt and warrants.....................        5,000               --
      Dividends paid..................................................       (1,915)            (145)
                                                                        ------------     ------------
Net Cash Provided By Financing Activities.............................      177,247           16,531
                                                                        ------------     ------------
Net Increase  In Cash and Cash Equivalents............................       91,518            9,912
Cash and Cash Equivalents, Beginning of Period........................       20,127           10,341
                                                                        ============     ============
Cash and cash equivalents, end of period..............................  $   111,645      $    20,253
                                                                        ============     ============
Non-cash investing and financing transactions:
      Accretion and dividends on redeemable preferred stock...........  $    12,162      $     2,414
                                                                        ============     ============
      Beneficial conversion feature related to issuance of
      preferred stock.................................................  $    19,800      $        --
                                                                        ============     ============
      Issuance of warrants with notes payable.........................  $     4,539      $        --
                                                                        ============     ============
      Issuance of common stock on preferred stock conversion..........  $   117,388      $        --
                                                                        ============     ============
      Issuance of common stock on exercise of warrants................  $    49,073      $        --
                                                                        ============     ============
      Fair value adjustment to securities available-for-sale..........  $        41      $        --
                                                                        ============     ============
      Acquisition of assets under capital lease.......................  $       455      $        --
                                                                        ============     ============

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

                                                                5
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<PAGE>

                               VALUE AMERICA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 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. On May 5, 1999, the
Company formed ServeAmerica.com,  Inc. ("ServeAmerica"), a Delaware corporation.
ServeAmerica,  a wholly owned  subsidiary of the Company,  was capitalized  with
1,000 shares of $0.001 par value common  stock.  ServeAmerica  had 100 shares of
common  stock issued and  outstanding  at June 30,  1999.  ServeAmerica  has not
conducted any operations from inception through June 30, 1999.

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  three-  and  six-month  periods  ended  June 30,  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.   Initial Public Offering

         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 $12.5  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 expenses,  were $113.4 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 funds, commercial
paper  with at least an A1P1  rating,  auction  rate  preferred  securities  and
government securities.

4.   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. Borrowings under the
Agreement  bear interest at 11% annually with interest and principal  payable on
August 17, 1999.

         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.

                                       6
<PAGE>

         On 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  pursuant  to  the  Agreement.  The
unamortized  portion  of the  debt  issuance  costs  attributable  to the Type B
warrants  of  $12.5  million  was  recorded  in  the  equity  accounts  and  the
unamortized  portion of the debt issuance costs  attributable  to the Type A and
Type C  warrants  of  $3.7  million  was  recorded  as  interest  expense.  This
amortization does not affect Value America's cash flows.  During the three month
period ended June 30, 1999,  166,500 Type A warrants were exercised.  As of June
30,  1999,  Value  America had 241,500  Type A warrants,  no Type B warrants and
325,000 Type C warrants outstanding.

5.   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 D 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.

         The Type D  warrants  have an  exercise  price of  $10.00  per share of
common stock and are  exercisable  upon  issuance  until April 13, 2002.  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 April 13, 2002. 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 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.

         On April 13, 1999, the closing date of Value  America's IPO, the Series
C preferred  stock  converted into common stock in accordance  with the terms of
the Series C Preferred Stock Agreement.  In addition, the Type E warrants lapsed
in accordance with the Type E Warrant Agreement. On June 30, 1999, Value America
had 1,800,000  Type D warrants,  no Type E warrants,  and 36,660 Type F warrants
outstanding.

         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.

                                       7
<PAGE>

6.   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
three- and six-month  periods  ended June 30, 1999 was $33.4 million  ($0.79 per
share) and $98.2  million  ($2.97 per  share),  respectively.  Net loss prior to
consideration of accretion,  dividends and the beneficial  conversion feature on
the Series C redeemable  preferred stock was $31.8 million ($0.75 per share) and
$66.2  million  ($2.00 per share),  respectively,  for the three- and  six-month
periods  ended June 30, 1999 and $9.8  million and $13.4  million for the three-
and six-month periods ended June 30, 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.   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. requested 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. We have filed a motion to
dismiss and believe that we have valid  disputes to each of the claims  asserted
by Coupons, Inc.

         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.

         The Company has an agreement to purchase certain information technology
services and licenses through January 1, 2000. The total  commitments  remaining
under the agreement  approximated  $3.9 million as of June 30, 1999. In addition
the company  has  committed  approximately  $1.4  million  under  capital  lease
arrangements for the purchase of equipment and maintenance agreements.

                                       8
<PAGE>

 8.   Related Party Transactions

         During the quarter ended June 30, 1999,  Value America  received  notes
from its  officers in the amount of $450,000.  The notes bear  interest at 6.75%
annually with interest and principal due in one year and over a two year period.

9.   Subsequent Events

         On July 2, 1999, the Company  purchased  200,000 shares of common stock
from  WebGalaxy,  Inc.  for $2 per share and  detachable  warrants  to  purchase
200,000  shares of common stock at $3 per share until July 2000 and $4 per share
thereafter.

           On July 15, 1999,  the Board of Directors of the Company  adopted the
Value  America,  Inc. 1999 Stock  Incentive  Plan (the "Plan").  The Company has
reserved 2,350,000 shares of common stock for issuance under the Plan.

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"of  Value America,  Inc.("Value  America" or
the   "Company")   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

         Value America's  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.

                                       9
<PAGE>

         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.

         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 Mail ("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 to support new 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
Second Quarter 1999 Compared with Second Quarter 1998

     Revenues

         Revenues  primarily consist of product sales including shipping through
Value America's online store, product presentation and listing fees, advertising
and  shipping.  For the quarter  ended June 30,  1999,  revenues  totaled  $35.8
million  representing  a 600%  increase  from $5.1 million for the quarter ended
June 30, 1998.  Revenues  from product  sales were $34.4 million for the quarter
ended June 30,  1999,  compared to $4.8  million for the quarter  ended June 30,
1998, representing an increase of 617%. 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 $1.4 million for the quarter
ended June 30,  1999,  an  increase  of 367%  compared  to $0.3  million for the
quarter ended June 30, 1998. The increase in  advertising  revenues is driven by
two new initiatives that commenced in the first quarter of 1999:  advertising on
Value  America's  web site and direct  advertising  through EDM.  Value  America
recognized   approximately   $0.9  million  in  web  site  advertising  and  EDM
advertising  in the quarter  ended June 30, 1999,  compared to $0 in the quarter
ended June 30, 1998.  Product  presentation  listing fees, which are included in
advertising  and other  revenue  increased to  approximately  $0.5 in the second
quarter of 1999,  compared to $0.3 in the second quarter of 1998.  This increase
in product presentation listing fees reflects the increase in brand offerings on
Value America's online store.

                                       10
<PAGE>

         Charges to customers for shipping,  which represent  approximately $1.6
million and $40,000 of revenue  for the  quarters  ended June 30, 1999 and 1998,
respectively,  are  classified in revenue.  For the quarter ended June 30, 1999,
product returns as a percentage of sales due to defective  products and shipping
damage were  approximately  2.86%.  Returns due to  customer  satisfaction  were
approximately  2.78%. Returns due to other reasons were approximately 0.58%. For
the quarter ended June 30, 1998,  total product returns as a percentage of sales
were approximately 0.4%.

     Cost of Revenues

         Cost  of  revenues  primarily  consists  of  payments  to  third  party
suppliers for merchandise and shipping.  Value America incurred $34.5 million of
cost of revenues for the quarter ended June 30, 1999. For the quarter ended June
30, 1998,  cost of revenues  totaled $4.7  million.  Cost of revenues  represent
96.4% and 91.5% of  revenues  for the  quarters  ended  June 30,  1999 and 1998,
respectively.

         Value  America's  gross margin has increased  from $0.4 million for the
quarter ended June 30, 1998 to $1.3 million for the quarter ended June 30, 1999.
This  increase  is due to the strong  margins  earned on  advertising  revenues.
Product sales resulted in gross margins of $54,000 and $255,000 for the quarters
ended June 30, 1999 and 1998, respectively. Value America continues to utilize a
short-term strategy of selectively accepting narrow margins on product sales and
losses on shipping charges to maximize sales volumes and brand awareness.

     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 $6.8 million for the quarter ended June
30, 1998 to $21.6  million for the quarter  ended June 30,  1999.  The  increase
primarily  reflected the beginning 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.  As a percent of sales these  expenses  have
decreased  from 134% for the quarter  ended June 30, 1998 to 60% for the quarter
ended June 30, 1999.  Advertising and promotional  expenses  increased from $6.1
million  for the quarter  ended June 30,  1998 to $15.5  million for the quarter
ended June 30, 1999, net of cooperative  advertising of approximately $0 for the
quarter  ended June 30, 1998 and $1.3  million  for the  quarter  ended June 30,
1999.  Payroll  expenses  relating to  merchandising,  advertising and promotion
departments  increased  from $0.6 million for the quarter ended June 30, 1998 to
$2.6  million for the quarter  ended June 30,  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 $1.2 million for the quarter ended June 30, 1998 to $4.6
million for the quarter ended June 30, 1999. This increase  reflected the hiring
of additional  executive  management and increased facilities charges to support
rapidly  expanding   operations.   Payroll  expenses  relating  to  general  and
administrative  personnel increased from $0.5 million for the quarter ended June
30,  1998 to $1.8  million in the quarter  ended June 30,  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 $0.6 million
for the quarter  ended June 30, 1998 to $3.2 million for the quarter  ended June
30, 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 June 30, 1998 to $1.7  million for the
quarter  ended June 30,  1999.  Payments  to outside  consultants  totaled  $0.3
million  for the quarter  ended June 30,  1998 and $0.5  million for the quarter
ended  June  30,  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 $5.3 million for the quarter  ended June 30, 1999,
which consisted  primarily of the  amortization of $3.7 million in debt issuance
costs related to the $34.0 million note payable,  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 of $1.6  million.  This charge has
no effect on the Company's cash flows.

     Income Taxes

         Value America provided $0 for income taxes for the three- and six-month
periods  ended June 30,  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 and dividends on the Series C redeemable  preferred  stock.  Net
loss available for common  shareholders for the quarter ended June 30, 1999, was
$33.4 million or $0.79 per share.  Net loss prior to  consideration of accretion
and  dividends on preferred  stock was $31.8  million or $0.75 per share for the
quarter  ended June 30, 1999.  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. There will be no future accretion
or dividend  charges in connection  with Series A, Series B and Series C because
these  securities  were  converted  to common upon the  closing of the IPO.  The
recording of accretion does not affect the Company's cash flows.

Results Of Operations
Six Months 1999 Compared with Six Months 1998

     Revenues

         For the first six months of 1999,  revenues  totaled  $63.8  million up
from $7.4 million for the first six months of 1998,an increase of 768%. Revenues
from  product  sales were $60.8  million for the six months ended June 30, 1999,
compared to $6.8 million for the six months ended June 30,  1998,an  increase of
790%.  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 $3.0  million  for the six
months  ended June 30,  1999,  compared to $0.5 million for the six months ended
June 30,  1998.  The  increase  in  advertising  revenues  is  driven by two new
initiatives  in 1999:  advertising  on  Value  America's  web  site  and  direct
advertising through EDM. Value America recognized  approximately $2.1 million in
web site  advertising and EDM advertising in the six months ended June 30, 1999,
compared  to $0 in the six months  ended  June 30,  1998.  Product  presentation
listing fees, which are also included in advertising and other revenue,increased
to approximately $0.9 million in the first six months of 1999,  compared to $0.5
million in the first six months of 1998.  This increase in product  presentation
listing fees reflects the increase in brand offerings on Value America's  online
store.

                                       12
<PAGE>

         Charges to customers for shipping,  which represent  approximately $2.5
million and $68,000 of revenue for the six months  ended June 30, 1999 and 1998,
respectively,  are  reported  as  revenue.  Prior to January  1,  1999,  revenue
generated  from  shipping  was  recorded as a reduction  of the related  cost of
shipping.  All 1998  amounts  presented  have  been  adjusted  to  reflect  this
classification  change. For the six months ended June 30, 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 5.6% and 0.3%, respectively.

     Cost of Revenues

         Value  America  incurred  $61.5 million of cost of revenues for the six
months  ended June 30, 1999.  For the six months  ended June 30,  1998,  cost of
revenues  totaled $7.1 million.  Cost of revenues  represent  96.3% and 95.9% of
revenues for the six months ended June 30, 1999 and 1998, respectively. Revenues
in the six months ended June 30, 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 $0.3 million for the
six months ended June 30, 1998 to $2.3 million for the six months ended June 30,
1999. This increase is due to the strong margins earned on advertising revenues.
The  Company  incurred a  negative  product  sales  margin of $0.3  million  and
positive margin of $0.2 million for the six months ended June 30, 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 increased from $9.1 million
for the six months ended June 30, 1998 to $39.4 million for the six months ended
June 30, 1999. The increase primarily reflected the beginning 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 $8.0 million for the six months ended June
30,  1998 to $29.2  million  for the six  months  ended  June 30,  1999,  net of
cooperative  advertising of  approximately  $0 for the six months ended June 30,
1998 and $3.9 million for the six months ended June 30, 1999.  Payroll  expenses
relating to merchandising,  advertising and promotion departments increased from
$0.9  million for the six months ended June 30, 1998 to $4.7 million for the six
months  ended  June 30,  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 increased from $2.0 million for the
six months ended June 30, 1998 to $8.0 million for the six months ended June 30,
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.  Payroll  expenses  relating to general  and  administrative
personnel  increased from $0.8 million for the six months ended June 30, 1998 to
$2.7 million in the six months ended June 30, 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.

                                       13
<PAGE>

     Technical and System Development

         Technical and system  development  expenses increased from $1.0 million
for the six months  ended June 30, 1998 to $5.6 million for the six months ended
June 30, 1999. This increase principally reflected higher payroll and consulting
expenses. Payroll expenses related to technical and system development increased
from $0.4 million for the six months ended June 30, 1998 to $2.6 million for the
six months ended June 30,  1999.  Payments to outside  consultants  totaled $0.4
million  for the six months  ended June 30,  1998 and $1.9  million  for the six
months ended June 30, 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 $15.6  million  for the six months  ended June 30,
1999 consisted  primarily of the  amortization of $17.1 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.

      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
six months ended June 30, 1999,  was $98.2 million or $2.97 per share.  Net loss
prior to  consideration  of accretion,  dividends and the beneficial  conversion
feature on the Series C redeemable  preferred  stock was $66.2  million or $2.00
per  share.  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.  Because  the
preferred  stock was  converted  to common  stock  there  will not be any future
accretion or dividend  charges in  connection  with 1998 and first  quarter 1999
issuances of preferred stock.

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 $10.2 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.

In the six months ended June 30, 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;
     o 20,000  shares of common stock for  $200,000;  and o 5,500,000 shares
       of common share at $23 per share resulting in proceeds of $113.4 million,
       net of underwriting discounts and expenses.

                                       14
<PAGE>

         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 were  amortized as interest  expense until
conversion on April 13, 1999.

         As of April 13,  1999,  the  outstanding  principal  amount of the note
payable was converted  into common stock.  Interest  expense of $3.7 million was
recorded  in the  second  quarter  of  1999  representing  amortization  of debt
issuance   costs.   Value  America  also  recorded   $12.5  million  to  equity,
representing  the unamortized  issuance costs on Type B warrants.  The charge to
interest expense does 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   recorded   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
recorded  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  does not
affect the Company's cash flows.

         Net cash used in  operating  activities  was $3.3  million  for the six
months ended June 30, 1998,  and $52.2 million for the six months ended June 30,
1999.  Net cash used in  operating  activities  in the six months ended June 30,
1999  was due  primarily  to (a) the net loss of  $66.2  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 $19.5  million.  Value America has  historically  financed its
operating activities primarily through the aforementioned  capital contributions
by stockholders and other parties.

         Value  America  has an  unsecured  $5.0  million  line of  credit  from
Wachovia  Bank,  N.A. This line bears  interest on advanced  funds at Prime less
0.5% and  expires  on June 1,  2000.  The terms of the  agreement  prohibit  the
Company  from  having a  significant  change  in  control,  ownership,  or legal
structure,  except for primary and secondary  offerings of equity  securities to
the public,  without Wachovia's consent.  In addition,  during the agreement the
Company is required to maintain  unencumbered  liquidity of $25  million.  As of
June 30, 1999, we had not drawn any amounts under this line of credit.

         Value  America  has  obtained  stand-by  letters  of credit in favor of
vendors totaling $2.3 million. Each letter of credit is secured by a certificate
of deposit.  These standby  letters of credit expire through August 2000 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  has a first  priority  lien and
security  interest in a $1.5 million cash deposit  account,  to cover  potential
charge backs.  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.

         Value America incurred capital  expenditures of $4.9 million in the six
months  ended June 30, 1999  compared  to $1.1 in the six months  ended June 30,
1998.  The increase in  expenditures  is 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  and
procurement.

                                       15
<PAGE>

         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.

         The Company has an agreement to purchase certain information technology
services and licenses through January 1, 2000. The total  commitments  remaining
under the agreement  approximated  $3.9 million as of June 30, 1999. In addition
the Company  has  committed  approximately  $1.4  million  under  capital  lease
arrangements for the purchase of equipment and maintenance agreements.

         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.  However,  this period may be shorter if the Company  finds and
decides  to  take  advantage  of  business  opportunities  that  exceed  current
expectations  but that we determine are desirable and feasible.  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.

         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 six
months of 1999, goods  manufactured by IBM represented  approximately 36% of our
net sales and goods  manufactured  by Proteva  and  Hewlett-Packard  represented
approximately 11% and 9% of net sales,  respectively.  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,  from February 19,
1999 to May 4, 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.

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.

         Value  America has  completed  its initial  assessment of its Year 2000
readiness,  and it will  continue to assess its  readiness  as it  develops  and
expands its infrastructure and operations.  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.  Value  America  is  conducting  Year  2000  compliance  verification  and
validation,  primarily  using  internal  resources.  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.  This  is  because  Value  America  utilizes  third-party
equipment and software that may or may not be Year 2000 compliant. Consequently,

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<PAGE>

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
obtained  statements  of  Year  2000  compliance  from  third  party  technology
providers   associated   with   Value   America's   core   information   systems
infrastructure,  and Value  America  plans to conduct  Year 2000  testing on its
systems  beginning  in the third  quarter of 1999 to verify that the systems are
Year 2000  compliant.  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.

         Value  America  has  initiated  formal  communications  with all of the
suppliers  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. For suppliers with which Value America  communicates
order,  invoice,  and inventory  information  via  electronic  data  interchange
("EDI"), Value America is switching to a Year 2000-compliant standard format. In
some cases,  suppliers use corporate  systems or EDI mappings  designed to avoid
Year 2000  problems.  Since  January  1999,  Value  America has  encouraged  its
suppliers  to migrate  to the Year  2000-compliant  EDI  format.  Value  America
anticipates  that all current  suppliers either are in compliance with Year 2000
requirements or will migrate to the Year 2000 compliant  format by September 30,
1999. If some suppliers do not achieve Year 2000 compliance, these suppliers may
be  unable  to  effectively  operate.  Consequently,   Value  America  may  seek
additional  suppliers of quality  products to replace  those  burdened with Year
2000 remediation difficulties.  Because Value America's order processing systems
can transparently  maintain multiple  suppliers for products,  Value America can
obtain contingency suppliers 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 this
new source in the event its current credit card processor is not able to be Year
2000 compliant by September 30, 1999.

         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, all Windows operating systems on
Value America's internal desktop devices will be upgraded to make them Year 2000
compliant,  and there may be software upgrades  associated with other equipment.
The desktop 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.

Subsequent Events

         On July 2, 1999, the Company  purchased  200,000 shares of common stock
from  WebGalaxy,  Inc.  for $2 per share and  detachable  warrants  to  purchase
200,000  shares of common stock at $3 per share until July 2000 and $4 per share
thereafter.

         On July 15, 1999,  the Board of  Directors  of the Company  adopted the
Value  America,  Inc. 1999 Stock  Incentive  Plan (the "Plan").  The Company has
reserved 2,350,000 shares of common stock for issuance under the Plan.

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Item 3.  Changes in Information About Market Risk

         The  Company  is  subject  to  interest  rate  risk  on its  investment
portfolio.  If market rates were to increase  immediately  and  uniformly by 10%
from the level at June 30, 1999, the change tothe Company's  interest  sensitive
investments would have an immaterial effect on the Company's financial position,
results of operations and cash flows over the next fiscal year.

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<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. requested 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. We have filed a motion to
dismiss and believe that we have valid defenses to each of the claims  asserted
by Coupons, Inc.

         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

         Not applicable.



Item 3.  Defaults Upon Senior Securities

         Not applicable



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

         Not applicable



Item 5.  Other Information

         Not applicable



Item 6.  Exhibits and Reports on Form 8-K

         Exhibit 27.1 Financial Data Schedule June 30, 1999
         Exhibit 27.2 Restated Financial Data Schedule June 30, 1998

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<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.

_____                                By:  /s/ Dean M. Johnson

Date                                 Dean M. Johnson, Executive Vice President
                                    and Chief Financial Officer

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