<PAGE>

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                 _____________

                                   FORM 10-Q


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

               For the quarterly period ended September 30, 2001

                                      OR

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


                       Commission file number 000-27357

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


          Delaware                                   76-0617905
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                 Identification Number)

                       3800 Buffalo Speedway, Suite 400
                             Houston, Texas 77098
                   (Address of principal executive offices)
                                 _____________

                                (713) 369-1300
             (Registrant's telephone number, including area code)

                                 _____________

     Indicate by check whether the registrant (1) has filed all reports required
to be filed by Sections 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

          (1)  Yes   x                      No  _________
                   -----
          (2)  Yes   x                      No  _________
                   -----

     As of September 30, 2001, there were 54,208,470 shares of the Company's
common stock outstanding.

================================================================================
<PAGE>

                               ASHFORD.COM, INC.

                                   FORM 10-Q

                                     INDEX

<TABLE>
<CAPTION>
PART I.   CONSOLIDATED FINANCIAL INFORMATION                                                           PAGE
                                                                                                       ----
<S>                                                                                                    <C>
Item 1.   Consolidated Financial Statements.........................................................      3

          Consolidated Balance Sheets at September 30, 2001 and March 31, 2001......................      3

          Consolidated Statements of Operations for the three and six months ended
          September 30, 2001 and 2000...............................................................      4

          Consolidated Statements of Cash Flows for the six months ended September 30,
          2001 and 2000.............................................................................      5

          Notes to Consolidated Financial Statements................................................      6

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations................................................................................     10

Item 3.   Quantitative and Qualitative Disclosures About Market Risk................................     16

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings.........................................................................     28

Item 6.   Exhibits and Reports on Form 8-K..........................................................     28

SIGNATURES..........................................................................................     30
</TABLE>

                                       2
<PAGE>

PART I.  CONSOLIDATED FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

                               ASHFORD.COM, INC.
                          CONSOLIDATED BALANCE SHEETS
              (In thousands, except par value and share amounts)

<TABLE>
<CAPTION>
                                                                           September 30,        March 31,
                                                                                2001               2001
                                                                           -------------      -------------
                                                                            (Unaudited)
<S>                                                                        <C>                <C>
Assets
Current assets:
 Cash and cash equivalents                                                $        2,705      $       7,095
 Restricted cash                                                                   1,500              1,500
 Accounts receivable, net of allowance for doubtful accounts of $330
  and $231, respectively                                                           2,280              2,559
 Merchandise inventory                                                            18,039             24,066
 Prepaids and other                                                                1,835              1,535
                                                                           -------------      -------------
  Total current assets                                                            26,359             36,755

Property and equipment, net of accumulated depreciation of $14,201 and                --              8,441
 $5,894, respectively
Purchased intangibles, net of accumulated amortization of $14,441 and
 $10,483, respectively                                                                --             10,162

Other assets                                                                         538                908
                                                                          --------------      -------------
Total assets                                                              $       26,897      $      56,266
                                                                          ==============      =============

Liabilities and Stockholders' Equity
Current liabilities:
 Accounts payable and accrued liabilities                                 $        4,851      $       8,189
 Revolving credit facility                                                         2,877              4,705

Other long-term liabilities                                                           88                104
Commitments and contingencies

Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized, no                    --                 --
 shares issued and outstanding at September 30, 2001 and March 31,
 2001, respectively
Common stock, $.001 par value, 100,000,000 shares authorized,                         57                 49
 57,275,196 and 48,691,917 shares issued at September 30, 2001 and
 March 31, 2001, respectively
Treasury stock, at cost, 3,066,726 and 770,893 shares at September 30,              (865)                --
 2001 and March 31, 2001, respectively
Additional paid-in capital                                                       261,205            259,365
Subscriptions receivable                                                            (376)            (1,156)
Deferred compensation                                                             (1,616)            (4,983)
Accumulated deficit                                                             (239,324)          (210,007)
                                                                          --------------      -------------
 Total stockholders' equity                                                       19,081             43,268
                                                                          --------------      -------------
Total liabilities and stockholders' equity                                $       26,897      $      56,266
                                                                          ==============      =============
</TABLE>

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

                                       3
<PAGE>

                               ASHFORD.COM, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except per share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                          Three months ended             Six months ended
                                                             September 30,                 September 30,
                                                       -------------------------     -------------------------
                                                          2001           2000           2001           2000
                                                       ----------     ----------     ----------     ----------
<S>                                                    <C>            <C>            <C>            <C>
Net sales                                              $    9,017     $   12,013     $   21,123     $   25,118
Cost of sales                                               7,144          9,720         17,243         20,386
                                                       ----------     ----------     ----------     ----------
Gross profit                                                1,873          2,293          3,880          4,732
Operating expenses:
  Marketing and sales (includes non-cash
       amortization of $269, $27,744, $573,
       and $53,778, respectively)                           1,774         33,564          4,870         66,388
  General and administrative (includes non-cash
       amortization of $158, $883, $430,
       and $1,730, respectively)                            4,352          6,741          9,822         13,489
  Restructuring charge                                         10             --            409             --
  Settlement loss                                              --             --          2,297             --
  Loss on sale of assets                                       --             --            620             --
  Depreciation and amortization                            12,363          3,108         16,245          5,762
                                                       ----------     ----------     ----------     ----------
     Total operating expenses                              18,499         43,413         34,263         85,639
                                                       ----------     ----------     ----------     ----------
Loss from operations                                      (16,626)       (41,120)       (30,383)       (80,907)
Interest income (expense), net                                (81)           564            (80)         1,249
                                                       ----------     ----------     ----------     ----------
Net loss before disposal of segment                       (16,707)       (40,556)       (30,463)       (79,658)
Net loss from discontinued operations                          --             --           (667)            --
Net gain from disposal of segment                           1,813             --          1,813             --
                                                       ----------     ----------     ----------     ----------
Net loss                                               $  (14,894)    $  (40,556)    $  (29,317)    $  (79,658)
                                                       ==========     ==========     ==========     ==========


Net loss before disposal of segment per share,
 basic and diluted                                     $    (0.31)    $    (0.89)    $    (0.58)    $    (1.76)

Net gain from disposal of segment per share,
 basic and diluted                                     $     0.03     $       --     $     0.02             --

Net loss per share, basic and diluted                  $    (0.28)    $    (0.89)    $    (0.56)     $   (1.76)

Shares used to compute net loss per share,
  basic and diluted                                        53,335         45,598         52,267         45,350
</TABLE>

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

                                       4
<PAGE>

                               ASHFORD.COM, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                    Six months ended
                                                                                      September 30,
                                                                                ------------------------
                                                                                   2001          2000
                                                                                ----------    ----------
<S>                                                                             <C>           <C>
Cash Flows From Operating Activities:
Net loss                                                                        $  (29,317)   $  (79,658)
Adjustments to reconcile net loss to net cash used in operating
 activities:
 Depreciation and amortization                                                      17,248        61,270
 Restructuring charge related to issuance of options to purchase
   common stock                                                                        221           ---
 Settlement loss                                                                     2,297           ---
 Loss on sale of assets                                                                620           ---
 Net gain from disposal of segment                                                  (1,813)          ---
 Changes in assets and liabilities:
  Accounts receivable                                                                  279         1,673
  Merchandise inventory                                                              6,027        (1,023)
  Prepaids and other                                                                  (300)          696
  Other assets                                                                        (520)         (389)
  Accounts payable and accrued liabilities                                          (4,887)          923
                                                                                ----------    ----------
   Net cash used in operating activities                                           (10,145)      (16,508)
Cash Flows From Investing Activities:
 Purchases of property and equipment                                                  (107)       (4,222)
 Proceeds from sale of equipment and intangible assets                                 420           ---
 Net proceeds from acquisition of a business                                         7,270           ---
 Internet domain and other intangible asset purchases                                  ---          (120)
                                                                                ----------    ----------
   Net cash provided by (used in) investing activities                               7,583        (4,342)
Cash Flows From Financing Activities:
 Proceeds from revolving credit facility                                            16,264           ---
 Payments on revolving credit facility                                             (18,092)          ---
 Proceeds from exercise of stock options                                               ---           148
 Net proceeds from the issuance of common stock                                        ---           108
                                                                                ----------    ----------
   Net cash provided by (used in) financing activities                              (1,828)          256
                                                                                ----------    ----------
 Net decrease in cash and cash equivalents                                          (4,390)      (20,594)
Cash and Cash Equivalents:
 Beginning of period                                                                 7,095        46,474
                                                                                ----------    ----------
 End of period                                                                  $    2,705    $   25,880
                                                                                ==========    ==========

Supplemental Disclosure of Noncash Investing
 and Financing Activities:
 Purchase of common stock in connection with employment and
   consultant agreements                                                        $      865           ---
 Issuance of common stock in connection with settlement                                323           ---
 Issuance of common stock in connection with Internet domain and
   other intangible asset purchases                                                    ---    $    1,812
 Issuance of warrants in connection with purchases of fixed assets                     ---           702
</TABLE>

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

                                       5
<PAGE>

                               ASHFORD.COM, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

     The accompanying unaudited consolidated financial statements have been
prepared by Ashford.com, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, and
disclosures necessary for a fair presentation of these financial statements have
been included.  These financial statements should be read in conjunction with
the financial statements and notes thereto included in our Annual Report on Form
10-K for the year ended March 31, 2001. Results for the three and six months
ended September 30, 2001, are not necessarily indicative of the results that may
be expected for any future quarter or for the year ending March 31, 2002.

     We have suffered significant losses from operations since its inception.
Management is implementing a strategy to significantly reduce costs and improve
operating efficiencies. Management believes that our current cash balances and
borrowing capacity will be sufficient to meet anticipated needs for at least the
next 12 months, assuming it executes according to its restructured operating
plans. However, any projections of future cash needs and cash flows are subject
to substantial uncertainty. Accordingly, there is substantial doubt as to our
ability to continue as a going concern. If current cash and cash that may be
generated from future operations are insufficient to satisfy our liquidity
requirements, management may seek to sell additional equity or debt securities
or to obtain additional credit facilities from lenders. There can be no
assurance that financing will be available in amounts or on the terms acceptable
to us, if at all. Our ability to raise cash through the sales of additional
equity or convertible debt securities may be difficult depending on market
conditions and other factors, and if available could result in additional
dilution to our stockholders. In addition, management will, from time to time,
consider the acquisition of or investment in complementary businesses, products,
services and technologies, which might impact our liquidity requirements or
cause us to issue additional equity or debt securities.

Definitive Merger Agreement

     On September 14, 2001, we announced that we had entered into a definitive
merger agreement with Global Sports, Inc. whereby Global will acquire all of the
outstanding shares of our common stock. Under the terms of the merger agreement,
upon consummation of the merger, our shareholders will receive 0.0076 of a share
of Global common stock and $0.125 cash for each share of our common stock.
Global expects to issue approximately 430,000 shares of common stock and pay
approximately $7.1 million of cash in exchange for all of the outstanding shares
of our common stock. Closing of the proposed transaction is subject to the
satisfaction of certain customary closing conditions, including approval of our
stockholders.

     Our consolidated financial statements have been prepared on the historical
cost basis of accounting in accordance with generally accepted accounting
principles in the United States, which may be greater or less than the fair
value of assets and liabilities as determined by Global Sports, Inc. Following
the signing of the definitive merger agreement, we evaluated the realizability
of our long-lived assets pursuant to SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets to be Disposed Of, which requires recognition of impairment
of long-lived assets in the event the net book value of such assets exceeds the
future estimated undiscounted cash flows attributable to such assets. As a
result, we recorded an impairment as depreciation and amortization expense of
approximately $8.9 million during the quarter ended September 30, 2001.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at

                                       6
<PAGE>

the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Reclassification of Prior Period Balances

     Certain prior period balances have been reclassified for consistent
presentation.

Net Loss Per Share

     Net loss per share is computed using the weighted average number of common
shares outstanding. Shares associated with stock options and warrants are not
included because they are antidilutive.

Recent Accounting Pronouncements

     In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective beginning April
2002. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions
relating to the disposal of a segment of a business of Accounting Principles
Board Opinion No. 30. We do not anticipate that the adoption of SFAS No. 144
will have a material impact on our financial position.

     In July 2001, the FASB issued Statements No. 141, Business Combinations and
No. 142, Goodwill and Other Intangible Assets requiring the nonamortization
approach to account for purchased goodwill. Under the nonamortization approach,
goodwill would be tested for impairment based on fair values, rather than
amortized to earnings. Under the new statements, our purchased intangibles would
continue to be amortized consistent with its current policy. These standards are
effective beginning in April 2002. Upon adoption, these standards will not have
a significant effect on our financial statements as the related assets were
expensed as of September 30, 2001.

     In July 2000, the EITF reached a consensus on EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs." This consensus requires that all amounts
billed to a customer in a sale transaction related to shipping and handling, if
any, represent revenue and should be classified as such. We historically have
classified shipping charges to customers as revenue. In September 2000, the EITF
concluded that the classification of shipping and handling costs should be
disclosed pursuant to Accounting Principles Board (APB) Opinion No. 22,
"Disclosure of Accounting Policies." If shipping and handling costs are
significant and are not included in cost of sales, companies should disclose
both the amount of such costs and which line item on the income statement
includes that amount. Shipping and handling costs cannot be netted against
sales. We classify inbound and outbound shipping costs as costs of sales. We
generally do not impose separate handling charges on customers. However, during
fiscal year 2001, we began charging for shipping costs. We began charging for
packaging costs during fiscal 2002. Costs attributable to receiving, inspecting
and warehousing inventories and picking, packaging and preparing customers'
orders for shipment are classified as marketing and sales expense and totaled
$1.2 million and $1.4 million during quarters ended September 30, 2001 and 2000,
respectively.

     In May 2000, the EITF issued EITF 00-14 "Accounting for Certain Sales
Incentives," which provides guidance on the accounting for certain sales
incentives offered by companies to their customers such as discounts, coupons,
rebates and products or services. EITF 00-14 addresses the recognition,
measurement and income statement classification for sales incentives offered
voluntarily by a vendor without charge to customers that can be used in, or that
are exercisable by a customer as a result of a single exchange transaction. The
accompanying financial statements include the reclassification of free product
and service incentives delivered to customers at the time of sale, from
marketing and sales expense to cost of sales, related to the adoption of EITF
00-14. All periods presented have been reclassified for consistent presentation.

2.   Restructuring and Related Charges

     During the fourth quarter ended March 31, 2001, in connection with
management's plan to reduce costs and improve operating efficiencies, we
recorded restructuring charges of approximately $0.7 million, consisting of

                                       7
<PAGE>

approximately $0.5 million for headcount reductions and approximately $0.2
million for contract cancellations. Headcount reductions consisted of
approximately 40 employees, or about 17% of our workforce.

     During the first quarter ended June 30, 2001, we initiated a review of our
lines of business, cost structure and general activities. The objective of this
review was to identify opportunities for improved financial performance and
liquidity management. Specific initiatives resulting from this review include
reducing the scope of product offerings, decreasing our investment in inventory
and eliminating certain operating costs, including costs associated with
personnel. In connection with this review, we recorded charges of approximately
$0.5 million for headcount reductions. Headcount reductions consisted of
approximately 46 employees, or about 19% of our workforce.

     Total cash outlays during the quarter ended June 30, 2001 were
approximately $0.2 million. The restructuring accrual was reduced by an
additional $0.2 million through the issuance of options to purchase our common
stock. Previously recorded allowances for contract cancellations of
approximately $0.1 million were reversed during the quarter ended June 30, 2001
upon determination that the associated cost would not be incurred. The remaining
$0.1 million of restructuring costs was paid in the quarter ended September 30,
2001.

     The restructuring accrual consists of the following:

<TABLE>
<CAPTION>
                                                       Severance and      Contract
                                                          Benefits      Cancellations       Total
                                                       --------------------------------------------
<S>                                                    <C>              <C>               <C>
Provision for fiscal year 2001                         $       502      $       160       $    662
Amount paid in fiscal year 2001                               (472)             (80)          (552)
                                                       -----------      -----------       --------
Balance at March 31, 2001                                       30               80            110
Provision for quarter ended June 30, 2001                      479               --            479
Provision reversed in quarter ended June 30, 2001               --              (80)           (80)
Amount paid in quarter ended June 30, 2001                    (421)              --           (421)
                                                       -----------      -----------       --------
Balance at June 30, 2001                                        88               --             88
Provision for quarter ended September 30, 2001                  10               --             10
Amount paid in quarter ended September 30, 2001                (86)              --            (86)
                                                       -----------      -----------       --------
Balance at September 30, 2001                          $        12      $        --       $     12
                                                       ===========      ===========       ========
</TABLE>

3.   Revolving Credit Facility

     During September 2000, we executed a three-year revolving credit facility
with a maximum available credit of $25 million with Congress Financial
Corporation, a unit of First Union National Bank. The credit facility is to be
used for working capital needs and is secured by our assets. Availability under
the credit facility is determined pursuant to a borrowing base as defined in the
agreement. During the quarter ended September 30, 2001, an independent appraisal
firm completed a periodic appraisal of our inventory as required under the
revolving credit facility. This appraisal resulted in a decrease in our
borrowing base as defined in the revolving credit facility. As a result, total
availability under the credit facility was approximately $5.9 million on
September 30, 2001 ($2.9 million outstanding at September 30, 2001). Amounts
outstanding under the credit facility bear interest at the prime rate or LIBOR
plus 250 basis points, as elected by us.

4.   Treasury Stock

     During May 2001, we repurchased 1,852,500 shares of our common stock for
approximately $0.9 million in connection with certain employment and consultant
agreements. Consideration for this purchase was a subscription receivable of
approximately $0.8 million and accrued interest receivable of approximately $0.1
million.

5.   Other Matters

Disposition of Online Watch Retailer

     In February 2001, we entered into a merger agreement with an online watch
retailer. In connection with the agreement, we paid an aggregate purchase price
of $2.3 million representing the assumption of liabilities and

                                       8
<PAGE>

direct acquisition costs of approximately $650,000, and 1,991,000 shares of our
common stock. The agreement further provided that we issue up to an additional
5,500,000 shares of our common stock to the online retailer upon resolution of
certain authorized dealer relationship contingencies and in connection with the
online retailer meeting certain gross profit targets as set forth in the
agreement. Further, certain key members of the online watch retailer's
management entered into separate employment agreements with us which provide for
employment for eighteen months following the merger and representation on our
board of directors. Principal assets acquired include inventory, supplier
relationships and intellectual property.

     During June 2001, as a result of certain business difficulties that arose
in the relationship with the former principals of the online watch retailer and
to resolve litigation, we began negotiating a dissolution of that relationship.
The online watch retailer agreed to a settlement whereby the online watch
retailer and certain of it's management will receive aggregate consideration of
approximately $0.8 million representing $0.2 million of inventory, $0.1 million
of severance pay and 1,500,000 shares of our common stock to settle all
potential future claims and obligations. We recorded a charge of approximately
$2.3 million in connection with this settlement during the quarter ended June
30, 2001. At September 30, 2001, all consideration with the exception of 202,262
shares of our common stock has been paid. The remaining common stock is expected
to be issued in the quarter ending December 31, 2001.

Outsourcing Of Online Art Operations

     In May 2001, we closed a merger agreement with an online art retailer. In
connection with the agreement, we issued approximately 7.1 million shares of our
common stock and options and warrants to purchase approximately 1.6 million
shares of our common stock, in exchange for all of the fully diluted shares of
the online art retailer's capital stock. The purchase price was approximately
$4.3 million, consisting of $3.3 million of our common stock, $0.7 million of
options and warrants to purchase shares of our common stock and $0.3 million of
business combination costs. The principle assets received include $7.3 million
of cash, an Internet domain name and related trademarks and other tangible and
intangible assets related to Internet retail operations. The total value of net
tangible assets acquired exceeded the $4.3 million purchase price.

     In May 2001, we concluded that the operating cost structure of the online
art retailer was inconsistent with the level of sales activity and our overall
objectives. In June 2001, the prior management of the online art retailer made a
proposal, which we accepted, to assume the prospective operations of the online
art retailer as a separately capitalized entity. Pursuant to this agreement, we
contributed assets of approximately $0.5 million, including $0.4 million of
cash, an Internet domain name and related trademarks and other intangible assets
in return for 5% ownership interest in the new entity. In addition, we entered
into a revenue sharing agreement with the new entity whereby we will offer the
new entity's product on its Web site in return for half of the gross profit from
sales of the new entity's products generated by our Web site. We did not assume
any future operating costs or obligations. Further, substantially all the
employees previously employed by the online art retailer became employees of the
new entity or were terminated.

     Activity related to art operations during the quarter ended June 30, 2001,
was recorded in accordance with APB No. 30 "Reporting the Results of Operations-
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions" and EITF 85-36
"Discontinued Operations with Expected Gain and Interim Operating Losses".
Accordingly, losses from the acquisition closing date (May 3, 2001) through the
measurement date (June 13, 2001) were reflected as net loss from discontinued
operations in the financial statements for the quarter ended June 30, 2001.
Losses from the measurement date through the separation date (July 31, 2001)
were deferred as there was reasonable assurance that a net gain on disposal will
be realized. For the quarter ended June 30, 2001, net loss on discontinued
operations included net sales commissions of approximately $125,000 and
operating expenses of approximately $792,000. For the period from the
measurement date through June 30, 2001, net losses of approximately $109,000
representing net sales commissions of approximately $53,000 and operating
expenses of $162,000 were deferred. For the quarter ended September 30, 2001,
net losses of approximately $588,000 representing net sales commissions of
approximately $159,000 and operating expenses of approximately $747,000 were
deferred. We recognized a net gain on disposal of discontinued operations of
approximately $1.8 million during the quarter ended September 30, 2001.

                                       9
<PAGE>

Sale of Asset

     During June 2001, we sold two Internet domain names and related trademarks
related to a product information Internet site in exchange for $0.4 million
cash. The majority of the cash proceeds were received during the quarter ending
September 2001. We recorded a loss on sale of approximately $0.5 million during
the quarter ending June 2001.

6.   Supplemental Information

     The following supplemental financial information is presented for
informational purposes only and is not in accordance with generally accepted
accounting principles. This information should not be considered as a substitute
for the historical financial information presented in accordance with generally
accepted accounting principles.

<TABLE>
<CAPTION>
                                                          Three months ended           Six months ended
                                                              September 30,              September 30,
                                                       ------------------------    ------------------------
                                                          2001          2000          2001          2000
                                                       ----------    ----------    ----------    ----------
      <S>                                              <C>           <C>           <C>           <C>
      Net loss, excluding acquisition costs (1),
      restructuring charge, settlement loss,
      loss on sale of assets, depreciation and
      amortization, and net gain from disposal
      of segment                                       $   (3,751)   $   (8,821)   $   (9,733)   $  (18,388)

      Net loss per share, excluding acquisition
      costs (1), restructuring charge,
      settlement loss, loss on sale of assets,
      depreciation and amortization, and net
      gain from disposal of segment                    $    (0.07)   $    (0.19)   $    (0.19)   $    (0.41)

      Shares used to compute net loss per share,
      basic and diluted                                    53,335        45,598        52,267        45,350
</TABLE>

  (1) Acquisition costs represent non-refundable legal expenses related to the
      Global Sports, Inc. merger of approximately $156,000 for the three months
      and six months ended September 30, 2001. Acquisition costs are reported as
      general and administrative expenses in the consolidated statements of
      operations.

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The discussion in this Report contains forward-looking statements (as such
term is defined in Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934) that involve risks and uncertainties. Our
actual results could differ materially from those discussed herein.  Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors That May Affect Future Results" as well as
those discussed in this section and elsewhere in this Report, and the risks
discussed in the "Risk Factors" section included in our most recent Form 10-K
and our Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on September 22, 1999 (Reg. No. 333-82759).

Overview

     We were incorporated on March 6, 1998 and commenced operations and began
offering products for sale on our Web site in April 1998. We initially focused
exclusively on the sale of new and vintage watches. Since inception, we have
focused on broadening our product offerings, establishing relationships with
luxury and premium brand owners, generating sales momentum and expanding our
operational and customer service capabilities. We currently offer more than
12,000 styles of products from over 300 leading luxury brands. We are currently
focusing our efforts on continuing to increase net sales while maintaining or
decreasing current expense levels. We plan to

                                       10
<PAGE>

continue the growth of our corporate gift business, which generally generates
higher margin sales and is less seasonal in nature than our traditional retail
sales, and our newer, higher margin product categories, such as our Ashford
Collection jewelry. As part of a larger effort to improve overall operating
efficiencies and lower total operating costs as a percentage of sales, we have
specifically reduced our traditional print and media marketing activities and
have focused on Internet and online media, which we believe to be a more
efficient and economical means of attracting new customers. Other specific
initiatives designed to improve financial performance and liquidity management
include reducing the scope of product offerings, decreasing our investment in
inventory and eliminating certain operating costs, including personnel costs.

     As stated above, we plan to continue the growth of our corporate gift
business which was introduced in March 2000. Our corporate gift business offers
over 800 products such as crystal, silver and pewter that appeal to the
corporate market. These products usually generate higher margin sales and are
less seasonal in nature than our traditional retail sales. Also, many corporate
gift products are finished with custom engraving, etching or embossing which
further increases our margin.

     The market for luxury and premium products is highly seasonal, with a
disproportionate amount of net sales occurring during the fourth calendar
quarter. Therefore, we increase our purchases of inventory during and in advance
of that quarter. Although less significant, seasonal sales periods occur in
February due to Valentine's Day and in May and June due to graduation gift
giving, Mother's Day and Father's Day. We expect that these trends will continue
in future periods.

     Our gross margin will fluctuate in future periods based on factors such as:

 .    product sales mix;

 .    the mix of direct and indirect sources of inventory;

 .    pricing strategy;

 .    promotional activities;

 .    inventory management; and

 .    inbound and outbound shipping costs.

     We have incurred net losses since inception and expect to generate negative
cash flows during future periods. Our ability to become profitable depends on
our ability to generate and sustain substantially higher net sales while
maintaining reasonable expense levels, both of which are uncertain. If we do
achieve profitability, we cannot be certain that we would be able to sustain or
increase profitability on a quarterly or annual basis in the future.

     We have a limited operating history upon which to base an evaluation of our
business and prospects. As a result of our limited operating history, it is
difficult to accurately forecast our net sales and we have limited meaningful
historical financial data upon which to base projected operating expenses. We
base our current and future expense levels on our operating plans and estimates
of future net sales, and our expenses are fixed to a large extent. Sales and
operating results are difficult to forecast because they generally depend on the
volume and timing of the orders we receive. As a result, we may be unable to
adjust our spending in a timely manner to compensate for any unexpected revenue
shortfall. This inability could cause our net losses in a given quarter to be
greater than expected and could significantly limit or delay our ability to
generate net profits in any future period.

     On September 14, 2001, we announced that we had entered into a definitive
merger agreement with Global Sports, Inc. whereby Global will acquire all of the
outstanding shares of our common stock. Under the terms of the merger agreement,
upon consummation of the merger, our shareholders will receive 0.0076 of a share
of Global common stock and $0.125 cash for each share of our common stock.
Global expects to issue approximately 430,000 shares of common stock and pay
approximately $7.1 million of cash in exchange for all of the outstanding
shares of

                                       11
<PAGE>

our common stock. Closing of the proposed transaction is subject to the
satisfaction of certain customary closing conditions, including approval of our
stockholders.

     Our consolidated financial statements have been prepared on the historical
cost basis of accounting in accordance with generally accepted accounting
principles in the United States, which may be greater or less than the fair
value of assets and liabilities as determined by Global Sports, Inc. Following
the definitive merger agreement, we evaluated the realizability of our long-
lived assets pursuant to SFAS No. 121. As a result, we recorded an impairment as
depreciation and amortization expense of approximately $8.9 million during the
quarter ended September 30, 2001.

     The Securities and Exchange Commission is conducting an investigation
concerning our accounting and disclosures relating to certain marketing
activities during fiscal years 2000 and 2001. We have been cooperating with the
SEC, and we will continue to do so. Our audit committee also has completed an
internal review of certain matters related to the SEC review. We do not believe
that any of the accounting issues raised by the SEC will have a material effect
on our financial statements.

Results of Operations

Net Sales

     Net sales consist primarily of product sales and are net of product returns
and promotional discounts. Net sales decreased from $12.0 million during the
quarter ended September 30, 2000 to $9.0 million during the quarter ended
September 30, 2001, and from $25.1 million for the six months ended September
30, 2000 to $21.1 million for the six months ended September 30, 2001. The
decrease in net sales was affected by a general decline in retail spending and
reduced marketing and sales efforts net of an increase in corporate gift
activity attributed to the addition of new salespeople and The Gifted Portfolio
acquisition during the quarter ended December 31, 2000.

Cost of Sales

     Cost of sales consists primarily of the cost of products sold, free product
and service incentives delivered to customers at the time of sale, inbound and
outbound shipping costs and warranty and inventory obsolescence costs. Cost of
sales decreased as net sales decreased. Gross profit decreased from $2.3 million
to $1.9 million during the quarter ended September 30, 2000 compared to the
quarter ended September 30, 2001. Gross profit decreased from $4.7 million to
$3.9 million during the six months ended September 30, 2000 compared to the six
months ended September 30, 2001. Gross margin increased from 19.1% during the
quarter ended September 30, 2000 to 20.8% during the quarter ended September 30,
2001 and decreased from 18.8% to 18.4% during the six months ended September 30,
2000 compared to the six months ended September 30, 2001. During the quarter
ended September 30, 2001, the increase in gross margin is principally due to the
reduction in the amount of free product and service incentives offered, the
growth of our corporate gift business including acquisition of The Gifted
Portfolio in the quarter ended December 31, 2000, and the development in our
newer higher-margin product categories such as home and lifestyle products and
our Ashford Collection jewelry, net of low margin sales activities intended to
reduce product assortment and our overall investment in merchandise inventory.
Also, we experienced an increase in gross margin due to our efforts to reduce
certain expenses such as outbound shipping costs which are now paid by the
customer on most orders. The decrease in gross margin during the six months
ended September 30, 2001, is primarily due to the factors described above with
low margin sales activities intended to reduce our product assortment and our
overall inventory investment representing a greater proportion of total sales
during the three months ended June 30, 2001 than during the three months ended
September 30, 2001.

Operating Expenses

     Marketing and Sales.  Marketing and sales expenses consist primarily of
advertising costs, credit card fees, fulfillment activities and related employee
salary and benefit expenses, and amortization of related deferred compensation.
Fulfillment activities include receiving of goods, picking of goods, and
packaging of goods for shipment. Marketing and sales expenses decreased from
approximately $33.6 million during the quarter ended September 30, 2000 to $1.8
million for the quarter ended September 30, 2001. Marketing and sales decreased
from approximately $66.4 million during the six months ended September 30, 2000
to $4.9 million during the six months

                                       12
<PAGE>

ended September 30, 2001. The decrease in marketing and sales is attributable to
a decrease in non-cash amortization from $27.7 million for quarter ended
September 30, 2000 to $0.3 million for quarter ended September 30, 2001
primarily relating to a marketing contract entered into with another online
retailer during the latter part of fiscal 2000 that expired in fiscal 2001.
Excluding non-cash amortization, the decrease in marketing and sales is
primarily attributable to a reduction in traditional print and media marketing
activities and implementation of new and modified agreements with Internet and
online media providers at improved advertising rates or with pay-for-performance
provisions. During fiscal 2001, we shifted our primary marketing focus from
traditional print and broadcast media to Internet and online media. We believe
Internet and online media provides a more efficient and economical means of
attracting new customers. Our advertising and promotional expenditures are
generally intended to build brand awareness, generate site traffic and increase
overall sales. We expect our marketing and sales expense to continue to decline
as a percentage of sales in future periods as we continue our focus of becoming
more efficient and economical at acquiring customers.

     General and Administrative. General and administrative expenses include
executive, finance and administrative employee salaries and benefits,
amortization of related deferred compensation, professional fees, Web site
maintenance, office lease expenses and other general corporate expenses.
General and administrative expenses decreased to $4.4 million during the quarter
ended September 30, 2001 compared to $6.7 million during the quarter ended
September 30, 2000. General and administrative expenses decreased to $9.8
million during the six months ended September 30, 2001 from $13.5 million during
the six months ended September 30, 2000. Our general and administrative expenses
have decreased primarily due to costs associated with decreased headcount as a
result of our restructuring activities during January 2001 and May 2001 and
decreased amortization of related deferred compensation. We expect our general
and administrative expenses to continue to decline as a percentage of net sales
in future periods as we implement further operating cost efficiencies and
realize economies of scale. See further discussion of fiscal 2002 restructuring
activities at "Liquidity and Capital Resources."

     Depreciation and Amortization.  Depreciation and amortization expense
includes depreciation related to property and equipment and amortization related
to purchased intangible assets. Depreciation and amortization expense was $12.4
million during the quarter ended September 30, 2001 compared to $3.1 million
during the quarter ended September 30, 2000. Depreciation and amortization was
$16.2 million during the six months ended September 30, 2001 compared to $5.8
million during the six months ended September 30, 2000. Following our definitive
merger agreement with Global Sports, Inc., we evaluated the realizability of our
long-lived assets pursuant to SFAS No. 121. As a result, we recorded an
impairment as depreciation and amortization expense of approximately $8.9
million during the quarter ended September 30, 2001. The remaining increase is
primarily due to depreciation and amortization expense related to Internet
domain and other intangible asset purchases.

     Interest Income (Expense), Net.  Net interest expense totaled $81,000
during the quarter ended September 30, 2001 compared to net interest income of
$564,000 during the quarter ended September 30, 2000. Net interest expense
totaled $80,000 for the six months ended September 30, 2001 compared to net
interest income of $1.2 million during the six months ended September 30, 2000.
The overall decrease during the three and six months ended September 30, 2001
compared to the corresponding periods in the prior year is due to lower cash
balances during the quarter and our borrowings on our revolving credit facility
entered into September 2000.

Liquidity and Capital Resources

     General.  We have financed our operations primarily through private sales
of convertible preferred stock, an initial public offering and the private sale
of our common stock. The proceeds from these offerings have been used primarily
to fund our operations, including inventory purchases, marketing and advertising
campaigns, employee salaries and equipment purchases.

     Operating Activities.  Net cash used in operating activities totaled $10.1
million during the six months ended September 30, 2001 compared to $16.5 million
during the six months ended September 30, 2000. Our operating cash outflow
during the six months ended September 30, 2001 was primarily a result of
operating losses, exclusive of non-cash depreciation and amortization,
restructuring charge, settlement loss, and loss on sale of assets and decreases
in accounts payable and accrued liabilities. These uses of cash were partially
offset by a decrease in merchandise inventory. Our net operating cash outflow
for the six months ended September 30, 2000 was primarily a result of operating
losses, exclusive of non-cash depreciation and amortization, inventory
purchases, and prepaid

                                       13
<PAGE>

marketing agreements. We anticipate our net cash used in operating activities to
continue to decline in future periods in connection with our efforts to improve
overall operating efficiencies, lower total operating costs as a percentage of
sales and improve inventory management practices and procedures.

     Investing Activities.  Net cash provided by investing activities totaled
$7.6 million during the six months ended September 30, 2001 compared to $4.3
million used in investing activities during the six months ended September 30,
2000. Net cash provided by investing activities during the six months ended
September 30, 2001 primarily consisted of $7.3 million related to a merger with
an online art retailer. Net cash used in investing activities during the six
months ended September 30, 2000 primarily consisted of property and equipment
purchases primarily associated with technology and Web site enhancements.

     Financing Activities.  Net cash used in financing activities totaled $1.8
million during the six months ended September 30, 2001 compared to $0.3 million
provided by financing activities during the six months ended September 30, 2000.
Financing activities during the six months ended September 30, 2001 related to
proceeds from our revolving credit facility and payments on those borrowings.
Financing activities during the six months ended September 30, 2000 related to
cash received from the exercise of employee stock options and from the sale of
stock in connection with our employee stock purchase plan.

     Commitments.  As of September 30, 2001, our principal commitments consisted
of obligations outstanding under non-cancelable operating leases. We have no
material commitments for capital expenditures.

     Credit Facility.  During September 2000, we executed a three-year revolving
credit facility with a maximum available credit of $25 million with Congress
Financial Corporation, a unit of First Union National Bank. The credit facility
is to be used for working capital needs and is secured by our assets.
Availability under the credit facility is determined pursuant to a borrowing
base as defined in the agreement. During the quarter ended September 30, 2001,
an independent appraisal firm completed a periodic appraisal of our inventory as
required under the revolving credit facility. This appraisal resulted in a
decrease in our borrowing base as defined in the revolving credit facility. As a
result, total availability under the credit facility was approximately $5.9
million on September 30, 2001 ($2.9 million outstanding at September 30, 2001.)
Amounts outstanding under the credit facility bear interest at the prime rate or
LIBOR plus 250 basis points, as elected by us.

     Restructuring and Other Matters.  During the fourth quarter ended March 31,
2001, in connection with management's plan to reduce costs and improve operating
efficiencies, we recorded restructuring charges of approximately $0.7 million,
consisting of approximately $0.5 million for headcount reductions and
approximately $0.2 million for contract cancellations. Headcount reductions
consisted of approximately 40 employees, or about 17% of our workforce.

     During the first quarter ended June 30, 2001, we initiated a review of our
lines of business, cost structure and general activities. The objective of this
review was to identify opportunities for improved financial performance and
liquidity management. Specific initiatives resulting from this review include
reducing the scope of product offerings, decreasing our investment in inventory
and eliminating certain operating costs, including costs associated with
personnel. In connection with this review, we recorded charges of approximately
$0.5 million for headcount reductions. Headcount reductions consisted of
approximately 46 employees, or about 19% of our workforce.

     Total cash outlays during the quarter ended June 30, 2001 were
approximately $0.2 million. The restructuring accrual was reduced by an
additional $0.2 million through the issuance of options to purchase our common
stock. Previously recorded allowances for contract cancellations of
approximately $0.1 million were reversed during the quarter ended June 30, 2001
upon determination that the associated cost would not be incurred. The remaining
$0.1 million of restructuring costs was paid in the quarter ended September 30,
2001.

     In February 2001, we entered into a merger agreement with an online watch
retailer. During June 2001, as a result of certain business difficulties that
arose in the relationship with the former principals of the online watch
retailer and to resolve litigation, we began negotiating a dissolution of that
relationship. The online watch retailer agreed to a settlement whereby the
online watch retailer and certain of it's management will receive aggregate
consideration of approximately $0.8 million representing $0.2 million of
inventory, $0.1 million of severance pay and 1,500,000 shares of our common
stock to settle all potential future claims and obligations. We recorded a

                                       14
<PAGE>

charge of approximately $2.3 million in connection with this settlement during
the quarter ended June 30, 2001. At September 30, 2001, all consideration with
the exception of 202,262 shares of our common stock has been paid. The remaining
common stock is expected to be issued in the quarter ending December 31, 2001.

     In May 2001, we closed a merger agreement with an online art retailer.  In
connection with the agreement, we issued approximately 7.1 million shares of our
common stock and options and warrants to purchase approximately 1.6 million
shares of our common stock, in exchange for all of the fully diluted shares of
the online art retailer's capital stock. The purchase price was approximately
$4.3 million, consisting of $3.3 million of our common stock, $0.7 million of
options and warrants to purchase shares of our common stock and $0.3 million of
business combination costs. The principle assets received include $7.3 million
of cash, an Internet domain name and related trademarks and other tangible and
intangible assets related to Internet retail operations. The total value of net
tangible assets acquired exceeded the $4.3 million purchase price.

     In May 2001, we concluded that the operating cost structure of the online
art retailer was inconsistent with the level of sales activity and our overall
objectives. In June 2001, the prior management of the online art retailer made a
proposal, which we accepted, to assume the prospective operations of the online
art retailer as a separately capitalized entity. Pursuant to this agreement, we
contributed assets of approximately $0.5 million, including $0.4 million of
cash, an Internet domain name and related trademarks and other intangible assets
in return for 5% ownership interest in the new entity. In addition, we entered
into a revenue sharing agreement with the new entity whereby we will offer the
new entity's product on its Web site in return for half of the gross profit from
sales of the new entity's products generated by our Web site. We did not assume
any future operating costs or obligations. Further, substantially all the
employees previously employed by the online art retailer became employees of the
new entity or were terminated.

     Activity related to art operations during the quarter ended June 30, 2001,
was recorded in accordance with APB No. 30 "Reporting the Results of Operations-
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions" and EITF 85-36
"Discontinued Operations with Expected Gain and Interim Operating Losses".
Accordingly, losses from the acquisition closing date (May 3, 2001) through the
measurement date (June 13, 2001) were reflected as net loss from discontinued
operations in the financial statements for the quarter ended June 30, 2001.
Losses from the measurement date through the separation date (July 31, 2001)
were deferred, as there was reasonable assurance that a net gain on disposal
will be realized. For the quarter ended June 30, 2001, net loss on discontinued
operations included net sales commissions of approximately $125,000 and
operating expenses of approximately $792,000. For the period from the
measurement date through June 30, 2001, net losses of approximately $109,000
representing net sales commissions of approximately $53,000 and operating
expenses of $162,000 were deferred. For the quarter ended September 30, 2001,
net losses of approximately $588,000 representing net sales commissions of
approximately $159,000 and operating expenses of approximately $747,000 were
deferred. We recognized a net gain from disposal of segment of approximately
$1.8 million during the quarter ended September 30, 2001.

     During June 2001, we sold two Internet domain names and related trademarks
related to a product information Internet site in exchange for $0.4 million
cash. The majority of the cash proceeds were received during the quarter ending
September 2001. We recorded a loss on sale of approximately $0.5 million during
the quarter ending June 2001.

     On September 14, 2001, we announced that we had entered into a definitive
merger agreement with Global Sports, Inc. whereby Global will acquire all of the
outstanding shares of our common stock. Under the terms of the merger agreement,
upon consummation of the merger, our shareholders will receive 0.0076 of a share
of Global common stock and $0.125 cash for each share of our common stock.
Global expects to issue approximately 430,000 shares of common stock and pay
approximately $7.1 million of cash in exchange for all of the outstanding shares
of our common stock. Closing of the proposed transaction is subject to the
satisfaction of certain customary closing conditions, including approval of our
stockholders.

     Our consolidated financial statements have been prepared on the historical
cost basis of accounting in accordance with generally accepted accounting
principles in the United States, which may be greater or less than the fair
value of assets and liabilities as determined by Global Sports, Inc. Following
the definitive merger agreement, we evaluated the realizability of our long-
lived assets pursuant to SFAS No. 121. As a result, we recorded an

                                       15
<PAGE>

impairment as depreciation and amortization expense of approximately $8.9
million during the quarter ended September 30, 2001.

Recent Accounting Pronouncements

     In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective beginning April
2002. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions
relating to the disposal of a segment of a business of Accounting Principles
Board Opinion No. 30. We do not anticipate that the adoption of SFAS No. 144
will have a material impact on our financial position.

     In July 2001, the FASB issued Statements No. 141, Business Combinations and
No. 142, Goodwill and Other Intangible Assets requiring the nonamortization
approach to account for purchased goodwill. Under the nonamortization approach,
goodwill would be tested for impairment based on fair values, rather than
amortized to earnings. Under the new statements, our purchased intangibles would
continue to be amortized consistent with its current policy. These standards are
effective beginning in April 2002. Upon adoption, these standards will not have
a significant effect on our financial statements as the related assets were
expensed as of September 30, 2001.

     In July 2000, the EITF reached a consensus on EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs." This consensus requires that all amounts
billed to a customer in a sale transaction related to shipping and handling, if
any, represent revenue and should be classified as such. We historically have
classified shipping charges to customers as revenue. In September 2000, the EITF
concluded that the classification of shipping and handling costs should be
disclosed pursuant to Accounting Principles Board (APB) Opinion No. 22,
"Disclosure of Accounting Policies." If shipping and handling costs are
significant and are not included in cost of sales, companies should disclose
both the amount of such costs and which line item on the income statement
includes that amount. Shipping and handling costs cannot be netted against
sales. We classify inbound and outbound shipping costs as costs of sales. We
generally do not impose separate handling charges on customers. However, during
fiscal year 2001, we began charging for shipping costs. We began charging for
packaging costs during fiscal 2002. Costs attributable to receiving, inspecting
and warehousing inventories and picking, packaging and preparing customers'
orders for shipment are classified as marketing and sales expense and totaled
$1.2 million and $1.4 million during quarters ended September 30, 2001 and 2000,
respectively.

     In May 2000, the EITF issued EITF 00-14 "Accounting for Certain Sales
Incentives," which provides guidance on the accounting for certain sales
incentives offered by companies to their customers such as discounts, coupons,
rebates and products or services. EITF 00-14 addresses the recognition,
measurement and income statement classification for sales incentives offered
voluntarily by a vendor without charge to customers that can be used in, or that
are exercisable by a customer as a result of a single exchange transaction. The
accompanying financial statements include the reclassification of free product
and service incentives delivered to customers at the time of sale, from
marketing and sales expense to cost of sales, related to the adoption of EITF
00-14. All periods presented have been reclassified for consistent presentation.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We have assessed our vulnerability to certain market risks, including
interest rate risk associated with financial instruments included in cash, cash
equivalents and short-term investments. Due to the short-term nature of these
investments and our investment policies and procedures, we have determined that
the risk associated with interest rate fluctuations related to these financial
instruments does not pose a material risk to us.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

     The following risk factors and other information included in this Report
should be carefully considered. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business,
financial condition and operating results could be materially adversely
affected.

                                       16
<PAGE>

Risks Related to Our Business

We May Be Unable to Meet Our Future Capital Requirements.

     If our current cash and cash that may be generated from future operations
are insufficient to satisfy our liquidity requirements, we may seek to sell
additional equity or debt securities or to obtain additional credit facilities
from lenders.  We cannot be certain that financing will be available to us on
favorable terms when required, or at all. If we raise funds through the issuance
of equity, equity-related or debt securities, the securities may have rights,
preferences or privileges senior to those of the rights of our common stock and
our stockholders may experience dilution. We require substantial working capital
to fund our business. Since our inception, we have experienced negative cash
flow from operations and expect to experience negative cash flow from operations
in the future. In addition, our public accountants have issued a going concern
opinion.  We have sufficient funds for our anticipated needs for working capital
and capital expenditures through at least the next 12 months. After that, we may
need to raise additional funds.

Our Limited Operating History Makes Future Forecasting Difficult. Because Most
of our Expenses Are Fixed Based on Planned Operating Results, Failure to
Accurately Forecast Revenue Could Cause Net Losses in a Given Quarter to be
Greater than Expected.

     We were incorporated in March 1998 and began selling products on our Web
site in April 1998. Accordingly, we have an extremely limited operating history
upon which to base an evaluation of our business and prospects. Our business and
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets such as online
commerce. As a result of our limited operating history, it is difficult to
accurately forecast our net sales and we have limited meaningful historical
financial data upon which to base planned operating expenses. We base our
current and future expense levels on our operating plans and estimates of future
net sales, and our expenses are to a large extent fixed. Sales and operating
results are difficult to forecast because they generally depend on the volume
and timing of the orders we receive, which is uncertain. As a result, we may be
unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. This inability could cause our net losses in a
given quarter to be greater than expected.

We Anticipate Future Losses and Negative Cash Flow, which May Limit or Delay Our
Ability to Become Profitable.

     Since our formation, we have made significant expenditures on our
technology, Web site development, advertising, hiring of personnel and startup
costs. As a result, we have incurred losses since our inception and expect to
experience negative cash flow during future periods. We expect to incur
additional costs and expenses related to:

 .    brand development, marketing and other promotional activities;

 .    the continued maintenance and development of our Web site, the systems and
     staff that process customer orders and payments, and our computer network;

 .    the expansion of our product offerings and Web site content; and

 .    development of relationships with strategic business partners.

     Our ability to become profitable depends on our ability to generate and
sustain substantially higher net sales while maintaining reasonable expense
levels, both of which are uncertain. If we do achieve profitability, we cannot
be certain that we would be able to sustain or increase profitability on a
quarterly or annual basis in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

                                       17
<PAGE>

Our Operating Results are Volatile and Difficult to Predict. If We Fail to Meet
the Expectations of Public Market Analysts and Investors, the Market Price of
Our Common Stock May Decline Significantly.

         Our quarterly operating results have fluctuated in the past, and we
expect both our quarterly and annual operating results to fluctuate
significantly in the future. Because our operating results are volatile and
difficult to predict, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. In some
future quarter our operating results may fall below the expectations of
securities analysts and investors. In this event, the trading price of our
common stock may decline significantly. The following are material factors that
may harm our business or cause our operating results to fluctuate:

 .    general economic conditions

 .    our inability to obtain new customers at reasonable cost, retain existing
     customers or encourage repeat purchases;

 .    seasonality;

 .    our inability to manage inventory levels or control inventory theft;

 .    our inability to manage our fulfillment operations;

 .    our inability to adequately maintain, upgrade and develop our Web site, the
     systems that we use to process customer orders and payments or our computer
     network;

 .    the ability of our competitors to offer new or enhanced Web sites, services
     or products;

 .    our inability to obtain product lines from our suppliers;

 .    the availability and pricing of merchandise from vendors; and

 .    increases in the cost of online or offline advertising.

     A number of factors will cause our gross margins to fluctuate in future
periods, including the mix of corporate sales to traditional retail sales, the
mix of products we sell, inventory management, marketing and supply decisions,
inbound and outbound shipping and handling costs, the level of product returns
and the level of discount pricing and promotional coupon usage. Any change in
one or more of these factors could reduce our gross margins in future periods.
In addition, our operating results depend on the overall demand for our
products, which in turn depends on general economic and business conditions. The
nature and extent of the effect of the current economic climate on our ability
to sell our products is uncertain. A softening of demand for our products caused
by weakening of the economy may result in decreased revenues. There can be no
assurance that we will be able to effectively promote revenue growth rates in
all economic conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Our Common Stock May be Delisted from the Nasdaq National Market.

On April 9, 2001, we received notice from Nasdaq that our common stock had
failed to maintain Nasdaq's minimum bid price closing requirement of $1.00 and
that such failure had continued beyond the ninety (90) day probationary period
allowed under the Nasdaq National Marketplace Rules.  The letter specified that,
as a result of our failure to maintain the minimum bid price closing
requirement, our common stock would be delisted at the close of business on July
18, 2001.  However, we appealed the decision, and the delisting was stayed
pending a hearing before the Nasdaq Qualifications Panel.

     On September 11, 2001, we received notice from Nasdaq that we did not
comply with the market value of the public float requirement set forth in the
Nasdaq National Marketplace Rules.

                                       18
<PAGE>

     On September 27, 2001, Nasdaq announced that in response to the
extraordinary market conditions following the events of September 11, 2001,
Nasdaq was implementing a moratorium on the minimum bid and float requirements
for continued listing on Nasdaq. These requirements were suspended until January
2, 2002.

     On August 27, 2001, we held our annual meeting, in which our stockholders
approved a 1-for-10 reverse stock split that was to be implemented on October
15, 2001. As the meeting was held prior to the moratorium announced by Nasdaq,
we believed that the reverse stock split was the most effective means to avoid a
delisting of our common stock from Nasdaq.

     Our board of directors has delayed implementing the reverse stock split
because of the proposed merger and Nasdaq's recent suspension of the listing
requirements. If the merger does not occur and our common stock continues to
trade on the Nasdaq National Market, we may have to implement the reverse stock
split if the moratorium is revoked and the listing requirements are reinstated.

     We cannot predict whether the reverse stock split, if ultimately
implemented, would increase the market price for our common stock. The history
of similar stock split combinations for companies in like circumstances is
varied. There is no assurance that the market price per share of our common
stock following the reverse stock split would either exceed or remain in excess
of the $1.00 minimum bid price as required by Nasdaq or that we will otherwise
meet the requirements of Nasdaq for continued inclusion for trading on Nasdaq. A
reverse stock split could negatively impact the value of our stock by allowing
additional downward pressure on the stock price as its relative value per share
becomes greater following the reverse split. That is to say, the stock, at its
new, higher price, has farther to fall and therefore more room for investors to
short or otherwise trade the value of the stock downward. Similarly, a delisting
may negatively impact the value of the stock as stocks trading on the over-the-
counter market are typically less liquid and trade with larger variations
between the bid and ask price.

     The market price of our common stock will also be based on our performance
and other factors, some of which are unrelated to the number of shares
outstanding. If the reverse stock split is effected and the market price of our
common stock declines, the percentage decline as an absolute number and as a
percentage of our overall market capitalization may be greater than would occur
in the absence of a reverse stock split. Furthermore, liquidity of our common
stock could be adversely affected by the reduced number of shares that would be
outstanding after the reverse stock split.

Failure to Complete the Merger Could Adversely Affect Our Stock Price, Future
Business and Operations.

     If the merger with Global Sports, Inc. is not completed for any reason, we
may be subject to a number of material risks, including the following:

 .    the price of our common stock may decline to the extent that the market
     price prior to such termination reflects a market assumption that the
     merger will be completed;

 .    costs related to the merger, such as legal, accounting and financial
     advisor fees, must be paid even if the merger is not completed; and

 .    we may be required under certain circumstances to pay Global Sports, Inc. a
     termination fee of $750,000, plus expenses.

     Further, if the merger were terminated and our board of directors sought
another merger or business combination, there would be no assurance that it
would be able to find a partner willing to pay an equivalent or more attractive
price than the price Global Sports, Inc. is offering in the merger. In addition,
while the merger agreement is in effect, subject to very narrowly defined
exceptions, we are prohibited from soliciting, initiating, encouraging or
entering into transactions such as a merger, sale of assets or other business
combination with any other party other than Global Sports, Inc.

     Global Sports' or our partners, vendors, suppliers, including key brand
manufacturers, or customers, in response to the announcement or pendency of the
merger, may delay or defer decisions concerning the relevant company. Any delay
or deferral of those decisions by partners, vendors, suppliers or customers, or
a decision by

                                       19
<PAGE>

any of these parties to discontinue its relationship with us or Global Sports,
Inc., could have a material adverse effect on the business of the relevant
company. Similarly, current and prospective Global Sports, Inc. or our employees
may experience uncertainty about their future roles with Global Sports, Inc.
until Global Sports' plans with regard to us are announced or fully executed.
For example, we and Global Sports, Inc. have discussed terminating a significant
number of our employees in certain functional areas if the merger is completed.
This may adversely affect our ability to attract and retain key employees.

We Expect to Experience Seasonal Fluctuations in Our Net Sales, which Will Cause
Our Quarterly Results to Fluctuate and Could Cause Our Annual Results to be
Below Expectations.

     We expect to experience significant seasonal fluctuations in our net sales
that will cause quarterly fluctuations in our operating results. In particular,
we realized approximately 40%, 50% and 40% of our net sales for fiscal 2001,
2000 and 1999, respectively, during the fourth calendar quarter, primarily due
to gift purchases made during the holiday season.  We expect this trend to
continue in the future.

     Due to our limited operating history, it is difficult to predict the
seasonal pattern of our sales and the impact of seasonality on our business and
financial results. In the future, our seasonal sales patterns may become more
pronounced, may strain our personnel and warehousing and order shipment
activities and may cause a shortfall in net sales as compared to expenses in a
given period. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

If We Are Unable to Purchase or Continue to Purchase Products Directly from the
Brand Owners, Our Net Sales Could Decrease.

     A significant portion of our units sold is purchased directly from the
brand owners. We are negotiating with some of the remaining brand owners to
purchase those brands directly, in all product categories. We believe that
purchasing directly from the brand owners will provide us with a more
predictable supply of products, as well as a lower cost of goods. As a result,
we believe that part of our success is contingent on attaining or maintaining
our ability to buy directly from the brand owners. If we lose or do not improve
our ability to buy directly from the brand owners, our net sales or margins may
decrease.

Our Ability to Meet Consumer Demand is in Part Dependent upon the Availability
of Products Purchased Indirectly from Sources Other than the Brand Owners. If We
Are Unable to Obtain Popular Products Through Indirect Sources, Our Net Sales
Will Decline.

     We purchase brands indirectly from distributors and other third parties
that we do not purchase directly from the brand owners. The availability of
products purchased indirectly depends on many factors, including consumer
demand, manufacturer production and fashion trends. Since there are no
guarantees that we will be able to obtain a sufficient supply of products
indirectly from third-party distributors and other suppliers, customer demand
may, at times, exceed our supply of those products. If this occurs we could lose
customers and our net sales would decline. In addition, the luxury goods brand
owners could establish procedures to limit or control our ability to purchase
products indirectly and several brand owners in the U.S. have distinctive legal
rights rendering them the only legal importer of their respective brands into
the U.S. In the event we acquire such products indirectly from distributors and
other third parties who may not have complied with applicable customs laws and
regulations, such goods can be subject to seizure from our inventory by U.S.
Customs, and the importer may have a civil action for damages against us. As it
is often difficult to ascertain the original circumstances of importation of
certain goods offered to us by our distributors and other third parties, this
could impact our ability to obtain sufficient quantities of popular luxury
goods, such as watches, and cause customer dissatisfaction.

If We Are Unable to Obtain Sufficient Quantities of Popular Luxury and Premium
Products, Our Net Sales Could Decrease.

     If we are not able to offer our customers a sufficient supply and selection
of products in a timely manner, we could lose customers and our net sales could
be below expectations. Our success depends on our ability to purchase products
in sufficient quantities at competitive prices, particularly for the holiday
shopping season. As is

                                       20
<PAGE>

common in the industry, we generally do not have long-term or exclusive
arrangements with brand owners, distributors or brokers that guarantee the
availability of products for resale.

     In the luxury goods market, a product or fashion style periodically becomes
intensely popular. From time to time, we may have trouble obtaining sufficient
product allocations of particularly popular brands. In addition, we believe that
some of our suppliers may establish their own online retailing efforts, which
may impact our ability to get sufficient product allocations from suppliers. In
several cases, the brands that we wish to carry have delayed establishing a
relationship with us until they have their own Web site up and running. In other
cases, the brand owners distribute only a small amount of product and rely
partially on the scarcity of that product to provide a merchandising mystique.
It is unlikely that we will obtain products for our Web site from brands who
follow the scarcity mystique, and there is no assurance that we will actually
obtain relationships within all sectors that we have planned to offer.
Therefore, we do not have a predictable or guaranteed supply of products.

Because We Carry Almost All of the Products We Sell in Inventory, if We are
Unable to Accurately Predict and Plan for Changes in Consumer Demand Our Net
Sales and Gross Margins May Decrease.

     At September 30, 2001, we held approximately $18.0 million of products in
inventory. The rapidly changing trends in consumer tastes in the market for
luxury and premium products subject us to significant inventory risks. It is
critical to our success that we accurately predict these trends and do not
overstock unpopular products. The demand for specific products can change
between the time the products are ordered and the date of receipt. We are
particularly exposed to this risk because we derive a majority of our net sales
in the fourth calendar quarter of each year. Our failure to sufficiently stock
popular products in advance of the fourth calendar quarter would harm our
operating results for the entire fiscal year. In the event that one or more
products do not achieve widespread consumer acceptance, we may be required to
take significant inventory markdowns, which could reduce our net sales and gross
margins. This risk may be greatest in the first calendar quarter of each year,
after we have significantly increased inventory levels for the holiday season.
We believe that this risk will increase as we begin to offer additional luxury
items due to our lack of experience in purchasing these items. In addition, to
the extent that demand for our products increases over time, we may be forced to
increase inventory levels. Any increase would subject us to additional inventory
risks.

If We Experience Significant Inventory Theft, Our Gross Profit Margin Would
Decrease.

     Although immaterial to date, in the past we have experienced theft of
merchandise shipments in route from our facility to our customers. In the
future, we expect that we may also experience theft of merchandise while it is
being held in our fulfillment facility. We have worked with our shipping
carriers and have taken steps aimed at preventing theft. If these steps are
inadequate or if security measures fail at our fulfillment facility, we could
incur significant inventory theft, which could cause gross profit margins and
results of operations to decrease significantly.

Sales of Luxury Goods Are Particularly Susceptible to General Economic
Downturns. If General Economic Conditions Deteriorate, Our Sales Could Suffer.

     Purchases of luxury products are typically discretionary for consumers and
may be particularly affected by negative trends in the general economy. The
success of our operations depends to a significant extent on a number of factors
relating to discretionary consumer spending and affecting disposable consumer
income, such as employment, wages and salaries, business conditions, interest
rates, exchange rates, availability of credit and taxation. In addition, because
the purchase of luxury products is relatively discretionary, any reduction in
disposable income in general may affect us more significantly than companies in
other industries.

To Manage Our Growth and Expansion, We Need to Improve and Implement Financial
and Managerial Controls and Improve Our Reporting Systems and Procedures. If We
Are Unable to Do So Successfully, We May Not Be Able to Manage Growth
Effectively and Our Operating Results Would Be Harmed.

     Our growth in personnel and operations has placed, and will continue to
place, a significant strain on our management, information systems and
resources. In order to manage this growth effectively, we need to continue to
improve our financial and managerial controls and reporting systems and
procedures. Any inability of our

                                       21
<PAGE>

management to integrate additional companies, employees, customer databases,
merchandise lines, categories of merchandise, technology advances, fulfillment
systems, and customer service into operations and to eliminate unnecessary
duplication may have a materially adverse effect on our business, financial
condition and results of operations.

If We Are Unable to Successfully Expand Our Accounting and Financial Reporting
Systems, Our Stock Price Could Decline.

     We continue to expand our financial and management information systems to
accommodate new data. If we fail to successfully implement and integrate our new
financial reporting and management information systems with our existing systems
or if we are not able to expand these systems to accommodate our growth, we may
not have adequate, accurate or timely financial information. Our failure to have
adequate, accurate or timely financial information would hinder our ability to
manage our business and operating results. If we continue to grow rapidly, we
will face additional challenges in upgrading and maintaining our financial and
reporting systems.

We May Not Be Able to Compete Successfully Against Current and Future
Competitors.

     We expect competition in the online sale of luxury and premium products to
intensify in the future. Increased competition is likely to result in price
pressure, reduced gross margins and loss of market share, any of which could
seriously harm our net sales and operating results. In addition, the luxury
goods industry is intensely competitive. We currently or potentially compete
with a variety of other companies, including:

 .    traditional retailers of luxury and premium products;

 .    brand owners of the products we sell;

 .    other online retailers of luxury and premium products; and

 .    catalog retailers.

     Many of our competitors have advantages over us including longer operating
histories, greater brand recognition and significantly greater financial, sales
and marketing and other resources. In addition, traditional store-based
retailers offer customers benefits that are not obtainable over the Internet,
such as enabling customers to physically inspect a product before purchase and
not incurring costs associated with maintaining a Web site.

If We Are Unable to Build Awareness of the Ashford.com Brand, We May Not Be Able
to Compete Effectively Against Competitors with Greater Name Recognition and Our
Sales Could Be Adversely Affected.

     If we are unable to economically achieve or maintain a leading position in
online commerce or to promote and maintain our brand, our business, results of
operations and financial condition could suffer. We believe that the importance
of brand recognition will increase as more companies engage in commerce over the
Internet. Development and awareness of our brand will depend largely on our
success in increasing our customer base. If the leading brand owners do not
perceive us as an effective marketing and sales channel for their merchandise,
or consumers do not perceive us as offering a desirable way to purchase
merchandise, we may be unsuccessful in promoting and maintaining our brand.

If We Enter New Business Categories That Do Not Achieve Market Acceptance, Our
Brand and Reputation Could Be Damaged and We Could Fail to Attract New
Customers.

     If we launch or acquire a new department or product category that is not
favorably received by consumers, our brand or reputation could be damaged. This
damage could impair our ability to attract new customers, which could cause our
net sales to fall below expectations. An expansion of our business to include
other luxury goods will require significant additional expenses, and strain our
management, financial and operational resources. This type of expansion would
also subject us to increased inventory risk. We may choose to expand our
operations by developing other new departments or product categories, promoting
new or complementary products, expanding the breadth and

                                       22
<PAGE>

depth of products and services offered or expanding our market presence through
relationships with third parties. In addition, we may pursue the acquisition of
other new or complementary businesses, products or technologies.

If Our Strategy to Sell Products Outside of the United States is Not Successful,
Our Increases in Operating Expenses May Not Be Offset by Increased Sales.

     If we are not able to successfully market, sell and distribute our products
in foreign markets or if certain risks and uncertainties of doing business in
foreign markets prove insurmountable then these factors could have a material
adverse effect on our future global operations, and consequently, on our
operating margins. We do not currently have any overseas fulfillment or
distribution facility or arrangement or any Web site content localized for
foreign markets, and we cannot be certain that we will be able to establish a
global presence. In addition, there are certain risks inherent in doing business
on a global level, including:

 .    regulatory requirements;

 .    export restrictions;

 .    tariffs and other trade barriers;

 .    difficulties in staffing and managing foreign operations;

 .    difficulties in protecting intellectual property rights;

 .    longer payment cycles;

 .    problems in collecting accounts receivable;

 .    political instability;

 .    fluctuations in currency exchange rates; and

 .    potentially adverse tax consequences.

If We Experience Problems with Our Third-Party Shipping Services, We Could Lose
Customers.

     We rely upon third-party carriers, primarily Federal Express and UPS, for
product shipments, including shipments to and from our warehouse. We are
therefore subject to the risks, including employee strikes and inclement
weather, associated with these carriers' ability to provide delivery services to
meet our shipping needs. In addition, failure to deliver products to our
customers in a timely manner would damage our reputation and brand.

Our Operating Results Depend on Our Internally Developed Web Site, Network
Infrastructure and Transaction-Processing Systems. If We Do Not Successfully
Maintain Our Web Site and the Systems That Process Customer Orders, We Could
Lose Customers and Net Sales Could be Reduced.

     The satisfactory performance, reliability and availability of our Web site,
transaction-processing systems and network infrastructure are critical to our
operating results, as well as to our ability to attract and retain customers and
maintain adequate customer service levels. Any system interruptions that result
in the unavailability of our Web site or reduced performance of the transaction
systems would reduce the volume of sales and the attractiveness of our service
offerings. This would seriously harm our business, operating results and
financial condition.

     We use internally developed systems for our Web site and substantially all
aspects of transaction processing, including customer profiling and order
verifications. We have experienced periodic systems interruptions due to server
failure, which we believe will continue to occur from time to time. If the
volume of traffic on our Web site or the number of purchases made by customers
increases by more than two times our current holiday sales levels, we will need
to further expand and upgrade our technology, transaction processing systems and

                                       23
<PAGE>

network infrastructure. We have experienced and expect to continue to experience
temporary capacity constraints due to sharply increased traffic during sales or
other promotions, which cause unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality and delays in
reporting accurate financial information.

     If we fail to maintain our Web site or toll-free call center in order to
accommodate increased traffic, we may lose customers, which would reduce our net
sales. Furthermore, if we fail to maintain the computer systems that we use to
process and ship customer orders and process payments, we may not be able to
successfully fulfill customer orders. As a result, we could lose customers and
our net sales could be reduced. In addition, our failure to maintain or upgrade
our Web site or these computer systems without system downtime would further
reduce our net sales. We may experience difficulty in improving and maintaining
our systems if our employees or contractors that develop or maintain our
computer systems become unavailable to us. We have experienced periodic systems
interruptions, which we believe will continue to occur, while enhancing and
expanding these computer systems.

Our Facilities and Systems are Vulnerable to Natural Disasters and Other
Unexpected Problems. The Occurrence of a Natural Disaster or Other Unexpected
Problem Could Damage Our Reputation and Brand and Reduce Our Net Sales.

     The occurrence of a natural disaster or unanticipated problems at our
leased or offsite hosting facilities that house substantially all of our
computer and communications hardware systems could cause interruptions or delays
in our business, destroy data or render us unable to accept and fulfill customer
orders. Any of these interruptions or delays at these facilities would reduce
our net sales. In addition, our systems and operations are vulnerable to damage
or interruption from fire, flood, power loss, telecommunications failure, break-
ins, earthquake and similar events. We have not established specific procedures
for handling damage or interruptions caused by these events and our business
interruption insurance may not adequately compensate us for losses that may
occur. In addition, the failure by the third-party facility to provide the data
communications capacity required by us, as a result of human error, natural
disaster or other operational disruptions, could interrupt our service. The
occurrence of any or all of these events could damage our reputation and brand
and impair our business.

Our Net Sales Could Decrease if Our Online Security Measures Fail.

     Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. If, as a result, we lose many customers,
our net sales could decrease. We rely on security and authentication technology
that we license from third parties. With this technology, we perform real-time
credit card authorization and verification with our bank. We cannot predict
whether events or developments will result in a compromise or breach of the
technology we use to protect a customer's personal information. Furthermore, our
servers may be vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions. We may need to expend significant additional capital
and other resources to protect against a security breach or to alleviate
problems caused by any breaches. We cannot assure that we can prevent all
security breaches.

Our Net Sales and Gross Margins Would Decrease If We Experience Significant
Credit Card Fraud.

     A failure to adequately control fraudulent credit card transactions would
reduce our net sales and our gross margins because we do not carry insurance
against this risk. We have developed procedures to help us to detect the
fraudulent use of credit card information. Under current credit card practices,
we are liable for fraudulent credit card transactions because we do not obtain a
cardholder's signature.

If We Do Not Respond to Rapid Technological Changes, Our Services Could Become
Obsolete and We Could Lose Customers.

     If we face material delays in introducing new services, products and
enhancements, our customers may forego the use of our services and use those of
our competitors. To remain competitive, we must continue to enhance and improve
the functionality and features of our online store. The Internet and the online
commerce industry are rapidly changing. If competitors introduce new products
and services, or if new industry standards and practices

                                       24
<PAGE>

emerge, our existing Web site and proprietary technology and systems may become
obsolete. To develop our Web site and technology entails significant technical
and business risks. We may use new technologies ineffectively or we may fail to
adapt our technology to meet customer requirements or emerging industry
standards.

Intellectual Property Claims Against Us Can Be Costly and Could Impair Our
Business.

     Other parties may assert infringement or unfair competition claims against
us. We cannot predict whether they will do so, or whether any future assertions
or prosecutions will harm our business. If we are forced to defend against any
infringement claims, whether they are with or without merit or are determined in
our favor, then we may face costly litigation, diversion of technical and
management personnel, or product shipment delays. Further, the outcome of a
dispute may be that we would need to develop non-infringing technology or enter
into royalty or licensing agreements. Royalty or licensing agreements, if
required, may be unavailable on terms acceptable to us, or at all.

If the Protection of Our Trademarks and Proprietary Rights is Inadequate, Our
Brand and Reputation Could Be Impaired and We Could Lose Customers.

     The steps we take to protect our proprietary rights may be inadequate. We
regard our copyrights, service marks, trademarks, trade dress, trade secrets and
similar intellectual property as critical to our success. We rely on trademark
and copyright law, trade secret protection and confidentiality or license
agreements with our employees, customers, partners and others to protect our
proprietary rights.  We currently have applications for registration in the
United States Patent and Trademark Office, as well as various foreign trademark
offices, of several of our trademarks.  In some instances, these applications
span a variety of goods and services.  Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which we will sell our products and services online. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights.

The Loss of the Services of One or More of Our Key Personnel, or Our Failure to
Attract, Assimilate and Retain Other Highly Qualified Personnel in the Future,
Could Disrupt Our Operations and Result in Loss of Net Sales.

     Our future performance will depend on the continued services of our
management and key personnel and the ability to attract additional management
and key personnel. The loss of the services of one or more of our key personnel
could seriously interrupt our business. We depend on the continued services and
performance of our senior management and other key personnel. Our future success
also depends upon the continued service of our executive officers and other key
sales, marketing and support personnel. Our relationships with officers and key
employees are at will and none of our officers or key employees is bound by an
employment agreement for any specific term. We currently have key person life
insurance policies covering James H. Whitcomb, Jr.  While the proceeds of these
policies might assist us in recruiting executive officers, the proceeds would
not address the potential disruption to our business of recruiting and
integrating new senior management.

We May Not Achieve Expected Benefits of Any Investments or Acquisitions That We
Complete.

     As we identify appropriate opportunities, we intend to continue to make
acquisitions of or investments in complementary companies, products or
technologies. We may not correctly identify or realize the anticipated benefits
of any acquisition or investment. For example, we may not be able to
successfully assimilate the additional personnel, operations, acquired
technology and products into our business. Acquisitions may further strain our
existing financial and managerial controls and reporting systems and procedures.
In addition, key personnel of acquired companies may decide not to work for us.
These difficulties could disrupt our ongoing business, distract our management
and employees or increase our expenses. Further, any physical expansion in
facilities due to an acquisition may result in disruptions that seriously impair
our business. We are not experienced in managing facilities or operations in
geographically distant areas. Finally, in connection with any future
acquisitions, we may incur debt or issue equity securities as part or all of the
consideration for the acquired company's assets or capital

                                       25
<PAGE>

stock. We may be unable to obtain sufficient additional financing on favorable
terms, or at all. Equity issuances could be dilutive to our existing
stockholders or us.

Executive Officers, Directors and Entities Affiliated with Them Have Substantial
Control over Ashford.com which Could Delay or Prevent a Change in Our Corporate
Control Favored by Our Other Stockholders.

     Executive officers, directors and entities affiliated with them, if acting
together, would be able to significantly influence all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions.

It May Be Difficult for a Third Party to Acquire Us Even if Doing So Would Be
Beneficial to Our Stockholders.

     Provisions of our certificate of incorporation, our by-laws and Delaware
law could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our stockholders. In particular, our certificate of
incorporation provides for a board of directors that is divided into three
classes which may issue preferred stock without any stockholder action. Our
certificate of incorporation also does not allow stockholders to act by written
consent or for cumulative voting in the election of directors.  Only one class
of directors is up for reelection at each annual meeting.  In addition, Section
203 of the Delaware General Corporation Law places restrictions on business
combinations with interested stockholders.

Risks Related to Our Industry

We Depend on Increasing Use of the Internet and on the Growth of Online
Commerce.

     Our future revenues substantially depend upon the increased acceptance and
use of the Internet and other online services as a medium of commerce. Rapid
growth in the use of the Internet, the Web and online services is a recent
phenomenon. As a result, acceptance and use may not continue to develop at
historical rates and a sufficiently broad base of customers may not adopt,
and/or continue to use, the Internet and other online services as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty and there
exist few proven services and products.

     In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. If the Internet continues to
experience significant expansion in the number of users, frequency of use or
bandwidth requirements, the infrastructure for the Internet may be unable to
support the demands placed upon it. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally.

     Our business, financial condition and results of operations would be
seriously harmed if:

 .    use of the Internet, the Web and other online services does not continue to
     increase or increases more slowly than expected;

 .    the infrastructure for the Internet, the Web and other online services does
     not effectively support expansion that may occur; the Internet, the Web and
     other online services do not become a viable commercial marketplace; or

 .    traffic to our Web site decreases or fails to increase as expected or if we
     spend more than we expect to attract visitors to our Web site.

                                       26
<PAGE>

If We Are Unable to Acquire the Necessary Web Domain Names, Our Brand and
Reputation Could Be Damaged and We Could Lose Customers.

     We may be unable to acquire or maintain Web domain names relating to our
brand in the United States and other countries in which we may conduct business.
As a result, we may be unable to prevent third parties from acquiring and using
domain names relating to our brand, which could damage our brand and reputation
and take customers away from our Web site. We currently hold, among others, the
"Ashford.com," "newwatch.com," "sunglasses.com," "TimeZone.com,"
"Paris1925.com," "Jasmin.com" and "Ashfordcorporategifts.com" domain names and
may seek to acquire additional domain names. Governmental agencies and their
designees generally regulate the acquisition and maintenance of domain names.
The regulation of domain names in the United States and in foreign countries is
subject to change in the near future. The changes in the United States are
expected to include a transition from the current system to a system that is
controlled by a non-profit corporation and the creation of additional top-level
domains. Governing bodies may establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names.

We May Need to Change the Manner in Which We Conduct Our Business if Government
Regulation Increases.

     The adoption or modification of laws or regulations relating to the
Internet could adversely affect the manner in which we currently conduct our
business. In addition, the growth and development of the market for online
commerce may lead to more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The United States Congress recently enacted
Internet laws regarding children's privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. Laws regulating the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel, and taxation apply to the
Internet. In order to comply with new or existing laws regulating online
commerce, we may need to modify the manner in which we do business, which may
result in additional expenses. For instance, we may need to spend time and money
revising the process by which we fulfill customer orders to ensure that each
shipment complies with applicable laws. We may need to hire additional personnel
to monitor our compliance with applicable laws. We may also need to modify our
software to further protect our customers' personal information.

We May Be Subject to Liability for the Internet Content That We Publish.

     As a publisher of online content, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that we publish or
distribute. If we face liability, then our reputation and our business may
suffer. In the past, plaintiffs have brought these types of claims and sometimes
successfully litigated them against online companies. In addition, we could be
exposed to liability with respect to the unauthorized duplication of content or
unauthorized use of other parties' proprietary technology. Although we carry
general liability insurance, our insurance currently does not cover claims of
these types. We cannot be certain that we will be able to obtain insurance to
cover the claims on reasonable terms or that it will be adequate to indemnify us
for all liability that may be imposed on us. Any imposition of liability that is
not covered by our insurance or is in excess of insurance coverage could
decrease our gross profit.

Our Net Sales Could Decrease if We Become Subject to Sales or Other Taxes

     If one or more states or any foreign country successfully asserts that we
should collect sales or other taxes on the sale of our products, our net sales
and results of operations could be harmed.  One or more local, state or foreign
jurisdictions may seek to impose sales tax collection obligations on us. In
addition, any new operation could subject our shipments in other states to state
sales taxes under current or future laws. If we become obligated to collect
sales taxes, we will need to update our system that processes customer orders to
calculate the appropriate sales tax for each customer order and to remit the
collected sales taxes to the appropriate authorities. These upgrades will
increase our operating expenses. In addition, our customers may be discouraged
from purchasing products from us because they have to pay sales tax, causing our
net sales to decrease. As a result, we may need to lower prices to retain these
customers.

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<PAGE>

Risks Related to Securities Markets

Our Common Stock Price Is Volatile, Which Could Result In Substantial Losses for
Individual Stockholders.

     The trading price of our common stock fluctuates significantly. For
example, since our initial public offering through September 30, 2001, the
reported sale price of our common stock on the Nasdaq National Market was as
high as $24.88 and as low as $0.08. Trading prices of our common stock may
fluctuate in response to a number of events and factors, such as:

 .    actual or anticipated variations in our quarterly operating results;

 .    announcements of technological innovations or new products or services by
     us or our competitors;

 .    changes in financial estimates by securities analysts;

 .    conditions or trends in the Internet and/or online commerce industries;

 .    changes in the economic performance and/or market valuations of other
     Internet, online commerce or retail companies;

 .    announcements by us or our competitors of significant acquisitions,
     strategic partnerships, joint ventures or capital commitments;

 .    additions or departures of key personnel;

 .    release of transfer restrictions on our outstanding shares of common stock
     or sales of additional shares of common stock; and

 .    potential litigation.

     In addition, the stock market has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

     We are, and from time to time may be, involved in litigation relating to
claims arising out of our ordinary course of business.  We believe that there
are no claims or actions pending or threatened against us, the ultimate
disposition of which would materially adversely affect us.

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

     (a)  Exhibits under Item 601 of Regulation S-K

Exhibit
Number   Description
------   -----------
2.1**    Option Agreement dated August 17, 1999 by and between the Company and
         Power Reserve, Inc. and Richard E. Paige
2.2**    Asset Acquisition Agreement dated October 26, 1999 by and between the
         Company and Power

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<PAGE>

            Reserve, Inc.
2.3**       Asset Acquisition Agreement dated October 26, 1999 by and between
            the Company and Richard E. Paige
2.4***      Agreement and Plan of Reorganization dated as of January 14, 2000 by
            and among the Company, Ashford-Jasmin Fragrance Company and
            Jasmin.com Corporation
2.5******   Merger Agreement by and among the Company, Ashford-Watchnetwork
            Company, and EST, Inc.
2.6+        Agreement and Plan of Reorganization dated January 3, 2001 by and
            among the Company, Guild.com, Inc., and Ashford-Guild Art
            Corporation
2.7++       Agreement and Plan of Merger and Reorganization dated as of
            September 13, 2001 among the Company, Global Sports, Inc. and Ruby
            Acquisition Corporation
3.1*        Amended and Restated Certificate of Incorporation of the Company
3.2*        By-laws of the Company
4.1*        Amended and Restated Investors' Rights Agreement, dated July 9,
            1999, among the Company and the investors and founders named therein
4.2*        Specimen Certificate of the Company's common stock
4.3         Reference is made to Exhibits 3.1 and 3.2
10.1*       Form of Indemnification Agreement entered into between the Company
            and its directors and officers
10.2*       1998 Stock Incentive Plan
10.3*       1999 Equity Incentive Plan
10.4*       1999 Employee Stock Purchase Plan
10.5*       Office Lease dated July, 1999 between the Company and Crescent Real
            Estate Funding III, L.P.
10.6*       Employment Agreement dated May 10, 1999 between the Company and
            Kenneth E. Kurtzman
10.7*       Employment Agreement dated November 28, 1998 between the Company and
            James H. Whitcomb, Jr.
10.8*       Advertising Agreement dated July 30, 1999 between the Company and
            America Online, Inc.
10.9*       Credit Agreement dated August 9, 1999 between the Company and Chase
            Bank of Texas, National Association
10.10****   Stock Purchase Agreement dated as of November 29, 1999 by and among
            the Company, Amazon.com, Inc. and Amazon.com Advertising Services
            NV, Inc.
10.11*****  Loan and Security Agreement by and among Congress Financial
            Corporation (Southwest) as Lender and Ashford.com, Inc., Ashford
            Buying Company, Ashford Corporate Gifts, Inc., and Ashford-Jasmin
            Fragrance Company
*           Incorporated by reference to the Company's Registration Statement on
            Form S-1 (File No. 333-82759).
**          Incorporated by reference to the Company's Current Report on Form 8-
            K/A filed on November 12, 1999.
***         Incorporated by reference to the Company's Current Report on Form 8-
            K/A filed on February 1, 1999.
****        Incorporated by reference to the Company's Current Report on Form 8-
            K filed on December 15, 1999.
*****       Incorporated by reference to the Company's Current Report on Form 8-
            K filed on October 3, 2000.
******      Incorporated by reference to the Company's Current Report on Form 8-
            K filed on March 21, 2001.
+           Incorporated by reference to the Company's Annual Report on Form 10-
            K filed on June 29, 2001.
++          Incorporated by reference to the Company's Current Report on Form 8-
            K filed on September 19, 2001.

     (b)  Reports on Form 8-K:

     On July 19, 2001, we filed a Form 8-K under Item 5 announcing that we had
received a letter from The Nasdaq Stock Market notifying us that our common
stock would be delisted unless we requested a hearing.  A hearing was requested.

     On September 19, 2001, we filed a Form 8-K under Item 2 announcing that we
had entered into a merger agreement with Global Sports, Inc.

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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.


Date:  November 19, 2001                  ASHFORD.COM, INC.



                                          By:  /s/ Brian E. Bergeron
                                             ----------------------------------
                                              Brian E. Bergeron
                                              Chief Financial Officer

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